contracting with the crown october 25, 2013. contracting with the crown introduction

Contracting with the Crown

October 25, 2013


Introduction

Contractual Capacity

The Crown has the contractual capacity of a natural person

Can make any kind of contract into which any individual can enter.

Making of contracts is an executive act.

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Authority to make contracts

Executive Council Act, s. 6:• No deed or contract in respect of any matter

under the control or direction of a minister is binding on Her Majesty or shall be deemed to be the act of the minister unless it is,

• (a) signed by the minister, the deputy minister of the ministry or an authorized delegate; or

• (b) approved by the Lieutenant Governor in Council.

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Authority, cont’d.

Ministry statutes: e.g. Ministry of Transportation Act, s. 4

(1) Any power conferred .. on the Minister … may be delegated by him or her in writing, subject to such limitations,conditions and requirements as the Minister may set out in the delegation, to the Deputy Minister of Transportation or to any employee of the Ministry who may act in the Minister’s place and stead ….

(2) Despite the Executive Council Act, a deed or a contract made by a person empowered to do so under subsection (1) has the same effect as if signed by the Minister

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Authority, cont’d.

Carltona principle• Carltona Ltd. v Commissioner of Works [1943] 2 All ER 560:

allows persons who are not the named recipients of a statutory discretion to exercise that power for and on behalf of the person named in the statute.

Section 10 of Executive Council Act• Sections 8 and 9 apply, with necessary modifications, to

ministries over which a minister of the Crown presides and to the public servants under the jurisdiction of a minister of

the Crown.

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Directives

Management Board of Cabinet Procurement Directive

Transfer Payment Accountability Directive

Delegation of Authority Directive Directives have the legal status of lawful

instructions by an employer to its employees

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The Basics

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The Project …

Your Ministry plans to build a

bridge over the Mississippi

River.

Your job is to get it done.

Now what do you do?

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First: Determine the Appropriate Procurement Document

Request for Proposals Request for Tenders

$25K and over $25K and over

Sets out an objective to be achieved and seeks solution

Sets out what is to be done and exactly how it is to be done

Specifies “what”, “when” and “why” but not “how

Specifies “what”, “when”, “why” and “how”

Price is typically 25-35% of evaluation criteria

Price is the only evaluation criteria

Other Possible Approaches

Pre-qualification (?) Cooperative purchase with other

jurisdictions With more and more aspects of

government being contracted out, consider existing contractual rights.

Also, existing VOR arrangements

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Preliminary Work

Study, Plan (Organize), Execute

Most problems result from a failure to follow this three step approach

No single critical success factor is more important than properly defining the business problem.

Need to clearly articulate the problem they are trying to solve through the RFP. If you cannot state the business problem in a single sentence, you are likely including requirements you think are part of the solution rather than just identifying the business problem itself.

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For Major Projects

A Team Approach The team should

• Include the manager of the user department and relevant subject matter experts.

• Have a balanced size three to nine people.• Have people who understand relevant rules

and processes

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Know what you want to buy

Building a bridge may sound straightforward.

But is it? Ask a lot of questions

• How many lanes• How many vehicles an hour• What kind of vehicles (what is the blend of

trucks, buses and cars)

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Know what you want, cont’d.

More questions• What does it connect with (city streets or 400

series highway)?• Does it cross a border?• How will it impact environment?• Is Federal environmental legislation relevant?

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Identify potential problems

Very few types of procurement are unique

Although they may be new to us What types of problems have arisen

when other governments have undertaken similar projects

Consider what measures would help to avoid

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Is a market survey advisable?

Request for Information: A general inquiry addressed to the relevant industry typically made during the project planning phase where the buyer cannot clearly identify product requirements, specifications, and purchase options.

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Market survey

RFI process offers opportunity to solicit information that will be helpful in the development of the pricing sections of RFPs.

The information that is gathered about the methods or structures a vendor may propose can be examined and analyzed to determine the content of the pricing components for the RFP.

Written pricing structure responses from vendors need not include specific dollar amounts.

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Market survey

Vendor responses can be accepted and made available to the entire vendor community without specific identification, similar to RFP question and answer postings.

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Market survey

Thousands of RFPs are available on-line for reference.

Look at these documents for ideas. There are more than 39,000 web sites

dealing with cost overruns in relation to bridge construction

Are they relevant? Kind of have to think that they are!

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Market survey, cont’d.

There are more than 500,000 web sites dealing what scandals related to bridge construction.

Probably not a bad idea to have a look at them as well.

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Buyer Beware

Much of the “common wisdom” about what various things (like a bridge) can do for the local economy, is prepared by people who have a vested interest (like bridge builders). • For instance, did light rail make Calgary’s downtown

a good place to set up business?• Or was it the expansion of the Alberta oil industry?

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When to use an RFP

Multiple (different) solutions are available that will fit the need;

Multiple vendors can provide the same solution with different implementation scenarios;

Exact solutions for the project cannot be clearly specified;

The project requires different skills, expertise, and technical capabilities from vendors;

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When to use, cont’d.

Tenders are best suited to commodities Less fungible the product or service that you wish to

buy, the more suited that procurement is to an RFP The problem requires that vendors combine and

subcontract products and services; or, You want to exert leverage on a vendor to provide

your agency more savings.

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Preparing the Document

Drafting an RFP

MINISTRY OF LAND AND WATER TRANSPORT

Request for Proposals

For

The Design and Construction of a Bridge Over the Mississippi River

Request for Proposals No.: Insert RFP Number

Issued: Insert Date of Issue

Proposal Submission Deadline: Insert Date and Time of Deadline

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Drafting an RFP

Know the meaning of key terminology:• Build: Government is responsible for the design• Design/Build• Design/Build/Finance• Design/Build/Finance/Maintain• Design/Build/Finance/Operate

Each of these is distinct from the others Each involves a different allocation of risk

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Writing an Effective RFP

Continent wide, 20% of government tenders attract only one bid or no bids

RFPs and RFTs should be viewed as being in a sense a sales document.

Goal is to sell contractors/suppliers on the idea of taking up the project.

Like any sales proposal, the RFP must sound attractive.

Why government buyers need to be more sales oriented

Many suppliers will not sell to government Surveys of business have revealed a range

of different reasons for not doing so.• Political (many gun manufacturers will no longer

sell to police in the State of New York, due to that state’s tough antigun legislation

• Government purchase decisions are often seen as unpredictable

Won’t sell, cont’d.

Perception that the “fix” is in. Process is unfamiliar Contracts are widely seen as too one-

sided A 2010 construction industry survey in

Ontario identified numerous construction companies who will not bid for government work.

Wont’ sell, cont’d.

Mandatory criteria are often seen as an unrealistic barrier to entry

Tender process is seen to favor “low ball” contractors

Poor previous experience in bidding for government work

Purchase requirement is often not stated clearly—”it takes too long to figure out what they are trying to buy”

Won’t sell, cont’d.

Complexity of the RFP/Tender documents: too much material to wade through

Contract terms are seen as unrealistic. Particular problems relate to • Deadlines for the completion of work• Penalty clauses• Holdback rights (in relation to payment)• Allocation of risk under the contract

Won’t sell

Interference with subcontracting Security clearance requirements are unrealistic Government is too slow to pay Post award approval process

• A particular problem in relation to high tech contracts• One article dealing with work on website development noted

that for a private sector customer, the project usually takes a week, but for a government the process can take nine months

• Numerous meetings and revisions mean that the supplier’s cost is ten times or more than what it could have been

Some important points to remember

The best suppliers in any industry usually have a choice over which work they will take on.

The best suppliers tend to avoid customers who are perceived as• High risk• Difficult to deal with• Unsure as to what they are seeking to buy

Such customers require a lot more attention, and that cuts profit.

Some important points, cont’d.

Businesses have to generate a stream of work• Your job is not the only project on which they will

work in a given year• A supplier will have to fit you into his/her/its

schedule. • Open-ended time commitments do not suit most

businesses• Approvals• Provision of feedback or necessary information• Start dates

Minimize the Problems

Giving the above sales resistance (rarely a problem at the vendor end), it is worthwhile minimizing aspects of the Government contract process which contribute to it unnecessarily.

We obviously have to follow the rules• But find a way of working through them quickly• Plan out the steps to be taken• Do not go to market until the ducks are in a row.

For instance

Make the document as easy to read as possible.

Clearly define the need that you are trying to fill

Do not over-specify the solution• Leave it to the supplier to offer a means of

addressing your needs. • Do not tell them how to do their job.

Tell a Story When Drafting WHY = set the scene:

• Relevant historical or background information

WHO = actors need stage direction:• What is supplier responsible for; what, if anything, will the ministry do?

WHAT = provide detail so the story makes sense!• Results to be achieved• Knowledge transfer• Meetings – how many, where, ODA, how long• Reporting – how many copies, formatting

WHEN = must have a beginning, a middle and an end• Timelines

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Follow the Money How do you want to pay?

• by Deliverable, milestone, monthly

Rate Bid FormUnderstand industry practice

Optional and/or desirable features

What factors influence price

Consider travel and accommodation

Examples of Rate Bid Form - handout

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Take care in using headings

Headings should be used to organize a documentCareful use of headings can identify potential repetition

Also allows a quick check to confirm that all important matters covered

But, in contract interpretation they generally are ignored, so if a sentence depends on the heading that precedes it, there is a risk that won’t make sense.

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Cross-references

Reduces the need to repeat information Be sure to confirm that they are accurate Use cross-referencing feature of Word,

so that they will update automatically. However, if you do, be sure to “update

field” before printing off the document. Do not over-use.

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8 Drafting Traps to Avoid Ambiguity and poor

description of deliverables

Lengthy sentences

Poor / illogical organization

Too many or incorrect mandatory requirements

Problematic vocabulary like industry jargon or bi-weekly (which has 2 meanings)

Misspelling and typographical errors

Always be sure to finish what

Double negatives

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Specific Areas of Concern

RFP Contents

A Request for Proposal should define a problem to be solved. For instance • “The MLWT need to build a bridge across the Mississippi

which is capable of handling 4000 commuter cars in each direction per hour at peak intervals.”

It is necessary to state the requirements that must be satisfied in relation to the RFP:• “The Bridge must be constructed in accordance with The

Canadian Highway Bridge Design Code, CAN/CSA-S6-06 • “It must be suited for travel by high speed passenger and

commercial vehicles (normal legal operating speed of 100 km per hour)”

RFP Contents

However, it is unwise to set out detailed instructions as to how work is to be carried out.

The main strength of an RFP is that it allows the buyer to draw on the seller’s expertise.

RFP Contents

Provide a good executive summary which gives a meaningful overview of the whole project

Link the summary to the overall RFP, so that more detailed information can be quickly accessed.

Be succinct but clear and precise

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RFP Contents

Usually, the RFP will cover the following range of matters:• Project description• Design requirements• Technical and infrastructure requirements• Functional requirements• Estimated project duration• Assumptions and agreements

RFP Contents

And also• Submission information• For additional information or clarification• Basis for award of contract• Anticipated selection schedule

We will look at each of these items later in the presentation

RFP Contents

Do Your Homework• Before you start to write an RFP, figure out

what you really need, what you want, and what is possible.

• Match your requirements to your budget• Do some research re market availability and

price• Find out who is in the market and what the

likely price is

Problem areas

Too much background information Too much discussion of Ministry, too little

discussion of proposed procurement Inadequate description of the business

problem to be solved

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Project Description

If you want to attract suppliers, tell them very early in the document • What you want to buy (or problem you want to solve)• What you are going to use it for.

Do not bury this information in the middle of the document

Many business people will not read through 5 or 6 pages of caveats and qualifications to find out what you want.

General Project Requirements

What kind of people are going to use it? (e.g. anyone with special needs)

Under what conditions? How long does it have to last? Are there any special operating

conditions

Technical Requirements

Does the item sought have to interface with anything?

Does it have to deal with an existing database or must it be compatible with existing machinery, tools, etc.

Getting too technical

Avoid over-specification• Do not suggest a requirement for 1500 widgets per

month, when your Department has never required more than 25 a month.

• Unless you have especially demanding requirements, keep your specification to the market standard

• Avoid imaginary technology: there is no point in issuing an RFP for a flying car when a messenger can get through traffic just as fast on a bicycle.

Avoid using standards you do not understand

Getting too technical or specific cont’d.

For instance, • Do not say:

• “must be compliant with all current United States DOD specifications relating to sunscreen use under all normal Canadian operating conditions.”

• Instead try: • “Please explain whether your product can be used in

normal summer conditions in Toronto (25 to 35 deg. Cel.) and in normal winter conditions in Thunder Bay (-15 to -40 deg. Cel.). Are any modifications required to allow such use?”

Functional requirements

What is the item going to do• In the case of a hypothetical bridge, what is

the normal traffic flow expected to be?• Will that flow increase in the near to medium

term future?• Are there any existing special traffic needs to

accommodate?• Do you want to provide for future expansion?

Functional Requirements

Be sure to specify what you need, not how it is to be done unless that is essential.

Break-up complex specifications into sections Different types of specifications Mandatory: if we cannot get, we will not buy Preferred: we will give extra marks for

suppliers who offer the following features

Functional Requirements

Nice to Have: if it’s a tie or very close, we will pick the supplier who offers the most of these

Prohibited: Sometimes there are features that you do not want at all.

Ideally, identify minimum satisfactory requirements, and leave it to bidders to offer more.

Always leave it open to suppliers to offer value added bids (beyond your minimum specification)

Assumptions and agreements

Make sure the contract RFP language is as clear as it possibly can be.

The RFP should include a form of agreement that is suited to the procurement to be made.• This is an important job for branch legal counsel• If you are buying bathing suits for lifeguards• Do not include provisions to relating to automobile

insurance or welding insurance.

Assumptions and Agreements

Never write a contract on the assumption that you can have your cake and eat it to.

Things to avoid:• Extended warranty periods outside the normal

warranty• Not only are these expensive, they are hard to enforce

• Asking the vendor to assume risks relating to matters within our control

• Unrealistic demands for quick completion


Efforts to impose contract conditions which depart significantly from standard market practice generally have an adverse effect on willingness to bid and contract price.

For instance, governments often include “fair wage” provisions in their RFPs, either to limit bids to unionized contractors or to require non-union contractors to pay union rates.


Wilson Bridge, connecting Maryland and Virginia illustrates the potential effects. In 2000, a union-only requirement was imposed.• Only one bid received• Bid price was 78% above the estimate budget

(exceeding it by $370 million). The same project was then re-tendered, this

time without the union-only restriction.• This time five bids were received, • The winning price was $45 million below budget.

Assumptions and Agreements Many types of common provision in government

contracts inflate price:• Atypical insurance coverage

• For the most part, just adds cost

• Non-exclusive contracts• How many bridges do you plan to build across the

Mississippi?

Try to employ industry standard language where possible: you are not the only one making assumptions.


Specifications

What are the Specifications?

Who•What

•When•Where

Why

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Would Market Research Help?

Formal:• Request for Information

Informal:• Internet search• Talk to the experts / other ministries• Talk to other governments

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RFP Contents

Distinguish Between Needs And Wants• Assume you wish to purchase something that

can transmit pictures between the main office and a job site, • Are movies needed: how many frames per second. • How many pictures per hour • Color or black and white? • Maximum size of the image• Resolution needed.

• Every feature adds to the price

RFP Content

This is where research comes in• If there is only one supplier offering colour, but

there are a dozen offering black and white, there will likely be a substantial difference in the price of colour

• It may be nice to have, but how necessary is it?

• Do not use one or two product descriptions as the basis of your specifications.

Jargon and Acronyms

Be careful when using industry jargon—it often does not mean what you think (especially in relation to high tech)

Avoid “Government Speak” as no one outside government understands it

Consider the following:• “My ADM wants advice regarding an RFP for ADR relating to BUDs for

ABCs and other parts of the BPS. Can we do this by AFP? Need by EOD!”

• “No. AFPs are for IO. Do by normal RFP or RFT. Have you done a RFI? Do you plan to PQ?”

• “No. TFYH” • “YW”

Jargon

Acronyms abound in government documents, but they confuse people. Sometimes, you have to wonder whether people were paying attention when they made up.

Someone once pointed out to Bill Gates that if you combined Windows CE, Windows ME and Windows NT, you would end up with Widows CEMENT.

He thought it was hilarious, but his marketing department was furious.

Avoid Legal Speak

The successful proponent will be required to comply with the points recently articulated by the SCC affirming the OCA and set out in the ORs interpreting O. Reg. 213 under the LSA.

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Organization

It is not enough to make sure that the content is complete and accurate

Need to make sure that the document as a whole is organized• Anything you write for business should be thought

through and organized. Most important information is what you want

to buy• Should be very close to the front of the document

Organization

Be sure that the organization of the document • Make mandatory requirements very clear

• If a contractor requires 10 years of experience in an industry, make this clear up front

• Do not put it on page 47.

Deal separately with optional items. Cross reference so that it is easy to locate

related information Try to get all information relating to a subject in

the same place.

Covering the Bases

Anticipate the questions/information the suppliers will want to ask or receive, and gather the information in advance.

Due diligence is an essential process, and any supplier worth their salt will want to have a clear understanding of what they are being asked to take on.

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Covering the Bases, cont’d.

If the information provided is insufficient, expect arguments and delay.

Vague documents provide a very weak basis for eventual litigation.

Open the door for claims of change orders.

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Polishing off the Draft

There are no good writers, only good re-writers.

Have an outsider read it and provide comments regarding• The language: is it clear• The overall objective: ask the commentator

what he or she thought you are trying to buy• Overall organization:


Evaluation

Evaluation

One of the most controversial aspects of public procurement• More subjective the process, more that it is

open to criticism. • On the other hand, a process that is too

objective tends to remove necessary discretion from the government’s choice of contractor

• Can result in a poor choice of contractor

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Structuring the Evaluation

Not just enough to have clear criteriaAlso need a qualified Evaluation Team:

Should be a multi-disciplinary teamConsider technical / financial / IT expertise Project Lead a mustConsider adding someone who knows

nothing about the procurementMinimum 3 evaluators recommended (odd

number)

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Evaluator Confidentiality Each evaluation member signs conflict of interest

and confidentiality form

When not in use all evaluation material must be locked up in a secure manner

Evaluators should not discuss individual proposals with anyone other than the evaluation team

Cannot use ideas from proponents who are not selected to perform the work

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Evaluator Conflict of Interest

Evaluators are required to disclose any affiliations with any proponent

Must report both actual and perceived conflicts

A continuing obligation

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Evaluation, cont’d.

Decide what attributes the winner should have Why are these attributes important? The proposals you get back in response to your

RFP will differ. Each company that responds will have different

strengths. • Some will focus on lowest cost; others on best quality;

still others on most complete feature set. • Decide up front whether you are looking for the lowest

cost, the fastest delivery, or some combination.


The RFP should explain the general basis for award of contract

Opinions differ as to how much detail should be provided

You do not want to limit the exercise of reasonable discretion• Remember that bidders tend to tailor their bids to the

requirements that you have identified• For instance: “Experience in building bridges on

Mars? Of course we have!”


Do not try to put a percentage value on individual items

Better to deal with broad categories• Imagine 100 things that go in a building:

• Elevators, floor tile, windows, electrical wiring, plumbing fixtures, lights

• There are hundreds• Put a 1% value on each, and a 40 story building

with no elevators scores about the same as one with six.


An example of poorly balanced criteria weightings


So financial capability is only given 10% of the final score?

This means that a contractor which scored zero on such capability could still win the contract if he or she offered the prospect of a “good financial return”.

How can financial capability be worth less than the marketing plan?


As noted earlier, a prudent purchaser identifies his or her minimum requirements

Leaves sufficient discretion to award points for those who exceed them.

Maybe consider moving away from “soft” criteria like “references” and “experience” towards allowing points for value added offers.


Some guidelines:• Do not double count essentially the same

criteria. • Objectively measurable criteria are more

transparent than subjective• Make sure that scores are compiled by same

people.


Ask proponents to answer questions that will facilitate the evaluation process, as for example by asking them to provide examples of how, when and how often their business has demonstrated its ability to meet a specified criterion.

For example, • do not just ask them to provide an example of a similar work

project in the past (e.g. a prior work assignment relating to data analysis).

• Ask them to provide an example illustrating how their thorough and detailed analysis of a body of raw data allowed them to advise a client as to how better to attain some objective.

Consensus Session After individual evaluation is completed, all evaluation team

members attend a consensus meeting to determine final scores

All members must reach consensus on each evaluation criteria per submissionIf in stalemate call legal

Evaluators must document comments/notes in scoring booklet justifying score (helpful for debriefing)

Do not average scores

Project Lead collects all documents from all evaluators at the end of the session and keeps on file

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Getting it wrong: Maine school computer contract

Maine selects suppliers by RFP. For the last 12 years, Apple has fulfilled that contract

after winning a rigorous RFP review and evaluation process.

In the summer of 2012, Maine Department of Education began its next RFP

Department focused its requirement to hardware & software (as rather than on learning)

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Getting it wrong, cont’d.

RFP identified 5 finalist solutions. Governor selected the 4th rated supplier (HP)

as the state primary supplier, However, school districts are the actual

customers, and they can choose any of the 5 proposals.

Most of them preferred their existing supplier.

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Getting it wrong, cont’d.

HP workshops made clear that HP did not understand Maine's context and educational technology requirement.

More than 80% of districts selecting Apple solutions.

Too few districts selected HP, which led to changing of pricing and services.

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What we learn from this

Be sure that you have a clear idea of how specifications and evaluation criteria service the overall goal of the procurement.

Make sure that secondary considerations do not dictate the choice of supplier

Keep the RFP Focused on main area of concern.

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General Approach to the Process

Key stakeholders

Identify all key internal stakeholders and make sure they are adequately involved in the RFP process.

Particularly important in relation to IT procurement—need to engage with clusters.

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Top 10 Drafting Tips Use full sentences and

paragraphs to describe your requirements

Indicate who will be doing what

Focus on the detail that matters

Avoid acronyms unless they are defined first

Do not use multiple names or identifiers to refer to the same person or thing (Vendor, Supplier, Contractor …)

Do not use terms such as: they, us, we, our, you, me, etc.

Use headings to organize the text but ignore headings when drafting a sentence

Use numbering so that a clause can be easily identified in other documentation

Repeat only when repetition is necessary to improve clarity

Don’t assume. What is missing?

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The Agreement

Congratulations you have a supplier …

Now the work begins!

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Drafting approach

Ask open questions that enable the suppliers to genuinely differentiate themselves from their competitors, rather than ones that confirm what you already know or could otherwise guess.

Ask supplies to describe past projects where they have faced similar requirements

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Drafting approach

References are usually not all that helpful.

Ensure that you get customer references from a number of directly comparable projects.

Ask all referees the same questions. Do not ask for general answers, cover

specifics

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Drafting Approach

clear on your objectives: e.g. cost reduction, service improvement, service/resource flexibility etc..

Note that these objectives are usually mutually exclusive.

If client wants both, ask him or her to prioritize.

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Staff Resouces

Identify your own core team (legal, commercial, financial, HR, etc.) who will be involved in the contracting process.

Confirm that they have sufficient time to devote to it.

For larger deals in particular, it needs to be recognised that this is not the kind of thing that can be balanced with the ongoing requirements of a “regular job".

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When to Cancel an RFP

Evidence of bid-rigging Evidence that one party has an unfair

advantage Where it is determined that specifications

were seriously wrong. Where outside factors have biased the

process Where there is a genuine change in the

scope of the project

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When to cancel

When the price ranges of the suppliers suggest a widely different understanding of the proposed procurement.

When goods or services concerned are no longer required

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When to cancel

If you have to cancel, cancel as early as possible,

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contracting with the crown october 25, 2013. contracting with the crown introduction

Documents

crown introduction slide

crown preliminary work

executive act

ministry of transportation

executive council act

ministry statutes

contractual capacity

business problem