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Common mistakes in purchasing
This current issue of Purchasing b2b is all about legal trends—the tools and strategies for keeping courtroom battles at bay.
We cover Anton Piller orders, which use the element of surprise to get your intellectual property back from untrustworthy suppliers. We also take a look at fairness commissioners, and legal CDs and software.
But still, a big question looms. What exactly are the most common legal mistakes? To answer that question, I called Bill Pigott, associate counsel with the law firm, Miller Thompson LLP in Toronto.
According to Pigott, one of the biggest pitfalls in procurement is setting up a contract to govern the process of buying. The most prominent example is the case of Ron Engineering, back in 1981.
Ron Engineering submitted a sealed construction bid to the Government of Ontario. After the bidding closed, Ron Engineering realized it had left $750,000 out of its total bid, so it sent a telex to the government to correct its error. But it was too late. Under the terms of the RFP, bidders were obligated to stick by the price stated in their bids.
The government took Ron Engineering's $150,000 deposit, then accepted the second-lowest bidder. Ron Engineering sued to get its deposit back, and the government counter-sued for having to accept a higher bid. So what is the take-away lesson? Be careful of RFPs involving sealed bids, requiring suppliers to stick to their bids-error or not; and on the other side of the equation, require the purchaser to sign a contract based on the bid.
"If the owner doesn't evaluate the proposals the way they say they will in their document, or they treat somebody unfairly, they breach the contract," Pigott says.
A second common error is "not being ready." By that, he means putting out an RFP that isn’t properly thought out. "They either don't know what they're asking for...or it's vague in what they've requested and that creates all kinds of uncertainty."
Then there are the purchasers who put out an RFP, with no intention of buying anything. The practice can ruin the purchaser's reputation, and in a worse scenario, invite a lawsuit, if the language in the RFP binds the parties to follow through, as it did in the case of Ron Engineering.
Purchasers should also be careful with the words "may" and "shall," Pigott advises. For instance "if the bid is not dated, the buyer shall be disqualified." If the bidder forgets to put a date on the bid, the evaluation committee has no choice but to disregard the entire document. Whereas the word "may" would give the buyer the option to overlook the minor infraction.
Finally, he advises buyers to stick to the evaluation criteria. All too often, a purchaser wants to go with a certain supplier, and might be tempted to change the evaluation parameters on the fly to better suit the favored bidder. But this can also set the stage for lawsuits.
The bottom line is bidders talk and share notes, particularly in close-knit industries such as construction. Irregularities in an RFP or evaluation process open purchasers up to those dreaded legal woes.
—Lisa Wichmann
Editor
Contact the editor at lisa.wichmann@pb2b.rogers.com
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