The process of buying products and services and providing business opportunities to suppliers via a tendering process has traditionally been a government centric procurement tool. However, the private sector is currently hot on the government’s heels in seeing the potential benefits that approaching the market through a competitive tendering process can provide. Woolworths is a current example of the emerging private sector approach to procurement with their new policy stating that “all required products and services always go to tender.”
So what does a tender process generally involve and what benefits can it provide to your organisation? A tender is “a process by which a company that is going to market in order to find a solution to a business challenge or to assist in growing the business, asks a number of vendors to submit multiple pieces of documentation in order to compare, contrast and eventually select and implement a solution presented by one vendor”. There are a number of different types of “tenders” which vary in length and detail such as Requests for Information (RFI), Request for Proposal (RFP), Registration of Interest (ROI), Select Tender and Open Tender to name a few.
There are many benefits that can be gained in using a Tender process as your procurement method of choice for approaching the market such as:
- Due diligence: providing the best possible value for money outcome from the procurement activity;
- Compliance with probity requirements – particularly relevant for government organisations with legislative obligations;
- Keeping the marketplace competitive and companies fighting for your business;
- Assisting your organisation to maintain an understanding of what alternatives and options are available in the market place;
- Keeping any current supplier on their toes;
- Your organisation drives the agenda of needs, and suppliers submit their proposals based on your terms not theirs;
- You can involve key stakeholders in the selection process to get their buy in; and
- You can ask for/get offered more value, whether this takes the form of price reductions, better service, higher quality products or other value adds.
But be warned, utilising a tender process as your default method of procurement without allowing for flexibility in approach can be fraught with danger. Approaching the market through a tender needs to be used in the right circumstances, otherwise your organisation can run the risk of not making strategic decisions in your procurement approach, and the tender process becoming nothing more than an administrative tool that may or may not result in value for money outcomes for your organisation.
It is therefore essential that your procurement process is flexible enough to allow for good practical business reasons not to go to tender in some circumstances. To assist you in making those decisions, below are 11 reasons when not to go to tender courtesy of procurement guru Paul Rogers FCIPS:
When there is only one supplier in the market due to technical, patent or licensing reasons; a Monopoly market
When specifications are not sufficiently defined and we need to engage in a dialogue with potential providers such as when buying creativity, innovation or new technologies
When we suspect bidders may collude or the market has a history of collusive activities. In these markets tender processes provide much greater scope for collusive activities and should be avoided. Collusive behaviour is more likely to be found in smaller markets with many duopolies
When the value of the procurement is low and the cost of approaching the market through a tender would exceed the benefit to be gained from competition between suppliers. In that regard many government organisations set thresholds below which they do not go to tender. This is a good approach to take provided the threshold is based on sound financial analysis and not guestimates (no matter how educated they may be)
When the solutions to the need are not directly comparable. For instance you may be considering outsourcing marketing service versus appointing an in-house marketing team
When market standards are varied and tendering is not likely to allow an apples for apples direct comparison eg. Where you are considering different technical solutions
When the requirement is urgent and there is inadequate time eg. A burst water pipe that needs repair immediately…[Read More]