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Ian Harris, Z/Yen Group Limited
Professor Michael Mainelli, Z/Yen Group Limited
[An edited version of this article first appeared as “The Tender Trap”,
Charity Finance, pages 42-43, Plaza Publishing Limited (December 2007)]
Charities increasingly find themselves
required to put in competitive tenders in order to win public sector contracts.
Similarly, charities increasingly require their suppliers to go through
structured tendering processes. But often those structured tendering processes
are inappropriate for the procurement situation. In this first of two articles
for Charity Finance, Ian Harris and Michael Mainelli of The Z/Yen Group examine
“The Tender Trap” from the buying perspective for charities.
You’re Thinking Nothing’s Wrong
Charity people often complain to us about the
unreasonable and inappropriate demands of the public procurement processes
required of them to win public sector contracts. Indeed, Part two of this
article (to appear in the next issue of Charity Finance) will discuss “The
Tender Trap” from the point of view of charities as the seller. Yet, often,
those same charities are adopting “public procurement”-style processes when
purchasing.
While we endorse the need for charities procurement to be transparent and
demonstrably above board, we believe that structured tendering processes are
often used inappropriately by charities. While half-buried behind some extensive
procurement process checklist, the buyer is often also hidden from any chance of
thinking clearly about the choices available. And structured tendering tends to
drive the innovation out of selling. If you receive a detailed specification of
the products and/or services required, it takes a brave seller to tell the
procurement people that they might have specified the job incorrectly. Far
easier (and far more lucrative) to simply sell the things that have been have
asked for.
You String Along, Boy, Then Snap!
Here’s a real-world example. A friend of ours
sells design consultancy services, often to the charity sector. To protect his
identity we’ll simply refer to this as “Nigel’s Story”. Nigel’s company was
invited to tender by an environmental non-governmental organisation (ENGO).
As Nigel put it “they were asking for an enormous amount of information and this
was just the pre-qualification questionnaire (65 pages long); I dread to think
what the actual tender process would be like. A lot of the questions were
obscure and could be interpreted in all manner of ways. It became clear at the
open meeting that they didn’t really understand what they were asking for, nor
did they understand the distinction between the myriad of ‘lots’ against which
we were expected to respond.”
Nigel goes on, “the key to me is that this sort of process demonstrates that the
buying organisation does not understand the market it is buying in. In the
interests of standardised procurement, the buyers paid no attention to the
credibility and track record of the companies involved. I suspect that many good
companies were, like us, put off by these processes and simply declined to get
involved. This leaves bodies like this ENGO using second rate outfits”.
You’re acting kind of smart
Of course, charities procure a huge variety of
different products and services; different procurement styles suit different
types of purchase. The diagram below illustrates procurement types with examples
of each, using our old friend the two-by-two matrix.
Diagram One: Procurement Types and Examples
The bottom left-hand corner of the matrix covers commoditised products. A good
example is stationery. This type of purchase lends itself to back-office or
desktop choosing, e.g. by catalogue.
The top right-hand corner of the matrix relates to more innovative, specialised
and service-based offerings. An example dear to our hearts is strategic
consulting. This type of purchase usually requires face-to-face choosing; good
choices tend to need hands-on, investigative and/or iterative approaches.
The top left-hand corner of the matrix relates to those innovative and/or
specialised purchases that are more product-oriented. A major IT system is a
good example. In this example, a tender-based approach, combined with an element
of hands-on selection, is often an appropriate way to make a good choice.
The bottom right-hand corner relates to the more commoditised service offerings.
Catering is a good example. Here, an element of catalogue style choosing is
appropriate, although this should be combined with some hands-on evaluation of
service providers.
Until your heart just goes wap!
You quite often come across “tendering processes”
for commoditised purchases, where the buyer is going to a great deal of trouble
to try and run a proper process but cartels of sellers “fix” the process by
providing inflated quotes for each other on a reciprocal basis. This bad
practice is very common in vehicle repairs and property decoration contracts. To
find best price, the buyer really wants to use negotiation, but sometimes finds
itself hide-bound by its own procurement process until too late a stage to be
able to negotiate best price.
At the other end of the spectrum, you often come across formal tendering
processes for innovative and/or strategic services, even though it is nigh-on
impossible to specify the services (often you don’t even know what you want to
buy). The main problem in this instance is that the very process of
specification and tendering is likely to drive away most if not all the
innovation you seek, by putting off the more innovative suppliers and/or by
encouraging suppliers to narrow their vision in order to comply with the
specification and the tendering process. Nigel’s Story (above) is a typical
example of this problem.
Further, those charities that model their entire procurement processes on public
sector procurement rules, tend to know instinctively that the processes don’t
work in all cases and sidestep their own rules when it suits them. I haven’t had
the heart to tell Nigel that the very ENGO that caused him all that grief,
recently procured some services from Z/Yen (albeit a small assignment) with no
more than a simple letter proposal; no competition and certainly no onerous
prequalification questionnaire.
You hurry to a spot that’s just a dot on the
map
Another way of looking at the above conundrums is
to think about procurement as a mixture of both buying and shopping. Formal
procurement processes tend to be essentially about “buying”, but for many types
of purchase there should be a significant element of “shopping” involved. We
could harp on stories that suggest that “buying is from Mars and shopping is
from Venus” but perhaps there are too many stereotype pitfalls in that line of
discussion. However, the following table takes a (mostly) considered view on the
characteristics of buying and shopping.
| Buyers |
Shopping |
| Preconditioned |
See possibilities |
| Often pre-decided |
Often exploratory |
| Compare prices |
Compare features |
| One-off process |
Learning process |
| Quick process |
Iterative process |
| Hunt down purchase |
Tease out purchase |
| From Mars? |
From Venus? |
Looking back at the matrix in Diagram One,
straightforward buying is quite possibly all you need in the bottom left-hand
corner, “commoditised product” section. But almost anything else that you
procure (most of the purchases and probably the most important purchases)
benefit from elements of shopping as well as buying.
Part of the Tender Trap
To summarise this first part of the Tender Trap,
here is a mini procurement manifesto for the buying side of the charity:
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Charities should aim to be professional and
transparent in their procurement. But “more tendering” does not equate with
“more professional” and/or “more transparent”;
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Charities should set criteria for their
procurement, but in most cases they should “window shop up front” so that
valid criteria can evolve and emerge;
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When charities seek innovation, they should
avoid large and formal tendering processes. There are other ways of ensuring
that the procurement is fair and transparent (e.g. meeting several suppliers
up front but only inviting two or three to make formal proposals);
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Ensure that your charity learns from
procurement processes by formalising the learning part; strangely that is
one part of the process that tends to remain informal and often is not done
at all;
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Don’t choose suppliers merely on the quality
of their presentations; you are very rarely seeking to buy presentation
skills, yet very often charities choose supplier on the quality of the
presentation rather than the content.
In Part two of this article, we’ll discuss the
Tender Trap from the point of view of charities selling their services.
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Ian Harris and Professor Michael
Mainelli are Directors of Z/Yen Group Limited, a risk/reward management
practice, dedicated to helping organisations prosper by making better
choices (www.zyen.com).
Z/Yen clients include blue chip companies in banking, insurance,
distribution and service companies as well as many charities and other
non-governmental organisations. |
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