When is a Bidder in a Conflict of Interest?

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It’s pretty standard in a government RFP to ask bidders to sign a form requiring the bidder to disclose whether they have any conflicts of interest. This is important because allowing a bidder with a conflict of interest to participate in a bid process could breach the procuring entity’s implied duty of fairness to other bidders. That can derail the procurement process and lead the procurement entity straight to court. For this reason, it’s important for everyone to understand when a bidder conflict of interest exists and, also, to have a plan to address a conflict if one is discovered or disclosed during the process.

Here’s the interesting thing: bidders with conflicts of interest often leave the conflict declaration section blank on the form, even when they shouldn’t. The bidder may be doing that hoping no one will discover they have a conflict.  There may be another reason they’re leaving the form blank – they may not understand what it means to be in a conflict of interest as a bidder.

What is a bidder conflict of interest?

Merriam-Webster’s dictionary defines a conflict of interest as “a conflict between the private interests and the official responsibilities of a person in a position of trust.” This definition is consistent with how a conflict of interest is traditionally understood. While this traditional definition fits well for people in public official roles or in corporate and ethics contexts, it doesn’t apply perfectly to the bidding process.

In the bidding process, a bidder conflict of interest is typically understood to be a situation that may give a bidder an “unfair advantage” over the other bidders.

An unfair advantage could include having access to information that isn’t available to others or it could be that the bidder has a personal relationship with someone inside the organization that could bias the evaluators (for example, where a bidder’s CEO recently worked with the procuring entity).  When you look at this “unfair advantage” from the bidder’s perspective, they might not see this as a conflict of interest. To the unwitting private sector bidder, what procurement lawyers see as “unfair advantage” is just another word for a competitive edge!

While, sure, there’s a competitive advantage to having that extra ‘edge’, bidders and owners alike have an interest in ensuring the definition of conflict of interest in the context of a bidding process is clear. Why?  Because once a conflict is discovered, the advantaged bidder’s bid will have to be disqualified from the process.

What’s the best way to keep conflicted bidders out of the process?

The best way to keep conflicted bidders out of the process is to clearly define at the outset what your organization considers a bidder conflict of interest so that the circumstances that will lead to disqualification from the process are crystal clear.

Because of the unique concept of conflict of interest in the bidding context, it’s really important to include a definition of conflict of interest in the request for proposals.

A definition could take many forms.

For example, a procuring entity may define a disqualifying conflict of interest in the RFP by stating “all persons or companies who were directly or indirectly involved in preparing the RFP shall be deemed to be in a conflict of interest and ineligible to bid.” Alternatively, some entities may permit bidders to use parties involved in the preparation of an RFP as subcontractors under certain specified conditions.

Once the parameters of the definition are defined, the entity should communicate it to prospective bidders by setting out a very visible and clearly drafted definition in the RFP – ideally on the declaration form itself – and provide examples of the type of conflicts that will lead to disqualification.

Armed with a clear understanding of what will keep them in the process, bidders will be better able to avoid an unintended pitfall of their hidden competitive edge.

What if the RFP is unclear on when a bidder conflict will lead to a disqualification?

If the RFP is silent on conflicts of interest or unclear on the types of conflicts that will lead to disqualification, the procuring entity is assuming a heavy responsibility.

In the absence of clarity, it will be up to the procuring entity to determine, often only after the bid is submitted (and with their lawyer’s help), what qualifies as the type of conflict of interest that will tip the scales in favour of bid rejection.

In the absence of a clear definition, the prevailing view at common law is that there needs to be a reasonable apprehension of bias or unfair advantage before the buyer can legally and validly reject a bid.

According to the analysis applied by the courts, something more than optics of a conflict is needed. Owners must be able to explain what factual circumstances gave rise to the reasonable apprehension of an unfair advantage or conflict.

What’s the takeaway?

The common definition of the term “conflict of interest” doesn’t fit the procurement context perfectly, so RFP drafters shouldn’t assume bidders will naturally understand what they have to disclose on a conflicts disclosure form. Without a clear definition in the RFP that includes examples of bidder conflicts of interest, some bidders are sure to misunderstand what’s expected and, when in doubt, will leave the conflict declaration form blank to gain a competitive edge. This will leave buyers in the unenviable position of having to teach them about conflicts of interest in procurement the hard way – by disqualifying the bid or terminating the contract.

A version of this article originally appeared on muniSERV.