In my March 10th post Manitoba Hydro Single Source “Controversy”: A Time For Answers Over Headlines, I had indicated that I had two questions for which I would seek an answer from Hydro.
With my first question, I had asked for further clarification regarding the debriefing process for the unsuccessful bidders.
I wrote that this was important, because a proper debriefing not only provides the suppliers who were not selected with the reasons for Hydro’s decision, but also provides them with valuable intelligence that can better position them to be successful with future bids.
The following is the response I received from Hydro’s Scott Powell:
As you know, an EOI (Expression of Interest) is not a competitive document. It is a tool used to obtain market information regarding capacity, capabilities, availability, interest, etc. This information is then used to help develop a tender document such as a Request for Proposals which is a competitive process. Because the EOI is not a competitive process, there really is nothing to inform other interested parties (can’t even call the other companies’ bidders as there is no bid process) as to why we didn’t proceed with them. So while our practice regarding disclosure is to notify unsuccessful bidders on an RFP with indicative information as to why they were unsuccessful, in the case this case that did not occur as it was not a competitive bidding process . . . simply an EOI.
Before I provide you with my take on the above answer, I did send Powell a follow-up e-mail asking him why Hydro decided “to make the selection based on an EOI?”
Without having the benefit of this additional information, I did some further research on the utilization of EOIs. Here is what I discovered:
- Expressions of Interest are useful when the number of players, market size or the approach to solving a problem is largely unknown.
- Restricted tenders, restricted calls for tenders, or invited tenders are only open to selected prequalified vendors or contractors. This may form part of a two-stage process, the first stage of which (as in the Expression of Interest (EOI) tender call) produces a shortlist of suitable vendors.
There is of course much more, but I chose these two points for a specific reason. Specifically, to demonstrate that the use of an EOI – which is viewed as the first stage of a two-stage restricted tendering process, is not uncommon.
The reasons for a restricted tender can include issues of confidentiality, or the need for expedience related to emergency situations – such as a flood.
However, and this is where Powell’s response to my e-mail will come into play, if an EOI is normally viewed as being part of a two-stage process, what were the compelling reasons for Hydro to select the vendor without even a restricted tender?
I want to stress at this point in time that I have not found any real data which clearly states that the selection of a vendor cannot or should not be made at the EOI stage. Nor have I found any statistics in terms of the success or failure of an EOI selected vendor project.
While we will have to wait until I receive a response from Powell regarding the use of the EOI to select the winning vendor, perhaps part of the answer can be found in his answer to my second question; what is the elasticity of the pricing model within the contract itself?
Here is what Powell had to say:
Yes the contract with Tetra Tech specifically identifies the escalation mechanism for the duration of the contract. As the individuals are brought on, their cost would be identified and paid to the contractor under the statement work, by the conditions and rules in the contract. Therefore we did not go into this contract with set amounts but did have conditions of terms of payment & escalation for each individual that we contracted work with. And again as you correctly indicated, there is no minimum spend requirement and we can cancel at any time without penalty, which provides complete control as to how much we use the services of this firm.
Because the agreement, contract, or arrangement as I called it in my previous post, spans 6 or 7 years, it is not unreasonable to believe that the vendor’s rates will also increase during that time. Think of it in the context of a cost of living increase, however in this case it is tied to the rates Hydro would pay to the vendor for the services or resources being provided.
Understanding the agreed upon rate increase, means that the contract will not end up being light up front, with heavy back-end fees that could be higher than the going market rate at that future time. This is what I call the elasticity of the pricing model.
In his response, Powell confirms that Hydro does have “conditions of terms of payment & escalation for each individual” with whom they contract. Whether or not these agreed rates make sense will not be known until we hit those future dates.
However, and this is also where the EOI question might be answered, there is no minimum spend requirement and Hydro can cancel the arrangement at any time without penalty.
From my perspective, what this really means is that the rate increase question is of no consequence if Hydro deems that the arrangement between the Crown Corporation and Tetra Tech does not provide the best value in terms of not only cost, but service capability.
Given that the contract can be cancelled at any time without penalty, selecting a vendor through the EOI process might make the most sense. After all, the cost of doing an RFP – even a restricted tender – is significantly higher to both the buyer and supplier. Quite frankly, if I were a supplier, I would not respond to an RFP of any sort if I knew going in that the contract could be cancelled at any time without penalty. It just wouldn’t make sense to spend the money and resources to respond.
I will let you know when I receive Powell’s reply to my last question but, unless I am missing something – which is possible – this should likely bring to a close the controversy surrounding this particular Hydro procurement.