How to Organise a Tender: the Devil Lies in the Details!

Ethics & Compliance Magazine | Year 1, 2016, Issue #1 | Author(s): Ioana Laes-Ichim (DLA Piper Dinu SCA) & Livia Zamfiropol (DLA Piper Dinu SCA)

Organisations are usually oriented towards evaluating possible risks derived out of their participation in public or private tenders. In our opinion, they have to show the same level of caution when they plan to organise themselves a tender. The more the tender process, the conditions required for the bidders, the object, the commercial and technical criteria are clearly stipulated by the organisation, the more the submitted offers will be complete and in the same time, there will be less place for questions marks regarding the tender process and its results.

The tendering process needs to secure that best value for money is obtained. However, tendering can be full of pitfalls and unexpected issues, which can often lead to unintended consequences, such as delays, cost over-run and, in many cases, legal challenges and costly court cases.

According to the special report Public Procurement Corruption in Romania, “the Public procurement in Romania is a €17 billion market, but more than 60% of procedures are hit by complaints”. Frequently identified irregularities include aspects that can be encountered in privately held companies as well, such as:
– the use, in inappropriate circumstances, of awarding procedures which would normally be applied as exceptions,
– the segmentation/separation of a contract into several smaller contracts, to avoid going through specific procurement procedures,
– the inadequate and subjective use, during the evaluation of offers, of criteria included in the awarding documentation.

As public procurement rules are usually used as a reference also for organizing tenders of privately held companies, looking at the problematic aspects in public tenders will eventually improve the tender process in the private sector.

Tender processes are seen as one of the biggest corruption opportunities and are more and more in focus of both internal audits and competent authorities specia lized in criminal and antitrust fields.In this context, the article highlights practical advice to private companies on how to design tender frameworks that help avoid pitfalls and potential issues.

We will present only a few targeted aspects related to the main phases of a tender.

 

The birth of an idea

Usually, the tender process is considered to start with a document containing the formulated needs of the organization (often called SOW – statement of work), which represents the basis for all further tender related activities (see also Westland, 2007).

This may be the first issue. In our view, organisations need to thoroughly prepare the framework for tendering and carefully consider tendering needs. Thus, as learned from practice, we find it appropriate to enlarge the tender process with the timeframe between the birth of a specific organisational need and the design of the tender concept.

 

Concept phase

The framework for tendering needs to provide clear guidelines and procedures that are to be applied in the specific tender process. Based on our activity, we could identify the following aspects that need to be contained in this framework:
– The internal structures involved in the tendering process have to be clearly defined and their separate roles clearly defined: the structure from which the original idea or the need for external services/goods is born (the beneficiary), the structure carrying out the tender pro cess (the procurement function), other structures involved (e.g. safety and security, quality mana ge ment functions, legal department). For each of the structures, its role in the tender process, its rights and obligations need to be clearly stipulated.
– Any request from a beneficiary needs to have a clear description of its needs, containing scope, objectives, benefits, risks, timeline, resources and budget.
– Standardized document templates that need to be used by any beneficiary as official documents for requesting an acquisition of services and tendering have to be provided.
– The internal structure that will decide upon the result of the tendering process needs to be clearly defined. In case the organisation has several decision bodies or instances, a responsibility matrix needs to be provided, containing also the number of decision bodies needed for specific tender activities.
– Based on our experience, we recommend having two decision bodies in place: one that is responsible with the implementation of the tender process, the observance of the tender requirements and the nomination of the winner of the tender, and one that supervises the tender and needs to react to any complaints or issues that might be escalated.
– The tendering framework and the general process with all their requirements need to be communicated to all departments / functions in the organisation, which need to know how this applies to their specific activity, and they need to adhere to these rules and requirements.

Especially, the set-up of clear decisional instances for a tendering process seems to be challenging, as many of our clients have had difficulties to align project structures with departmental structures and to integrate specific specialized functions.

Although it should be self-understood, it needs to be stipulated in this context that persons with already known compliance issues, or even pending investigations on un-ethical behaviour, shall be excluded from participating in any decisional body.

Therefore, our recommendation is that all persons involved in the tender process, irrespective of their role, should sign a confidentiality agreement and a declaration regarding absence of conflicts of interest.

 

Design phase

With regard to the initiation of a tender, we recommend that organisations have a specific, official document (Decision, Minutes of the meeting etc.) containing the decision through which the proposed idea is approved by the competent corporate bodies and becomes the object of the tender.

The tender documents need to include all elements stipulated in the document drafted in the concept phase (the initiation document) and requested by the tendering framework, along with the parameters for the envisaged tender (technical, commercial and financial criteria for the services/ goods needed). For the tender documents, it is very important to avoid any unclear or confusing drafting or wording, as this can lead to: 1) misinterpretation and delays in answering requests for clarifications and 2) suspicions of designing the Tender such as to favour one bidder.

The tender documents shall contain a clear description of the tender process, which will be provided to all bidders and shall include: tender phases, milestones, result after each phase, criteria for the evaluation of the bidders, evaluation matrix, negotiation process etc.

It is of utmost importance to provide to all bidders a clear and transparent description of the structure of the evaluation process and of the evaluation criteria and the calculation matrix. The evaluation criteria and the calculation matrix need to be aligned between the beneficiary of the tender process and all other functions involved (such as the
procurement function, the security and safety function, quality function, legal department etc.).

One golden rule is not to modify or alter the evaluation criteria and calculation matrix after they were communicated to the bidders. Only if the bidders submit objective requests for clarification, which have an impact on the evaluation criteria and calculation matrix, these may be changed after the clarification itself is made public. The documentation of the tender process needs to contain a description of why and how changes were made.

Organisations should be aware of the fact that it is important to avoid that the formulation of eligibility criteria for the participation to the tender appear to be biased towards a specific bidder and lead to the impression that the tender was faked. Thus, special attention needs to be paid to the formulation of these criteria: there is in fact a very fine line between providing too much information and providing insufficient or unclear information. This aspect implies that
the organisation should know exactly the object of the tender and its characteristics, in order to be able to formulate the criteria.

As a specific aspect, we consider it is advisable to stipulate in the eligibility criteria that companies / organisations with publicly known compliance issues (e.g. ongoing investigations regarding anti-bribery or corruption, abusive market behaviour, tax fraud etc.) will not be admitted to the Tender Process.

Another aspect that may lead to issues in a tendering process is the way the organisation communicates with bidders. It is clearly advisable not to communicate in a one-to-one modus
– even for punctual and individual questions the reply should be addressed to all bidders, in order to eliminate the risk of being interpreted as leaking information or influencing the tender result etc. Again, it is required that all communication is recorded, in order to be able to provide, if the case, a complete chain of evidence sustaining that the information communicated is not discriminatory and does not breach any ethical or legal provision.

The tender documents also need to contain a clear specification of the complaint procedure that can be used by bidders to notify any unethical behaviour or compliance issues. The complaint procedure must contain rules regarding: (a) to whom the complaint should be directed to, (b) in which time frame, (c) the requested format of the complaint, and (d) the possible consequences if the allegations are proven to be true or false. The complaint procedure should also allow bidders to formulate their complaints during and after each phase of the Tender, thus preventing unnecessary delays or non-compliant facts to be mentioned too late and even possible proofs to be eliminated in the meantime.

It is extremely important to specifically stipulate the right for the company to suspend or stop completely the Tender Process.

 

Tender phase

With regard to the opening of the offers, our proposal is to avoid opening if not all the members of the decisional body are present. Offers should be opened all at the same time and any offer that does not contain the mandatory documents is to be immediately disqualified, unless a specific procedure has been included in the tender documentation dealing with such situations.

We recommend that the evaluation criteria and calculation matrix contain clear indications that in case bidders provide information in their offers which is not sustained by the reality (i.e. that can be verified through specific spot-checks), they will be penalised by losing points in the final stage of the tender or even by being disqualified. It goes without saying that after opening the offers, the organisation needs to show a consistent application of the defined evaluation criteria and calculation matrix, and thus no changes are allowed.
We also recommend that attention is paid to cases when companies use competitors as subcontractors or participate in a consortium together with potential or existing competitors, situations which might raise certain concerns regarding fair and transparent competition.

It is also important to ensure that the communication related to the award of the tender clearly mentions that the process is still subject to the formal conclusion of the contract.

 

The Compliance and Legal Functions

The complexity and importance of tendering processes make a thorough monitoring indispensable. For these reasons, organisations need to establish a compliance function and involve it in the tendering process, allowing it to observe the way in which internal and external rules are followed and to timely raise any issues. More than this, apart from the Legal functions, Compliance needs to be a key player in defining and setting up the framework for tendering processes.

 

Conclusion

The article is a pleading for the organisations to pay more attention to some aspects that might be easily overseen while organising a tender. These aspects are the ones that can be the root cause of many issues, such as suspicions on un-ethical behaviour (information leaking, favour one bidder etc.), or even suspicions of criminal acts (corruption, abusive behaviour, misconduct etc.).

Thus, we emphasise that the organisation has to:
– have a very clear responsibility matrix in case of a tender,
– has to pay more time in analy – sing the need it has and the characteristics of that particular need,
– involve the compliance function in order to ensure both the smooth progress of the tender, get advice on treatment of issues which might appear throughout the process, and the needed channels for possible complaints,
– ensure a clear communication structure in order to make the tender process transparent for all bidders.

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