Lowest Bid does not Guarantee Quality.

From the very first time I solicited a quote for design and construction, I have always been concerned with ensuring that contracts are awarded to the most qualified Vendor at the most competitive price.

Notice that the word “qualified” comes ahead of “price”.

This has always been the conundrum of procurement.  We want the lowest cost, but we need to be constantly leery of unqualified bidders.

In the public sector this issue is a constant concern because you cannot be selective about who bids.  Public sector bids are open to anyone who wants to submit a quote.

Many politicians step into the public sector and are surprised by laws that require contracts to be awarded to the lowest bidder.  Typically these laws acknowledge the issue of qualifications by adding “qualified bidder” to the language, but disqualifying a bidder can be very difficult.

Rodrigo Duterte, the outspoken and controversial leader of the Philippines recently was quoted in Update Philippines as saying “Lowest bid, lowest bid tapos after one year sira na”.  This roughly translates into, “We award lowest bid and after one year it’s broken”.

Over the last few years, there have been many governments that have modernized their procurement regulations to allow for two part solicitations.  In my article Construction Consensus Procurement Improvement Act, I discuss how the US has taken steps to allow certain delivery models previously disallowed by US Procurement guidelines.

In the private sector, we have much more latitude in Vendor selection.  Therefore there are many more ways to ensure only the most qualified Vendor are awarded.  Today, I want to discuss the various ways procurement works to ensure that only the most qualified vendors are awarded.

Pre-qualification

Pre-qualification occurs during the sourcing process.  Pre-qualification is done by researching vendors through third party sources and in-house data.  While this research is typically done without ever contacting the Vendor, sometimes it is necessary to make informal inquiries to verify information.

The pre-qualification is an important first step which determines whether a vendor will be invited to participate in a request for proposal.

Qualification Questionnaire

The second way qualified vendors are identified is through the use of qualification questionnaires.  Qualification questionnaires can take many forms, typically it’s a document that includes a series of questions specific to the project.  These questions dive deeper into the Company’s qualifications.  Information about a Vendor’s financials, insurance, and experience are solicited.  This information is later scored and evaluated among the pool of responding bidders.

Bid Leveling

Pricing is always a factor in procurement and nothing tells a procurement specialist more about a Vendor than their quotation.  Bid leveling is how procurement specialists analyze the quotations they receive from vendors. Often during the bid leveling we are able to discern whether the Vendor included all aspects of the scope.  A quote that covers the full scope is further evidence of a Vendor’s qualifications for performing the work.

Interviews and Company presentations

Face to face meetings are often used to help make award decisions.  During these meetings having the project team physically present is of paramount importance.  Each team member’s credentials may be evaluated during such meetings and personalities and perceptions of competence further refine a selection team’s award decisions.

Competitions

Another way procurement can determine a vendor’s qualifications is to host competitions.  This approach work best with creative services like Architecture and Marketing, but can also be applied to any document that may demonstrate essential skills of a Vendor.  I recall a builder that won an award based on the quality of a site logistics plan he presented during an interview.

Closing

Qualifying vendors is one of the most important duties of procurement.  For me, this responsibility ranks higher than realizing savings.

It is imperative that as procurement professionals we take this responsibility seriously and ensure our Clients don’t fall into the trap of awarding the lowest bidder.  If we use the tools at our disposal and apply sound procurement principals, we can ensure that only the best Vendors are awarded and ensure our Clients receive the best standard of care.

How about you?  Have you ever made a low bid award?  Did it turn out okay, or did you have problems?  Tell me your stories.

Thanks for reading.  If you enjoyed this content, please feel free to browse my previous articles and please like, share, comment, and subscribe.  This helps promote my content and is greatly appreciated.

 

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One thought on “Lowest Bid does not Guarantee Quality.

  1. I can definitely say that price does not equate to quality. It may save you money in the short-term but other factors start to creep in, causing you to spend more.

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