Procuring entities terminate tenders for many reasons. Most of them are shady and ill advised. More so, termination is done in a haphazard manner. Here are two of those shady examples.
In DECISION NUMBER 62 OF 2021 Utmost Insurance Ltd vs Turkana County Government, the Procuring Entity terminated procurement as the amount quoted was too low. It then re-advertised the same tender. The Board held that this reason for termination was impractical. And it is seeing as the tender process awards the lowest evaluated bidder.
In DECISION NUMBER 64 OF 2020 Energy Sector Contractors Association vs KETRACO the Procuring Entity terminated the tender after awarding it to the successful bidder on the account that the tender validity period had run out before the signing of the contract. The Board found that the procuring entity had waited for the tender to lapse and delayed the signing of the contract.
In both cases a tinge of foul play can be assumed where a procuring entity terminates a tender to manipulate the winner or lock out a successful bidder.
The issue is the costs that come with the re-advertisement, evaluation and award of the subsequent tenders leave alone the delay in the procurement of much needed goods and services.
That said, Section 63 of the Public Procurement and Asset Disposal Act (The Act) covers termination of procurement proceedings. For procurement to be legally terminated, it has to conform to two limbs of rules:
1. The procedural considerations
2. The substantive considerations.
It is important to note that if any of these two limbs are not satisfied then the termination of procurement proceedings is void.
The procedural considerations are:
a) Termination has to be done by the accounting officer and no other personnel. This was seen in DECISION NUMBER 7 OF 2022 Genafrica Asset Managers Ltd vs The Public Service Superannuation Scheme where the Board of Trustees of the Procuring Entity vetoed the notification of award and recommended the termination of tenders. The Board held that according to Section 63 it is only the accounting officer who can initiate termination of procurement proceedings.
b) Notification of termination of procurement has to be made to all bidders. In DECISION NUMBER 19 OF 2020 Rhombus Construction Company Ltd vs Kenya Ports Authority the Board held that the notification must, in addition to notifying on termination, give reasons why its bid failed where the tender was terminated due to all bids being non-responsive.
c)As per Section 63 of the Act, termination has to be done before an award is made. In DECISION NUMBER 8 OF 2014 the Board held that the termination which was done after award of the Tender was illegal and in bad faith.
d) A report has to be sent to the Public Procurement Regulatory Authority citing reasons for the termination. In DECISION NUMBER 118 OF 2020 Rhombus Construction Company Ltd vs Kenya Ports Authority the Board held that termination was illegal since the Procuring Entity had failed to send a report to PPRA. These reasons must be backed by evidence.
All these procedures are simple and set out in the Act. I think they can be avoided with minimal due diligence.
The substantive considerations are laid out in our next post.
#publicprocurementlaw
TERMINATION OF THE PROCUREMENT PROCESS- SUBSTANTIVE CONSIDERATIONS
Section 63 of the Public Procurement and Asset Disposal Act 2015 lists these substantive considerations as;
- the subject procurement having been overtaken by operation of the law or substantial technological change
- inadequate budgetary provisions
- no tender was received
- there is evidence that prices of the bids are above market prices
- material governance issues have been detected
- all evaluated tenders are non-responsive
- force majeure
- civil commotion, hostilities or an act of war
- upon receiving subsequent evidence of engagement in fraudulent or corrupt practices by the tenderer
EVIDENCE OF THE REASON CITED
As a cautionary tale before proceeding to the substantive grounds/reasons themselves, the first thing a procuring entity has to consider is whether it can and/or has provided evidence of the particular reason cited (any of the 9 above) to the Board. Plain mentioning by the procuring entity that it terminated the tender due to material governance issues being detected for example is casual and does not fly with the Board.
The Board and the High Court have held on the matter that a mere recitation of the statutory language, for example, material governance issues have been detected is not sufficient to establish the grounds for termination of a tender or the reasons therefrom.
A procuring entity thus called to answer on termination should ensure it provides real and tangible evidence of the reason so cited to enable the Board assess if it lies within any of the ones cited under Section 63. This evidence should also show how this reason has rendered it impossible to conduct the procurement and enter a contract as a result. Also, a procuring entity will not be judged on providing the best reason but sufficient reasons.
Please note that the procuring entity also has a duty to provide real and tangible reasons for termination (not just mere citation of the legislation) to the bidders who applied as part of the notification covered under Part 1 of this series. The standard here again is no mere citations of legislation but that the reason should be sufficient enough to enable a bidder aggrieved by the termination to file a proper request for review if disputing the termination.
That said I, shall now look into some case examples on what exactly entails some of the most commonly cited substantive reasons for termination as listed under Section 63.
MATERIAL GOVERNANCE ISSUES DETECTED
In Decision Number 50 of 2020 Danka Africa vs Kenya Ports Authority the Board held that material governance issues to be significant or important governance issues detected in a procurement process that negatively affect the capability of a procuring entity to guarantee compliance with principles of governance, leadership and integrity when procuring for goods and services. Such material governance issues may emanate from:
- malpractice during the procurement process by the bidders, or by the bidder while colluding with a procuring entity, or
- operational challenges attributed from policy decisions influencing a procuring entity’s procurement process.
In this case, KPA had proceeded to advertise for a tender despite there being a government directive from the Ministry of Transport forbidding it from doing so as the services procured were to be provided exclusively by the National Oil Corporation. KPA sought an exemption from NOC before advertising the tender but once the same was not given, it went ahead with the procurement. After commencement of the procurement process and after later advice from the ag head of procurement and supplies it decided to terminate the tender.
The Board held that the termination due to the government policy was a material governance issue being an operational challenge attributed from policy decisions as in the definition of material governance quoted and underlined above. However, this win was short lived for the procuring entity as the Board still held the termination invalid owing to the failure of KPA to fulfill the procedural considerations expounded in this Part 1 on Procedural Considerations. Goes to show huh?
The ruling in the Danka Case was affirmed in similar circumstances in Decision Number 9 of 2022 Intertek Testing Services Authentix Inc vs Energy and Petroleum Regulatory Authority where the Board in quoting the Danka Case held that policy changes are operational challenges under the umbrella of material governance issues but faulted it for carrying out the procurement despite knowledge of the policy change.
ALL EVALUATED TENDERS WERE NON-RESPONSIVE
In this one, all I can say is that a procuring entity should ensure that its evaluation of tenders is done in accordance with the tender document and the Act as required under Section 80 of the Act. This is because responsiveness of a tender is the evaluation of whether the bid conforms to all the specifications and conditions under a tender document. It is part of evaluation and so to terminate a tender due to this reason invites the Board to look into the evaluation which rendered all tenders non responsive. This is aside from considering whether the procedural considerations of termination have been adhered to.
An example is Decision Number 19 of 2020 Trident Insurance Company Ltd vs. Water Resources Authority. The WRA terminated the tender after the Applicant had been found to be unresponsive at the due diligence stage. The Board scrutinized the manner in which the due diligence was conducted with a fine comb and held:
For a procuring entity to terminate a tender for the reason that all evaluated tenders were non-responsive, means that such a procuring entity must have received conclusive information in a concluded due diligence exercise that would inform a decision to terminate the tender.
Due diligence is the verification by the procuring entity of the authenticity of the documents submitted by the recommended winner of the tender and usually entails the verification of referees and previous contracts and clients which the bidder purports to have worked with. Its carried out after recommendation of award but before notification of award. WRA were found by the Board to have relied on an article in the Business Daily to discredit the Applicant who had been the recommended winner. This in stead of calling and verifying the information themselves.
Additionally a botched due diligence does not warrant the termination of the tender but that the next most qualified bidder is considered as the winning bidder and due diligence done upon them. Only when all subsequent bidders have been rendered non responsive at due diligence then a procuring entity may terminate for want of responsive bids.
In this case the Board went on a rant on how procuring entities were hiding under the provisions of Section 63 to abuse the national values on procurement transparency, integrity and efficiency of funds under Article 10 to hold that the due diligence exercise and the termination was not as per Section 63.
Similarly, in Decision Number 24 of 2021 Milicons Limited vs The Sports Arts and Social Development Fund. The Procuring Entity terminated the tender for non-responsiveness but had disqualified the Applicant at the preliminary evaluation stage for an arithmetic error. Again, the Board scrutinized the evaluation of the Applicant’s bid and held that firstly, an arithmetic error is to be considered at the financial stage and not at the preliminary stage and secondly that in any case, under the new Act a bidder may not be disqualified for an arithmetic error seeing as the figure on the form of tender ought to suffice (I will do an article on this issue as procuring entities are still stuck with the rules on arithmetic errors under the 2005 Act).
The take away in this segment is that once this reason is cited, the Board scrutinizes the evaluation report on the evaluation of not only the Applicant but all bids considering the reason is that all bidders were non responsive. It thus follows that for a procurement entity to terminate on this ground, its evaluation criteria must be rock solid down to the people in the evaluation committee, evaluation reports being issued by the evaluation committee and no one else and even as in the WRA case, how the due diligence was carried out. Basically the whole evaluation is up for scrutiny and very few make it out alive. In
OPERATION OF LAW
Operation of law has been defined as the manner in which a person or institution may acquire certain rights or liabilities in any procurement process through no action, inaction or cooperation on his/her part, but merely by the application of the established legal rules to the procurement process in question. The application of these legal rules thus changes the manner in which the procurement process ought to be handled.
For a procuring entity to rely on operation of law as the reason for termination the Board held in Decision Number 8 of 2021 Daniels Outlets Limited vs. Numeral Machining Complex Limited (“Numeral Machining Case”) that this only arises where the procuring entity proves that the legal changes in the law hindering the procurement arose out of no action by itself. In this case, the equipment subject of the present tender had been subject to legal proceedings resulting from a previous tender of the same equipment where the procuring entity was a party. It lost the case. Therefore its head of procurement function recommended the termination of the present tender due to this judgment. The procuring entity cited operation of law and insufficient budget since the budget for the procurement was now to be used to settle the emergent judgement.
The Board however did not rule conclusively on if a court judgment fit the criteria under operation of law since the procuring entity had failed to again, provide real and tangible evidence that the machine equipment procured in the tender was the same one in dispute under the law suit. Again, that’s all it took. Remember the cautionary tale?
In judging for ourselves however, we can see that before the Board had considered the issues of evidence it had emphasized that operation of the law only applies where the liabilities or rights accrued in the transaction in question occurs without the act or cooperation of the party himself. A court judgment is not an isolated rule of law operation but one which the procuring entity would have to participated in being a party to the proceedings. Therefore had the procuring entity provided the necessary proof by attaching the judgment and showing the similitude between the equipment in the tender and the one in the judgment,
Policy changes are not operations of law. This was determined in Decision Number 9 of 2022 Intertek Testing Services Authentix Inc vs Energy and Petroleum Regulatory Authority where the Board held that policy is not law even though policies would at times inform or lead to new laws being enacted. Thus a letter from the National Treasury copied to the procuring entity was held to be a policy directive and thus incapable of having being overtaken by operation of law.
Failure of the procuring entity to evaluate the tender within thirty days is also not a reason under operation of law as we learn from Decision in Applications Number 5 & 8 of 2022 Gibb Africa Limited Consortium & 1 other vs Kenya National Highways Authority and 2 others.
INADEQUATE BUDGETARY PROVISIONS
For this one, background is needed. Section 44 (1) and (2) require that the accounting officer of a procuring entity (the person responsible for all procurement within a procuring entity) shall ensure that all procurement is:
- Done within an approved budget of the procuring entity; and
- Ensure procurement plans are prepared in conformity with the medium term fiscal framework and fiscal policy objectives…..
In addition, Section 53 of the Act on procurement planning mandates the accounting officer to inter alia prepare a realistic annual procurement plan within the approved budget and that not to commence any procurement proceeding until satisfied that sufficient funds are available to meet the obligations of the resulting contract and that these are reflected in the approved budget estimates.
The upshot of all this is that in defending the termination of tenders on this ground the Board would simply refer the procuring entity to Sections 44 and 53 of the Act on planning and budgets. This was elaborate in the aforementioned and discussed Numeral Machining case where the Board emphasized the need for proper procurement planning to avoid this. This case showed that in addition to proper procurement planning as a remedy to termination due to lack of funds a procuring entity should attach approved budgets showing inability to satisfy the resultant procurement contract. They lost due to this.
Another important thing to consider in this ground of termination is that the Board will consider all options before ratifying this ground of termination. This was seen in Decision Number 119 of 2020 Rhombus Construction Company Limited vs. Kenya Ports Authority where the Board held that termination of procurement should be a last resort. The procuring entity, in noting that its budget was below the recommended wining bidder’s price, it ought to have applied competitive negotiations with the winning bidder as per Sections 131 and 132 of the Act. The Board, quite surprisingly if I may add held this despite competitive negotiations not being provided for in the tender document in question. This just goes to show the insistence by the Board that termination, especially for reason of insufficient budgetary provisions, is a last resort.
CONCLUSION
I have focused on these 4 substantive grounds for termination as I deem them the most contentious and not easily understood by stakeholders. Hope it helps.
That’s all folks.
Francis Kabuchu, Public Procurement Law Practitioner and Consultant at Sheria Online.
