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LEGAL NOTES:
Beware imported ideas

by Robert Worthington

As the purchasing world goes global, we will see an increase in ideas and concepts from other countries. This is a good thing, for we can learn from others. But the importation of anything, including purchasing concepts from the United States, must be treated with some caution.

Both Canadian and American purchasing have the same goal - to obtain the right goods/services at the best price at the right time from the best vendor/contractor. But each country seeks to achieve it in different ways. Differences arise due partly to culture but primarily to having different legal systems.

For example, Summit columnist Michael Asner, recently wrote about an American concept, Best and Final Offers (BAFO) (Summit, March 2001), extolling its virtues and encouraging us to adopt this process as a way to improve vendor offers in competitive bidding. Asner is right: we should add BAFO to the arsenal of tools available to achieve our purchasing objectives. However, we cannot simply copy the American system and expect it to work.

BAFO is, simply, a formalized two-step bidding process. Bidders bid on an Invitation; the Owner shortlists the best, discusses shortcomings with each bidder; and then, those shortlisted bid again. The Owner chooses a winner from among the second bids. While more expensive and time consuming, BAFO does result in more focused and better offers from vendors. But the devil lurks in the details.

America has different laws than Canada has. They don't have many rules governing competitive bidding and they have some significant differences in contract law as well. Full disclosure, fair and equal treatment of bidders and acting in good faith are good ideas in America - in Canada, they are laws which must be followed, and when broken, damages must be paid. In American law, your silence or failure to object to a counter-offer "promptly" binds you to a contract on the counter-offer terms; in Canada, we require proof of clear agreement to each and every term and your silence cannot bind you (except in very rare situations). In America, civil lawsuits are tried by jury and encourage punitive damages; in Canada, only a judge tries civil cases and our law discourages punitive damages. In America, many judges are elected; in Canada, all judges are appointed. These differences must be taken into account when importing purchasing ideas from other jurisdictions, or we must face the consequences when sued by a dissatisfied bidder.

With BAFO, for example, we in Canada must first lay out in greater detail in the Invitation or Request how the BAFO process will be carried out. Not only must we disclose the possibilities, we must describe all the rules and the Owner's powers. Under Canadian competitive bidding law, if an Owner does not explicitly reserve a power or privilege to themselves, then, after close of bidding, the Owner must live with that absence of rules. In the US, there are no competitive bidding laws for private companies and even public purchasing professionals are usually only bound by policies, not laws.

Secondly, BAFO can be perceived as unequal treatment of bidders. Therefore, we must be extremely careful to be scrupulously fair. In ordinary competitive bidding, the greatest risk of unfairness occurs at evaluation. In BAFO competitive bidding, there are risks of unfairness at three separate stages:

a) who, how and why we shortlist;
b) what we say to each shortlisted bidder, and
c) who, how and why we choose the eventual winner.

In the US, the BAFO concept improves vendor offers with little increase in legal risk. In Canada, this concept essentially triples the risks of being sued (or of a NAFTA complaint to the Canadian International Trade Tribunal).

But knowing the probable risks, we can take steps to reduce them. As with all contracting, it is always potential risk and cost versus potential reward and cost of avoiding the risk.

BAFO is one example of a good idea which we must adapt before we use it. Purchasers in both the public and private sector should explore potential ideas and systems - to improve procurement practices or reveal elusive cost savings. However, before adopting these new concepst, let's ensure they are right for our jurisdiction and environment.


Robert C. Worthington is president of Worthington & Associates Ltd (www.purchasinglaw.com), a Vancouver-based company specializing in business education and training in purchasing law. He has lectured on law for public and private corporation in-house seminars, as well as at the University of British Columbia. He is the author of the Purchasing Law Handbook and several legal texts.


 

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