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AMERICAN BAR ASSOCIATION
SECTION OF PUBLIC CONTRACT LAW
REPORT TO ACCOMPANY PRINCIPLES OF
COMPETITION IN PUBLIC PROCUREMENTS
Report not submitted for adoption.
A. Introduction
The Supreme Court recently commented that there is a long history of legislative and regulatory bodies in all 50 states, many local government agencies, and at the Federal Government requiring competition in public contracting. Board of County Commissioners, Wabaunsee County v. Umbehr, 116 S. Ct. 2342, 2351 (1996). As stated in United States v. Brookridge Farm, Inc., 111 F.2d 461, 463 (10th Cir. 1940):
The purpose of these statutes and regulations [requiring competition] is to give all persons equal right to compete for Government contracts; to prevent unjust favoritism, or collusion or fraud in the letting of contracts for the purchase of supplies; and thus to secure for the Government the benefits which arise from competition.
Another court recently listed other purposes of competition, including putting potential contractors on an equal footing, establishing open and honest procedures for public contracting, and treating all persons equally. Cataldo Ambulance Service, Inc. v. City of Chelsea, 680 N.E.2d 937, 940 (Mass. App. Ct. 1997). See National Waste Recycling, Inc. v. Middlesex County Improvement Authority, 695 A.2d 1381, 1387 (N.J. 1997) (The purpose of the public bidding requirements is to secure for the public the benefits of unfettered competition and to guard against favoritism, improvidence, extravagance, and corruption).
At the federal level, principles of competition in public contracting have been developed in decisions by the courts and the Comptroller General of the United States in procurement protest cases over many decades. This law was developed in adversarial proceedings in actual cases involving competition requirements. Decisions by the Comptroller General typically have been accorded deference by the courts. See, e.g., M. Steinthal & Co. v. Seamans, 455 F.2d 1289, 1304-05 (D.C. Cir. 1971); John Reiner & Co. v. United States, 163 Ct. Cl. 381, 390, 325 F.2d 438, 442-3, (1963), cert. denied, 377 U.S. 931 (1964). Some of these decisions express fundamental aspects of competition in public contracting to provide a level playing field for all qualified suppliers and are cited in this report to explain the competition principles in this recommendation.
B. Competition Principles
1. Full and Open Competition. Government purchasing was characterized by sharp practices, profiteering, and kickbacks during the Revolutionary War, and competition and sealed bidding gradually were adopted to combat fraud and abuse. 1 Report of the Commission on Government Procurement 163-64 (Dec. 31, 1972). Early competition statutes required "advertising," which suggested unlimited competition inasmuch as anyone seeing the advertisement could compete. In earlier years, the Comptroller General variously referred to the scope of competition required by advertising as "full and free" competition, 10 Comp. Gen. 294, 301 (1931), and "full and open" competition, 20 Comp. Gen. 903, 907 (1941). In 1984, Congress adopted full and open competition as the standard when it enacted the Competition in Contracting Act of 1984, Pub. L. No. 98-369 (1984) (CICA).
Recently, Congress considered the full and open competition standard. While it had the opportunity to do so, Congress elected expressly not to change the full and open standard by enactment of the Federal Acquisition Reform Act of 1996 ("FARA") and the Information Technology Management Reform Act of 1996, Pub. L. No. 104-106, 110 Stat. 679 (1996) (the "Clinger-Cohen Act"). In this statute, Congress stated "The Federal Acquisition Regulation shall insure that the requirement to obtain full and open competition is implemented in a manner that is consistent with the need to efficiently fulfill the Government’s requirements." Id. at sec. 4101. The legislative history specified that "The provision makes no change to the requirement for full and open competition or to the definition of full and open competition." House Conf. Rep. No. 104-450, p. 965, 104th Cong. 2d Sess. (1996), as reprinted in 1996 U.S.C.C.A.N. 238, 450-51.
The full and open standard of competition was established because of the strong belief that the procurement process should be open to all capable contractors who want to do business with the Government. H.R. Rep. No. 861, 98th Cong., 2d Sess., pp. 1422, 1429 (1984); James LaMantia, B-245287, Dec. 23, 1991, 91-2 CPD ¶ 574; Dan’s Moving & Storage, Inc., B-222431, May 28, 1996, 86-1 CPD ¶ 496. Another purpose of the full and open standard is to provide public entities with the opportunity to obtain fair and reasonable prices. Ervin & Associates, Inc., B-278849, Mar. 23, 1998, 1998 U.S. Comp. Gen. Lexis 101; Wind Gap Knitwear, Inc., B-276669, July 10, 1997, 97-2 CPD ¶ 14; Gourmet Distributors, B-259083, Mar. 6, 1995, 95-1 CPD ¶ 130. The basic competition principle, therefore, is that competition for public contracts should be full and open to the maximum extent practicable, subject only to exceptions that are authorized by law and restricted only to the extent necessary to satisfy a reasonable public requirement.
2. Exceptions to Competition. In some circumstances, full and open competition may be impossible or impracticable. At the federal, state, and local levels, a public exigency may create such an unusual and compelling circumstance that it may be necessary to limit the number of sources from which bids or proposals are solicited. Such circumstances could include major accidents or natural disasters, such as earthquakes, tornadoes, or floods. Full and open competition also may not be practical in certain high technology and other areas where compatibility, human safety, and performance requirements are critical. In fact, there may be only a sole source that can meet the public needs within the required time. It also may not be practical to make small purchases of spare parts, office supplies, etc., utilizing full and open competition. The nature and limits of the exceptions to competition requirements, however, should be policy decisions made by the legislative or policy-making authority and not left to the discretion of purchasing officials. These policy decisions should be set forth in the law governing the public acquisitions.
3. Restrictions on Competition. Where a solicitation includes requirements that reduce competition by limiting the ability of offerors to compete, there should be a reasonable basis for imposing the restrictive requirement. Norfolk Shipbuilding and Drydock Corp., 60 Comp. Gen. 192 (1981); Harbor Branch Oceanographic Institution, Inc., B-243417, July 17, 1991, 91-2 CPD ¶ 67; Navajo Nation Oil & Gas Co., B-261329, Sept. 14, 1995, 95-2 CPD ¶ 133. For example, it may be reasonable to impose performance bond requirements even though the bonding requirement may restrict competition and, possibly, even exclude firms with inadequate financial responsibility. Northern Management Services, Inc., B-261424, June 26, 1995, 95-1 CPD ¶ 291. Similarly, where a solicitation requirement relates to safety concerns, the provision may reasonably require the highest possible reliability and effectiveness even though the number of competitors may thereby be reduced. See Harry Feuerberg & Steven Steinbaum, B-261333, Sept. 12, 1995, 95-2 CPD ¶ 109. In addition, it may not be practical to solicit all known sources individually, in which case rotating mailing lists may be reasonable. Any provision that restricts competition, however, should be utilized only if necessary to satisfy a reasonable public requirement. United States v. Brookridge Farm, Inc., supra (conditions or limitations should have reasonable relation to the public need); see Marlen C. Robb & Son Boatyard & Marina, Inc., B-256316, June 6, 1994, 94-1 CPD ¶ 351.
4. Description of Requirements. It is a basic principle of public contracting that specifications must be sufficiently definite and free from ambiguity so as to permit competition on a common basis. Science Pump Corp., B-255803, April 4, 1994, 94-1 CPD ¶ 227. The basic rule for solicitation requirements is that they be unambiguous, state the Government’s needs accurately, and provide for equal competition. Grey Advertising, Inc., 55 Comp. Gen. 1111 (1976), 76-1 CPD ¶ 325. In fact, inadequate or ambiguous specifications constitute a "compelling reason" for cancellation of the solicitation. LB&B Associates, Inc., B-254708, Dec. 30, 1993, 93-2 CPD ¶ 346; Neals Janitorial Service, B-276625, July 3, 1997, 97-2 CPD ¶ 6. The reasoning underlying these conclusions is that, for there to be meaningful competition, competitors must know "what they are bidding for or against." 39 Comp. Gen. 570 (1960). Another concept basic to competitive acquisitions is that all offerors compete on an equal basis by proposing to the same terms, conditions, and specifications. Macro Sys., Inc., B-208540.2, Jan. 24, 1983, 83-1 CPD ¶ 79; Cylink Corp., B-242304, Apr. 18, 1991, 91-1 CPD ¶ 384; JG Engineering Research Associates, B-224892.2, March 3, 1987, 87-1 CPD ¶ 239. See Canberra Industries, Inc., B-271016, June 5, 1996, 96-1 CPD ¶ 269 (it is a fundamental rule of competitive procurement that all offerors be provided a common basis for submission of proposals); Bishop Contractors, Inc., B-246526, Dec. 17, 1991, 91-2 CPD ¶ 555 (bidders have a right to assume that the essential requirements of a solicitation are the same for all competitors). Thus, it is a fundamental principle of competition that solicitations contain sufficient information to allow offerors to compete intelligently and on an equal basis. Braswell Services Group, Inc., B-276694, July 15, 1997, 97-2 CPD ¶ 18; W.D.C. Realty Corp., B-225468, Mar. 4, 1987, 87-1 CPD ¶ 248; Continental Service Co., B-258807.2, April 11, 1995, 95-1 CPD ¶ 190. As the Federal Circuit noted, the bastion of federal procurement policy is that all offerors must possess equal knowledge of the same information in order to have a valid procurement. LaBarge Products, Inc. v. West, 46 F.3d 1547, 1555 (Fed. Cir. 1995); see also, Holmes and Narver Services, Inc.; Morrison-Knudson Services, Inc.; Pan Am World Services, Inc., B-235906; et al., Oct. 26, 1989, 89-2 CPD ¶ 379.
5. Publicizing Requirements. There cannot be full and open competition if prospective suppliers are not made aware of potential public acquisitions. The oldest (and, possibly the most common) method of notifying possible competitors of public acquisitions is by "advertising" the requirement. This can be done in newspapers, trade journals, or governmental publications. Another method of publicizing public requirements is by using solicitation mailing lists and even rotating any mailing lists that become excessively lengthy. To achieve meaningful competition, there is an affirmative obligation to publicize procurement needs and to disseminate solicitation documents to those entitled to receive them. Ervin & Associates, Inc., supra; Wind Gap Knitwear, Inc., supra, Laboratory Systems Services, Inc., B-258883, Feb. 15, 1995, 95-1 CPD ¶ 90; Lewis Jamison Inc. & Associates, B-252198, June 4, 1993, 93-1 CPD ¶ 433. Modern technology has created an entirely new method of notification by posting on the web or sending to mailing lists by email. Offerors should be advised of changed requirements that are material or prejudicial. Container Products Corp., B-255883, April 13, 1994, 94-1 CPD ¶ 255. Information provided to one offeror must be furnished to all other offerors if the information is important in submitting an offeror or if lack of such information would be prejudicial to other offerors. National American Indian Council, B-218298, May 23, 1985, 85-1 CPD ¶ 595. Full and open competition requires that diligent, good faith efforts be made to communicate the purchase requirements to prospective competitors in a timely manner.
6. Basis for Evaluation. It is elementary that all types of competition require that the rules to be used for determining the winner be disclosed to all competitors. Thus, it is fundamental that competitors be advised of the basis on which their offers will be evaluated. Talon Manufacturing Co., Inc., B-257536, Oct. 14, 1994, 94-2 CPD ¶ 140; Amtec Corp., B-261487, Sept. 28, 1995, 95-2 CPD ¶ 164. Intelligent competition assumes the disclosure of the evaluation factors to be used in evaluating offers and the relative importance of those factors. North-East Imaging, Inc., B-256281, June 1, 1994, 94-1 CPD ¶ 332; Richard S. Cohen, B-256017.4, June 27, 1994, 94-1 CPD ¶ 382. As recently stated, the purchasing entity must provide guidance about the selection criteria in order that vendors can compete intelligently and must indicate the basis upon which the selection will be made. For Your Information, Inc., B-278352, Dec. 15, 1997, 1997 U.S. Comp. Gen. Lexis 420; COMARK Federal Systems, B-278343.2, Jan. 20, 1998, 98-1 CPD ¶ 34. Full disclosure of the evaluation method will enable competitors to structure their offers and prices in a manner that will result in contracts providing the most public benefits.
7. Evaluation and Award. After disclosing the evaluation method and evaluation factors to competitors, the purchasing entity must adhere to those criteria in making its award decision in order to have meaningful competition. PharmChem Laboratories, Inc., B-244385, Oct. 8, 1991, 91-2 CPD ¶ 317. Thus, evaluation and contract award must be made in accordance with the terms and conditions set forth in the solicitation. Lykes Bros. Steamship Co., B-236834.4, July 23, 1990, 90-2 CPD ¶ 62; American President Lines, Ltd., B-236834.3, July 20, 1990, 90-2 CPD ¶ 53. It is a fundamental principle of competitive procurements that the contract awarded must be the one for which the offerors have competed. St. Mary’s Hospital and Medical Ctr. of San Francisco, California, B-243061, June 24, 1991, 91-1 CPD ¶ 597; Corbetta Construction Co., 55 Comp. Gen. 201 (1975), 75-2 CPD ¶ 144. Any offer that ultimately fails to conform with the material terms of the solicitation should be considered unacceptable and should not form the basis for award. 4th Dimension Software, Inc.; Computer Assocs. International, Inc., B-251936; et al., May 13, 1993, 93-1 CPD ¶ 420; Arthur Young & Co., B-216643, May 24, 1985, 85-1 CPD ¶ 598. Thus, the essential requirements for evaluation of offers and contract award are that they be fair, reasonable, and consistent with the evaluation criteria in the solicitation. See IGIT, Inc., B-275299.2, June 23, 1997, 97-2 CPD ¶ 7; Modern Technologies Corp., B-278695, et al., Mar. 4, 1998, 1998 U.S. Comp. Gen. Lexis 69.
8. Public Information. Section 1-401 of the Model Procurement Code for State and Local Governments, approved by the American Bar Association in 1979, provides for public access to procurement information, and the commentary states that the purpose of this provision is to achieve maximum public access to procurement information consistent with appropriate consideration of safeguards for contractors and employees. Procurement information includes purchasing regulations, policies, procedures, and directives as well as the results of evaluation of competitors’ bids and proposals. Public access to procurement information demonstrates the integrity of the competitive system, and public confidence in the fairness of the procurement system increases the quantity and quality of the competition. The need for maximum public access to procurement information, however, must be balanced against the rights of competitors not to have their trade secrets and confidential financial information disclosed. Improper disclosure of such information will discourage competition and, therefore, is inconsistent with the public interest.
9. Standards of Conduct. When offers are submitted in response to a competitive solicitation, there is an implied contract that the offers will be considered honestly, fairly, in good faith, and in accordance with the terms of the solicitation. See United States v. John C. Grimberg, 702 F.2d 1362 (Fed. Cir. 1983); Heyer Products Co. v. United States, 135 Ct. Cl. 63, 140 F. Supp. 409 (1956); United Indus., Inc., B-212996.2, Aug. 1, 1984, 84-2 CPD ¶ 139; Lear Siegler, Inc. - Recon., B-217231.2, May 30, 1985, 85-1 CPD ¶ 613. Thus, when a public entity elects to hold a competition, it must ensure that the competition is conducted fairly and equitably. See Marvin J. Perry & Associates, B-277684 et al., Nov. 4, 1997, 97-2 CPD ¶ 128. The Government must deal fairly and honestly with all offerors. Keco Industries, Inc. v. United States, 203 Ct. Cl. 566, 492 F.2d 1200 (Ct. Cl. 1974). Competitors also have a duty to compete honestly and fairly. Offerors that obtain an improper and unfair competitive advantage (such as improperly obtaining source selection information, collusive bidding, bait and switch practices, etc.) should be excluded from the competition. Similarly, if an offeror makes an intentional material misrepresentation, the bid or proposal should be disqualified, and any resulting award should be canceled. International Data Products, Inc., B-275480.2; et al., Apr. 3, 1997, 97-1 CPD ¶ 179; Mantech Advanced Sys. Int’l, Inc., B-255719.2, May 11, 1994, 94-1 CD ¶ 326. Fairness, honesty, and good faith are required of all participants in order to maintain the integrity of the competitive system, without which the public benefits the system is intended to achieve cannot be obtained.
10. Integrity of System. The quality of competition can be affected by both the number and quality of competitors, and both will be reduced if prospective vendors lose confidence in the integrity of the competitive system. This means that the rules of the competition for public contracts must be fair, disclosed, and enforced. Preparation of bids and proposals can be an expensive process, and prospective vendors may be unwilling to incur such costs unless there is reasonable assurance that the purchaser will abide by the rules it establishes for the competition. For these reasons, the maintenance of confidence in the integrity of the procurement system outweighs the possible monetary advantage to be gained by violating the rules of the competition in any particular procurement. See Palmar, Inc., B-207321, May 27, 1982, 82-1 CPD ¶ 503; SWR, Inc., B-278415, Dec. 17, 1997, 97-2 CPD ¶ 166; Rocky Mountain Trading Co., B-221060, Jan. 24, 1986, 86-1 CPD ¶ 88. Thus, for example, a nonresponsive bid must be rejected even though it might result in a monetary savings since acceptance would compromise the integrity of the system. Recyc Sys., Inc., B-216772, Aug. 23, 1985, 85-2 CPD ¶ 216; Trail Equipment Co., B-241004.2, Feb. 1, 1991, 91-1 CPD ¶ 102. Maintaining the integrity of the competitive system ensures that public contracts are awarded on the basis of merit and are not based on favoritism, collusion, or fraud.
For information about joining the Section of Public Contract Law send e-mail to neforasm@staff.abanet.org
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