PERAC Memo #32 - 2018: Procurement
Procurement
View original on mass.gov →Summary
This memo provides procurement guidance as boards approach the April 2019 contract re-bid deadline under § 23B. Key reminders: RFPs must not exclude qualified vendors through minimum Massachusetts client counts, asset thresholds, or other bid-tailoring requirements that limit competition; award points for such criteria rather than using them as pass/fail gates. Boards are also strongly advised to conduct in-person interviews with finalists, as case law (Unisys) shows that interviews are a critical shield against breach-of-fiduciary-duty claims when investments later fail.
Full Text
M E M O R A N D U M
TO: All Retirement Boards
FROM: Joseph E. Connarton, Executive Director
RE: Procurement
DATE: November 6, 2018
In the upcoming months retirement boards will be seeking to procure various services in order to comply with the statutory limitations on contract length. As that process unfolds retirement board members must comply with their fiduciary duty. This memo outlines several reminders based on what the Commission has experienced since the adoption of Section 23B of Chapter 32.
The Inspector General issues a regular Procurement Bulletin which is helpful to those about to engage in a competitive process. Bid tailoring — when specifications favor one or more vendors and exclude others — may be inadvertent or intentional and constitutes a violation of the duty to conduct a fair and open competitive process. Examples of impermissible requirements include minimum years of experience, minimum market share, geographic restrictions unrelated to service needs, and requirements for specific proprietary products.
PERAC's Compliance Unit has seen many RFPs that reject submissions if the service provider does not have a minimum number of Massachusetts public pension fund clients or does not manage a minimum level of assets. Mandating such requirements prevents otherwise eligible firms from even submitting responses. The proper approach is to award points based on meeting the criteria rather than using them as pass/fail thresholds.
In-Person Interviews
Retirement boards should conduct in-person interviews with finalists as part of the selection process for investment service providers and legal counsel. Commentators and case law (Unisys Savings Plan Litigation, In re, 22 EBC 2945 (3d Cir. 1999)) confirm that in-person presentations are a key element of a prudent fiduciary selection process and provide a defense against breach-of-fiduciary-duty claims. The failure to conduct such interviews does not expose the fiduciary to personal liability until something goes wrong; at that point, the absence of interviews becomes highly damaging.
The Commission understands that this period of increased procurement activity is a challenging one for board members. Please contact PERAC Compliance Officer, Tom O'Donnell, if you need assistance or have questions regarding the procurement process.