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Procurement Perspectives: Is competitive bidding reducing competition?

STEPHEN BAULD
Procurement Perspectives: Is competitive bidding reducing competition?

The public sector institutionalizes the process of competitive bidding in an effort to demonstrate that the most competitive price has been sought and presumably obtained.

The process for determining the method of purchase and selecting the supplier are so closely related that it is impossible to consider one without the other.

In most municipalities, the method of purchase will depend on considerations such as: the dollar value of the purchase; the type of good or commodity being purchased (is the item durable or consumable, for instance); and the budget source, whether it is a capital operating expenditure.

In some cases, tax or other legislation will also be relevant to the decision. The goal behind the openness of municipal procurement is to allow as many contractors as possible to compete for municipal work.

It is argued that the openness of the competition leads to the best overall price.

Where a public tender is employed, it is assumed that publication will attract all available contractors who are able to do the work.

Nevertheless, the process can be frustrating for those contractors.

Recently, an unsuccessful bidder for a roofing contract wrote in to complain the tender had generated some 20 bids. 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 contractors 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 process would be even more successful, given its intended objective.

It might be argued that the process could be simplified through the use of a prequalification procedure. However, prequalification is a labour intensive, time consuming procedure.

As a result, it’s not a process many municipalities can afford to apply as a matter of course. Furthermore, any prequalification procedure will normally be as equally open as the tender process itself would be, were no prequalification procedure employed, so the contractor would still find itself competing with a large number of other potential contractors.

Worse yet, there would be two forms to fill out rather than just one.

Nevertheless, it is a fair question why there is this prevailing concern with maintaining a wide open contracting procedure. There is little doubt that the roofing contractor will never compete for municipal business again.

Quite possibly 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 apply at all. The loss of good potential contractors is bad enough but one must ask whether the open contracting process actually saves money.

In many cases, the answer is no. It is time-consuming, costly to run and leaves little latitude for the municipality to negotiate with suppliers as is done in the private sector.

Open contracting creates the appearance the contract goes to the most cost-effective contractor.

Although, if good potential contractors are deterred from bidding by the process, there is reason to doubt this concept.

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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