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Procurement Perspectives: Consequences that affect unbalanced bids

Stephen Bauld
Procurement Perspectives: Consequences that affect  unbalanced bids

Recently, concerns have been raised in certain quarters with respect to unbalanced bids, particularly in relation to construction contracts.

An unbalanced bid occurs when a bidder places an unreasonable high price on certain items in a unit price contract and an unreasonable low price on other items within the same bid.

There are a number of reasons why a bidder may unbalance its prices in a bid, including the likelihood of receiving large payments at the beginning of a contract (front-end loading). Secondly, a bidder may submit an unbalanced bid in order to maximize its profits.

The bidder is able to do this by overpricing bid items it believes will be used in greater quantities then estimated in the tender bid document and underpricing items it believes will be used in significantly lesser quantities.

This presents a potential problem because the ultimate price paid by the municipality is determined by the actual number of units of work done.

As with other soft pricing considerations, it is highly advisable for a municipality to include specific language in the terms and conditions of a tender, where it is clearly indicated to bidders that the municipality intends to take into consideration whether bids are “unbalanced” in deciding whether to award the contract to a particular supplier.

Another issue that can affect an unbalanced bid arises when the municipality enters into an “emergency purchase.”

One of the most obvious aspects of the various laws and policies governing municipal procurement is the need to impose some form of regularity and established order over the procurement process. This effort is frustrated when the municipality is thrust into an emergency by the force of events.

The downside of procurement of this nature is the risk of abuse. Such abuses may take various forms. One is the overuse of the emergency purchase authority to cover what would appear from the supporting material to constitute ordinary purchases made to meet a need that should have been anticipated.

Even genuine emergencies can be arranged, if the staff are convinced it is worthwhile to do so. For instance, if money is allocated with a departmental budget for routine repair work, then that takes money away from other projects, some of which may be very important, from the perspective of the department’s management team.

In order to free up funds for those other projects, the staff of the relevant department simply decides to postpone routine work until an emergency develops.

Then, when the watermain does break, there is no other option but to proceed on an emergency basis.

Meanwhile, the department has allowed to carry out the project(s) to which it diverted funding.

These two examples speak to the integrity of the procurement process.

Most municipalities in Canada have adopted extensive rules directed towards maintaining the integrity of the procurement process.

While such rules clearly have a role to play, they can only go so far. Consistent with the widespread view that process is the only business of government, too often it is assumed that adherence to rules will necessarily maintain the integrity of the procurement process.

This is not necessarily true. Highly complex systems of rules can prove to be frustrating to both suppliers and municipal staff. In the case of suppliers, the frustration causes them to drop out of public procurement.

In the case of staff, it prompts efforts to find ways of working around the system. Such efforts undermine the appearance of honesty and regularity. This further discourages suppliers from bidding on government work.

The rules must be based upon consistent policy and the long-term health of the municipality. The rules must be self-renewing, through an ongoing process of identifying best practices and implementing them on an organization-wide basis.

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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