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Smart Leaders Understand Their Procurement Role

What role does an executive leader have in a major procurement? First, he or she is responsible for project governance and has to set the long-term strategy, provide high-level oversight, and, ultimately, be responsible for long-term performance.

Second, to satisfy his or her due diligence and oversight obligations, an executive leader has to function independently of project management, and has to delegate the day-to-day operations as well as the management-level decisions.

So what does this theory mean for procurement practice?

Hands On – Release of the RFP

The executive leader takes a strong hands-on role before the RFP is released. Then, issuing the formal Request for Proposals (RFP) marks a critical approval point. By saying yes to the release of the RFP, the executive leader is deciding that the RFP document and attached contract structure both satisfy the long-term corporate strategy. At the same time, he or she is also approving the legal offer (Contract A) that is being made to outside proponents.

Hands Off – The RFP Process

Once the RFP document is issued, the executive must take a hands-off attitude. To ensure a fair RFP process, the executive leader must let the project team and the evaluation committee perform their roles, as laid out in the RFP document. Using high-level oversight, he or she must ensure that the RFP competitive process, as described, is strictly followed. This will help guarantee that the selection of the successful proponent is fair. An executive leader should only intervene in the RFP competition if he or she sees a significant and unfair departure from the declared process.

Independence of RFP Evaluation Committee

The evaluation team should do its evaluations free from outside influences or pressures – whether from executive leaders, proponents, or any other parties. To reinforce this point, some organizations are having evaluation team members sign an agreement to act impartially and keep information confidential. Similarly, an executive might request that the RFP document include protective clauses such as “No Lobbying,” “No Conflict of Interest,” and “No Publicity.” Finally, an executive leader might ask procurement staff to prepare – in advance – an RFP Evaluation Committee Handbook that clearly lays out the evaluation criteria, the detailed scoring, and all relevant evaluation methodology.

Role in Contract Award

When an executive leader receives an award recommendation from an RFP evaluation committee, he or she must not re-evaluate the proposals. Instead, those involved in project governance should confine themselves to a review of the RFP process itself; their responsibility is to ensure the overall fairness and integrity of the process. Their acceptance or rejection of a contract award recommendation should only be dependent on this limited review.

Dangers of Executive Interference

Executive interference with an RFP process can result in breach of Contract A and major financial liabilities. Sizeable damage awards can result when executive or political leaders don’t understand their governance responsibilities. Worse, the collateral damage is lack of credibility in the marketplace, weakened vendor relationships, and huge hits to internal staff morale.

Learn From the Big Mistakes

Here are four well-known court judgments that have shaped the hands-on/hands-off role that executive leaders should follow:

Zutphen Bros. Construction v. Nova Scotia, [1993] N.S.J. No. 416 (Nova Scotia Supreme Court)

Ministry staff used the evaluation criteria listed in a tendering package. The staff then recommended the plaintiff for contract award. A deputy minister ignored the internal advice, and another bidder eventually got the contract. The province was liable for breach of Contract A on a contract worth $7.46 million.

Tercon Contractors v. B.C. Ministry of Transportation and Highways, [1993] 9 C.L.R. (2d) 197 (British Columbia Supreme Court), [1994] B.C.J. No. 2658 (British Columbia Supreme Court)

The Ministry of Transportation and Highways (MOTH) was liable for damages of more than $1 million due to a breach of Contract A. In part, the breach occurred when MOTH failed to disclose a preference for certain materials in tendering documents, and the lack of disclosure gave one bidder an unfair advantage. During courtroom testimony, the project director admitted to using this preference, even though the tender documents were silent on this point.

Kencor Holdings Ltd. v. Government of Saskatchewan, [1991] 6 W.W.R. 717 (Saskatchewan Court of Queen's Bench)

The plaintiff was awarded damages for breach of Contract A. The provincial Cabinet had awarded the contract to another bidder due to “local content” beyond the requirements of the tender documents. The Court refused to give effect to the “lowest or any tender not necessarily awarded” clause when the province had breached its own obligations under Contract A.

Tarmac Canada v. Hamilton Wentworth Regional Municipality, [1999] O.J. No. 3273 (Ontario Court of Appeal)

The tendering evaluation committee did its work and recommended contract award to Tarmac Canada as the lowest qualified bidder. As a result of lobbying by a local contractor, the regional municipality ultimately awarded a major contract to the wrong bidder. The Ontario Court of Appeal confirmed a damage award of nearly $1 million to Tarmac Canada.

This article appeared as part of a Special Issue of The Legal Edge that was inspired by Corporate Integrity: A Toolkit for Managing Beyond Compliance (Wiley 2005) ( ), written by two Canadian authors. Donna Kennedy-Glans is a commercial lawyer and advisor to corporate boards, and Robert Schulz is a senior Professor of Strategic Management at the Haskayne School of Business in Calgary.

 © 2006 National Education Consulting Inc. Reprinted by permission.

This article originally appeared in The Legal Edge, Issue 67, June - July 2006



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