An increased focus on corporate governance, smarter procurement practices and improved transparency has led to a quiet revolution in international tendering practice. It is also possible that, in part, this has been a result of globalisation and the broadened global market place which has increased choice and competition whilst bringing together a plethora of new trading partnerships.
The long established principles of tendering have stood the test of time, for example separation of technical and financial proposals, proposal opening procedures and dispute resolution clauses. However, in recent years, requirements have increased. For example, it is now usual for tenderers to have to provide clauses or documents evidencing their environmental policies, anti-slavery policies, ethical trading policies, diversity / inclusivity statement and sound corporate governance together with security compliance and relevant counter-measures. When we discuss non-preferential rules of origin we refer to the ‘buyer’s right to know’ – contemporary tendering practice reflects an expansion of this requirement – increasingly, buyers of goods and services in both the public and private sectors want to be reasonably assured of tenderer’s adherence to good, international standard, operating practices and ethics – not least of all for their own protection.
Electronic bid submission is now widespread. This is welcome, saving courier costs and reducing the chance of transit delays and, consequently, late submission. But there are also inherent pitfalls to be aware of. One of life’s realities is that most bids are submitted during the ‘final hour’ of the tender window. This is natural, bidders like to continue to tweak and peer review their submissions up to the last minute. In the era of electronic submission this can be dangerous – an internet outage at the last minute can result in late submission and, thus, a non-compliant bid. An added complication can be that of time-zones. It is not unusual for a bidder to make an electronic submission which would appear to be prior to the tender cut-off time only to discover that they have been scuppered by a ‘clock change’ or un-expected time zone variation.
One reality of international tendering is that the process can be hugely expensive for both bidder and tenderer. For the bidder, preparing complex costings, generating supporting documentation and carrying out research can take a great deal of time and consequently can attract significant costs. For the tenderer, preparing an internationally acceptable ‘Invitation to Bid’ or ‘Request for Proposals’ can also involve considerable time investment and, frequently, legal input. Ultimately, there will be a selection and evaluation exercise. Tenderers are aware that this must be conducted openly and transparently if they are to avoid a contest or protest from an un-successful bidder. Thus, the evaluation must be objective and scientific rather than subjective with a published scoring system that can be referred to in the event of a challenge. For the tenderer, the cost will, to some extent, be compounded by the number of bidders who enter the competition. They also have the risk that ultimately, the tender itself may fail – for example if there are insufficient bidders to make the competition viable or even no compliant bidders. Such are the risks of open tenders. As a result, there is a tendency towards restricted tendering or, even, sole sourcing where this is deemed to be safe, fair and appropriate.
Restricted tenders are sensible, pre-selected organisations are invited to bid based on their previous performance, known capabilities or reputation. The tenderer can, therefore, be reasonably assured that bids presented have a good chance of being compliant and are, thus worth evaluating. This saves time and cost. Sole-sourced procurement can be rather more contentious. There will be occasions when only one organisation has the product or the expertise which meets the buyer’s requirements. In such circumstances there is little point in launching a competitive tender exercise. Sole-sourcing does, however, often create suspicion – is the procurement transparent, fair and free of corrupt practice? When a procurement is sole-sourced, particularly in the public sector, it is usual that a contract award would include several elements of protection for the buyer including very structured payment terms and performance criteria. In some environments tenderers may have to defend or justify their decision to sole source.
Probably the most fundamental change in international tendering during the past decade has been the growing realisation that the cheapest bid may not be the best. Currently, the evaluation exercise is likely to include a more comprehensive ‘whole life’ approach to financial submissions – this differs from the far more transactional approach which was historically used. There is a growing realisation that short-term savings can often result in hidden medium and long term costs. Also, financial comparisons will, now, often consider peripheral implications such as wider economic, social and environmental benefits. Weightings are often allocated to these qualities. Innovation always commands a premium and will generally give bidders a competitive advantage.
There is really some very good news here – although the tender process can seem daunting to those used to quoting for their exports on a much less formal basis, the process is far more transparent than previously and, although bidders may have to pre-qualify to ensure their submissions meet minimum requirements and have a good chance of being compliant, many tenderers now actively encourage small and medium sized companies to enter the competition. Exporters need to be aware of these trends – readers will be aware that the days of winning business in expensive restaurants and on the golf course are fast disappearing (if they ever really existed)! Tendering and bidding activity has grown, globally, ten-fold since the global financial crisis, a trend that is set to continue. So, join the competition and increase your exports….
Article written by Jon Walden, an Associate of Strong & Herd LLP