When low bid costs you the most

In my experience, more than ninety percent (90%) of all Requests for Proposals (RFP’s) in the public sector, and seventy-five percent (75%) in the private sector ultimately are selected based on low bid. That is effectively the only criteria of consequence.

The interesting thing is that far more often than not, those low bids, end up with an unhappy client, canceling or not renewing agreements, due to “non-performance”. The hidden issue is the relationship being set up to fail when in order to qualify for the low bid, the bidder does not necessarily offer the best bid to meet the client’s needs or expectations.

Many public entities, and an even greater percentage of private clients have migrated to a “best value bid”. We applaud this growing trend. Interestingly, there is a dramatically higher percentage of happy customers (in the form of full contracts with all extension exercised, along with renewals) when this occurs.

Most organizations don’t want to make a change; they don’t want to go out for bid (or tender). However, many are required to do so by statute, rule, law, or policy. The solution that the organizations are searching for in every field is a change to the bidding criteria and the minimum requirements. Pricing is a critical element in every contract award, and it should be. The clients always have a fiduciary responsibility that must be clearly honored and evident.

If a low bid is necessarily the easiest choice, however, it is seldom a clear choice. Few on city councils, boards, directors, and other high profile decision makers are unhappy with a low bid recommendation. The low bid is the easiest option to defend their constituent’s and the media. It is often the right choice, even if for the wrong reason.

There are other variables with minor “tweaks” that when added to the RFP, will assure (or greatly increase the chances that) low bid is the best bid.

Two easy examples to make this happen are increasing the number of bidders for your submittal, and make it clear the importance of your criteria. It is incredible how many times unnecessary requirements are in place that prevents or disqualify many potential respondents.

For example, the required minimum for experience is critical for the best bid. However, unnecessarily onerous requirements that reduce the pool of providers to less than a handful is not in the client’s best interest. What is the appropriate number of years of experience? How large of a performance bond (when the money goes into the client’s account) is truly necessary. How much liability insurance is truly needed? How many similar venues must they have operated? Are all of these requirements necessary?.

That second item that every serious procurement process should include is a checklist for evaluation. The winner should be the bidder that checks all or the most of the criteria boxes. Let bidders know what each box is, and how important they are. Some progressive RFP’s are doing this, but it is not yet the norm. This may seem like “teaching the test” to your bidders, but wouldn’t you rather let them make your job easier, and clearly get the best proposals to provide you the best bid?

Third, thoroughly vet your bidders, but do so AFTER the RFP responses are submitted. This will hopefully allow for a larger group of bidders (diversity of a sort) that will provide new ideas, more options, and likely, better pricing. Minimum criteria are necessary, but only the minimum to give respectable businesses, large and small, the same opportunity.

One final recommendation is that you should always encourage bidders to provide you an alternate bid. Encourage them to be creative. It is not binding and is a bit more work for your staff. However, it will often give you an idea, a format, and a new way of thinking outside of that box that we hear so much about. If it is a great idea and strays too far from the core bid, toss it. If it’s a great idea, you can always customize a request for FABO (Final and Best Offer) to give all finalists this chance, and if appropriate, award the contract to the creative group that came up with it.

Make sure the best bid is the bid you select. Why not make sure your next RFP provides a plethora of best bids?

If you would like some specific assistance or ideas, drop us an email or a give us a call.

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