Receiving several tenders can make it look as though the difficult part of procurement is finished. You issued the tender documents, several companies responded, and now you just compare the prices and choose the best one.
Unfortunately, it is rarely that simple. The tender documents describe what you asked for. The tender response describes what the tenderer believes you asked for and, more importantly, what they are actually offering to provide.
Those two things are not always the same.
A tenderer may:
- Exclude part of the work
- Make assumptions you weren’t expecting
- Propose different equipment
- Allow for a different schedule
- Qualify a contract condition
- Misunderstand the specifications
If you don’t identify those differences during the tender evaluations, you may discover them after the contract has been awarded. And that is usually when they become expensive (think “variations”).
Problem: The Cheapest Tender May Not be the Cheapest Project
A good tender evaluation starts with a good tender request. Your scope and specifications should clearly explain what you expect the contractor or supplier to provide. I discuss this further in The Importance of Good Specifications.
You should also provide all relevant specifications with the tender documents wherever possible. Don’t assume a contractor will find an internal specification from your website, or that they will have the correct specifications from a previous project, or will check or realise that the version they already have has been superseded.
Even with good tender documents, however, never assume that every tenderer has priced exactly the same scope.
Suppose you receive three tenders:
| Tenderer | Submitted Price | Significant Exclusions | Adjustment for Comparison | Comparison Value |
|---|---|---|---|---|
| Tenderer A | $890,000 | Commissioning ($70,000) and crane hire ($30,000) excluded | +$100,000 | $990,000 |
| Tenderer B | $960,000 | None identified | $0 | $960,000 |
| Tenderer C | $915,000 | Electrical installation ($35,000) and operator training ($20,000) excluded | +$55,000 | $970,000 |
At first glance, Tenderer A is $70,000 cheaper than Tenderer B. But after comparing equivalent scope, Tenderer A may actually represent approximately $990,000 of project cost. Although, unlike my example above, don’t expect the tenderers to list the value of the work they are excluding, you may have to estimate that yourself.
The comparison value is not a revised tender price. It is simply an evaluation tool to help compare the offers on a reasonably equivalent basis. Nor does this table mean Tenderer B should automatically be selected. You still need to consider technical compliance, experience, schedule, quality, risk and the contractor’s ability to deliver.
Solution: Evaluation What You are Actually Buying
Decide How You Will Evaluate Before Opening the Tenders
Set your important evaluation criteria before you receive the tenders.
Depending on the project, these might include:
- Technical compliance
- Price
- Relevant experience
- Methodology
- Proposed staff (and their individual experience levels)
- Schedule
- Safety
- Quality systems
- Commercial conditions
- Project risk
This also reduces the risk of becoming biased toward a particular tender and then finding reasons to justify that choice afterwards.
For formal government procurement, this principle is particularly important. Australian Government guidance says that advertised evaluation criteria should be used during the tender evaluation and that price is not the sole factor in determining value for money. Relevant considerations can include quality, fitness for purpose, supplier experience and performance history.
The US Federal Acquisition Regulation takes a similar approach, requiring competitive proposals to be evaluated using the factors stated in the solicitation (tender request) and consider matters such as technical capability, price and past performance.
Check Exactly What Each Tenderer Has Offered
Don’t just read the price schedule.
Check the tenderer’s:
- Scope
- Deliverables
- Exclusions and qualifications
- Assumptions
- Technical compliance
- Proposed personnel
- Subcontractors
- Proposed schedule
- Testing and commissioning responsibilities
- Warranties
- Contract departures
- What they expect the client to provide
If something is unclear, ask for clarification rather than assuming what they meant. It can be useful to prepare a compliance or comparison matrix showing the requirement from your specification alongside each tenderer’s response, especially for larger procurements. This makes gaps much easier to see.
Be Wary of a Very Low Bid
A low price is not necessarily a problem. The contractor may have found a genuinely better way to deliver the work than other tenderers. But if one tender is dramatically lower than all the others, I think you should find out why before accepting it.
Perhaps they have misunderstood the scope, or haven’t included enough supervision, or excluded commissioning. Or perhaps they have allowed fewer resources or a schedule that is unrealistic.
Their answer may confirm that you have found excellent value. Or it may identify a problem, which you need to consider before it becomes your problem.
Check Experience and References
Tender submissions often contain impressive project examples and reference contacts.
You should check them.
Relevant experience and past performance can tell you considerably more about delivery risk than the tender price alone. Current Australian Government procurement guidance also specifically includes “relevant experience and performance history when assessing value for money”.
You should also cross-reference their submission examples with your own company’s records of contractors you have previously used. I have previously written about checking a client or contractor’s track record.
Keep Clarifications Controlled and Documented
Tender clarifications should be documented. Make sure the same procurement and probity rules are applied fairly to all tenderers (especially for larger or more formal procurements), but you should do this with all tenders, even if your process isn’t as formal as on large procurements.
It also helps to have one nominated contact person responsible for questions and clarifications. Multiple contacts can result in tenderers receiving different answers to the same question.
Also allow tenderers enough time to properly understand and price the work. Rushed tender periods can result in poor estimates, incomplete proposals and misunderstandings. See my post on How Long Should You Set a Project Proposal, Tender or Quote Response Times. Is 2 to 3 weeks really enough time for a thoroughly estimated response? I don’t think so.
Check Again Before Signing
There may be a significant gap between tender submission and contract award. Before finally awarding the contract, check that the successful tenderer is still capable of delivering what they offered, and at the same price.
Their workload may have increased. Key staff may no longer be available. Delivery times may have changed. Material availability may have changed, and supply prices may have increased.
Make sure all agreed clarifications, qualifications, exclusions, scope changes and negotiated conditions are actually incorporated into the contract. It is very easy to miss some of these if they have not been properly documented. A qualification that was important during the tender evaluation shouldn’t disappear when the final contract is prepared.
If subcontractors are a significant part of the offer, also consider whether they have actually agreed with the relevant tender requirements. See my post on Subconsultant Agreement with Tender.
Lesson: Make Sure You Know What You Are Buying
Evaluating tenders is not simply about finding the lowest number in a price column.
You should:
- Make the original requirements clear
- Compare each tender against requirements
- Check assumptions, qualifications and exclusions
- Compare prices on a like-for-like basis
- Investigate unusually low bids
- Check experience and references
- Check the schedule and delivery capability
- Clarify uncertainties in writing
And before signing the contract, make sure the successful tenderer still has the ability to deliver and that the final contract reflects everything that was agreed.
The important thing is to understand what you asked for, what they offered, and whether those two things actually match. Doing that before contract award is much easier than arguing about it once the project is underway, or getting lots of variations because you didn’t do a proper tender evaluation.
