Price Is Rarely Number One

Price is Rarely #1 When Awarding Bids – Positioning the Proposal
 
The RFP and Tender process is mainly used in organizations managing public monies, or large corporations with considerable purchasing requirements.  In both cases buyer neutrality and decision making transparency are critical.
 
The procurement process is very mature in these organizations with formally trained purchasing professionals managing multi-million dollar portfolios, supporting the buying needs of all departments.
 
Whether purchasing computers or jet airplanes the underlying decision making process is based on obtaining the best value for the organization.
 
Understanding the value requirements of the buyer helps bidders improve their chances of winning the RFP competition.
 
Professional buyers follow three logical decision protocols:

1. Select the best solution that meets all of the stated requirements and the expected life-cycle of the project
2. Select a trustworthy supplier who has financial stability and a demonstrated track record for delivering solutions on time and on budget
3. Select the lowest price.  If the decision comes down to price only, it indicates bidders are rated equal on decision protocols one and two

 
Should the preferred solution exceed budget, internal discussions take place to either find additional monies or cancel and reissue the RFP with modified minimum requirements.
 
Protocol three is where public agencies and private corporations vary.

• In Canada, most Government agencies are mandated to cancel and reissue the RFP if specifications change.  This gives bidders a fair chance to rebid on the reissued RFP
• Private corporations however often engage in discussions with the preferred bidders to make alterations to the scope of the RFP to bring pricing within budget
  • Some corporations utilize the practice of Best and Final Offer (BAFO)
  • This is where buyers engage in individual conversations with the top bidders explaining they are short listed but their proposed solution or pricing needs adjustment
  • Each bidder is asked to reflect on their proposal and come back to the buyer with a BAFO
  • This is very frustrating to bidders, but by this stage they have too much invested in the opportunity to walk away.  Most will comply.

Differentiation – Reduces Price Based Awards