An article posted by the Economist on November 19th, 2016 reveals the rampant corruption in government procurement throughout Europe.
The article entitled “Rigging the bids” reveals how 37 businessmen and former politicians are implicated in one of Spain’s worst corruption cases in decades.
The articles goes on to correlate corruption practices in dozens of European Countries with single source procurement. According to data published by the Economist, as many as 45% of awards being made in countries like Italy, Cyprus, and Greece are made on single source basis .
While there are many legitimate reasons why single source awards are sometimes needed, awarding more than 10% of your spend without competitively bidding is not a recommended practice.
Here are the reasons why you should avoid single source awards:
The perception of corruption
It does not matter how honest of an individual you are, if you are a manager with control of your Company’s funds and you consistently award contracts to the same handful of Vendors, you are perpetuating a perception of corruption.
With so many Companies requiring SOX compliance, the mere impression of corruption could cause you to be demoted or even fired. Private organizations are generally not subject to the same procurement scrutiny of governments, so single source awards are really entirely up to the Company’s discretion, but even private organizations with publicly traded stocks are subject to SOX which may require competitive bids for every award.
Familiarize yourself with your Company’s governing principals and make sure you have written approvals for all of your single source awards, or better yet, bid every project every time and your integrity wont be called into question.
This one may be self evident, but it’s worth mentioning. Even if you believe that your incumbent Vendors are quoting you a fair market price, you simply cannot know without a competitive bid.
Incumbent Vendors know when they are being single sourced and they know when they are in competition. Even your most loyal incumbent Vendor may allow pricing to creep when they are unencumbered and even the most savvy manager cannot be certain they know what a project should cost.
The only way to be sure you are paying market value is to competitively bid the work.
Every business benefits from the infusion of new ideas. Managers that limit their Vendor pool to a select few Vendors may be missing out on new innovations and new ideas from the marketplace.
If your procurement practices incorporate qualification questionnaires and solicit technical documents, you may uncover innovative new ways to manage or execute your projects. These innovations could save you money, effort, and time, but you will never know if you don’t explore new Vendors.
The vast majority of the time when an owner tells me they want to go forward with a single source award, they raise schedule as a rationale for their decision.
They don’t believe they have the time to develop a scope of work, or they don’t have time to wait for bids to come in, or they don’t have time to train a new Vendor.
The truth is that these are shortsighted excuses that lead to a long chain of bad decisions.
These bad decisions invariably lead to change orders. Studies show that every time you skip a step, you increase your project costs by 30%.
Don’t skip steps! Take the time to develop your scope fully, take the time to competitively bid the work, and don’t assume a new Vendor will need hand-holding.
You don’t really save time
Along with increased costs, rushing past scope development and procurement has been shown to increase construction time by as much as 50%.
By rushing to a single source award you may save a few weeks of design time, or a couple of weeks of procurement time, but this time will invariably be added on to your construction duration.
The construction phase is the most expensive phase of any project. The construction phase is where you want to incur the least number of delays.
Assuming that skipping time up front leads to a more expeditious completion is misguided, take the time to perform your due diligence and your project will go more smoothly and will be completed more promptly.
There are times when a single source award is the right choice. A skilled procurement professional can help you make that decision. Procurement can also help you mitigate the pit-falls of single source awards, but be mindful of how often you go down this path or you may be giving others a perception you may not want.
How often do you make single source awards? What rationale have you used? Tell me your stories.
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