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Procurement Perspectives: Working with contractors on major capital projects

Stephen Bauld
Procurement Perspectives: Working with contractors on major capital projects

Perhaps as important to securing best value for money in confirming that the internal decision-making and project-management process are up to the challenges presented by a major capital project, is the process of making sure all qualified bidders are properly briefed and put in a position to submit a competitive bid in relation to that project.

Their ability to do so should not be assumed as a matter of course.

Few things are as embarrassing to a municipal council as when one bid or proposal is submitted for a high-profile project.

Such a situation allows no opportunity for cost comparison. It is virtually impossible to decide whether the bid is attractive or not.

In the private sector, relationship development is a critical aspect of the procurement process. It is obviously critical to the success of relationship-based procurement, in which the contractor/supplier and customer are given access to each other’s strategic plans, relevant cost information and forecasts so that they can work out a joint procurement/supply strategy under which risks and rewards are addressed openly and divided fairly between them.

The open, transparent and fair competitive process for the award of municipal contracts qualifies the extent to which municipal contracting can be conducted on a relationship basis. Nevertheless, every municipality should strive to have a good supplier/customer relationship. Even in the most competitive process there is no reason why municipalities cannot discuss with their prospective suppliers how to govern their pricing policies.

Municipalities need to become familiar with the concerns that influence the pricing of the goods and services that they are likely to buy.

The tender and RFP process allows municipalities considerable control over the terms in which they conduct trade, but since terms adjust the risk allocated to a supplier or contractor under the contract, the price paid will inevitably be affected by the terms the municipality sets.

An informed and constructive dialogue between the municipal customer and its private sector suppliers can lead to a better understanding on the part of the municipality of the cost implications of addressing some of its construction concerns.

On the other hand, if suppliers are familiarized with those concerns, they may well be able to bring forward less expensive alternatives for addressing them than those that have been chosen by the municipality.

Most businesspeople are probably wise enough to understand that the local municipality can be and should be one of their most prized customers in view of the potential volume of business it offers to the market.

For this reason, the businesses that operate should be prepared to accommodate the municipality where this can be done without taking on excessive risk.

An improved supplier-customer relationship can also lead to improved levels of service. Often, the senior management of a supplier has little immediate knowledge of the dealings between the municipality and the supplier.

Therefore, if a municipality is having difficulty with its supplier or requires an improvement in service, making contact with those managers – not in a hostile way, but so as to discuss how service might be improved – can lead to significant progress.

Clearly, it is the purchasing manager who has the critical role to play in this area as the natural interface between the client department and the supplier.

It is not necessary to decide whether the supplier or the municipality should take on the primary responsibility for improving the supplier-customer relationship.

The critical point to note is that both have so much to gain from doing so, that if the one does not, the other should do so.

Once steps have been taken to initiate more of a partnership arrangement, a process should be agreed to share issues and needs, in relation to such matters as price, service level and cash flow.

Stephen Bauld is a government procurement expert and can be reached at Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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