The Competitive Bidding

Bidder

The Competitive Bidding

“How is your Project going?” I was once asked by an old colleague in the PMO department. I was working on a Government Project at that time. I responded by saying that “How do you think a fixed cost project, won at the lowest price with a fixed timeline, would be doing when the Product Owner is not  clear about  the scope?”

I happen to work on a number of such (Public Sector) projects and unfortunately my statement regarding all of them were more or less the same. Although one of my public sector projects was exceptional and for which I have shared the reasons in my article “Lesson Learned from one of my successful Project”. Also as I was involved in preparing the bidding document sales team quite often, so I had a chance to experience the process several times. 

The bidding process, itself, is well-defined and is always aimed at getting the best solution. Mostly the biddings were a “Two Envelope Two Stages” process. It meant that at first stage each bidder will submit the Technical Proposal and during the second stage they will submit the Financial Proposal. Every proposal is in a sealed envelope so that the evaluators are not aware of the contents before the proposals are opened publicly. Generally Financial proposals of only those applicants are entertained which are short-listed in the first phase (i.e., based on their technical proposals). The Technical proposal is evaluated against the clearly defined criteria which is also provided in the RFP. This step ensures that only those proposals are considered for financials which have proposed sound technical solutions.

The good thing about this process is that applicants lacking in any area of Technical proposal  are filtered out early. Generally the areas which mostly the bidders miss out due to are Project Team Size, Experience, Bidder’s experience in a specific domain, Value of previous projects completed etc.

This means that bidders with only substantial magnitude can qualify. One problem is that the cost of such bidders is always on the higher side due to organization size and operation costs etc. Also that will mean tha tany startup or an emerging organization cannot practically qualify for such projects. 

However in some rare projects, the bidders are requested to submit a prototype of the proposed solution and any small or emerging organization can make an impression. Generally the way out for such small or emerging companies is to enter the bidding as Joint Venture (JV) with some reasonable size organization to match the requirement in the Technical Proposal. 

One most important aspect of such projects is that profit margins are very tight for the bidders. In my opinion, in a close bid, these margins are almost touching or might even go below the actual cost. Which means that if they will be working on this project then either they are looking to cut down quality or they are doing it for some personal reasons.

If the margin of profits in such projects are so low, then why are the bidders interested in them? As I mentioned earlier, it is mostly due to some “personal reasons” like winning the project against a long term rival or looking to build long term relations and hope to get more profitable business in the future as reward etc. Sometimes the organizations are interested in such projects due to the fact that these projects really uplift their market value and overall credentials. 

At times there might be a motivation to take the project in order to gain expertise over a specific domain to build something similar or some internal product based on it. In such cases the cost of the project is considered as “Future Investment”.

One general aspect about these projects is that they have a Support Contract at the end of the project which has reasonable length of contract duration and is expected to keep extending as long as the same solution is being utilized. And it is believed that Support Contract often pays off the investment and cut-downs made earlier in the project. That is something which many organizations keep in mind especially in the earlier stages when they have to sacrifice in terms of finances. 

One good thing about being involved in Competitive Bidding is that there is a lot you learn from that exercise. The foremost element is time management and learning about working only with limited resources. It means that you have to build a box within the given parameters. You have to sometimes think out of the box, not only to prepare the bid but also have to be innovative to have that “wow” factor that can win the bid for you. One thing that I learned a lot was about preparing the schedule. It is an important aspect keeping in mind that if you win the project, how you are going to execute different things and how you have broken up the milestones into tasks. Also it is important in terms of setting up the right expectations for all stakeholders.

In my humble opinion, every manager should go through the bidding process, once in their career, to get a feel of things especially from the other side of the table. This mind opening experience can prove very helpful in the rest of the career. 

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