In the summer of 2009, some colleagues and I were making a PowerPoint pitch to Adesh Pratap Singh Kairon, the then Food and IT Minister of Punjab. He was chairing a panel that included officials from Punjab State Grains Procurement Corporation or PUNGRAIN, the potential client, and the International Finance Corporation, the lead transaction advisor. We were seeking to be appointed as legal counsel to structure and award a 30-year concession, under which the winning bidder would finance, construct, operate and maintain a 50,000 metric tonne grain storage facility. This flagship project was the first state-level public-private partnership for agricultural storage facilities in India.
We didn’t have much business being there. Trilegal, the law firm that I had helped to set up, was under a decade old, with a growing but still modest reputation. No one in our team had worked on warehousing or storage projects before. Why were we being considered to advise on this precedent-setting project?
The Tyranny Of The L1 System
To oversimplify, most government bids go like this: Give me X — this could be lightbulbs, missile launchers, engineering services, roads — of Y quality, within Z period of time. As long as the bidder fulfils the requirements of XYZ, all that really matters is the price it quotes.
Government requests for proposals for legal services are similar. There are two parts, first a ‘technical’ proposal seeking details of experience on similar transactions and CVs of the proposed team; and second, a ‘financial’ proposal, requesting the price quoted to carry out the mandate. Firms with the right ‘technical’ experience — having done a certain number of similar matters — qualify for the next stage, in which financial bids are opened. The firm with the lowest price then wins the bid, as ‘L1’. Increasingly, many law firms have the requisite experience, so the bid process is essentially about whose price is lowest.
Little or no discretion is exercised by the government authority to select a bidder which is not L1. They are lumped with whoever is the cheapest.
The Best Firm For The Job
The 2009 IFC/PUNGRAIN RFP also sought technical and financial proposals, but importantly, being a World Bank Group RFP, it also had a section on methodology. Here, bidding law firms were invited to explain how they would address the legal and regulatory issues relevant to the project.
Since we were competing against international firms and more established Indian ones, we pulled out all the stops. We identified national and state laws that impacted agricultural storage, public procurement, and infrastructure development and presented a comprehensive picture of the legal and regulatory environment for the project. We detailed various options to structure the concession and even speculated on criteria that could be used to evaluate the bids that PUNGRAIN would receive. We later estimated that the work put into that pitch amounted to about a quarter of the effort we made for the entire project. We were convinced that this is what led to us being called for an interview and yes, we won the bid, the first step towards creating a quality PPP practice.
We won for various reasons.
- First, we were given the opportunity to demonstrate the deep research that we had done on the sector.
- Second, we outlined how we would problem-solve to achieve PUNGRAIN and IFC’s objectives.
- Third, and perhaps most importantly, we showed that we were hungry to work on what was a passion project for Minister Kairon and the Punjab government.
This made us the right fit for the mandate.
Embrace Subjectivity
To address unique problems, for matters which might set an important precedent, or in matters of national-level significance, well-tailored, high-quality legal solutions are required. This is also relevant for high-stakes disputes, which can have important political and socio-economic consequences.
The familiar argument is that any subjective approach is problematic. Government decision-makers are fearful of internal audits and being sued by losing bidders questioning the exercise of discretion. This fear is understandable in the context of buying goods or generic services, where specifications can be made clear and objective, but should not be the case when procuring knowledge-based advisory services.
Actually, government agencies sometimes do allow themselves a subjective approach when selecting certain knowledge-providing consultants. Take the case of architects. For important projects such as the Central Vista, the National Police Memorial, etc., the jury system is followed. A panel reviews submissions and interviews bidders to understand their approach and gauge commitment. Interestingly, an attempt by the Government of India to make the selection of architects for government projects more ‘objective’ met with a powerful and well-argued response from the Council on Architecture. They pointed out that architectural services are intellect and talent-based and must be evaluated for fitness of purpose in a qualitative competition, not just on the basis of price and past experience.
Incentives Matter
You have heard that old cliché – if you pay peanuts, you will get monkeys. When RFPs are effectively decided on price alone, firms often lowball bids to win. They may still do a great job but insufficient rewards create poor incentives. If a winning bidder quotes a particularly low price, the client is then relying on people behaving like saints: it is difficult to maintain enthusiasm and commitment for a matter that is a loss leader.
Would the government really want and trust, for example, a law firm that quotes a pittance to advise on something as important as the Air India privatisation?
Government agencies try to protect against this by requiring performance bank guarantees and even introducing liquidated damages in lawyers’ engagement letters. Aside from the fact that such instruments likely fall foul of Bar Council regulations, it is difficult to conceive of objective metrics to realistically measure a lawyer’s ‘performance’. And isn't it better to have an approach that incentivises excellent work rather than retains the ability to punish poor performance?
Elements Of A Better Approach
Here’s what a different approach could look like.
- Apply an initial filter of experience to eliminate small or non-serious bidders. The government cannot be expected to evaluate hundreds of bids.
- Request a detailed technical submission on the proposed methodology and approach. This will self-select for effort and application of mind.
- Build capacity to evaluate proposals and establish a panel to select legal advisors. If a panel contains experienced subject matter experts, allegations of impropriety can be minimised.
- Shortlist based on submissions and interview each selected bidder.
- Score each bidder on approach and methodology. Record clear reasons for the score given.
- Open price bids. Eliminate firms with low-ball bids as non-serious. Consider setting a floor price for bids.
- Retain the ability to negotiate a price with the firm that gets the highest technical score if it isn't the cheapest. But don't push them so much that they lose motivation.
- Select the winning firm, based on a combination of technical score and price.
Central, state, and even municipal governments increasingly use external legal advisors for a variety of complicated matters in which important policy objectives are sought to be achieved. These range from privatisation, creating infrastructure, designing and conducting bidding processes, and even drafting new laws. Addressing these matters requires creativity, deep knowledge, and high-quality problem-solving skills. The government should give itself a better chance of finding the best lawyers for the job. For that, it will need to look beyond just hiring the cheapest.
Akshay Jaitly is President, 262 Advisors; and co-founder of Trilegal.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.
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