August 25, 2006
Feds urged to avoid reverse-bid
CCA sends strong letter to Public Works minister
The Canadian Construction Association (CCA) has called on Public Works Minister Michael Fortier to confirm that use of reverse-bid auctions is not being contemplated by his department for procurement of construction goods and services.
“The CCA strongly urges you to ensure that Public Works and Government Services Canada will continue to follow prevailing procurement and contracting practices that are supported by both the Canadian construction industry and Canadian courts,” president Michael Atkinson said in a recent letter.
The association wrote to the minister in the wake of recent media reports stating that the department is looking at the possibility of using reverse auctions, a controversial procurement method in construction circles.
The federal government purchases $13 billion a year in goods and services from the private sector — roughly $10 billion through Public Works Canada.
The government wants to slice $2.5 billion over five years from its overall procurement tab.
Public Works has hired a management consulting firm to look at how it can cut costs and improve the procurement process.
Departmental officials “have consistently assured” CCA that the Internet-based, reverse-auction bidding method is not being considered for procurement of construction services.
But Atkinson said CCA “nevertheless feels it is important to bring to your attention the rationale for our strong opposition” to the use of this process for procurement of construction and/or design services.
He described reverse-bid auctions as a form of bid shopping, “which is considered by the Canadian courts to be “repugnant conduct which has no legitimate place in the proper operation of the tendering paradigm.”
Atkinson’s stance was reinforced by Clive Thurston, president of the Ontario General Contractors Association (OGCA).
“This process has been strongly opposed here in Ontario by all major stakeholders involved in the construction industry,” he said in a separate letter to Fortier.
“The OGCA has opposed this process whenever it has been tried, usually by companies owned by American firms.
“We have been pleased that to date, in the majority of cases, the Canadian management has agreed not to proceed.
“In the few cases that have proceeded, bidders have not participated.”
For his part, Atkinson said CCA strongly objects to the use of reverse auctions, “not only because their use offends prevailing, industry best practices, but because we do not believe they will provide the desired best price or best value for you as a purchaser of construction services and because they are contrary to the spirit of established procurement law in Canada.”
Atkinson told Fortier that “it is important to remember that reverse auctions are an export from the United States.
“As such, they do not take into consideration the unique legal principles that apply in Canada to the construction tendering process that started with the 1981 decision of the Supreme Court of Canada in the Ron Engineering case,” Atkinson said.
“That case established unique Canadian law that survives today which essentially states that a ‘bidding contract’ comes into existence as soon as a compliant bid is tendered in response to a bid call.
Atkinson said the underlying concept behind reverse auctions in the U.S. legal environment is that a bid is an opening offer which can then be negotiated.
“That is not the case in a Canadian legal setting,” Atkinson said.
“Here in Canada, contractors know that their first bid price automatically establishes a binding contractual relationship and therefore also know that it must be their best price.”
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