Must we disqualify a bid that names an insider?

Have you ever discovered an insider named in a proposal?  The insider could be a current or ex-employee, a consultant, or company that contributed to the RFP.

Procurement law in Canada requires owners to disqualify bids involving insiders with an unfair advantage. As this article explains, a decision to reject an insider bid should only be made after careful consideration of the facts, regardless of the language in your RFx document.

A situation that commonly gives rise to a dispute over unfair advantage is where an insider that contributed to the RFx document is involved in a bid and then goes on to win the resulting contract. A losing bidder will complain that the winner had an unfair information advantage or that the evaluation was otherwise biased in the insider’s favour and that the bid should have been disqualified.

What to do when an insider is discovered

What should owners do when they discover an insider named in a bid?

No matter what the language of the RFx says, before deciding on whether to disqualify an insider bid, one has to consider whether the presence of an insider gives rise to a “reasonable apprehension of bias”, which is an expression used by Canadian courts.

The reported decisions considering the issue of unfair advantage/conflict of interest and reasonable apprehension of bias generally look at the degree of the insider’s contribution to the RFx and/or relationship proximity, and then evaluate whether the facts give rise to a reasonable apprehension of bias, as illustrated by the cases below.

Insider helped with RFx planning and design    

In the CITT’s 2007 decision Bureau d’études stratégiques et technique en économique (B.E.S.T.E.) v CIDA, B.E.S.T.E. claimed the winner was an insider that had an unfair advantage in the process. The RFP was for a consultant to monitor/advise on a project. The winner-consultant had previously been a member of the CIDA bid evaluation team to evaluate bids from organizations that would project manage the very same project.

The tribunal found that, since the successful bidder had worked on the previous related RFP process, they possessed inside knowledge of the project. This was deemed to be an unfair advantage. The CITT concluded that allowing the insider to participate in the process was a breach of the trade agreement.

Insiders contributed to RFx one year prior to RFx  

In the 2008 decision of the Federal Court of Canada, Irving Shipbuilding Inc. v. Canada (Attorney General), employees of the winning bidder, ex-Federal government employees, had contributed the statement of work for the solicitation documents 1 year before the RFx was published. By the time the RFx was issued, it had been heavily revised and the ex-employees’ contributions were considered minimal.  The significant passage of time between when the ex-employees contributed and when the RFx was issued was a deciding factor in determining that unfair advantage wasn’t a factor.

This case underscores the importance of taking the time to consider the facts of the situation. The Court did not make an automatic determination based on the fact that employees had worked on the RFx document. Rather, it considered all the facts and, in doing so, the Court reminded readers that the standard is whether it is reasonable to hold, after considering all the facts, that there was an apprehension of bias in the process. In this case, there was not.

Insider’s relationship not sufficiently close  

In the 2006 CITT decision CGI Information Systems and Management Consultants Inc. v. Department of Public Works and Government Services, the winning bidder was found to have an arms-length business affiliation with a company whose software was used to analyze bidder technical data in the evaluation process.  The CITT found that this alone did not constitute a “close relationship.” The company whose software was used in the procurement process was not considered close enough to the winning bidder for there to be a conflict of interest.

Language of RFx – right to disqualify in the owner’s “sole discretion”

As the above and other reported decisions reflect, whether a set of facts gives rise to a disqualifying apprehension of bias is not always clear.

To avoid problems associated with grey zone situations, we often see RFx language that provides owners with an unqualified right disqualify a bid where, in the owner’s “sole discretion” a bidder is in an apparent, potential, or actual conflict of interest or has an unfair advantage.

As determined in the case of Graham Industrial Services Ltd. v. Greater Vancouver Water District, [2004] B.C.J. No. 5, which also involved exercise of a “sole discretion” clause, decisions on compliance must be made “in good faith, and in a manner that can withstand objective scrutiny.”

So, while the language could appear to give owners an unqualified right to disqualify a bid on the mere whiff of a conflict or unfair advantage, it has been consistently held by the courts that “sole discretion” can’t be exercised in an arbitrary or fickle manner. The exercise of the sole discretion must be reasonable and must be based on an opinion held in good faith.

We suggest that any such opinion to disqualify a bid on the basis of a conflict/unfair advantage, to be held in good faith, would need to support a finding that there was a reasonable apprehension of bias. When in doubt, it’s best to consult with legal counsel as a decision to disqualify can have serious ramifications for a bidder.

Preventative measures

The best way to avoid finding yourself in the grey zone of unfair advantage and conflicts is to take preventative measures that mitigate the risk of insiders being named in a bid and to strengthen your contractual right to disqualify bids when they are named. Preventative measures could include the following:

Tell your consultants up-front

If hiring a consultant to provide work product that will contribute to a future RFx process,

1. 1. let potential consultants know up-front (in the consultant RFP) that they will be banned from bidding or participating on the resulting RFx process; and
   2. have consultants sign an acknowledgement that they understand that their success on the current RFP precludes their direct and indirect participation in the resulting RFx process.

Employee code of conduct

Your employee code of conduct should:

1. 1. prohibit employees from acting as supplier to the owner while employed;
   2. explicitly require that employees maintain the confidentiality of owner information to avoid any inappropriate sharing with a potential supplier;
   3. consider imposing a cooling-off period post-employment to explicitly ban previous employee participation with any vendor or potential supplier to the owner (which is done by the federal government for high-level officials, for example);
   4. have departing employees sign an acknowledgement as part of the departure process, to remind them of their obligations and, if applicable, any cooling off period.

RFx language

1. 1. Include a provision in the RFx reserving the owner a right to disqualify bidders that the owner determines have an unfair advantage or conflict of interest, and clearly define what unfair advantage and conflict of interest means, encourage bidders to inquire early about whether a person or situation will be deemed a conflict.
   2. Always require bidders to sign a conflict-of-interest declaration that clearly requires them to disclose whether they have relied upon the advice of ex-employees or consultants to the owner.

The above measures should go a long way towards deterring consultants and ex-employees from participating in RFx processes as insiders, and make the case clear-cut for the owner if the need to disqualify arises, hopefully keeping everyone out of the grey zone … and the courts!