The goal behind the openness of municipal procurement is to allow as many suppliers as possible to compete for municipal work.
It is argued the openness of the competition leads to the best overall price. Where a public tender is employed, it is assumed publication will attract all available contractors who are able to do the offered work.
Nevertheless, the process can be frustrating for those contractors. For example, an unsuccessful bidder for a roofing contract wrote in to complain the tender had generated some 20 bidders.
He could not understand why the municipality “had invited so many contractors” to bid. He pointed out the preparation of a bid is a time-consuming process and indicated he would be unlikely to compete for such work in the future.
As he pointed out, in a private sector contract, four or five suppliers would likely be contacted and quotes would be obtained from each.
In the contractor’s assessment, the chances of securing municipal work were simply not worth the effort of competing. There is no doubt this contractor has a point, but he also misunderstands the way a tender is supposed to work, since its very purpose is to attract the widest possible range of bids.
If 20 contractors submit bids, that is considered a sign of success, rather than a problem. If 200 were to submit bids, the intent of the process would even be more successful, given its objectives.
It might be argued the process could be simplified using a pre-qualification procedure. However, pre-qualification is a labour intensive, time consuming process, and, as a result, is not one many municipalities can afford to apply as a manner of course.
Furthermore, any pre-qualification procedure will normally be as equally open as the tender process itself would be, were no pre-qualification procedure employed — so the contractors would still find itself competing with many other potential suppliers. Worse yet, there would be two forms to fill out rather than one.
Nevertheless, it is a fair question why there is this prevailing concern with maintaining a wide open contracting procedure. There is little doubt the roofing contractor will never compete for municipal business again, when 20 bidders are involved.
Quite probably at least one or two others of the unsuccessful 19 will feel the same way. We are thus presented with a paradox: the system is kept open to allow all to apply, but the very openness of the process causes some (perhaps many) not to bid at all.
The loss of good potential suppliers is bad enough in itself, but one must ask whether the open contracting process actually saves money. In many cases, the answer is no.
It is time-consuming and costly to run and leaves little latitude for the municipality to push down contractors below their first offer, once the most competitive suppliers have been identified, by playing each off against the other and by using the municipality’s negotiating and contracting experience to identify ways in which the offered prices can be shaved down.
It can also lead to the problem of low-balling – deliberately underbidding the contract price to secure the contract and then leveraging profit by charging work within the scope of the contract as extra, or by using substituted materials or other improper practices.
To avoid these problems, more resources must be devoted towards monitoring the project, which increases the administrative cost of the contract (a cost that is not recognized in the tender bidding competition itself).
Open contracting creates the appearance the contract goes to the most cost-effective supplier, although if good potential suppliers are deterred from the bidding by the process, there is reason to doubt the process.
By awarding contracts in this way, potential controversy surrounding the award of public contracts is diffused. There is no doubt there is some merit in this approach.
Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.
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