“We cannot regard as unreasonable the City’s apparent assessment that its duty to conduct discussions was satisfied …”

What duty to conduct discussions? This Hawaii court language raises some questions. Is your agency required to conduct discussions in requests for proposals? Should you? This article looks at the information exchange that occurs from the time proposals are received and the government’s obligations with respect to those exchanges.

In competitive sealed bidding, commonly called invitations for bid, there is little opportunity for information exchange between a bidder and the government about the bid before award. There may be very limited exchange related to mistakes by the bidder or clarification of minor informalities. However, except in very rare cases, the bid is not revised or prices changed.

This article looks at the other kind of competitive solicitation. The American Bar Association Model Procurement Code names this process “competitive sealed proposals.” The title of the Federal Acquisition Regulations section on the request for proposal (RFP) process is “Contracting by Negotiation.” Some states — Florida and California, for example — have separate statutory authority that permits competitive negotiation.

What characterizes this type of negotiation is the opportunity to have a give-and-take exchange of information. This exchange is significantly broader than permitted in sealed bidding. Ultimately, the exchange can lead to proposal revisions, often through a process called “best and final offers” (BAFO). But the process requires some oversight to ensure that the information exchange is fair to vendors.

Hawaii’s analysis of meaningful discussions

A 2012 decision from the state of Hawaii illustrates the importance of fairness in discussions. [Bombardier Transportation (Holdings) USA, Inc. v. Director, Department of Budget and Fiscal Services, 289 P.3d 1049 (Haw. Ct. App. 2012)]. The city and county of Honolulu issued a request for proposal for a large design-build-operate-maintain contract for the Honolulu transit corridor. The solicitation terms and conditions limited contractor liability, but the clause specifically exempted liability arising out of a contractor indemnity provision in the contract.

In its proposal, Bombardier stated that it assumed that the indemnification exclusion from the limitation of liability cap was an inadvertent oversight, because the exclusion would defeat the purpose of the limitation of liability provision and essentially eliminate any cap on liability of the contractor. During discussions before award, Bombardier argued that the limitation of liability provision should be amended to eliminate the exception for indemnification liability.

The city orally warned Bombardier that a conditional proposal would be considered nonresponsive. The city issued a BAFO request and an RFP addendum, retaining the language excluding indemnification claims from the liability cap. Bombardier submitted a confidential question to the city, asking again that the terms of the limitation of liability provision be revised. The city declined to respond but issued a final RFP addendum stating that no changes would be made to the limitation of liability provision.

Bombardier then submitted its BAFO. Its proposal said that Bombardier was basing its proposal on the assumption that the indemnification exclusion would be deleted from the limitation of liability provision. The city notified Bombardier that it had submitted an impermissible conditional proposal and awarded the contract to a competitor.

Bombardier protested the award, which was denied, and eventually filed a lawsuit against the city. Bombardier alleged that the city had failed to engage in “meaningful discussions,” a term well known in federal procurement law. Hawaii’s procurement code is based in large part on the ABA Model Procurement Code (itself modeled on federal procurement law). Hawaii’s statutes permit “discussions” with responsible offerors. Despite differences in language between the Federal Acquisition Regulation (FAR) and the Hawaii procurement code, the court considered federal precedent anyway regarding what constitutes “meaningful discussions.”

Federal procurement law requires, once an agency elects to conduct discussions, that the agency ensure that discussions are “meaningful.” That is, the agency is required to point out deficiencies or significant weaknesses in a proposal, or adverse past performance information, with enough specificity that the offeror is led into areas of its proposal which may require amplification or correction.

The court never articulated the standard for discussions under the Hawaii procurement law; it opted instead to address federal “meaningful discussions” standard argued by Bombardier. The court held that even under that more stringent federal standard, the city met its obligations regarding discussions. The court held also that the city was not required to conduct another round of BAFOs to permit Bombardier to revise its proposal to remove the conditional language. The court sustained the award.

Clarifications, discussions and fairness

We tread lightly into this topic of discussions because the Hawaii case, federal cases, and other state cases rely heavily on the specific language that governs the request for proposals process. While your agency’s statutory or regulatory language likely is different from that in Hawaii, the Bombardier case introduces guidelines regarding discussions that help make RFP processes fair to all vendors.

There is a distinction in many statutes and rules between clarifications and discussions. Clarifications are less comprehensive communications that generally address reasonable interpretations of the proposal and are not considered proposal revisions. Discussions under Hawaii’s procurement law are more comprehensive exchanges “to promote understanding of a state agency’s requirements.” They lead to proposal revisions. Discussions permit agencies to achieve better value and offerors to learn how to improve proposals.

Why is the distinction between clarifications and discussions important? Sometimes, a limited communication is needed to confirm an understanding of a proposal. In some less complex procurements, award can be made without discussions where only limited clarification exchanges are used. Likewise, where an agency’s procedures permit “short listing” (establishment of a competitive range), limited clarifications may be needed that are short of proposal revisions. If your jurisdiction distinguishes between clarifications and discussions, your counsel can help you assess whether communications have crossed the line into discussions that may involve proposal revisions.

Once communications cross the line into proposal revisions, Hawaii’s procurement code and federal regulations (FAR section 15.306) require all offerors to be given equal opportunity for discussions. Bombardier argued that the city’s discussions with it were not meaningful. The court noted that a specific written demand by the city that Bombardier remove the objectionable proposal language might have been preferable. But the court concluded that the progression of RFP amendments, oral warnings about the conditional nature of the proposal, and Bombardier’s own proposal language showed that Bombardier had fair notice about the seriousness of the issue.

There are other limits on discussions. An agency cannot disclose one offeror’s technical approach or pricing to another. Nor can an agency assist one company to improve its proposal through detailed identification of weaknesses while not providing the same level of assistance to other offerors, a practice sometimes known as technical leveling. For example, a six-page BAFO request letter might be sent to one offeror with detailed listings of weaknesses. If another offeror receives a one-page letter merely extending an opportunity to revise its proposal without identifying any weaknesses, technical leveling might be a concern.

Meaningful and fair

Promoting fairness to offerors through the discussion process is a role of the procurement professional. They should review agency communications before they are sent during evaluation and award in order to avoid misperceptions that discussions are unfair.

The use of best and final offers (proposal revisions) permits a freer and more open exchange of information before the ultimate award decision. Yes, they take additional time, but the BAFO request letter can discourage comprehensive proposal rewrites. Using instructions that invite only change pages to proposals, the time for BAFO submission can be reduced to a matter of days.

Extending an opportunity for proposal revisions in many respects eliminates the issue of the distinction between clarifications and substantive discussions before award. All offerors in the competitive range are given the same opportunity to revise proposals. But, as Bombardier and this article highlight, the discussions must be meaningful and fair.

Richard Pennington, CPPO, C.P.M., J.D., LL.M. is an NIGP Individual Member and NIGP Instructor. After federal procurement law practice as an Air Force judge advocate, he served as an assistant attorney general (procurement and contract law and litigation) and State Purchasing Director for the State of Colorado.