The government as well as the construction industry have grappled over the proper process of performance monitoring on long-term contracts for years.
I have attended meetings on both sides related to gaining consensus on a fair contractor performance document that should be used on large projects.
We can all agree that 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 to provide for a formal review during the project. These meetings can range from monthly to once every three months.
Depending on the performance of the contractor during these meetings and throughout the contract, the municipality will have the option to decide whether to continue the contract or terminate it on the basis of the performance record.
In legal terms, care must be taken in drafting contractual provisions of this sort, or otherwise the process will not work at all. It is highly advisable to make clear in the document that the formal review process is created to allow the contractor to get things right over a specific period of time should delays occur.
It is also possible the municipality has issues they need to correct in order to comply with the terms of the contract.
As it stands now, a municipality will document any deficient work over the course of the project and notify 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 forgoing concerns, the review process should be incorporated into every long-term contract.
I have always said 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 service review and performance appraisal is rare in municipal procurement.
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 contractors’ 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 differential 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 was made, since every contractual offer is deemed to lapse following the passage of a reasonable time.
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.