In order to control the quality of service that is provided, longer term contracts require a built-in method of performance monitoring.
Frequently, such contracts will be set up for a formal annual review during each year of the contract, at which time the municipalities will have the option to decide whether to continue the contract for a future year or terminate on the basis of the performance record.
In legal terms, care must be taken in drafting contractual provisions of this sort, otherwise the process will not work at all. It is highly advisable to make clear in the document that the annual review process does not allow the contractor up to a year to get things right.
Even if the language of the document is correct, a municipality would be wise to document any deficient work over the course of each year and to notify in writing the contractor of any perceived deficiency well in advance of the formal review meeting.
A failure to demand that deficient work be rectified may colour a court’s perception of any subsequent effort by the municipality to terminate the contract.
Unless the contractor was told at the time what it was doing wrong and what it needed to do to perform at an acceptable level, any effort to terminate the contract at the review stage is likely to come across as little more than an effort by the municipality to shed itself of an expensive contract.
Subject to the foregoing concerns, the annual review process should be incorporated into every long-term service contract. There should be both rewards for top performance and potential penalties for poor performance.
Indeed, the preferable approach is for contracts to provide for an ongoing comparative review as against other sources of supply.
Paradoxically, proper services review and performance appraisal is rare in municipal contracting. The tendency is to complain if necessary, but not necessarily to complain. Such an approach is of limited value from a forensic perspective, should the dispute ever proceed to litigation.
Anecdote-based testimony not supported by correspondence or other systematically accumulated record is rarely persuasive.
Unless proper steps were taken to bring deficiencies in performance to the supplier’s notice, any complaint raised in litigation tends to be an after-the-fact attempt to justify a refusal to pay. In principle, however, if problems have been properly documented, the contract may then be terminated.
Prevailing practice in such a case is then to offer the work to the next lowest acceptable bidder, who participated in the tender at the time when the contract was first awarded.
The benefit of this approach is that the municipality avoids the costs associated with a re-tender. In terms of public accountability, the appearance of open competition remains, as the contractor selected is chosen on the basis of the previous tender process.
As importantly, generally speaking, bonding companies are prepared to accept the price difference between the old cancelled contract and the new replacement contract as a fair approximation of the damages suffered by the municipality.
Strictly speaking, the bid price in the original bid will not be binding at the time when the offer is made, since every contractual offer is deemed to lapse following the passage of a reasonable time.
If, of course, there is a substantial disparity between the price offered by the contractor at the time when the work is offered to it and the price that is quoted in the bid, the publication of the new tender should be considered. There is no obligation to go to the next lowest bidder in such a case.
At the opposite end of the procurement spectrum from long-term contracts, awarded through a competitive process, lie one-off contractual arrangements.
Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
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