CPPC: November 3, 2015
Best and Final Offer Strategies (BAFO)
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Your procurement department has released an RFP for the lease and maintenance of a fleet
of service vehicles for government staff. The RFP requests pricing for lease of 75 vehicles
(detailed specs included) along with 5 year warranty and maintenance plans.
Before issuing the RFP, you conducted some initial market sounding and determined there
were at least 5 local dealerships with vehicles that could meet the specs who would be
interested in bidding. You suspect there may be wider interest from other dealerships outside
your area as well.
Review the scenarios below and identify which is bid clarification, negotiation and a BAFO
process, along with the unique characteristics of each process.
The RFP has closed and upon evaluation of Best Auto’s proposal, you discover they have
sited two different total bid prices. Within Best Auto’s introductory letter, it states: “we are
confident we will be able to provide the lowest cost and best service for the vehicle lease
contract with our bid of $250,000.” On the pricing sheet, however, they include a total bid
price of $255,000. You contact Best Auto to confirm the price on the pricing sheet is the bid
price and the stated price in the introductory letter was in error (which they confirm).
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BAFO, Negotiation or Clarification? Why?
The RFP has closed and upon evaluation, you find that Azuzu Inc. is the highest scoring
proponent. To finalize the contract details, you contact Azuzu and set up a meeting to
discuss and settle on the warranty and maintenance terms. In the RFP, you reserved the right
to discuss final contract terms including the warranty and maintenance package details. The
talks go well, you agree on the terms, and move forward with finalizing the contract.
BAFO, Negotiation or Clarification? Why?
The RFP has closed and upon evaluation, there are 5 proponents that have scored above the
minimum threshold of 80 points to move onto the next stage in evaluation. As the RFP
details, you send a letter to each of these 5 proponents, asking them to submit their final,
refined pricing. From those refined prices, you select the lowest bid and proceed to contract.
BAFO, Negotiation or Clarification? Why?
Fleet Management Inc. submitted a proposal for 75 vehicles at the lowest overall price;
however, their submitted specifications deviated substantially from those defined in the RFx.
You would like to call Fleet Management Inc. and inquire whether they can re-submit based
on the RFx specifications.
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BAFO, Negotiation or Clarification? Why?
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In Newfound Disposal Systems Limited v. Memorial University of Newfoundland
[2001], N.J. No. 94 (Newfoundland Supreme Court), the plaintiff (Newfound) submitted
a bid for a tender issued by the defendant (the university) for garbage removal. A second
waste disposal company, BFI Waste Services (BFI), also submitted a tender bid.
The tender document provided a detailed description of the services to be provided, and
listed different pickup schedules for summer and winter. Section 1A of the tender document
required pricing based on the pickup schedules. Both bidders complied with Section 1A in
the same manner. Newfound’s bid was $172,432.75, and BFI’s bid was $168,875.01.
Section 1B of the tender document required other pricing information, as follows:
This total to be an optional unit price for removal and steam cleaning of 25
containers. The University reserves the right to change the number of containers to
be removed and steam cleaned. The stated frequencies is an estimate only, and serve
only to perform a tender evaluation.
Cost to remove and steam clean 25 Containers
plus H.S.T. of
= GRAND TOTAL of
$
$
$
BFI supplied its pricing as:
Cost to remove and steam clean 25 Containers
plus H.S.T. of
= GRAND TOTAL of
$1,250.00
$ 187.00
$1,437.50
Using a different interpretation of Section 1B, Newfound supplied its pricing as:
Cost to remove and steam clean 25 Containers
$ 40.00
plus H.S.T. of
$ 6.00
= GRAND TOTAL of
$ 46.00
Prices for both Section 1A and 1B were read out at the public opening.
Newfound wrote a letter, claiming that BFI’s bid price was non-compliant. Alternatively,
Newfound said that BFI’s total bid price was actually $204,812.51. Newfound’s view was
that Section 1B required a bidder to provide a “unit price” for 25 containers. Thus, BFI’s
total bid price should have been calculated as $168,875.01 (Section 1A) plus $35,937.50
(Section 1B unit price of $1,437.50 x quantity of 25) = $204,812.51.
Either way, Newfound claimed that it should have received the contract as the lowest-price
bidder, with a bid price of $172,432.75 (Section 1A) plus $1,150.00 (Section 1B calculated as
$46.00 x 25) = $173,582.75.
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After receiving Newfound’s letter, the university telephoned BFI and asked BFI for a
clarification, confirming that the BFI bid of $1,250.00 was for the cleaning of 25 containers.
Within several days, BFI responded as follows: “Please note in Section 1B of Waste Removal
Tender, that BFI’s total cost to steam clean 25 containers at $1,250.00, is equivalent to a per
unit cost of $50.00 before HST.”
Newfound objected strenuously, and said that BFI was unfairly being given a chance to
amend its bid. Shortly thereafter, the university awarded the contract to BFI for the overall
price of $170,312.51. In response, Newfound started this litigation. What is your opinion?
Is tendering in Canada really getting this picky? Perhaps not. Ultimately, the Court
concluded that BFI had complied with the tender. Justice Wells said “… I can only interpret
the words used, as a request to the bidder to provide a figure stating the cost of cleaning 25
containers. The BFI response to that question was $1,250.00 plus HST.”
Justice Wells also said that the bids should be evaluated in a common-sense fashion. The
conclusion was that “ … both bids were complaint, although the same question was
answered by each, in a different way. BFI’s bid was a direct answer to a specific question,
‘cost to remove and steam clean 25 Containers’. Newfound’s bid was obviously the cost to
steam one container. Even though it was not a direct response to the question asked, the
University knew by simple multiplication that the cost of cleaning 25 containers would be
$1,000. Likewise knowing BFI’s price for 25 containers, simple division would reveal the
cost for 1 container … To do otherwise would be to become unnecessarily immersed in
semantics.”
The Court said that the communication with BFI was a legitimate bid clarification. The
request for confirmation from BFI was caused by Newfound’s letter, which advanced a
problem that, in fact, did not exist. BFI’s clarification was not an amended bid, but rather a
clarification of the obvious – namely, that if 25 containers would cost $1,250.00, one
container would cost $50.00. (“Clarification of the obvious” because specification 2.4.4
prescribed that containers would be cleaned as requested and billed per container.) It
follows, therefore, that there was no breach of the duties of good faith and fairness in the
tendering process.
The Court referred to leading cases such as Health Care Developers Inc. v.
Newfoundland [1996], N.J. No. 149 (Court of Appeal); Her Majesty the Queen in the
Right of Ontario and the Water Resources Commission v. Ron Engineering &
Construction (Eastern) Ltd. [1981], 1 S.C.R. 111; M.J.B. Enterprises Ltd. v. Defence
Construction (1951) Ltd. [1999], 1 S.C.R. 619; and Vachon Construction Ltd. v.
Caribou (Regional District) [1996], B.C.J. No. 1409. However, none of these authorities
were applied, since the finding of compliance essentially disposed of this litigation. The
Court dismissed the plaintiff’s claim, with costs payable to the defendant.
Reprinted from The Legal Edge Issue 42, April-May, 2002
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by Maureen Sullivan, BA, LL.B, and Larry Berglund, SCMP, MBA
“Give us your best and final offer” (BAFO). What could be simpler?
This may work well if you are selling your car on craigslist, but can add a very tricky overlay
to a competitive bidding process. To embed a BAFO process in your Request for Proposals
(RFP), you will have to do a lot of homework and turn your mind to the many legal and
process implications.
When is BAFO Used?
BAFO deals work well in several market sectors or under certain conditions. In a housing
market, for example, with anxious buyers chasing a limited number of desirable properties,
BAFO can expedite the process and set a fair market value for the seller. A professional
realtor can set a firm deadline on behalf of a client, solicit several BAFOs from interested
buyers, and submit these to the seller with a synoptic recommendation.
The seller’s BAFO strategy is to generate as much competitive tension as possible among
highly motivated buyers in a market where the highest offer will be accepted and the deal
closed quickly.
As another example, shareholders in publicly traded companies may have to entertain
BAFOs for their shares at a specified price and date. Shareholders then need to decide
whether they should turn down the offer and hope that share prices will rise, or take the
money and run.
Using BAFO with your RFP
Turning our attention to BAFO in the context of an RFP, it is easy to see advantages. When
highly complex technical solutions are involved, or major infrastructure investments are
required, there is often a limited number of potential service providers. The proponents in
these cases are usually quite familiar with their competition, and there may be few strategic
differences in the proposals being evaluated. The right to invoke a BAFO can expand the
magnitude of competitiveness focused on value for money for stakeholders.
Canadian Legal Context
How does BAFO translate in Canadian procurement practices? Not so easily. Given our
unique legal ‘rules’ for competitive bidding related to the formation of Contract A, the
BAFO process is fraught with procedural uncertainties unless it is very thoroughly structured
and clearly described. As most procurement professionals are aware, the option of including
negotiations in a binding RFP process has always been available to owners. These
negotiations have been conducted within the parameters of the Contract A conditions (as
discussed in The Legal Edge Issue 90, April - June 2010). The process could be summarized as
an agreement between the parties which is predicated on the concurrence of specifically
identified items. The owner still relies on the binding competitive process, but specifically
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builds provisions into the RFP which anticipate and describe a negotiation stage in the
selection process. This can be done with or without incorporating the right to seek BAFOs.
Incorporating BAFO in a Binding RFP
As with all advanced procurement strategies, there should be a bona fide and demonstrable
business reason for including the extra layer of complexity that BAFO brings to a binding
competitive process. The objective is to identify the leading responses under consideration,
and then have the initial responses improved as much as possible. As a part of the BAFO
process, the terms which may be negotiated further should be limited and very clearly
described, to keep the process manageable, and to head off discussions on endless
possibilities or about areas that an owner sees as non-negotiable. The same considerations
hold true for non-binding RFP processes.
Limiting the negotiations to technology advances or configuration options, for example,
enables an owner to address uncertainties through post-close negotiations with the selected
proponent.
Aside from the need to refine specifications and then seek final pricing, BAFO can also be
useful when it is necessary to evaluate different baskets or bundles of goods or services.
Perhaps you need to be able to pick and choose, or to consider combinations or
permutations of various bundles once the proposals have been reviewed. Again, without
express process language in the solicitation document, this practice is fraught with risk.
A Typical BAFO Process
In a typical BAFO process:
 Submissions are first evaluated to identify the leading proposals, based on the stated
criteria, as with traditional binding RFPs.
 A first round of the evaluation might only consider the technical merits of proposals,
with pricing to be addressed after proponents are shortlisted.
 The evaluation team asks for clarification on specific issues within the proposals, and
then typically creates a final scope or set of revised specifications.
 Proponents are then invited to amend their proposals to address specific areas of
concern, and/or adjust their pricing to reflect any changes in costs brought about by the
scope or specification revisions.
 The evaluation team does a final review and scoring, based on the best and final offers
received. There are no further negotiations.
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BAFO Resources
The inclusion of a BAFO in an RFP process requires a shift in skill sets, from routine,
predictable competitive bid process management to highly effective negotiations. A BAFO
negotiation team needs a designated leader and, depending on context, may also require
financial analysts, technical expertise, procurement knowledge, legal expertise, operational
responsibility, and senior executive sponsorship.
Advantages of BAFO
 Negotiations can lead to an increased mutual understanding of needs, with appropriate
revisions to reflect increased value.
 The level of competition is enhanced among the shortlisted proponents.
 BAFO encourages creative solutions by revealing alternatives and options that might
otherwise have not been considered.
 Relationships are built during the process, and trust is accrued.
 BAFO exposes technical shortfalls or depth of competencies among the parties.
 BAFO develops contract management objectives and performance metrics to address
inherent areas of risk.
Caveats When Using a BAFO
 The process does not eliminate the fairness and transparency requirements under
Contract A. Even if you are specifically operating outside of Contract A, we suggest
caution in this area.
 A poorly written RFP should not result in negotiations to ‘get it right’. In other words,
BAFO is not a substitute for thorough procurement planning.
 It is not an opportunity to simply use price-cutting tactics. These could be interpreted as
bid-shopping infractions.
 Over-reliance or misuse of the strategy leads to “holdbacks” on the part of vendors
during the initial phase. They then appear to provide more competitive offerings in the
final round, in the form of their BAFO.
 BAFO requires a strong team with complementary skills of technical requirements and
process knowledge.
 Information sharing among the parties during the process should be managed very
carefully, to avoid any perception of unfairly favouring leading proponents.
Final Thoughts
The BAFO process has been widely used in the U.S. and in Europe, but in Canada, it has
had limited success. As illustrated by current industry discussions about fully non-binding
competitive processes, the need to ensure best expected value for money often requires
thinking beyond the traditional RFP model. These advanced strategies require more creative,
collaborative and dynamic team negotiations, which can be professionally demanding. If you
do pursue a BAFO process, proceed with care and ensure that you have the right subjectmatter expertise to assist you at every stage.
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Maureen Sullivan is President of NECI and Legal Editor and Publisher of The Legal Edge. Larry
Berglund is an educator and consultant on supply chain management, and author of Food, Finance, and
Philosophy: A Role for Supply Management in Corporate Social Responsibility.
From The Legal Edge Issue 106, April - June 2014
The City will enter into concurrent negotiations with the top three (3) highest scoring
proponents, who have met the minimum threshold requirements. During these concurrent
negotiations, the City will provide each proponent with any additional information and will
seek further information and proposal improvements from each proponent. After the
expiration of the concurrent negotiation period, each of the top three (3) highest scoring
proponents will be invited to revise its initial proposal and submit its Best and Final Offer
(“BAFO”) to the City.
Each BAFO will be evaluated against the same criteria set out in Appendix E – Section C.
Rated Criteria and Section D. Pricing. The top-ranked proponent will then be selected to
enter into a final round of negotiations to finalize the agreement in accordance with the
terms contained in Part 4 – Terms and Conditions of RFP Process and the Submission
Form (Appendix A). The City anticipates commencing this final round of negotiations
around April 22nd, 2013.
If after the completion of Stage III, there is a difference of greater than twenty percent
(20%) between the total score of the highest scoring proponent and the total score of the
next highest scoring proponent, the City may choose not to engage in the BAFO process
and to enter into direct negotiations as contemplated in Part 4 with the highest scoring
proponent.
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