This story in today’s
Western Mail neatly highlights one way in which attempts to cut costs in the
short term can backfire and lead to cost increases in the long term. And whilst this may be an extreme example, I’ve
seen other similar cases before. The
public sector is particularly prone to this problem, in its striving to achieve
– and demonstrate – open competition and value for money.
I’m not sure that I
entirely accept the figures quoted in this example, to be honest. I find it hard to believe that each of 30
different companies would really decide, individually and separately, to spend
£3,000 on bidding for a contract worth only £20,000, knowing that price was a
key element in winning. Spending 15% of the maximum total revenue value of a contract on the sales process looks excessive to me. The only
sensible decision for a company faced with that level of cost and competition
for such a small contract is to qualify themselves out and decide not to bid.
And that’s the
first way in which an excessively costly pre-sales process can actually push
prices up – some of the more competitive and cost-conscious companies will
simply decide not to bid.
If we take the figures
as correct however, then presumably the procurer – in this case an unnamed local authority –
might argue that the £90,000 in costs incurred by bidders isn’t their problem. They’ve secured the best possible deal for
their own authority, and that’s the beginning and end of their responsibility. It’s a short-sighted viewpoint.
Every company which
spent £3,000 on an unsuccessful bid will be looking to recoup that sum on the
business it does win; those pre-sales costs are thus effectively factored in to
its prices. And if they are going to lose
29 out of every 30 bids they submit, that’s an awful lot of factoring in.
It’s also the
second way in which open tendering for small contracts can push overall prices
up rather than down.
Most companies
tendering for business should be expecting to win 1 in 3, or at very worst, 1
in 5, of the contracts for which they tender.
Any lower than that, and their pre-sales costs will start to make them
uncompetitive. A wise public sector
procurement process which was serious about wanting real, long-term, value for
money would recognise that. If the rules to which public bodies are working are forcing, or even encouraging, the sort of approach highlighted by this article then they need to be changed.
Posts
2 comments:
John
Why not name the Council
What was the detail supplied by that Council on which potential clients could submit tenders
Who won the tender
What was the outcome
Was it worth it for both parties
Did the ratepayers get an overall quantifiable benefit from the exercise
If not who has joined the ranks of the unemployed
Boncath,
I don't know why the Western Mail chose to anonymise the story; perhaps they just wanted to make a general point rather than get hung up in a debate about the specifics. I'd guess that it's far from being an isolated example, and the point being made was that there's a systemic problem here rather than a specific one.
Post a Comment