Five legal pitfalls every procurement professional should know about (and how to avoid them!)

If it’s your greatest ambition to spend time on the stand in court defending your tendering decisions, then listen up.


If that’s exactly the situation you want to avoid (along with big fines for processes that were flawed or unfair), then read on. You need to know how to avoid these most common legal pitfalls in tendering.

Pitfall #1: Unclear or subjective scoring, decided AFTER the bids are reviewed

If you can’t defend your scoring on transparent, objective grounds; or some of your evaluation team are scoring high and others low on any attribute, then watch out! You’ve just created a significant risk of legal challenge from unhappy suppliers. Here’s a simple step you can take to cut them off at the pass:

Set up clear objective definitions of what will satisfy each attribute, and what will constitute an outright fail. Do this before you look at the responses. Your definition should be described in factual, pass/fail conditions (e.g. supplier provides three examples of projects completed within time, budget and quality standards in soft ground conditions)

Ideally, also define one or two examples of what could constitute a minor benefit, a major benefit, a minor reservation and a major reservation. Set up a table like this one to record what those definitions and examples are, and then mark each response for this attribute in turn. You still have some ‘wiggle room’ to allow high or low scores within the relevant scoring band.

The result – you’ll be amazed at how quickly, consistently and confidently your evaluation team can complete their marking. What’s even more valuable, you’ll have clear evidence of a transparent and impartial process, because you set the scale before you looked at the responses.

Arguments at the moderation table will be eliminated; debriefs can be constructive and based on objective evidence; and you’ll have provided the lion’s share of the information that needs to go into your tender evaluation report to explain the rationale on which you scored each bidder for each attribute. Brilliant!

Pitfall #2: Deviations from the correct process (described in your RFx document)

The most recent landmark case – Problem Gambling Foundation vs Ministry of Health joins a line of casualties where the Ministry tender evaluators introduced new sub-criteria and changed weightings after the submissions were received.

This is a classic case of ‘changing the goal-posts’ – one that is clearly unfair on suppliers who prepare their responses in good faith to best meet the requirements, weightings, and process described in the RFT. Similar findings and sanctions were imposed on other client organisations (Pratt vs Palmerston North City Council’s famous case; Roading and Asphalt NZ vs South Waikato District Council; and others).

The message is clear – say what you will do, and do what you say.

In this context, special mention is deserved for the way Lowest Price Conforming (LPC) tender evaluation processes are carried out. It is a potential minefield if the process is not carried out in the right order.

There’s a compelling reason why LPC bids should have the PRICE envelope opened first. The attributes of the lowest bidder (only) should then be assessed on the basis of transparent, objective, pass/fail criteria. Make no mistake, this method is all about price. Common mistakes are not providing an objective definition of what constitutes a non-conforming bid; or opening the attributes envelopes of all the bidders first.

For LPC bids, it’s simply not fair to the bidders to state that a bid will fail if it is scored less than any number (traditionally 35), without giving clear explanation of what would constitute that score. It’s completely unreasonable to keep that information from them, so the scoring is at the whim of the evaluators on the day, rather than measured against transparent and impartial criteria.

Opening the attributes envelope first is incorrect process for two key reasons. First, it’s an extremely time-consuming, wasteful and inefficient process to focus on assessing ALL of the attributes rather than simply assessing the attributes of the lowest price bidder for compliance against a clear standard. It takes many times the amount of time for the evaluators to assess this way, and (except in rare circumstances where you may be trying to educate your suppliers) there simply is no justification for that inefficiency and wastage.

Secondly, assessing the attributes first invites comparison of the quality of the bidders against each other, rather than against a pre-determined pass/fail conformance standard. Following this process correctly would have saved South Waikato District Council over $330,000 in damages (plus reimbursement of the plaintiff’s legal costs) which were imposed by the High Court, following a flawed evaluation process in 2010.

Pitfall #3: Allow personal opinions or subjective knowledge to influence the evaluation process

Let’s face it: New Zealand’s a village. We have two degrees of separation, not six. So in most tender evaluations, it’s a given that the evaluators will have some knowledge or experience with some of the bidders. Problem is – that will never be a level playing field. You may know that one bidder is lying about the robustness of their quality systems, but the same (or worse!) may be true of another bidder, and you simply don’t know it.

You may take some comfort that there are others on your evaluation team whose opinions may mitigate your strong views. However, those who rely on the opinions of three or four people to be representative are dicing with risks of accusations of unfair bias.

In the recent judicial review of the Problem Gambling case against the Ministry of Health, the judge made it very clear that tender evaluators should observe ‘the personal knowledge exclusion rule’. In other words, shut that personal knowledge out from your mind, and evaluate only what is on paper. You may reserve the right to undertake due diligence on their response if they are the preferred bidder when scoring is complete. But don’t bring that into the scoring!

Pitfall # 4: Gloss over any Conflicts of Interest

In a country where there’s a high likelihood of someone you know being employed by, or having an association with one of the bidders you are evaluating, this can be a minefield. Where basic conflict of interest processes in the past simply asked people if they have a conflict, these days far more detail is needed.

Prompt questions should include, for example: “has anyone in our immediate family or a close friend ever been employed by a company bidding for this project?” The chances that you need to honestly answer ‘yes’ to a question like this are quite high. But it may not necessarily mean you need to resign from the tender evaluation team. It’s the job of the team leader to decide whether this would survive the ‘bright light’ test: how would it look to Joe Public if this information was splashed across the front page of the national newspaper?

Can such a conflict be managed, for example, by only allowing the conflicted person to evaluate technical parts of the proposals, not the areas where the conflict is of greatest impact (e.g. personnel).

It may well be advisable to engage the evaluation team in conflict declarations both before the RFx goes to market, and after the submission responses are received (when more information may lead one of the panel to declare a conflict that they were previously unaware of).

Using an anchored scale for scoring, which relies on objective factual evidence to determine the scores, rather than subjective opinions on whether the response is ‘exceptional’, ‘satisfactory’, or ‘inadequate’ (for example) can provide robust mitigation for potential conflicts of interest.

The most important thing to remember about conflicts of interest is that they MUST be declared (and once declared, they can often be effectively managed without a drama). Not declaring conflicts is a recipe for challenge!

Pitfall #5: Generic, bland and insufficient records of the tender process

Robust and defensible tender documentation (including the initial procurement planning documents, the RFx and the Tender Evaluation Report) is your first form of defence against any potential legal challenge. The areas that will be intensely scrutinised if there is a challenge are:

1. Your complete procurement plan should outline your analysis of factors that drove design of your procurement process and should include:

  • The background to the project (including the business case, where appropriate)
  • An understanding of the market
  • The factors that were used to eliminate unsuitable suppliers (via preconditions, supplier panels, prequalification processes, Registrations of Interest, etc.)
  • The factors that were considered key drivers to value for money and therefore used as differentiators of capable suppliers
  • The evaluation method used
  • Attribute categories and their respective weightings (and why those weightings reflect project priorities)
  • Scoring system design (including definitions of satisfactory compliance and non-conformance for each attribute)
  • Questions to be used to provide evidence needed to differentiate the bidders on the basis of the value for money drivers.

2. The RFx document (Request for Quotation, Request for Tender, Request for Proposal, Registration of Interest, etc.) needs to clearly reflect the project’s priorities in the information it asks for. It should provide clear instructions and plain English terms and conditions that don’t change frequently or use special conditions. The Government’s Model RFx templates provide a good start, although these should be customised to the specific characteristics, risks and opportunities of your project.

3. The tender evaluation report should include the rationale for the allocation of scores for each attribute category. This enables ready comparison of the scores allocated to each of the bidders on the basis of quantifiable fact, not opinion. This commentary should avoid subjective words (such as ‘good’, ‘strong’, ‘relevant’, excellent’, etc.) but should use factual descriptors.  For example:

  • Bidder A described three projects of scale between $5 - $10 m that included traffic management at COPTTM level 2 or above; stakeholder management including community groups and iwi; and complex geotechnical conditions (rock and estuarine mud). Score 73.
  • Bidder B provided two projects of scale over $5m and one of scale $2m. Their response described working at intersections at COPTTM Level 1and 2 but no COPTTM level 3 experience. Stakeholder management described included using letterbox drops but no community meetings and no contact with iwi. Geotech experience included soft sand conditions but did not include mud and potential rock that is likely for this project. Score 61.

This type and level of comparison provides an unarguable and eminently defensible scoring system that is difficult to challenge. It leads distinctly and unquestionably to the rationale for the recommendation to the buying organisation on who should be awarded the contract – a distinct necessity for any organisation facing questions on the ethics of its tendering conduct.

The tender evaluation report should also describe the way you dealt with anomalies, including conflicts of interest (real or perceived), late tenders, consideration of tags (including why they were acceptable or why not, and any consequent impact on pricing as well as actions taken to ensure other bidders were evaluated on the same basis).

4. A log of all communications should include any Notices To Tenderers issued to all bidders, Notices to Specific Tenderers, notes from briefing sessions or interactive meetings, etc., letters to unsuccessful bidders, preferred suppliers (if applicable) and the successful tenderer.

5. The Contract Award communication should include the contract, and it’s wise to also append the submission of the successful tenderer. This gives you a record of what the tenderer promised to do, included within the contract documents.

So you think you’re safe? Let’s hope so. The groundswell of litigation against government agencies who do not follow fair and transparent tendering processes is growing. Make sure you’re not the next casualty!