By Julius Chikomwe
THE quotation: “Personal initiative, competitive selection, the profit motive corrected by failure and the infinite processes of good housekeeping and personal ingenuity…” summarises the essential qualities of a market economy. This article focuses on just one of them— competitive selection.In a market economy, the process of competitive selection plays a crucial function in which competitive forces interact to influence and decide selection. Indeed, without “competitive selection” the crucible role of the market and its efficiency would be reduced, if not altogether lost. And, when this happens, consumers and society are poorer: consumers and society benefit when the process of “competitive selection” is allowed to decide those that should succeed in business and those that should fail.
Competitive selection, therefore, is an essential part of a properly-functioning market economy.
The process of competitive selection is by no means an easy one; tendering is notorious for controversy, scandal, nepotism, abuse, manipulation, bribes and nasty lawsuits.
What is a tender?
A tender or request for tender ( RFT) is a structured invitation by a procuring entity for vendors to supply goods and services.
It must be apparent from the definition of an RFT as a “structured” invitation, that RFTs must have a well-defined structures or organisation both in terms of procedural and substantive rules on the basis of which fair, free and competitive bidding can take place. The tendering process must not be open to abuse or manipulation. Tendering facilitates competition. Competition, in turn leads to economic efficiency. Economic efficiency benefits consumers and society when, as a result of competition, superior goods and services are delivered to consumers at the most competitive prices. For this reason, competition is sacrosanct; governments throughout the world enact laws that are designed to safeguard and advance competition.
Law on award of tenders
In Zimbabwe, there are two key pieces of legislation that should guide public institutions’ administration of tenders, namely, the Administrative Justice Act (Chapter 10:28) and the Competition Act (Chapter 14:28).
As the two pieces of legislation suggest, the Administrative Justice Act (Chapter 10:28) deals primarily with the procedural and substantive aspects of tendering and tender administration while the Competition Act (Chapter 14:28) focuses on promoting and maintaining competition.
Boards of parastatals and their management teams are therefore encouraged to familiarise themselves with the law of tender for supply of goods and services.
In particular, organisations ought to familiarise themselves with meaning of what constitutes a “restrictive practice” under Part 1 Subsection (2) of the Competition Act, the legal consequences of committing an unfair business practice under Section 43 of the Competition Act and more importantly, that the law does confer, under Section 44 of the Competition Act, a right of action upon “ any person” who suffers injury loss or harm as a result of an unfair business practice, from “every person” responsible for the “act or omission” giving rise to the claim.
As regards the standards of procedural and substantive propriety that the law expects, organisations ought to familiarise themselves with the duties that the law imposes on “administrative authorities” in Section 3 of the Administrative Justice Act and specifically the requirement to act lawfully, reasonably, fairly and more importantly, the duty to supply written reasons.
Furthermore, organisations need to familiarise themselves with Section 5 of the Administrative Justice Act generally and in particular Section 5 which deals with the bases upon which non-compliance with Section 3 of the Administrative Justice Act is determined.
Public organisations have internal regulations that govern the procurement process. However, such regulations should not, as rule, conflict with Acts of Parliament, in this instance, the Administrative Justice Act and the Competition Act. Where there is conflict between internal regulations of the buying entity and the laws that govern the administration of tenders and competition, the laws that govern the administration of tenders and competition should prevail.
How, therefore, does an organisation build a transparent and effective tendering system?
Tenders and tendering are not anything that can be understood outside the regular context of business controls. In general, procurement systems institute procedural and substantive requirements that are intended to safeguard competition and to reduce the likelihood of abuse or manipulation of the procurement system through nepotism and bribery. The following are some of the integral components of a rigorous tender and tender administration system:
Components of a tender
As a general premise, a basic procurement process must have the following identifiable components; pre-qualification, anti-fraud/corruption declarations, qualification criteria, eligibility, bid preparation, bid submission, notification, and adjudication and award criteria. In addition, an effective procurement process must define the procedure by which the decisions of the adjudicating authority can be reviewed.
Procuring entities use the pre-qualification stage in a tender process to screen bona fide applicants. A typical example is the requirement in public procurement, that to be eligible to participate in procurement process as a bidder, all aspiring bidders must be registered with the State Procurement Board (SPB).
Essentially, therefore, procuring entities use pre-qualification as an information production-forcing device for extracting basic information such as the name of the aspiring tenderer, the address and telephone numbers of the aspiring suppliers. In addition, prequalification is used to compel aspiring suppliers to reveal their up-to-dateness in respect of their statutory obligations with the Zimbabwe Revenue Authority (Zimra).
The primary purpose of tendering is to encourage competition. But competition can be frustrated or defeated through fraud or corruption. An effective procurement system therefore ought to repress and punish fraud and corruption while at the same time ensuring good order that is necessary for competition to prevail.
A good procurement system should therefore require all aspiring tenderers to sign anti fraud/corruption declarations. By signing an anti-fraud declaration, an aspiring tenderer basically undertakes not to act fraudulently, offer or facilitate, directly or indirectly an improper inducement or reward to a decision-maker or decision-makers, their relations and associates so as to influence the outcome of a tendering process. In addition, by signing anti-fraud/corruption declarations, aspiring tenderers agree in contract, to be punished by the procuring entity and the punishment that should be visited upon a tenderer, in the event that fraud or corruption is proved against them.
The declaration is supposed to be signed by senior management. Senior management are expected to communicate the seriousness of possible breaches of this undertaking and the severe consequences, which may even include debarrement for very long periods of time that may ensue as a result of a breach of the anti-fraud/corruption declarations.
In addition, an effective tendering process must spell out clearly the qualification criteria that aspiring tenderers must satisfy.
Under qualification criteria, a tendering process looks into the general experience of the tenderer, the tenderer’s experience in similar work, tenderer’s financial capability, his current and future commitments, human capacity that is at the disposal of the tenderer, equipment capability if the tender requires the use of equipment and the litigation history of the tenderer. Adverse arbitral awards against the tenderer, for example, may be proof that the tenderer has a poor contract execution history.
To conclude on this point, the qualification criteria serves to extract from tenderers objective information upon which a procuring authority can come to an objective decision as regards the tenderer’s capacity and ability to execute the contract if an award is made to it.
A procurement system must also spell out the entities that are allowed to bid. In particular, a procurement system must not allow teaming arrangements by tenderers that undermine competition. Such arrangements would be unlawful as they are specifically prohibited under Section 42 of the in the Competition Act (Chapter 14:28).
In appropriate circumstances, however, teaming arrangements may be allowed. These may take the form of joint bids or partnerships.
In such situations, it is always important for a procurement system to define who among the joint-venture partners are the contracting parties and therefore, the parties against whom the procuring entity may assert its rights in the event that is a breach of contract afterwards.
To be continued next week
- Julius Chikomwe is a Harare Corporate & Finance Lawyer. This Article was written in his personal capacity. He can be reached on firstname.lastname@example.org.