#9 Canadian Competitive Procurement

#9 Canadian Competitive Procurement
Posted on January 4, 2016 | Allan Cutler | Written on January 4, 2016

Author's Note:

Author's Note:

The purpose of these blogs is to inform the reader of major procurement issues while focusing on the public sector. Public sector procurement is very complex. To understand procurement in-depth requires detailed study and extensive experience.

In the public sector competitive bidding for large service contracts uses three main bidding tools – Request for Proposal, Request for Standing Offer and Request for Supply Arrangement. These three are often collectively referred to as RFPs. Similar to Band-Aid, Kleenex, Frisbee and Xerox, RFP has both a legal and a generic meaning. When discussing a Request for Standing Offer (RFSO) or a Request for Supply Arrangement (RFSA), RFP is used in its generic sense. The same generic use of the word ‘bid’ also exists. Procurement officers understand these differences in the usage.

While it appears to be confusing, the real confusion exists in the North American market. The U.S.A. public sector does not use Standing Offers or Supply Arrangements. In North America, these are distinctly Canadian terms and reflect the difference between the laws of the two countries. At the same time, the term RFP is used in both countries in the legal sense. Many U.S. firms bidding in Canada have a problem in understanding the distinctions.

Request for Standing Offer:

The buying organization issues the request with the intent of creating a ‘Standing Offer’. Firms responding do not sent ‘proposals’; rather they submit an Offer. The word ‘Standing’ is used to refer to it having a long duration of time (years, not days). Standing Offers are mainly used for goods as the requirements can be defined. The purpose is to meet recurring needs that occur at irregular intervals and/or in varying quantities. Food, office supplies, repairs and overhaul are examples of potential standing offers.

A Standing Offer is not a contract. An element of forming a contract is offer and acceptance. A Standing Offer is an offer only to provide goods or services. While the terms and conditions have been pre-established, there is no guarantee that any work will result. Equally important is the fact that there is no financial commitment regarding reimbursement. From a buyer’s point of view, a Standing Offer can be developed and implemented at little risk since there is no cost. Another important characteristic is that generally, since it is an offer, a firm can cancel the document without notice.

An acceptance of the offer is required to form a contract and this is done through a ‘Call-Up’ (the acceptance document). Once a Call-Up has been issued, it is legally binding. A firm must supply the requirement as a contract has now been formed.

The U.S.A. approaches this situation in a different manner. Unlike Canadian law, U.S.A. law allows the formation of a ‘Blanket Order’ which is a contract. This is an agreement (contract) that contractor (supplier) will provide goods or services to a buying organization when a demand exists. Prices, terms and conditions, period, etc. are covered. What is not covered is a commitment for specific quantities. The demand is fulfilled if and when required by the purchased. In essence, the same need is fulfilled. However it is important to realize that the legal situation is very different.

Request for Supply Arrangement:

A Supply Arrangement is a cross between a Standing Offer and a Contract resulting from an RFP. Although it could be used in the U.S.A., it is a term used almost uniquely for a method of supply in Canadian public sector procurement.

The advent of electronic bid boards generally eliminated the need for public bodies to keep and develop source lists. Instead, bidders are expected to review the electronic bids and select bids that they are qualified for. The Supply Arrangement came into being as a means to speed up procurement. By pre-approving firms, bidding on a requirement is supposed to be quicker and easier. Firms have already agreed to essential terms and conditions and are, supposedly, qualified for subsequent contracts. Since they are pre-approved, there is no need to keep the former source lists.

As with Standing Offers a Supply Arrangement is not a contract. Supply Arrangements are used for complex requirement that require further evaluation. Supply Arrangements may have rules regarding the procurement and whether the procurement will be negotiated or competitive. For example, procurements under $50,000 may be selected single source (negotiated) with the firm selected based on credentials.

The U.S.A. equivalent would appear to be called a Vendors List, serving the same purpose and need as a Supply Arrangement.

Request for Proposal:

As I have indicated, the term RFP is both specific and generic in usage. When used in its specific sense, the goal is a resulting contract. RFPs are used for high dollar value complex requirements which are not easily defined and which are unique.

The firm cannot be chosen on price alone. The evaluation will be done on a combination of price and quality. Evaluation criteria unique to each requirement have to be developed. Proposals are received and evaluated against these criteria. This is normally a very formal well-structured procurement process.

The RFP is considered a legal document and the resulting proposals are offers that remain open for acceptance for a limited period of time. It is important to realize that everything written in a proposal may result in a contractual obligation by a firm. Unlike Standing Offers or Supply Arrangements there is no ‘escape clause’. The final result is considered a contract.

This is the most common form of complex procurement and is understand by bidders. Equally important, the specific use of the term RFP is understood equally well in the U.S.A.

About The Author

With over 35 years of procurement experience, Allan Cutler consults with and assists firms in preparing proposals in response to competitive RFP. He understands procurement documents and negotiating with the public... More

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