Supply Side
Why Suppliers Bid For Public Sector Contracts (Part 2)

In part 1 here we looked at an exercise we’ve used to get buyers and commissioners in the public sector to think about what encourages potential suppliers to bid. Clearly, any buyer wants to have a good, competitive field of organisations competing actively for the contract, so in an ideal world most suppliers who are actually qualified to do the work would express interest and put forward a proposal.

So what are the key factors that determine whether that potential supplier does choose to put themselves forward? There are six key areas that are likely to be considered by an organisation making a considered judgement:

  1. The strategic fit of the work – does the advertised work fit with the current and future strategy of the bidding organisation? That is not quite as simple as current business alignment; it may well mean future direction and aspirations. So an organisation might want to diversify, or indeed this may be a new area of contracting for the public sector. For instance, when the UK started putting prisons management out to private firms, Sodexho, a catering firm by background, moved into that area).
  1. Capacity and capability to do the work – this seems obvious, but often contracting authorities and buyers do not take capacity in particular into account when planning procurement programmes. There have certainly been cases where an industry such as construction has been “overloaded” by a heavy public programme, resulting in less active competition as individual firms may lack spare capacity and choose not to bid.
  1. The likely financial effect of the work – that means not just the likely profitability of the work, but potential investment costs related to the contract, cash flow, revenue (important for instance if the firm has made revenue growth a strategic aim).
  1. Likelihood of winning – that itself has a number of elements. There is the estimated chance of winning the contract based on capability and the likely number and quality of other bidders, and also an assessment of the particular contracting authority , and past experience there (see the next point). The paradox for buyers is that they want lots of well qualified bidders in the field; yet if there are many organisations who could do the work, some may drop out simply because the probability of winning is lower.
  1. Supplier’s view of the contracting authority – potential suppliers do make decisions about the “attractiveness” of the authority, based on a number of factors. Past experience of bidding for contracts and of course of actually working with the organisation plays into that; as does the reputation of the buyer. Are they known for being good to work with, for paying bills on time, for being a positive partner? Or are they a nightmare to work with? This does matter.
  1. Organisational capacity and capability to complete the bidding process – many buyers are unaware of just how important a factor this can be. A major tender can take dozens or even hundreds of person-days’ work to complete. While larger firms often have dedicated bid teams, they do not have infinite capacity. In smaller organisations, someone has to be taken away from their day job to complete the bid, which has a real cost. Put the tender out during the summer of Christmas holiday period, and the chances of a potential supplier not responding is even greater, simply because there may be no resource to complete the proposal. And clearly, tight deadlines for responding will make it more likely that firms say “no”.

So understanding these factors is important for authorities if they want to take steps to encourage strong bidders and robust competition. Some of these factors are outside the control of procurement (and budget holders), such as the bidders’ own strategic positioning, but in other cases, there are things that can be done to encourage a healthier field of bidders.

First Voice

  1. Digby Barker says:

    I think this is a good summary, Peter, although in some cases the commercial implications of not participating and/or of participating but failing to win can also be key factors. I would also add that
    a) in making a decision suppliers will have in mind the opportunity cost (in the broadest sense) of addressing any particular opportunity and to that extent CAs must remember that they are competing for suppliers’ attention against other ways in which they could allocate their resources; and
    b) suppliers will not necessarily consider all these factors (at least to the same degree of detail) at the outset and will likely review their continuing committment to the process as the procurement proceeds. As with any project it is important to be ready to ‘draw stumps’ if the game no longer seems worth the candle (a decision that the attitude of the CA e.g. in terms of its response to CQs can heavily influence !)