WHEREAS there are two significant pieces of legislation that govern municipal procurement, being the Agreement on Internal Trade (AIT) and the New West Partnership Trade Agreement (NWPTA), wherein there is no wording that stipulates municipal projects must be awarded to lowest tenders; and
WHEREAS the Government of Alberta mandates that municipalities award projects to the lowest tender when financing of the project includes provincial grant funding; and
WHEREAS the lowest tender award policy of the Government of Alberta in many cases does not lead to best value for funds expended and in some cases results in over runs and costly litigation; and
WHEREAS municipalities in Alberta use pre-qualification processes that serve to significantly reduce incidences of dispute and litigation when procuring goods or services;
THEREFORE BE IT RESOLVED that the AAMDC actively engage the Government of Alberta in discussions to eliminate the policy of awarding tenders to the lowest bidder on municipal projects that receive grant funding by allowing municipalities to conduct pre-qualification processes for bidders.
The Provincial Government currently compels municipalities to accept the lowest tender on projects where grant dollars are included in the project funding. It has become increasingly obvious that the intent of this policy, which is to get the most done for the least amount of money, is not being realized. Too often the lowest tender contractor does not provide the best quality of work, they end up with numerous change orders that lead to projects going over budget, greatly increase engineering management costs, increase internal staff project supervision costs, end up in costly legal disputes, and the list goes on.
In too many cases the lowest tender ends up costing significantly more than the second and sometimes even third lowest tender. This is a problem experienced by many municipalities and Vulcan County and the MD of Willow Creek are cooperating in initiating a process to see if there is municipal political support to affect and improve provincial policy.
This problem is such a well-known issue in the industry that there are engineering consulting firms now bidding on projects in two stages whereas they used to bid on projects on a lump sum basis. They have divided their bids between the consultation, design, bid and award process as one stage and project management of the construction phase as a separate stage. The reason for this is that they are waiting until after construction tender is awarded before submitting pricing on the construction management stage because certain contractors require full-time supervision and others only require spot-supervision, and the costs for providing the different level of engineering services is significant. This can even result in the lowest construction tender turning into the highest engineering cost and make the combined project total higher than if a second or third lowest construction tender was awarded with lower engineering costs.
Upon our review and legal counsel review of other legislation that pertains to procurement, the NWPTA and the AIT do not contain policy similar to the province and a pre-qualification process of contractors is acceptable. There is very little downside were the province convinced to amend their policy and allow pre-qualification to occur. There will be a bit more work in doing the pre-qualification process, but the benefit of the results of pre-qualification, which is a pool or group of quality contractors bidding on work, is well worth the fact that all of the headaches listed in the previous paragraph will happen on a vastly significantly reduced basis.
This will not be a simple process to review nor implement. On the surface it may appear as though this may be a fairly simple solution to a growing problem. However, there are numerous aspects to assess should such a solution be considered for implementation. Ensuring that fair and defensible measures are embedded in the pre-qualification processes will be key in discussing this issue with the province as this concept differs significantly from the current process.
The AAMDC has no active resolutions pertaining this issue.
Alberta Transportation will review its policy of awarding to the lowest bidder and examine how municipal pre-qualification of bidders could be incorporated for grant-funded projects. The views of the AAMDC will be sought as part of this review.
Under the Municipal Sustainability Initiative (MSI) long-term funding agreement, municipalities are responsible for adhering to all project tendering requirements and other items or directions outlined in the program guidelines.
The MSI guidelines require that “all calls for proposals or tenders for projects to be funded under this program shall be carried out in accordance with the rules, regulations and laws governing such activities and in accordance with the current practices.” The guidelines also require that calls for proposals or tenders be advertised in accordance with the guidelines of the New West Partnership Trade Agreement (NWPTA), effective July 2010, and the Agreement on Internal Trade (AIT).
Annex 502.4, Section G.10 of the AIT provides that municipalities may, in evaluating bids, “take into account the submitted price, quality, quantity, delivery, servicing, the capacity of the supplier to meet the requirements of the procurement and any other criteria consistent with Section “D” (Non-Discrimination)”.
Annex 502.4, Section G.11 of the AIT provides that, subject to section “D” (Non Discrimination), municipalities may “limit tenders to goods, services or suppliers qualified prior to the close of call for tenders”.
The MSI capital program guidelines do not require municipalities to award projects to the lowest tender, and do not prohibit municipalities from using a process that qualifies suppliers prior to the close of call for tenders where the process is consistent with the AIT and NWPTA.
In early 2012, the former Minister of Transportation indicated that an internal review was underway and that certain practicalities as well as potential abuses were being considered. In an early 2013 meeting with the new Minister of Transportation, the AAMDC inquired about the status of the internal review. The Ministry provided no indication of any outcomes from a review and suggested that this was not an issue as the provisions under the New West Partnership Trade Agreement (NWPTA) and the Agreement on Internal Trade (AIT) allow municipalities the flexibility outlined in this resolution. The AAMDC has asigned this resolution the status of Unsatisfactory will continue to monitor this issue going forward.