Open tendering continues to be the primary form of engagement between the public sector and private sector.

I believe this is driven, in the most part, by the political need for lowest price. This need shows no sign of abating amongst the budget-surplus rhetoric, and yet my experience belies this perceived benefit of lowest cost. I believe the benefits are in fact almost always over-stated whilst the negative aspects remain barely recognised.

Irrespective of their sensitivity, complexity or specialist nature, projects are generally inundated with open tender bids. Aside from price, the actual quality of the response can range from a glossy compendium all the way through to something tantamount to writing on a Post-It.

I do concede open tendering provides a range of prices, but the distribution of the pricing is likely to be significantly broader than that performed under a select ender[2]. In addition to receiving a less accurate range of pricing, the cost of administering the procurement process can be significantly higher due to the number of unqualified bids which necessitates significantly greater review time.

Some agencies have started to adopt a two or three stage process involving an Expression of Interest, Request for Proposals and (optional) Best and Final Offer (BAFO) stage. This has gone some way to weeding out unfounded speculative bids but – again, with this staged approach – the actual focus of the procurement becomes the bureaucracy rather than the purchasing need. At the same time, the public sector is asking the shortlisted and successful bidders to invest in three rounds of bidding which comes at a tangible cost to the private sector.

Typical Procurement Savings (Open Tender versus Selective Tender)

Typical procurement savings (open tender versus selective tender)

An alternative structure adopted by the public sector to reduce tendering red-tape is the development of panel appointments[3]. Unfortunately, panel appointments often under-deliver the inferred benefits for the private sector. A good example of this is that – in spite of the investment by firms in tendering for a panel engagement – the public sector reserves the right to procure outside the panel and (or) dissolve the panel at their will. With no security of tenure and no security of revenue, panel appointments can be particularly expensive ventures for private firms with little prospect of an immediate return on that investment.

I believe these ‘competitive price’ procurement models simply increase costs across markets and industry. Whilst the private sector allocates resources to responding to complex public tenders, these overhead costs are having to be recovered from their balance sheet. The more open or convoluted the tender process, the more time and resources need to be invested prior to any reality of conversion.

I am also sympathetic to SMEs and growing firms who must increasingly do more and more to compete in the modern age of the bid-writer. The red-tape era has drawn focus away from supplier core-capability toward the ability to comply with unnecessarily inflexible tender conditions.

My solution – broader adoption of selective tender practices. A selective tender is one which is only available to a specially selected audience (or tender group). This allows a purchaser to target the right type of firm and minimises speculative or wasteful tendering practices by the wider private sector (both large and small firms).

Of course, the manner in which the select tender list is put together is vitally important to avoid jobs-for-the-boys scenario, but a robust participant qualification selection criteria would significantly mitigate this risk. Add to this that the financial results of a tender are more likely to be more closely distributed, purchasers will obtain a more robust ‘market price.’ Indeed, tenderers can be assured that they are competing with like-skilled firms and therefore have an equal opportunity of winning.

The private sector aside, with significant reductions in the time and cost of select tender in administration for the public sector over conventional open tendering, there is a compelling catalyst for reform – but will this happen?

Other Contextual Information

As we commence a new year, various segments of the private sector will seek to understand the opportunity which comes from the public sector. Whether bidding for goods or services, the private sector often rely heavily on a steady pipeline of public sector demand when private sector demand is soft (which appears to be the case in South Australia and Western Australia particularly at the moment.)

Consulting businesses (such as engineers, quantity surveyors, architects and project managers) provide a good example of firms which straddle the public and private sectors and often have to reinvent themselves on a regular basis to maintain growth. The past 12 months have seen winners and losers, retrenchments and expansions all predicated on how well that firm predicted the future, be it the rise and rise of residential demand or the expiration of the resources sector spending spree.

Invariably the need to shift focus comes at a cost. As a private sector tap is turned off, firms aggressively pursue public sector opportunities with an often rampant approach to bidding for work (including open tenders) at any cost. I believe that open-tenders are bad for industry and bad for the public purse.

[1] Open-tendering (also referred to as competitive or public tenders) is a procurement model which seeks to obtain bids for goods or services from the market where sealed bids are assessed on a variety of price and quality criteria.
[2] Select-Tendering involves the pre-qualification and selection of a defined group of tenderers based on past performance, specialist capability or other manifest suitability to engage in a closed but competitive tender process against other suitable parties.
[3] Panel-Arrangements are generally established for a continuing purchasing need and are limited to a time period during which time a number of appointments may be made without the requirement for open market tendering.