The negotiation stage in the tender procedure of negotiations with a contract announcement
The contracting authority is not required to comply with contractors’ requests raised during negotiating sessions. It should allow contractors’ wishes in its own objective interest by including them in the terms of reference and the proposed contract.
Contractors in public procurement proceedings often have the mistaken belief that if they present a categorical position during negotiating sessions, the contracting authority must comply with their expectations and frame the terms of reference consistently with their needs. But that is not the case, even if only one contractor qualifies for the contract negotiation stage.
In procurement proceedings conducted under the negotiated procedure with a contract announcement, the contracting authority invites contractors to submit indicative offers without prices and then invites contractors admitted to participate in the proceeding to enter into negotiations. The number of bidders to be admitted to participate in negotiations is specified in the contract announcement, and cannot be fewer than three, or in tenders above EU thresholds no fewer than five. If a greater number of contractors qualify for participation in the proceeding, the specific number from those who obtain the most points will be selected by the contracting authority to submit indicative offers and then to enter into negotiations. But if the number of qualified bidders is less than the number specified in the contract announcement, all of the qualified bidders will proceed to the negotiations stage. It may even happen that only a single contractor qualifies to reach this stage.
But even if there is just one contractor involved, the negotiating sessions are not a forum for agreeing the terms of the offer. Under Art. 58(2) of the Polish Public Procurement Law, the contracting authority conducts negotiations in order to clarify or supplement the description of the subject matter of the procurement or the terms to be included in the proposed contract. During the negotiations, the contractor may present its position, explain to the contracting authority all essential elements with regard to the subject of the procurement, and assert its desires with respect to the terms of the contract, for which it has reviewed the draft or guidelines during the stage of submitting indicative offers. However, it would be unjustified for the contractor to expect that if it states during the negotiations that it absolutely cannot accept certain of the conditions included in the terms of reference or in the draft contract, these conditions must be removed by the contracting authority.
The comments presented by contractors during negotiations are a valuable source of information for the contracting authority and should give it pause for reflection when drawing up the final version of the terms of reference. If it maintains conditions for the tender which a contractor taking part in the negotiations has declared to be flatly unacceptable, the contracting authority takes a risk that the contractor will not submit an offer. If the negotiations are conducted with only one contractor, the tender may be ineffective. The logical approach, and also beneficial for the tender, would thus be for the contracting authority to take the contractors’ positions into account as much as possible. But the flexibility of the contracting authority in this respect is limited. This is due to both formal and factual limitations, consisting on the one hand of a duty to include certain provisions in the contract and on the other hand of the concrete needs of the contracting authority which it is seeking to meet by carrying out the procurement. After completing the negotiations, the contracting authority may clarify or supplement the terms of reference only insofar as they were the subject of the negotiations. But the negotiations cannot result in a substantial change in the subject of the procurement or the original conditions of the procurement. The same applies to the draft contract.
As a result of the negotiation sessions, the contracting authority draws up the final version of the terms of reference, which it then provides to the contractors with which it conducted negotiations, together with an invitation to submit offers. It may also happen that despite the negotiations, the terms of reference are not amended at all. In any event, for a contractor that attempted to negotiate provisions it regards as advantageous, the touchstone when preparing its offer is the version of the terms of reference which it receives from the contracting authority together with the invitation to submit an offer. If the provisions which the contractor argued for in the negotiations are not found in this version of the terms of reference or proposed contract, the contractor basically has two options: to accept all of the provisions included in the terms of reference—including the disadvantageous ones—or not to file an offer at all.
There might seem to be a third option, namely to appeal against the wording of the terms of reference or proposed contract, but such an appeal would have little chance of success. First, an appeal can be used to challenge only provisions that were amended. With respect to provisions which were included in the terms of reference from the beginning (prior to the negotiation stage), the deadline for an appeal will already have passed—because they could have been challenged at an earlier stage, an appeal now would be too late. Second, an appeal against unacceptable provisions of the terms of reference could be upheld only if the contracting authority could effectively be accused of violating the Public Procurement Law. Typically there will be no grounds for such allegations. The contracting authority is the organiser of the procurement and can frame the terms of the contract to its own advantage. Unfortunately, an equal balancing of the contractual rights and obligations of the parties is rarely encountered in public procurement. Even if certain provisions seem to unfairly burden the contractor, and would not comply with general best practice in contractual dealings, most often they are not unlawful.
Thus if an unsatisfied contractor go ahead and files an offer even though the provisions it pressed for in the negotiations are not reflected in the terms of reference and the proposed contract, the contractor must be aware that its offer is submitted unconditionally. By filing an offer, the contractor undertakes to sign a contract with the contracting authority under the conditions set forth in the terms of reference, and to assume even those obligations which it claimed in the negotiations were unacceptable. This is the case even if the position presented by the contractor in the negotiations was based on additional arguments, supported by written requests and analyses submitted to the contracting authority prior to submission of the offer. It would be rational for the contracting authority to reflect such requests in the final wording of the terms of reference, but if not the contractor’s only choice is not to submit an offer.
The offer must be consistent with the terms of reference, and thus the contractor cannot include a reservation in its offer that it does not accept certain conditions for the procurement. If a contractor included such a reservation, its offer would be regarded as contrary to the terms of reference and invalid, and would be rejected.
Example of successful negotiations
A Korean bidder requested the contracting authority to provide a contract for which the performance bond could be issued by a Korean bank. Initially the contracting authority intended to allow only bank guarantees issued by European banks. However, the Korean bidder did not have a bank account in Europe, so obtaining a European bank guarantee would be difficult and costly. The Korean bidder compared the costs of obtaining a Korean bank guarantee versus a European bank guarantee, and the difference was significant. The bidder presented the evaluation during the negotiations, explained that Korean bank guarantees fully comply with international banking law, and assured the contracting authority that the Korean performance bond would allow the contracting authority to demand payment through its Polish bank. The contracting authority considered these arguments and decided to modify the performance bond conditions in the draft contract prior to inviting bidders to submit offers.
Example of unsuccessful negotiations
Foreign bidders in a Polish tender for a high-value project requested the contracting authority to provide in the contract that payments could be made in EUR or USD instead of PLN. The project required specialised experience, and it was obvious that no Polish bidder had the expertise. Even though requests to change the currency of the contract were made by several bidders, in the draft contract provided by the contracting authority together with the invitation to submit offers, Polish zloty remained the only allowed currency. The bidders had no choice but to accept PLN as the applicable currency or file an appeal against the contracting authority. But an appeal in this case would not have been successful, because the choice of Polish currency was not illegal, merely impractical.
Anna Prigan, Infrastructure & Transport and Public Procurement & PPP practices, Wardyński & Partners
