Guidelines for Competitive Bidding

Aug 27, 2014 by Tim Schmidt

Eight rules to ensure a more competitive bidding process

In order for a competitive bidding process to be successful, organizations, whether private or public, need to ensure that the process is fair and equitable. If companies invited to bid do not have a realistic possibility to win, suppliers will recognize it and participation will ultimately decline.

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What is a competitive bid?

While a bid or tender often provides pricing details, it can also include other information such as approach (how the requirements will be fulfilled), company qualifications, terms, guarantees, and more.

There are many different processes for competitive bidding, ranging from Request For Proposal (RFP) to Reverse Auctions. Regardless of the specific method used, it’s important that organizations follow some general guidelines to ensure competition.

The following rules are based upon industry best practices and my experience working with hundreds of public and private organizations over the past decade.

I did not include rules specific to reducing corruption such as “don’t accept bribes” or “avoid conflicts of interest.” I assume that you want to increase competition to get the best supplier for the best price so I’ll leave the issue of fighting corruption for another day.

Rule 1: Develop impartial specifications

As a first step to soliciting bids, it’s important to develop an outline of your specifications. While the specifications can range from general to highly detailed, they should be as impartial as possible. Naturally, you will form ideas about a preferred solution; however, the specifications should not be based upon a single-supplier’s capabilities.

Rule 2: Develop objective supplier selection criteria

Before you release the solicitation, you should decide on the supplier selection criteria. Will the selection be based on the lowest cost, most experience, or functional capabilities? Whatever the criteria, document the general categories, assign weight, and provide general guidelines on how each will be scored. The following is an example of scoring a software project:

Criteria Description Weight
Functionality Has the features specified in the requirements. 40%
User Interface How easy the system is to use. 10%
Price Total cost of project including implementation, customization, and maintenance cost for 3 years. 25%
Experience Experience working with similar organizations on similar projects. 20%
Incumbent vendors Companies with previous experience working with our firm. 5%

Notice that it’s okay to assign preference to companies that you currently work with or have worked with in the past. Just be clear about how it will be used in the selection process and assign a specific weight to the criteria.

Rule 3: Share the selection criteria with potential suppliers

Responding to solicitations is time consuming and expensive for suppliers. Consequently, they must be selective on which opportunities to respond. By sharing the selection criteria, not only do you better enable the suppliers to calculate their own chances for success relative to their competition, you improve the overall quality of your bid response; less qualified suppliers will not waste their resources and more qualified suppliers will be better able to recognize their chances for success.

Rule 4: Set a reasonable deadline for all suppliers

To ensure true competition, a reasonable deadline should be established for all suppliers. The qualifying word is “reasonable” as each type of product or industry has different standards that range from a few hours or a few months. This avoids the perception of bias inherent with tight deadlines, whereby a preferred company is able to respond quickly, leaving other suppliers without the ability to respond or forced to submit subpar proposals.

This same concept applies for all deadlines for the solicitation that could include submission of questions, registering for bid events, submitting a notice of intent-to-bid, or any other deadline.

Rule 5: If you extend a deadline, extend it for everyone

“I love deadlines. I like the whooshing sound they make as they fly by.”
Douglas Adams

In some cases, you may need to extend the deadline for the submission, questions, or meeting registration. When this need arises, regardless of the reason, make sure it applies to all companies and is properly communicated.

Rule 6: Share all questions and answers

The common methods for managing the Q&A process include pre-bid meetings, speaking with vendors directly, email, or using bid management systems like eBid Systems software. Regardless of method, it’s important to capture all questions asked and share the answers with every supplier. Furthermore, the answers should be shared at the same time so that all suppliers have equal opportunity to incorporate the information in their responses.

Rule 7: Do not share supplier bid information

As a general rule, it’s best to have an open approach and share as much information as possible with suppliers with one exception: You should not share the bid information. Many companies consider the bid and related information proprietary and confidential. If they believe you will share it with their competitors, they may not participate. Simply put, it is not considered ethical behavior to share bid information unless you are a public entity that is required by the Freedom of Information Act to provide bid information if requested.

Rule 8: Stick to your own rules

At the beginning of the process, you should have established a set of rules that outlined how you would manage the bids and make a selection. Stick to your own rules and do not bend them to select your “preferred supplier.” Bending the rules only minimizes credibility and will hurt competition in the future.

Bottom Line

If you have a fair process that allows all vendors to compete equally, potential suppliers will give you their best prices, share their best ideas, and work hard to earn your business. On the other hand, if you develop a reputation of not fairly competing opportunities, you will receive fewer responses, with less creative solutions, and at higher prices.