At last week’s BravoSolution Real World Procurement session, my friend and colleague Guy Allen talked about Driving Value from your Sourcing Process.
One of his key points was that procurement often reduces competition too quickly as we move through the procurement process. So in public sector terms, those stages might include a pre-qualification process, then a tender resulting in a preferred bidder and contract award. In procedures such as Competitive Dialogue and the new Competitive Procedure with Negotiation, there may be multiple stages that gradually reduce the number of potential suppliers who remain in the frame to win the work.
The issue Guy raised of maintaining competition for as long as possible absolutely applies in the public sector environment. But the challenging aspect of this is exactly how to best balance two different aspects of the process.
It is just too expensive in terms of the time and resource for consumers to have too many suppliers completing the full tender stage of a major contract. Very few public sector contracting authorities can afford to evaluate 10 or more full bids for a single contract, for instance. But it is not just an issue for the buy-side. If suppliers see that there are a large number of bidders in a competitive process, they are more likely to withdraw, assessing (quite rightly) that their own chances of winning do not justify the cost of bidding.
But at the same time, if we don’t have enough bidders, or we down-select too quickly, there is a real danger of losing that pressure or even in the worst case ending up with an organisation left in a monopoly or sole bidder situation before they have really submitted their most advantageous offer.
This is a complex topic, but the broad advice is to be cautious about reducing bidder numbers too early in the process. For instance, in a negotiated or competitive dialogue-type procedure, we would always try to keep three bidders as a minimum going right up to the “invitation to submit final tender” or equivalent. Many contracting authorities down-select to two and that might be the only option in some cases, but of course with two, it only needs one to have a problem or decide the contract is not for them, and we are left with that single-supplier situation.
Equally, it is risky to move to the formal standstill period and announce contract award whilst still undertaking final negotiations with that winning bidder. Whilst such negotiations are supposed to be simply “clarifications”, we all know that sometimes they are somewhat more substantial than that! If you are still looking for some movement from the bidder, it is better in our opinion to position that organisation as a preferred bidder but hold off the announcement of contract award and delay going into the standstill period until negotiations are complete.
That may delay the process for a short time; on the other hand, the bidder is more likely to negotiate positively if they know they have not yet definitely won the contract. That avoids the danger of moving into contract award with important details still outstanding at which point (as Guy said) you have lost pretty much all your leverage with the supplier. In the worst case, that can lead to situations such as the UnitingCare contract collapse in the UK health system. A major part of that was the contract being signed with a major area of negotiation – the core financial details, really – still not resolved. Not surprisingly, the contract collapsed just months later.
So all the way through the procurement process, bear in mind how you can maintain competition and competitive pressure. It really is a vitally important element that contributes towards a final contract that offers value for money and is successful for all parties.