How buyers can reduce risk and get better bang for their buck
It’s hard to get tender documentation right, isn’t it? There are just too many tripwires!
Here we reflect on our experience as a member of our client’s bid team to develop a successful response for a complex tender. We share our tips on how buyers can decrease risk and generate greater value for money by improving their procurement practices and making the response process simpler for the tenderer.
A government authority, the key buyer for health goods and services within the state, was procuring a services contract for the transport of patients to and from hospitals, care facilities and their homes. These services are essential for ensuring patients at risk of health complications are safely transported from Point A to Point B in a timely manner consistent with health regulations.
These services were tendered through an open market process. This was only the second time the government authority had procured these services.
The services contract was for three years and the scope of the contract was for all transport types to all areas of the state.
Our client, a provider of transport services, required help with the development of a timely and complex tender response for this contract, central to their business.
Usually Grosvenor assists clients in conducting high stakes procurements – the buyers. On this occasion, we switched sides to work with our client as part of their bid team – the tenderers – in deciphering and responding to this very complex tender.
Let us share our learnings with you on how the buyer, through simple tweaks to their procurement process, could have:
- realised better value for money
- managed risk more effectively
- supported market competitiveness
- improved contract governance.
When undertaking services procurements, both public and private sector organisations need to achieve value for money and manage risk appropriately. Further, buyers have an ethical obligation to ensure that the market for those services remains competitive. Lastly, contracts need to be governed effectively to facilitate the achievement of their intended strategic outcomes.
Grosvenor was engaged to assist with developing the tender response for our client. The scope of our engagement included the development of the written response and project management of the whole tender submission process. We also assisted our client to develop the pricing response through connecting it with a financial analyst for the construction of the pricing model.
The structure of the RFT documentation released to the market posed a number of problems for our client and relate to structural issues with the documentation. Being on the other side of the fence for this procurement process afforded us with an excellent opportunity to observe the process from the perspective of a tenderer and develop learnings to share with other procurement professionals.
What we learnt
1. Clarify contract arrangements – don’t make it too complicated!
In this case, successful tenderers were required to sign up to three separate contracts for the delivery of the services – eek!
When running a tender process, keep in mind:
- complicated contract arrangements make contract management difficult for both the buyer and services provider
- more complex contractual arrangements increase the difficulties of tender evaluation.
2. Streamline the RFT documentation released to the market – keep it simple
The volume of the RFT documentation released by the buyer totalled over 51 individual documents and over 400 pages of material that our client had to review, digest and respond to. Phew!
- the volume of documentation you release can disadvantage or demotivate smaller providers, who would otherwise give you value for money options
- it actually costs providers to respond to tenders, in terms of the management effort set aside for the tender process. Reduce the tendering burden on potential bidders as much as possible
3. Providing a clear basis for pricing will give you a tighter range of proposed fees
A core component of services pricing includes pricing for risk, particularly when a variable pricing model is used such as in this instance.
The less certainty you provide regarding the basis tenderers should price on (ie. workload data, trend data), the more risk is being transferred to tenderers and as a result, the higher their prices will be.
Make sure you always provide clear data for tenderers to price on to provide you with better value for money tenders and an easier pricing evaluation process.
4. Important – don’t give money away for free!
Through the RFT documentation released to the market, the buyer noted that: “variations to the price will only be considered when increases or decreases in that particular index… [including] increases in CPI components (such as fuel), where those increases cannot be absorbed by the Providers”.
Statements such as these leave the door wide open for providers to claim for variations that they could have reasonably anticipated would occur over the life of the contract, meaning you’re effectively giving money away for free.
Ensure that you clearly articulate in the RFT what you expect will be included in the price tenderers submit to you, including foreseeable costs that arise over the life of the contract, in order to receive fixed fees that won’t gouge you over the life of the contract.
5. Communicate evaluation criteria – don’t keep your cards close to your chest
The evaluation criteria are a core influencer in a service provider’s decision to bid or not to bid for the delivery of the services in a procurement process. Ideally, evaluation criteria are concise, clearly articulated and transparent. In this case, it was unclear how the tender evaluation would be conducted, which made it difficult for our client to determine which services they should and shouldn’t bid for.
There’s nothing to gain by hiding the weightings and not articulating the evaluation criteria clearly. Rather, you can actually demotivate potential tenders from bidding, meaning you have an uncompetitive field to evaluate from.
By using strategies such as linking your evaluation criteria to the questions in your response schedule, you are signalling your expectations to the market as to what and how services will be provided under your contract, making it easier for potential tenderers to make the bid-or-no-bid decision.
Continuing to deliver procurements as per the status quo can be a trap which many organisations fall into, as illustrated above.
Consider whether any of these learnings could be applied to improve your own organisation’s services procurements to:
- realise better value for money
- manage risk more effectively
- support market competitiveness, and
- improve contract governance.
Oh! And if you’re wondering… Our client was successful in tendering for all of its services. In fact, our client increased its volume of service delivery substantially! Go team!
Get more than what you paid for
So you've run a successful procuerement process and chosen your service provider. The savings don't have to end there. Learn how you can get more than what you paid for through effective supplier leadership.