Conceptually, a municipal contract may be awarded through open, restricted or negotiation procedures.
Directly negotiated purchase contracts which, in essence, entail a closed procedure of contract award cover only a small part of all major municipal procurement transactions. Under an open procedure, the municipality will invite all interested suppliers to submit tenders or proposals for the supply that is to be made.
There are several different types of competitive contract award processes that can be considered open, at least to a degree.
These types and their respective basic features and uses include:
- The tender process. The contract is put out to competitive bid, with all bids being made on fundamentally the same terms. The contract is awarded under a defined set of rules to the supplier who submits the best acceptable bid, this being generally tied to the most favorable price.
- The request for proposal process. A somewhat more loosely defined procedure under which suppliers submit competitive proposals. Generally, there is greater variability in the terms of these proposals than is permitted in the case of a tender.
- The request for information or expression of interest process. This system tends to be open-ended, and, as a result, it is unusual for a contract to be awarded solely based on the results of a request for information or expressions of interest. For the most part, the request for information is only the first step in the contract award process. Following the receipt of expressions of interest (or information), the contract will normally be awarded under some subsequent request for proposal, upon the initial request for information.
- A process of formal quotation, which is limited solicitation of written offers from several suppliers in response to a formal request for quotation. Usually, quotes are sought from at least three suppliers. The procedure is usually reserved for middle range contracts (under $100,000) where the costs of a tender or request for proposal cannot be justified.
- A process of informal quotation. This procedure is ordinarily employed for very low dollar contracts.
Under a restricted procedure, only those suppliers who have satisfied a pre-qualification procedure will be invited to participate by the municipality.
Under a negotiation procedure, the municipality will award a contract following negotiations with one or more pre-selected suppliers.
Municipal procurement differs from private procurement insofar as there is a strong preference for an open, or at least largely open, procedure, whereas in the private sector negotiation is the preferred route.
Accordingly, it is common to find that municipal purchasing policies require the municipality to follow an open procedure in awarding contracts in all cases, except where otherwise provided for in such policies.
In general terms, a restricted contract process may operate either as a qualified form of open process or as a closed process.
For instance, where a public pre-qualification procedure is followed, and all suppliers may seek to pre-qualify, then the restricted contract process merely qualifies what is essentially an open competition.
Such a procedure may be attractive, for instance, where there are special security concerns related to particular types of work (for work to be performed within the secure area of a police station) or where demonstrated capability to carry out some highly specialized form of work is a concern.
The pre-qualifications procedure ensures all who bid will be able to carry out the proposed work.
In this way, needless inconvenience to suppliers and municipal administration can be avoided by only considering bids from suppliers who will satisfy the underlying concerns. Alternatively, a restricted contract may be a closed process in which there is no element of open contracting.
For instance, the widespread public practice of requesting three supplier quotes when awarding low dollar contracts is an example of a closed supplier list approach.
Stephen Bauld is a government procurement expert and can be reached at email@example.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.