Disadvantages of Standing Offers

"Disadvantages of standing offers" refers to the drawbacks that come with using a standing offer as a procurement method. The Government of Canada, through CanadaBuys buyer guidance, identifies two: possible withdrawal by the offeror and potentially less competitive prices.

A standing offer is an offer from a supplier to provide specified goods or services at pre-arranged prices and under set terms and conditions when required. It is not a contract until the government issues a call-up, as explained in How the Government Buys. The drawbacks are weighed by buyers when they choose a procurement strategy.

The two drawbacks CanadaBuys names

CanadaBuys tells buyers to consider both the benefits and the drawbacks of a standing offer. The benefits it lists include improved client service and a reduced risk of overestimating requirements. The drawbacks it lists are:

• Possible withdrawal by the offeror: the supplier that made the standing offer may withdraw it.
• Potentially less competitive prices: the prices obtained through a standing offer may be less competitive than those from another method.

These points are set out in the CanadaBuys guidance on choosing a method of supply.

No guaranteed purchases before a call-up

A standing offer sets prices and conditions in advance, but nothing is purchased until a call-up is made. Each call-up creates an individual contract. Before that point, neither the government nor the supplier carries the contractual obligations of the resulting purchase. The CanadaBuys page on standing offers and supply arrangements confirms that a standing offer is not a contract, and federal guidance from Employment and Social Development Canada states that Canada is under no actual obligation to purchase before a call-up is issued.

When a standing offer is the wrong tool

CanadaBuys states that standing offers are not suited to every situation. They do not fit where:

• prices, pricing bases or conditions are undefined or may change at the offeror's discretion;
• further negotiation of the standing offer terms is intended; or
• a new solicitation is intended each time the goods or services are required.

Standing offers are meant for recurring needs where departments or agencies repeatedly order the same goods or services. Where requirements vary from one purchase to the next, Canada's procurement guidance points to a supply arrangement instead. It describes supply arrangements as an option for goods or services bought regularly when the variables in individual requirements make a standing offer unsuitable. See the PSPC page on supplying services.

What it means for a supplier

Standing offers are solicited through a Request for a Standing Offer (RFSO). Suppliers that meet the stated evaluation criteria become pre-qualified suppliers and holders of standing offers. Qualifying does not guarantee business, because the government may make no purchases. A supplier must also be able to deliver at the pre-arranged prices and under the standing offer's terms whenever a call-up is made.

Bid teams should read the terms of the specific standing offer before responding, since a supplier's obligations depend on those terms. The federal guidance reviewed does not state that a supplier must accept every possible call-up. Pricing deserves close attention at the RFSO stage, because the prices you offer are the prices that apply to call-ups.