The tough task that is tendering

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1 April 2005 | 0

The tendering process can be complicated and time-consuming, but it is a necessary part of the contracting process, especially in the public sector—as transport minister Martin Cullen found out to his cost and embarrassment last year.

There is an art and a skill in putting together a successful tender. So much so that many companies often have someone whose main responsibility is finding the right tenders to reply to and framing the response. Loman McCaffrey, sales account manager at Unitech, spends 90 per cent of his time on public sector tenders. ‘It’s an industry within itself,’ he says, ‘which justifies having someone who specialises in doing it.’

Noel Neenan, sector sales manager at Mentec, agrees that making a tender ‘requires a considerable amount of effort—it’s an expensive process. The public sector is considerably more expensive than the private sector. Where money is involved, time is involved and timescales can be expanded. There’s not just the basic cost, there’s the opportunity cost. You have a double hit because you’re losing the opportunity of people working on other things.’

McCaffrey at Unitech says the company did not start trying to win government business until it had been in operation for three years because it did not feel it could justify spending the time and effort until it had reached a certain size.

Neenan agrees that ‘the cost of entry to the market through tendering can be quite high—it’s difficult for smaller players to apply the resources to it without putting the business at undue risk’.
If the cost of responding to a request for tender is painful (especially if you are unsuccessful), part of that is probably down to the complexity of the process. One industry source argues that tenders can sometimes be so complex to respond to that ‘you would be forgiven for thinking they have been designed by consultants to ensure the consultants have a job for life evaluating the responses’.
This point is echoed by another insider. ‘You could say there’s a self perpetuating industry of advice, tender design, evaluation and selection, monitoring and quality. There’s a whole industry running in parallel with the process of selecting the tools to do the job and it would be interesting to see how much is spent on consultancy as a proportion of the project. I suspect there are very large amounts of money spent on consultants—in some cases, maybe more than the project itself.’

The reliance on consultants is a form of insurance for the decision makers, he argues. ‘They cop out of not having to make visionary decisions. Selection is distorted by that infrastructure. It takes people away from what they originally want to do.’
Lorcan O’Sullivan, manager for client knowledge services at Enterprise Ireland, argues consultants can play a role. ‘If I have doubts about drawing up a tender, I use a consultant. You need to put a lot of thought into a request for tender. If you’re incautious in the wording, you can hang yourself and have to follow it or cancel it and start all over again.’

McCaffrey at Unitech wonders whether the involvement of a consultant might not just be a comfort to the person putting out the tender but also to the business responding to it: ‘A lot of consultancy can be from the technology point of view rather than euros and cents.’

Better up north
But are there better ways to do it? An industry insider argues the public procurement process in Northern Ireland, ‘where there is usually a prequalification, then a shortlist, followed by a best and final offer stage, seems to deliver much better value to the taxpayer and ensure the government department buys what it actually needs, rather than what it thought it needed at the outset of the process’.
Neenan at Mentec agrees. ‘It’s a better idea. You’ve gone through the process of interaction and people know you better.’ In addition, the process is handled by a separate procurement directorate. ‘People on the project team aren’t running the selection. It frees them up from having to be experts in procurement. In the Republic, the people running the selection can be the project managers. They’re not experts on procurement so they can get tense or anxious. The Northern Ireland system adds a layer of cost, but it provides the opportunity to release the selection team from the legalities of the process.’

The system in Northern Ireland also requires less commitment of resources from bidders until they get to the best and final stage, by which stage the odds of winning are reasonably high.
On a related point, Laura Turkington, senior market development adviser at Enterprise Ireland, says ICT spend across public-sector divisions is more fragmented in Ireland than in other European countries. It is difficult to get good market insight into what is happening in Ireland because the information ‘just isn’t available’.
Her role involves helping Irish companies to try and sell into the UK public sector. ‘The fact so many companies are interested in the UK bears testimony to the fact they’re finding it difficult in Ireland,’ she argues. ‘The Irish market isn’t as equitable as it should be. It’s more precautionary in terms of the vendor selection process and the larger players are seen to secure the major contracts.’

Cost versus value
Selection criteria can also produce problems, especially value for money and cost. ‘If cost is the only criteria used to evaluate tenders,’ complains one insider, ‘we will end up buying everything from third-world suppliers and companies which operate on a shoestring. Ireland will be left with little or no indigenous IT industry or indeed taxpayers to pay for its very expensive civil service.’
He says further clarity in tenders as to how the marks for cost are awarded when evaluating responses would be welcome. ‘There are many different ways of doing this and it is seldom made clear in the tender.’

As for value for money, he says, the concept can be stretched to the limit in public procurement. ‘We frequently see very bad decisions made on the basis of upfront purchase cost and little or no attention paid to the cost of ownership of the solution procured.’
Another insider agrees. ‘Selection on price as a major matrix can be difficult to get right. Sometimes you end up with people being selected because they’re good at submitting tenders and completing the process rather than because they’re good at delivering a solution.’

But Neenan says there has been recognition of the issue in some tenders. ‘We have seen tenders which include a five-year table looking at total cost of ownership,’ he says, adding that a lot of people don’t like multiyear costing.
Dermot Woodgate, business development manager at CARA, agrees. He has noticed that many government procurement exercises ‘are beginning to focus much more on the overall cost to the taxpayer of the solution over its life and less on the upfront cost of acquisition. This is to be welcomed’.

Lorcan O’Sullivan at Enterprise Ireland says people framing tenders ‘can put down any criteria which are reasonable, but you have to assess according to that criteria’. He stresses that value for money and price are different, but admits there may be occasions in tenders where the issue is only about price.
Neenan at Mentec says it’s worth checking whether the criteria are ranked and where cost is in the ranking. Sometimes the tender is vague and the criteria are in no particular order. This might be because the people making the request for tender need a certain amount of responses.

 

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The shoe in
Richard Nolan, managing director at Decision Support Services, claims there are also occasions where tenders ‘have been written to give certain vendors an advantage. We try to recognise those and not respond to them’.
Which brings us to another interesting side of the tender process. Sometimes responding to a request for tender is more about being seen to show an interest than about trying to win the contract. ‘Sometimes you bid for deals you know realistically you’re not going to win,’ McCaffrey at Unitech admits. ‘If you want to be the key technology partner of a department, they may expect you to be bidding regardless.’

Neenan at Mentec agrees. ‘For tactical reasons, you may want to bid because of other things. You could say that was a marketing cost as opposed to a bidding cost.’
But you have to be careful: the one thing worse than losing a contract you’d like to win, could be winning one you don’t want.

The way ahead?
The complexity of the tendering process is driving moves to try and simplify matters. This is being adopted in some areas through a shift to e-procurement. The Department of Finance published its Strategy for the Implementation of E-Procurement in the Irish Public Sector in October 2001. It set a target of 90 per cent of tender competitions (above the EU threshold) and 80 per cent of payments to be carried out electronically by 2007. It also called for a reduction of five per cent in the average procurement cost for supplies and services.
In a booklet on eProcurement, published in June last year, Enterprise Ireland argued the moves would lead to a vast reduction in paperwork and other administration costs involved in tendering. It suggested companies that seized the e-procurement opportunity could ‘gain market share at the expense of their more conservative competitors and new export opportunities may open up, especially for those who achieve early success at supplying the Irish public sector through e-procurement’.

The E-tenders Website is the most visible manifestation of the shift to e-procurement. Woodgate at CARA welcomes the increased transparency which initiatives such as E-tenders have brought to the procurement process but feels there is more which can be done.
He raises the issue of central procurement from a catalogue of ‘preferred suppliers’, something which already takes place in the UK.
One industry source agrees that the E-tenders site ‘is a great idea’ but claims it’s also ‘a real pain. Yes, there is much more transparency, but the volume of responses received has made the decision making process much slower’.

O’Sullivan at Enterprise Ireland has some sympathy for that view. ‘It takes a lot of effort to submit a proposal and it takes a lot of effort to appraise it. The more people apply, the more difficult it is for both sides.’ But he argues e-procurement ‘makes it easier for purchasing managers to enforce discipline because all purchasing is done through computerised systems’.

It also drives consolidation of certain types of contracts, something which may make life more difficult for small suppliers but which makes sense for commodity type products. O’Sullivan sees a measure of simplification coming in the shape of framework agreements, usually over a three year period. ‘It gets rid of the pain,’ he says.

From a smaller company’s perspective, the cost of entering the public sector market may be prohibitive under the existing system, but there are no guarantees that the shift to e-procurement will make things any easier. As Enterprise Ireland points out in its guide, ‘one of the challenges e-procurement in the public sector presents for SMEs is consolidated buying patterns. If a number of agencies in a particular sector start to purchase together to make the process more efficient, larger tender sizes may make it difficult for small firms to fulfil these contracts’.

O’Sullivan suggests small businesses start dealing with the implications while times are still good. He recommends several strategies, including targeting different markets, partnering with other companies or ‘developing other attributes which make you different’. He argues it would be wrong to suggest small companies will always lose out. For example, a small local operation will have lower overheads than a large multinational.

McCaffrey says partnering with other companies is a viable option, ‘as long as there is visibility on escalation’. There have been instances where Mentec has worked with other partners and the department has been happy with the arrangement.
In any case, no matter what size is the business replying to the tender for contract, McCaffrey says there are several rules they should bear in mind. ‘Be selective—make sure that what you’re going for represents the best chance of a return. Remember that when you start to land a few [contracts], there’s still a lot of work to do implementing them. Finally, apply for less and win a higher percentage.’

Dealing with the implications of e-procurement
1.Make sure your IT systems are robust and adequately managed
2.If you are one of the declining minority who still do not have e-mail and Internet access get it now
3.Prices are likely to get squeezed in many sectors so start or intensify efforts to improve efficiencies
4.Work at finding out how these changes will affect you (the effect will vary from company to company)
5.Bear in mind that in some cases the best response to the changes in public procurement may not necessarily be IT related, but may require a more general change in business strategy
6.Use the e-tenders site or tender alert agencies
7.Consider tendering for work from foreign public bodies.
source: Public Sector eProcurement: Advice for suppliers (published by Enterprise Ireland)

29/03/05

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