This article is contained in Chapter 6, The Request For Proposal Handbook (www.rfpmentor.com) and is reproduced with permission of the publisher.

 

 

WHEN CAN A CONTRACT BE AWARDED WITHOUT AN RFP?

 

In most organizations, some form of competitive bidding must be used for all procurements. There are however, several logical exceptions to this rule of open competition: first, in emergencies; second, some organizations permit restrictive competitions which limit the number of vendors invited to propose. Third, in certain unusual situations, occurring on an infrequent basis, a contract can be awarded without any competitive process.

 

These sole source procurements, or directed awards, can be highly contentious. They can cause serious problems. Questions may be raised concerning the reasons for the award. The integrity of the organization and the behavior of the Procurement Officer are often questioned. These procurements can become a media event orchestrated by a disgruntled supplier. Alternatively, sole source procurements are often a source of awkward and difficult questions in public forums, councils and legislatures.

 

Using sole source procurements is a valid and sound business practice when done properly. There are two critical elements of a successful sole source procurement: justification, and publicity.

 

Justification

Awarding a contract on a sole source basis when legitimate competition exists is normally a bad business practice, and in some jurisdictions not simply unethical but illegal.

 

Sole source procurements in the public sector must always be justified. The amount of justification depends on the organization and the value of the contract. In most organizations, a non-competitive procurement must be supported by market research to show that there is only one supplier that can meet the documented requirements. Obviously, the size of the search should be commensurate with the contract value. Large contracts awarded without a competitive process demand extensive market research; smaller contracts, less.

 

Justification requires that the Procurement Officer seek companies capable of satisfying a set of requirements. As a "best practice", these requirements should be written down. Recognize that if the award is challenged, the documented requirements will be closely scrutinized. Solid, well-defined, non-restrictive requirements can support the award better than poorly written ones.

 

There are many different circumstances in which this procurement method is justified: emergencies, when there is only one supplier, and when there isn't enough time for a proper RFP. Sometimes, there are situations where the requirements could be satisfied by more than one supplier, but unusual circumstances do not allow the competition to be carried out in time. For example, a current service contract expires in 90 days and management estimates that the RFP process will take 120 days. In these situations, a contract could be awarded to the incumbent (or the current contract extended) but for as small an amount as possible (say 90 days).

 

In examining the rules, policies, regulations and laws related to sole sourcing in different jurisdictions, there are several obvious conclusions:

 

C           There are two different approaches to identifying when sole sourcing can be used. In the first, the organization states that it may be used only in the prescribed situations. In the second, the organization provides examples and leaves the actual determination to the Procurement Officer involved in each particular situation.

 

C           Many of the reasons across these different jurisdictions are the same although the language used is very different. Most organizations permit sole sourcing for emergencies, for reasons of technical compatibility and to permit the development of prototypes.

 

The remainder of this section contains the rules about sole sourcing from several legal documents since these documents tend to be much more precise than internal policy memos. Two different documents are quoted:  the North American Free Trade Agreement (NAFTA) and the State of Alaska’s Procurement Regulations.

 

  North American Free Trade Agreement[1]

 

2. An entity may use limited tendering procedures in the following circumstances and subject to the following conditions, as applicable:

                                                                 

(a) in the absence of tenders in response to an open or selective call for tenders, or where the tenders submitted either have resulted from collusion or do not conform to the essential requirements of the tender documentation, or  . . .  on condition that the requirements of the initial procurement are not substantially modified in the contract as awarded;

 

(b) where, for works of art, or for reasons connected with the protection of patents, copyrights or other exclusive rights, or proprietary information or where there is an absence of competition for technical reasons, the goods or services can be supplied only by a particular supplier and no reasonable alternative or substitute exists;

 

(c ) in so far as is strictly necessary where, for reasons of extreme urgency brought about by events unforeseeable . . . the goods or services could not be obtained in time by means of open or selective tendering procedures;

 

(d) for additional deliveries by the original supplier that are intended either as replacement parts or continuing services for existing suppliers, services or installations, or as the extension of existing supplies, services or installations, where a change of supplier would compel (the purchaser) to procure equipment or services not meeting requirements of interchangeability with already existing equipment or services, including software  . . .

 

(e) where (a purchaser) procures a prototype or a first good or service that is developed at its request in the course of and for a particular contract for research, experiment, study or original development.  . . .

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(g) for purchases made under exceptionally advantageous conditions that only arise in the very short term, such as unusual disposals by enterprises that are not normally suppliers or disposal of assets of businesses in liquidation or receivership, but not routine purchases form regular suppliers;

 

(h) for a contract to be awarded to the winner of an architectural design contents  . . . .

 

(i) where (a purchaser) needs to procure consulting services regarding matters of a confidential nature, the disclosure of which could reasonably be expected to compromise government confidences, cause economic disruption or similarly be contrary to the public interest.

 

3. (Each purchasing organization) shall prepare a report in writing on each contract awarded by it under paragraph 2. Each report shall contain the name of the (purchasing organization), indicate the value and kind of goods or services procured, the name of the country of origin, and a statement indicating the circumstances and conditions described in paragraph 2 that justified the use of limited tendering . . .

 

  State of Alaska. This article describes when and how a sole source procurement can be made. The determination must be in writing, and must be approved by the chief procurement officer.[2]