Procurement: Best and Final Offers
I have been a consistent proponent for the need to create one organization with one minister accountable for defence procurement. I have shown that such a structure would save time and reduce costs. Equally important, it would facilitate the development and public promulgation of system-wide performance measures that are not possible today due to the fractured (and fractious) nature of the multi-faceted system. However, it is becoming clear that, if defence procurement is to be conducted in an optimal fashion, restructuring is necessary but does not go far enough. Along with this governance change, we must continue to introduce management and technical improvements into the process wherever possible.
One such area deserving of consideration is the concept of “best and final offers” (BAFO). In government contracting, BAFO refers to a supplier’s last and most attractive bid to secure a contract for a particular project. Best and final offers are submitted during the final round of negotiations. In other words, multiple bids are permitted from a supplier.
With respect to defence procurement, this method of evaluating bids is common practice in most of the world. However, it is not an accepted practice in Canada. Here, vendors are provided only one opportunity to respond to a request for proposal (RFP). Vendors are not allowed to “repair” or modify their technical solutions or their financial proposals. (Under certain circumstances, vendors can make changes, but for “clarification” purposes only.)
The term “non-compliant” suggests to the general public that the bidder does not possess a solution compatible with the requirement. Not necessarily the case. There are instances where a bid has been deemed non-compliant due to incomplete administrative forms, or a lack of detail or rigour in parts of its response. It can be argued that Canada is limiting its opportunity to have access to good products at reasonable prices because of one or more corrigible mistakes in the hundreds or thousands of pages required in a bid submission.
Benefits and Limitations
Why does Canada not utilize BAFOs? What are its benefits and limitations? Should Canada consider modifying its position?
Canada is unique in the world in that we have legislation encompassing defence procurement. Passed in 1995, this piece of legislation is called the Agreement on Internal Trade (AIT). While two other trade agreements have an impact upon federal public sector procurement (The North American Free Trade Agreement and The World Trade Organization’s Agreement on Government Procurement), they both apply only to non-military products. Only the AIT includes products for military purposes and it is binding upon the Canadian federal government, provinces, and territories. Since its passage, if the procurement process is not conducted in an open, fair and transparent manner, in accordance with the rules of the AIT, or if politicians are found to have inappropriately intervened, there are severe legal consequences. The controversial political decision by the federal government in 1986 to move the F-18 support contract from Bristol Aerospace in Winnipeg to Canadair in Montreal could not be made today without huge financial penalties. In fact, the full import of the AIT was likely first felt with the selection of the Cormorant helicopter in 1997 to meet the military’s search and rescue requirements. It is no secret that multiple legal opinions were sought to determine the government’s flexibility in awarding the contract. All opinions were similar: should the government depart from the selected supplier it would incur a huge legal liability. The government stayed with the Cormorant.
Risk and Consequence
Given the potential for severe financial consequences in the event the government was found not to have conducted a procurement in an open, fair and transparent manner, it is not surprising that the BAFO practice is not utilized. Allowing BAFOs complicates the evaluation process. Under the present system, it makes no difference to the government whether a bidder is ruled non-compliant over a relatively trivial oversight or due to a major technical deficiency. In either case, the bid is disqualified.
Allowing for one bid and only one bid from a supplier places all the risk on the supplier to comply with the terms and conditions of the RFP. In today’s competitions, bidders must often respond to proposals containing hundreds of mandatory requirements. It’s easy to say that they have no one to blame but themselves if they mess up and are ruled non-compliant because they did not comply with one or more mandatory bid requirements. But is this in the best interest of the military, the taxpayer and industry?
Competition benefits everyone. Men and women in the military benefit from the “best” that the marketplace has to offer. Taxpayers benefit as competition requires contenders to “sharpen their pencils” to get orders. Companies can spend millions of dollars preparing their bids. They benefit by knowing that these expenditures will not be wasted due to an inadvertent mistake. Finally, ministers benefit by being seen as “arms length” from the procurement process. One can only theorize what would have resulted had BAFOs been employed in both the search and rescue and maritime helicopter competitions. In the former case would Eurocopter have resubmitted a compliant bid and won the competition instead of Agusta Westland? In the latter competition, would NH Industries or Agusta Westland have been the successful bidder over Sikorsky? There is no way of knowing for certain. However, there can be no doubt that, from a procurement perspective, having increased competition would have benefited the military and the Canadian taxpayer.
A myriad of questions need to be carefully thought through if the BAFO system is to be adopted. Does the AIT need to be amended? Do you permit some changes or all changes? If not all, then which are permissible and which are not? Should changes be limited to price proposals, to technical changes or to “clerical” errors in responses to terms and conditions? How many times do you permit a bidder to modify a bid? Answers to these and many other issues must be explored before allowing BAFOs to become an accepted practice in the defence procurement process.
I believe it is time to explore the benefits of this option.
Alan Williams was ADM(Materiel) from September 1999 to April 2005.
© FrontLine Defence 2013