Chapter 3: Tendering for the Private Sector

Equal Concern for Value for Money

The procedures outlined in the preceding chapter reflect the need to demonstrate even-handedness and transparency in the award of public contracts. Because contracting in the private sector is normally free from these considerations, clients have more flexibility about the way they manage procurement and let contracts. Procedures range from the relatively informal, when a client approaches a firm directly as the result of previous work or a referral or perhaps follows up a firm's initiative in recognizing a need and devising a possible solution, to the highly structured - when firms have to undergo a fully-fledged process of pre-qualification, tendering and contract negotiation.

Though only large corporate clients may choose to emulate the formalities of public sector procurement, most businesses recognize the merits of competitive bidding as a means of identifying not just the contractors with the lowest price but those who can provide the best all-round response to their needs. Competitive bidding offers several benefits: a consistent and methodical basis for selecting contractors; access to different ideas, approaches and solutions; an opportunity to learn how well contractors understand the client's requirements; and the chance to assess the quality of the working relationship likely to develop once the contract is awarded. Most important of all, there is probably no more direct or reliable way to learn who represents the best value for money; in this respect the private sector's priorities are not so far removed from the public sector concept of the most economically advantageous tender.

Private sector clients are generally less prescriptive about the format and structure of bids, giving contractors more scope to devise an individual approach tailored to the requirements of the contract. They are also more forthcoming about meeting contractors and talking to them about the context of the work.

When evaluating bids, business clients ask much the same questions as clients in the public sector. The messages that go out to public sector authorities from the Office of Government Commerce (Chapter 2) are derived essentially from best practice in the private sector. Just as public sector authorities are advised not to think in terms of lowest cost, business clients appreciate that in working with contractors they get what they pay for, and that contractors who offer services at rates cut to the bone may be offering also low quality, poor performance and minimal standards of professionalism.

Their first concern will be to identify the bid that offers the best overall value for money, displays the most businesslike approach to meeting their objectives and responds best to the bid specification. Like their counterparts in the public sector, they will want to see prices that are realistic in relation to the scale of the contract; they will look for quality in the inputs and resources proposed for the work; they will need to have outcomes and deliverables clearly defined; and they will seek evidence of distinctive added value. But there are other factors that come into play particularly in a business context, and these can influence decisively their views about the bid that is right for them:

• Insight into the client's operating environment. Does the bidder appear informed about the sectors of activity in which the business is engaged and the factors that influence its market performance and profitability?

• Partnering and synergy. Is there a sense that this bidder is the one best placed to work with the client in an effective team relationship? Are the corporate values and policies of the business understood and supported?

• Risk and professional accountability. Has the bid addressed these concepts? Does it indicate an understanding of their significance for successful contract performance?

• Innovation. New ideas, fresh thinking and solutions that competitors will find hard to match are ingredients that can win the day, but innovation needs to be dependable. Has the bidder taken account of the risks associated with innovation?

• Flexibility and responsiveness. Does the bid communicate a willingness to adapt methods and procedures in response to unforeseen changes in the requirements of the contract?

Business clients will expect their existing contractors to be able to offer cost and efficiency savings as well as continuity of personnel, and to have the capacity to get up to speed rapidly on a new contract so as to start producing useful output without mobilization delays or steep learning curves. To this extent clients may find that there is a comfort factor in giving work to people with whom they have reliable working relationships, provided they still offer good value for money. But existing contractors must not imagine they have security of tenure! The need for them to defend their position by offering extra added value is emphasized in Chapter 16.

If you have managed to develop a good professional relationship with the client - for example, as a result of previous contracts and your marketing efforts - you may be able to gain an indication of how the evaluation team will be structured. Figure 3.1 shows a decision-making structure that is characteristic of services and consultancy procurement in many businesses. There are four main participants in the process: the manager who will be responsible for commissioning the work, running the client's side of the contract and maintaining the day-to-day relationship with the contractor; a technical specialist who can advise the employing manager if necessary about detailed aspects of the work; a procurement manager concerned with commercial issues; and experts in other fields such as health and safety or quality assurance who may be called in to assess those parts of a bid relevant to their areas of expertise.

Figure 3.1: Typical Decision-Making Structure in Corporate Procurement

Some business clients adopt a practice of skimming through bids quickly to gain an overall idea of their quality before subjecting them to a more thorough analysis. First impressions can be decisive - which is a further reason why contractors need to make sure that bids are seen immediately to be organized efficiently, structured logically and presented in a competent, professional manner. The length of time that a client can devote to the task of evaluation will be governed, as one would expect, by pressures of work and the specific circumstances of the contract. The process is often more intensive and concentrated than bidders may imagine: you may have taken a month to write a bid but the client may be able to spend only an hour or so evaluating it.

Taking on contractors

Our divisional managers use their commercial judgement in appointing consultants and other advisers. When they take these decisions they have a lot at stake professionally. Their futures in the group can depend on the way their contracts work out. Managers like contractors who make their life easier, not contractors who cause them problems. No one wants to be seen as a manager who lets contracts run out of control. So we look for contractors who understand the way we work and the importance we attach to efficient delivery. The worst thing contractors can do is to fill their bids with nice words and brave promises but then fail to deliver. It's bad for us and for them - we won't use them any more.

When we read bids, we are looking for hard facts about people's experience and signs that they will fit in with our business style and team up well with our own personnel. It's also good to see evidence that consultants realize that the work we are paying them for isn't a technical exercise but something that has value only if it helps us in our business strategy. They need to have this practical focus if they are to gain the respect of our people. If they seem to offer genuine potential for a long-term partnership relationship, so much the better.

We are sometimes disappointed with bids from existing contractors. They can go through the formalities of competing for the work without any real spark of energy or commitment. It's a complacent attitude, as if they are assuming that no one else can know enough about the job to put in a credible bid. We are also unimpressed when they fail to acknowledge problems and failures on their part. If contractors have made mistakes in the past, they should have the courage to admit them and show how they have learnt from errors so as to improve their performance.

(Chief executive of a banking and financial services group)