The exercise of tendering should be an opportunity for a client to procure the service or supplies at a reasonable price. Unsurprisingly, there are times when the meaning of competitive tendering passes some completely by.
Picture the scene. You have a tender to put out and you have been told that you must bring a cost-saving on the existing contract. This is the sort of scenario seen regularly in the FM and procurement environment, as it’s often seen as the easiest way to save money. Is getting a cheap deal the best way to get value? Or, is competitive tendering bigger than that?
Rethinking Construction – The Age of Egan
Let’s rewind and go back to the first days of the Egan. We were told that adding Egan principles to a contract would bring us 10% savings year-on-year. I remember commenting to my boss ‘give it 20 years and contractors will be doing the job for free’, adding a wry grin to complete the statement. I was of course joking, but nevertheless getting the point across that you can only go so far in bringing savings. Back then, I seemed to be the only person that recognised that you couldn’t get 10% savings continually each year.
Furthermore, I remember being instructed to ‘screw down’ costs on what seemed to be reasonable quotations from contractors, and it was almost a game of power to squeeze down until the supplier squealed. Secretly, I wondered how on earth they made money. One older (and wiser) colleague revealed that ‘A contractor will never work for a loss’. My later experiences proved him right.
My personal view has always been that a well set up contract will bring its own savings, in time, administration, materials and added value. So often a quality supplier or contractor can bring streamlining and gains in systems and new technology throughout the contract not just at the point of tender.
Cost Rather Than Value
Sometime around 1990, I cut my teeth as a Junior Surveyor on the subject of tendering. A Senior Surveyor told me ‘Just remember this. Tenders are won by the bidders that are cutting the most corners or making the biggest mistakes’. Although this comment is arguable, there is an element of truth in there and this thought stayed with me. Shortly after that, we had a surprisingly cheap tender for fitting PVC windows. The contract soon went pear shaped, and it took over twice as long to get the site completed. Additional measures included close supervision, arguments, extra officer time, stress, complaints, extra meetings and management pressure. The quality of those windows was suspect as they were riveted rather than screwed; but hey, they were cheap! I would be willing to bet they were replaced earlier than expected and ultimately cost more than the next lowest.
This memory has burned itself into my cerebellum from the pain it caused. This memory came flooding back in 2011 when I was looking for an electrical testing contractor. The cheapest tender was just 30% of the value of the second placed bid. On seeing the prices submitted, one manager beamed and calculated the enormous saving in prospect. Or would we? The bid appeared to be sub-economic, meaning the contractor would lose money by actually doing the work. Although we went back to the contractor and had a protracted discussion, my concern was that they were going to crucify us on extra and potentially unnecessary work. I remembered that contractors don’t work for a loss, and it was impossible to get an hour and a half’s work done for half hour’s money. Even so, I had to robustly argue the case, being the one responsible for managing the contract.
Tendering in Austerity
In this economic climate, I’ve had many reports of clients telling the cheapest bidders that they need to reduce their prices further to get the contract. This personally leaves me with serious concern over ethics, morality, quality and potentially legality of the situation. The procurement process is supposed to be competitive tender, where the market place decides the rate. Further negotiation on the lowest price adds further stress to the bid, and corners will be cut, even if you don’t want to contemplate it.
These cuts might actually come back to bite. If you want to prove this, just ask a painting contractor others make up for low rates, and they will cite skipping coats, painting in the rain, using cheaper coatings and skimped preparation. A reduction in quality means a less durable coating and more repairs prior to painting next time.
Ultimately, value and quality have to be designed into the tendering round to get the best from the process. These are as integral to both parties as they are to the success of the exercise. I’ve yet to meet a contractor whose aim is to provide poor quality and service, yet you can’t reduce price without some compromise over quality. The next time a contract goes pear-shaped, ask yourself whether you inadvertently designed out quality by being too focused on bringing savings.