How to run a successful tender process

A long and winding road with delays along the way, mountains to climb and barriers to overcome... is that your perception of the tender process? It shouldn’t be. The metaphorical journey is smoothed enormously if you understand that preparation, communication and relationship development are fundamental for success in any tender process. (See 'Top tips for managing a successful tender', below, for some of the professionals’ advice on this.)

As a concept, tendering is a simple undertaking in which everyone involved understands where tenders come from, what information must be made available, and when and how each stage of the process is dependent on the other (see ‘A typical tendering process’, below).

True, suppliers often dread the tender process as it can take a considerable amount of time and expense. But it does offer an open and transparent process to ensure the best supplier wins the contract. And – if approached methodically – tendering can actually save time by preventing parties from missing vital information and then having to rework data over long email chains.

Obviously the first, crucial, step in running the tender process is to involve the purchasing department from the outset – even if it’s just the one person. But that’s only the beginning. Below I outline what I judge to be the eight main ways to make your tendering process a success.

Internal stakeholders, ie your organisational colleagues, should agree on a realistic set of requirements and timescales, with sufficient time set aside to negotiate the contract prior to the work commencing, or at a minimum, be clear on what work can be completed prior to contract signature, for example by way of a ‘work definition phase’. (A work definition phase is where you establish requirements, and highlight the scope and timings of the project so that all stakeholders know when their support will be needed. Making a business case for the project will help you clarify this.) This process should also allow time to test any suppliers’ assumptions before costs are finalised, and to switch suppliers should contract negotiations fail.

The heart of any tender lies in assessing your possible suppliers’ abilities to deliver against your requirements. If you can clearly define your needs at the outset, then you will reduce supplier confusion and assumption, ultimately receiving more accurate supplier responses that you can actually use. So give clear and concise requirements, drafted in contract form so they can be lifted straight into the contract, linking deliverables, SMART SLAs and granular costs into one structure.

As well as spotting weaknesses quickly in any supplier response, clear requirements will help performance measurement against your requirements during the life of the contract. You can then identify and tackle poor performance early on.

Companies often use ‘input’ rather than ‘output’ based requirements. Success should be linked to the outputs or results you want to see, not necessarily how the project is completed. Avoid ‘inputs’, unless you have an important reason to dictate what technology or process is used. Specifying the ‘how’ too closely can stifle supplier innovation and creativity in trying to offer you the best solution. This is, after all, one of the reasons you are going to market.

Also take care not to over-specify. This can add costs and also put some organisations off submitting a tender. SMEs in particular are often ruled out due to unnecessary criteria being put in place – eg ISO standards. Only use these where they are really necessary.

Buyers should calculate what they expect these goods or services to cost, and either record this on file, or in a traditional formal tender open process by placing this in an envelope with other tenders to be opened, and to be recorded alongside the bids received.

It is important that this figure is reached independently of the bidders, either calculated on a time and materials basis, or by reference to what other organisations pay, and increasingly, to internet prices.

Significant variation either way means that more efficient calculated costs and bids received should be explained by the buyer and justified to the decision maker.

Sometimes the only conclusion is that none of the bids represents value for money or meets specified requirements and either the work should be delivered in-house, different bidders invited or possibly the work should be split and repackaged to attract a wider range of bidders. This is preferable to continuing to pay a high price for goods and services because it’s always happened that way, or trying to avoid the embarrassment of being exposed for paying too much.

The tendering process is becoming increasingly sophisticated as rapid technological advances offer almost instant response times on a global basis. Previously a traditional purchasing cycle could take months from the initial formation of the specification through to award of the contract. IT developments have increased the use of e-tendering where tender documents are exchanged electronically, so improving significantly the efficiency and time taken to complete a purchasing project. This also helps maintain fairness in the system as it provides a clear audit trail of when documents have been received and who has viewed them.

The benefits of e-tendering include:

• financial transparency;
• benefits to suppliers;
• reduction in processing costs;
• reduction in ordering costs;
• reduced paperwork;
• improved cash flow; and
• reduced costs of credit control.

Additionally, e-tendering portals (secure dedicated websites, specifically set up for the exchange of information and tender documents over the internet) allow buyers to create, manage and transmit contract announcements electronically, while also creating an electronic audit trail. This provides more effective management information, helpful for the statutory returns that local government departments are required to produce.

Through e-tendering portals, tenderers can create and manage multiple profiles containing expressions of interest/pre-qualification information. Invitation to tender(ITT) documents can be exchanged electronically, and the assessment and award of tenders is usually automatic.

Web-based programmes such as electronic supplier selection (ESS) systems provide buyers with up-to-date validated information of suppliers and contractors. These systems allow the supply chain manager to control and manage the supplier acquisition and selection process in a transparent, fair and compliant manner.

It is important that tenders should not only be awarded in a consistent and transparent way but by a process that is open and can be shown to any potential tenderer.

To run a successful tender or e-tender process it is essential to give careful consideration to the resources needed, and any other key issues, such as:

• appointing a programme manager and sponsor to deliver the business case and drive the programme forward (invariably a good step);
• deciding whether or not to involve an external IT partner. Or, if there are in-house capabilities, deciding:
• whether to engage with a hub exchange;
• whether to go for off-the-shelf or bespoke software;
• whether to attempt a shared service; and
• whether this should be recommended as part of a wider e-sourcing or e-purchasing system;
• evaluating risks and contingencies if the system should break down;
• estimating the resources needed in terms of money and personnel to drive forward the programme;
• discussing security, firewalls and other security-related IT issues; and
• launching a training, cultural change and change management programme.

Remember that e-tendering is only one part of an e-sourcing or a strategic sourcing strategy and should be considered alongside e-procurement in the context of an overall e-purchasing strategy.

The tender board (also known as the tender panel) has a responsibility to review and evaluate the tenders and make a recommendation to the purchasing team based on pre-agreed criteria. The tender panel should be identified in the preparation stage to ensure members are engaged early on in the process. They often play a key role in identifying the specification and evaluation criteria and have a responsibility to understand the specification and how it relates to their department/function. The panel will be dependent on the value and complexity of the procurement and the services/goods being purchased and should include representatives of each key stakeholder group. The project manager or lead procurement officer will generally be responsible for the formation of the right governance structure and, in the public sector, will develop this in accordance with the correct EU procedure that they plan to use. In the private sector this will usually involve a request for information (RFI) or a request for quotation (RFQ) rather than a formal tender procedure.

The tender panel may wish to record any action that is needed to ensure that identified resultant savings are realised in practice.

Inefficiently managed and overly complex tendering processes can create significant cost for bidders who are often challenged with maintaining a bid team over an extended period of time to respond to clients’ needs, many of which are ad hoc. This overhead cost has to be recovered somewhere and will inevitably find its way back in to bidders’ pricing, so the more inefficient the tendering process the more overhead cost needs to be recovered. Selecting the most appropriate tendering process and applying lean techniques to eliminate waste and non-value added steps are essential. For example, maximising the steps that can be undertaken in parallel and reducing unnecessary review and approval cycles are obvious ways that a lean approach to the tendering process can help. Applying lean principals to post tender contract management and supplier performance management can also improve efficiency and drive supplier costs down. So thinking through how to manage these phases during the tender process can have a significant impact on bidders’ pricing and the resulting contract life cycle costs.

Here is what some CIPS stalwarts have to say on the tendering process.

‘The key for any major procurement is “relationship”. From the outset, all internal stakeholders must be agreed on the objectives, scope, timescales and requirements for the project. Alignment between procurement, IT, business user groups, HR, finance and legal teams, with governance from board level, will avoid creating confusion with suppliers and reduce the risk of supplier misunderstandings and false assumptions.’ – Alex Dorlandt, director, Maximal Consulting, CIPS member who represents the telecoms and IT sector on its Council.

‘A point often forgotten is the importance of calculating and recording what the goods or service being tendered for should cost – prior to receipt of the tenders!’ – Jack Salter, CIPS member, involved in commercial policy at the Department for Education.

’Ensure that you have a well developed communication and stakeholder engagement strategy at the outset and stick to it. Make sure it involves the wider supply market and be sure to listen and understand what the supply market can achieve... they may even surprise you!’ – Graham Ockendon, fellow of CIPS who represents the business services sector on its Council.

• Assemble documents, forms, specifications etc.
• Arrange receipt.
• Advertise or select suppliers to involve.
• Select evaluation process and team.
• Hold any pre-tender discussions.
• Agree timescales.

• Issue tenders.
• Deal with queries (must be open-handed).
• Receive and open tenders (may be a formal process).
• Schedule, sort and present tenders for evaluation.

• Evaluate tenders received.
• Arrange supplier follow-up and clarification sessions (not price negotiation). At the award stage tenders can include ‘best price’ but negotiation does not happen until after the awards stage, though new EU procurement rules are likely to influence this. Buyers can negotiate with suppliers at that stage – post-award – to ask them to improve on their price.
• Select successful supplier.
• Inform unsuccessful suppliers.
• Proceed to contract.

Over the next five years, the tender process is likely to become far more intensive in terms of scrutiny of suppliers and supplier capability analysis, requiring a greater upfront commitment in terms of resource and time from both sides of the market. This pressure will be exacerbated by rapid technological advances enabling almost instant response times on a global basis. Supplier agility and buyer preparedness will be key differentiators in this developing market.

Download PDF version:

• Finance & Management Magazine, Issue 194, December 2011

The Chartered Institute of Purchasing & Supply (CIPS) is the world’s largest procurement and supply professional organisation. CIPS guidance documents covering various aspects of the procurement and supply profession are available in the Intelligence Hub section at www.cips.org.

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Further reading on tendering and procurement is available through the articles below.