by Dr. Peter D. Maynard[1]
Governments have deep pockets. They spend tax dollars on a vast array of goods and services. Many persons, legitimately and illegitimately, attempt to put their hands in those pockets.
It is well known that corruption is a major obstacle to economic development. The acquisition of goods and works by governments is a major target for the perpetrators of corruption. Hence, transparency is a vital element of good governance. Therefore, the system in public procurement is in dire need of fundamental reform.
At the time of writing, there are indications that the regulations may be upgraded. But, in the meantime, this article deals with the current inadequate legal basis for procurement.
The Legal Basis for Procurement in the Bahamas
The legal basis for procurement in the Bahamas is really the common law. Regulations on procurement are referred to below with the following important caveat. The Financial Administration and Audit Act of 2010, section 46 repealed the prior Act, Ch. 359. When Ch. 359 was repealed, the brief Regulations on procurement under Ch. 359 also fell away, as they were not specifically saved or reserved. Therefore, there are strictly speaking no Regulations extant at the present time. Furthermore, reform under the Financial Administration and Audit (Amendment) Act, No. 13 of 2013 did not come into force. However, an e-Procurement Portal is in effect; and a new Public Procurement Bill has been drafted by the Government but has not yet been enacted and brought into force. It is hoped that the Bill will begin to cure this most unsatisfactory state of affairs.
The Regulations made under section 25 of the Financial Administration and Audit Act (Ch. 359) cover the setting up of a Government Tenders Board (hereinafter referred to as the Board). Regulation 56 covers who sits on the Board. These persons are the Financial Secretary, the Permanent Secretary of the Ministry of Public Works, the Permanent Secretary of the Ministry of Health and any other appointed public officers.
Regulation 57 states that the functions of the Board:
Shall be to make recommendations to the Minister of Finance for the award of contracts for supplies, works and services required by the government in excess of $50,000, but not exceeding $250,000.
Regulation 58 states that:
All award of contracts for supplies, works and services required by the government for amounts in excess of $250,000 shall be made by the Cabinet.
The Government Tenders Board
When the various ministries of government need goods, works or services to be carried out, they will place an advertisement for tenders in the national newspapers. They must advise the Board of the tenders that they have sent out.
The main function of the Board in these instances is to provide justification for the choice of tenders that the various ministries may make. Also, it provides a measure of transparency in all of Government’s procurement procedures because records are kept of all proceedings. The members recommend to the various Ministries, the best choice out of the evaluated tenders.
Methods of Procurement in the Bahamas
There are two basic methods that are used by the Government – public or select tendering. Select tendering is carried out specifically geared towards contractors who are already know to meet certain pre-requirements. Public tendering means that all interested members of the public are invited to submit bids regardless of any pre-requirements.
Solicitation
Request for tenders are sent out in the national newspaper as advertisements. As such, they must be considered as invitations to treat. Advertisements are not normally considered as offers because they do not contain sufficient detail as to the nature of the goods, works or services required.
Rules Governing Procurement
Tenders are sent out in order to attract eligible bidders. Eligible can be defined as adequate or qualified to carry out the terms that will be found in the contract. The rules that pertain to contracts are:
Pre-qualification – bidders must show that they are competent and have experience with the goods, works or services required.
References – for large works in particular (e.g. for the Ministry of Public Works), the company must supply at least three references that show that they have successfully completed other projects of a similar nature.
Bonds-a bank statement showing financial capacity to provide the requirements is also a necessity.
Licensing – a valid business license is necessary. Implied into a contract is the legality of purpose. If the client Ministry were to enter into a contract with a company without a valid business license, no contract between them would be seen as binding because no legality exists.
Other elements will affect the capacity to contract with specific ministries. For example, a vital element of all medical contracts is the provision of warehouse facilities. The element of capacity to contract is especially important for the Ministry of Health, which has to ensure the proper storage of its medical supplies.
Bidding Documents
The bidding documents are the means by which the Ministries inform potential bidders of all requirements and conditions relative to the proposed bidding. Interested bidders receive the information necessary to prepare their offers for that particular bid. For this reason, several aspects of the bidding documents must be clear. These are:
Clarity and content;
Standards of quality; and
Specifications for equipment and brand names.
The law that governs the quality of goods demanded by the purchaser is the Sale of Goods Act of the Bahamas 1904 (Ch. 310). Section 16(a) states that where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are required, so as to show that the buyer relies on the seller’s skill or judgment, and the goods are of a description which it is in the course of the seller’s business to supply, there is an implied condition that the goods shall be reasonably fit for such purpose.
Thus, if the bidding documents require a certain quality with regards to equipment, and the contractor indicates that he can provide this specified equipment, he is liable for breach of contract if the goods or services do not match what was offered. However, in for example, the situation with the Central Purchasing Unit, they have not engaged in any legal proceedings against the supplier.
Submission and Evaluation of Tenders
The advertisement for tenders is an invitation to treat and the submission of the tender is an offer to contract. All tenders must be submitted to the Ministry of government that asked for the bid and they are opened in the presence of the bidders, representatives of the Board and the Ministry. The Board’s function here it to evaluate the various offers based on price and quality considerations. The Board will then recommend to the Ministry, which sent out the advertisement, the best bid to accept. The Board does not choose, it merely recommends. In this function, it is like the Bank, which also acts in an advisory capacity.
The decision-making process is really quite diffuse and increasingly decentralized. The question may arise as to whether or not the Board is outdated. In the Ministry of Health for example, the Public Hospital Authority reviews and authorizes all contracts for medical supplies. The Board’s only function in this case is to “say yes or no”. The Ministry of Health even has a quality committee that guarantees the quality of goods. The ministries have found suppliers through their own methods.
However, the Board still plays an important function because they ensure that no fraud, such as ‘splitting’ of contracts, occurs. Splitting contracts is an attempt to make the cost of procuring the supplies seem less than it really it, in order to gain approval for the procurement. They prevent this and other fraudulent practices such as bribery[2] from occurring.
Submission
All advertisements will contain dates after which no more tenders will be received. For the Board, this is usually no more than two months after the initial advertisement. Any tenders received after this date will not be considered. It is important to note that this can leave the Board open to lawsuits for breach of contract and negligence. This principal can be seen in the case of Blackpool and Flyde Aero Club Ltd. v. Blackpool Borough Council [1990] 3 All ER 224. In this case, the tender of the plaintiffs reached the defendants after the specified deadline because of a delay at the post office. Another tender was accepted instead of theirs. The plaintiffs sued the Borough Council because their tender had not been considered. It was held that the express request for tenders by the defendants gave rise to an implied obligation on their part to perform the service of considering tenders duly received. The Board must thus make all effort to ensure that all tenders that conform to the requirements for date and time are duly considered.
Evaluation and comparison of Tenders
Tendering is advertised (except for certain goods and services such as insurance).
Advertisements are placed in newspapers (i.e. international and local). The advertisement normally includes:
1. some details of the specifications.
2. deadline for the submission of tenders.
3. place of submission of tenders.
After the deadline, the sealed tenders are taken to the Ministry of Finance or Tenders Board.
The tenders are publicly opened at a meeting that normally takes place the week following the deadline. The name of person or company making the tender with the price are read. Names and prices are not read where items are small and numerous.
The Ministry seeking the product or service takes away the tender to analyse and ensure that they satisfy their specifications.
The tenders are returned to the Tenders Board. A meeting is held and the Ministry hears comments and recommendations from the Ministry. The Tenders Board then accepts or rejects the recommendations.
The Ministry then notifies the successful bidders.
Process of Government Tendering
1. <$50,000 competitive bidding bids taken from a list of prequalified contractors 2. $51,000 - $250,000 I advertising - normally in newspaper (local & international) advertising depends on client. Ministry - e.g. highly specialized areas such as insurance would have a list and not be advertised. advertisement contains specifications and deadline. II Submission of tenders tenders normally advertised sealed tenders are submitted to the Ministry of Finance or Tenders Board. Client Ministry takes tenders to analyse and ensure that tender satisfies the specifications. Tenders then are returned to the Tenders Board. There is normally a briefing session where the client Ministry informs the Tenders Board of their comments. The Tuesday following the deadline, the Tenders Board holds a meeting where the sealed tenders are opened. The name of the Tender and the price is read (unless goods or services to be supplied are small and numerous). The Tenders Board then accepts a tender based on advice from client Ministry. 3. >$250,000
Projects of such value are determined by the Cabinet.
Acceptance
The Tender that is accepted will be the one that best meets the requirements of the Board. When this tender or bid is unconditionally accepted, it will lead to a binding contact being formed. The terms of the contract can be obtained from the invitation to tender, the actual bidding documents and other relevant documents. Acceptance must be communicated to the bidder in a way that cannot be misinterpreted. The case of Tancred Arrol & Co. v. Steel Co. of Scotland [1890] 15 AC 125, provides an example of this. In this case, Tancred Arrol was held to the conditions of a contract to provide all of the steel required for the building of a bridge. It was held in that case that the company was entitled to supply the whole of the steel required for the bridge, and that their right was not qualified or affected by a statement that the estimated quality which would be required was understood to be ‘30 000 tons, more or less’. In other words, the company was bound by contract to supply all of the steel and therefore could not use the ambiguous words to renege on the contract.
A bid may not be unconditionally accepted because of some condition that is not acceptable to either party. For example, the Board may send out an advertisement requesting goods, works or services. However, in response, the offer of the bidder may contain elements that are not acceptable to the Board.
In the case of Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corporation (England) Ltd. [1979] 1 WLR 401, a seller of machine tools offered to deliver a machine tool. The terms of this offer stated that orders were accepted only on the seller’s terms, which included a price variation clause. The buyer replied to the seller’s offer with an order form containing different terms and conditions from those of the seller. The order form had a tear off acknowledgment slip for signature, which fixed the total contract price as that existing on the acknowledgment date. The seller signed the form and later tried to invoke the price variation clause. It was held that the buyer’s order was not an acceptance of the seller’s offer to contract. It was in fact, a counter offer, which the seller had accepted by signing the slip. A contract had thus arisen on the terms of the buyer’s offer.
There are instances where the Ministry wished to use a certain contractor but there was some element in their offer that, once certain changes were made, acceptance would be granted. Based on the principle above, this would amount to a counteroffer. If the contractor were to agree to the change and sign the contract, he could not later attempt to provide the goods, works or services through the old offer. When contractors try to invoke the old contract, this is usually because of a lack of capacity to carry out the contract.
The unconditional acceptance of a tender by the employer binds both parties, and a contract is thereby formed. The terms are ascertainable from the invitation to tender, the tender, the acceptance, and any other relevant document. Wimshurst v. Deeley (1845) 2 C.B. 253, Att.-Gen. v Stewards & Co. (1901) 18 T.L.R. 131, Tancred Arrol & Co. v Steel Co. of Scotland (1890) (15 App. Cas. 125). Unless there are special circumstances in which implied acceptance can be proved from the acts of the employer, there will be no acceptance until it is communicated to the person tendering Willcocks and Barnes v. Paignton Co-operative Society Ltd. (1930) 74 Sol. Jo. 247.
It makes no difference if the person tendering should describe his offer as an “estimate,” as it is still equally an offer. Further, there is no custom that a letter so headed should not be treated as an offer, and if such a custom existed it would be contrary to law.
A tender or offer may be affected by a custom of the trade. Thus, when the old materials of a building about to be removed are offered for sale without reserve as to quantity, the whole of the materials is understood by vendor and purchaser to be included in the sale Thorn v. Public Works Commissioners (1863) 32 Beav. 490.
Consideration
Consideration is necessary to support the contract, except in the case of a contract by deed. A promise by a building owner or employer to pay extra for work already included in the builder’s or contractor’s contract is made without consideration (Sharpe v. San Paulo Rail Co. (1873), 8. Ch App. 597 at p.608). But if a party contracts for valuable consideration to do something which he is already in fact bound to do but at the time of such contract his duty is not definitely known to either party or there is a dispute about the liability, then the contract is binding (Williams v. O’Keefe [1910] A.C. 186, P.C.). If the consideration for the contract is illegal, the contract is not enforceable. A mere promise by a contractor to construct a building without any mention of price requires to be supported by some consideration in order to become binding on him as a contract (Ramsden and Carr v Chessum & Sons and Ward (1913) 110 LT.274 H.L.). The employment, however, of the builder to do work is sufficient consideration.
A tender for work and labour amounts to an offer which, when accepted, constitutes a binding contract. An advertisement inviting tenders is not an offer but an invitation to offer.
An acceptance of such a tender merely amounts to an intimation that the offer will be considered to remain open during the period specified, and that it will be accepted from time to time by orders for specific quantities or services and does not bind either party unless and until such orders are given (Great Northern Rail Co. v Witham (1918), 87 L.R. 9 C.P. 16). Percival Ltd. v. London County Council Asylums (1918) 87 L.J.K.B. 677. But a tender may be so worded as to impose an obligation on the person who accepts it to order all.
Terms (Contractors)
When a tender has been unconditionally accepted a complete contract is formed, the terms of which can be as pertained from the invitation to tender, the tender, and the acceptance thereof, and any other relevant documents (Tancred Arrol & Co. v. Steel Co of Scotland (1890) (15 App. Cas. 125.).
There are instances when contracts are formed and the supplier subsequently cannot supply all of the requested goods. This situation refers to the supplier incapacity or failure to perform the contract. Although the Government has encountered this, they have also preferred not to initiate legal action against the supplier. If a contractor defaults on the performance of the contract, then the Government in practice declines to pay damages.
In 1999, the Central Purchasing Unit contracted with a supplier of paper products to supply writing paper for all of the Ministry of Education, Health and Finance. This contract was agreed to for the sum of $3 million dollars. On receipt however, the paper was found to be of inferior quality and the employees of the various ministries refused to use the paper and obtained elsewhere. The Central Purchasing Unit still has under $1 million worth of paper to be bought from the paper supplier. The solutions to the problem of quality are found in the terms of the bidding documents that are supplied to contractors and the Sale of Goods Act of 1904.
Definition of Terms
According to Policies for the Procurement of Goods and Works financed by the Inter-American Development Bank (2011) (hereinafter called the Bank), procurement refers to all purchases of goods or contracting for services or works carried out by the Borrower for the purpose of implementing a project wholly or partially financed by the Bank.
Bidding is any formal and competitive procurement procedure through which offers are requested, received, and evaluated for the procurement of goods, works and services, and as a consequence of which an award is made to the bidder whose offer is the most advantageous, i.e., the lowest evaluated bid.
As defined by the Bank, international competitive bidding is that which is open to the participation of bidders who are foreign with respect to the borrower’s country regardless of whether the procedures of the Bank were followed. For bidding to be internationally competitive in nature, there must be publicity for the bidding process that includes both national and international publicity.
According to the Articles of Agreement establishing the Inter-American Development Bank as set out in the Schedule of the Inter-American Development Bank Act (Ch. 354), the Bank acts to guarantee loans to government and in some cases, the private sector. It tries to ensure that bidding is competitive so that its money will be best used in every circumstance.
According to Article I, Section 2(a) of the Articles of Agreement: The purpose of the Inter-American Development Bank is to promote the investment of public and private capital for development purposes.
According to Article I, Section 2(b): It also aims to utilize its own capital, funds raised by it in Financial markets, and other available resources, for financing the development of the member countries, giving priority to those loans and guarantees that will contribute most effectively to their economic growth.
The basic functions of the Board and the Bank are the same in that the Bank also evaluates the choice of bids for member countries that send out goods, works and services to tender. The aim of the bank of to ensure competitiveness and legality in all areas of procurement.
The basic rules of procurement must be adhered to in order to obtain funding. These rules function to prevent conflict of interest and fraud from arising. There are:
The efficient and economical use of Bank resources-which lends itself to international competitive bidding
Legal relationships-governed by loan contracts between the Bank and the borrowers whereby no other entity can derive any rights from said contract
Basic responsibilities-the administration and execution of these lie in the hands of borrowers
Procurement planning
Eligibility of contractors and goods
Nationality requirements for con tractors for works
Origin of goods
Review of Cabinet
At the same time, the Government of the Bahamas enters into contracts with suppliers of goods, works and services in the procurement process. But, the Government virtually does not ever initiate legal proceedings against contractors who do not fulfil the terms of the contracts. This is said to be because of the lack of a litigation or “suing” culture here in the Bahamas.
Judicial Review
It is possible for contractors to sue the Government for breach of contract. However, there have been no reported cases of this happening. These matters may also be arbitrated privately so as not to involve the Government in public disputes. There is no doubt that the procurement process could be improved to the benefit of the Government.
Conclusion
The Government is the largest source of contracts for goods, works and services in the Bahamas. However, the Board does not carry out functions that cannot be done by the purchasing departments of the various ministries. The Ministry of Health has demonstrated that it is capable of securing its own contractors. In addition, bids over $250,000 are administered by the Inter-American Development Bank. It is possible that the Central Purchasing Unit plus the purchasing departments of the ministries can deal with their own procurement processes. But, the Central Purchasing Unit is being phased out. Measures must be put in place to guarantee that corrupt practices on the part of both the ministries and the suppliers do not occur. Firms that are involved in corrupt practices should be declared ineligible to be awarded future contracts.
[1].I acknowledge the invaluable help of Dwight Glinton, Associate, in preparing an early version of this article.
Senior Partner. Admitted to practice law in 1979 in England, Wales and The Bahamas; and in 1986 in St. Lucia, St. Vincent and the Grenadines, Antigua and Barbuda and Trinidad and Tobago. Education: McGill University (B.A., Hons.); Johns Hopkins University (M.A., Ph.D.); Cambridge University (L.L.M.); Sorbonne University (1966); Cornell University (1968). Fellow of the Chartered Institute of Arbitrators, London (FCIArb). Head of the Law Department of the University of the Bahamas. Member of the Hon. Society of Gray’s Inn. Former Legal Adviser, Bahamas Ministry of Foreign Affairs; Former Economist, United Nations; Acting Stipendiary and Circuit Magistrate; Contributing Editor, Journal of Financial Crime and Journal of Money Laundering Control. PETER D. MAYNARD & CO., Chambers, Jehovah Jireh House, Bay & Deveaux Streets, P. O. Box N-1000, Nassau, Bahamas, telephone: (242) 325-5335, fax: (242) 325-5411, email: peter.maynard@maynardlaw.com, website: www.maynardlaw.com
[2]. See article by the author on “Case Law on Corruption and Bribery in the Bahamas” 4 Journal of Financial Crime 285 (1997).
