As a member of the The Supper Club (an invite only membership club for entrepreneurs, part of Prelude Group), Stephen Davis, founder and managing director of StarBase was recently interviewed by the Prelude Group (making Britain the most enterprising nation in the world).
He told of his experience of winning and losing tenders from government, and explains why if you’ve been invited to tender, the chances are you’ve already lost the contract.
‘What’s your experience of pitching for tenders?’
My experience of working with public sector organisations is that you’ll hear about it for the first time when it is published, but they will typically have been working with one or more suppliers for a period of time.
The public sector is forced to get competitive tenders from three or more providers. What tends to happen is the tender goes out, fifty responses come in and they narrow it down until they have three.
But there will always be one or two that helps the public sector organisation define the process, and by ‘define the process’ I mean write it so that your strengths are what are being sought and rivals’ strengths are devalued. Unless you are one of these you are unlikely to win.
‘Do you have examples?’
This comes from a number of public sector opportunities we have come across and one where we were involved in shaping the requirements. In the latter case we worked with an organisation who had used us in the past but their current job broke a cost threshold that meant it had to go to tender.
We looked at the tendering process, a complex 26-page document that needed to be filled in, and we decided to no-bid. They rang us and said they wanted us to bid and we then won the work. This was two years ago but I can think of more than one similar happening this year alone.
It is also validated by somebody who regularly bids for public sector contracts and he agrees it’s just like that; so it’s not just my view.
‘Can you mention another example?’
In the build-up to the Olympics we worked with another public sector group who, again, we had worked with in the past. They were on the main route to the Olympic stadium and were warned half their staff should stay at home.
We were asked to test that their IT systems could cope with such a large number of staff working from home, because they had never had to do it before. They made it very clear, off the record but very clear, that if the cost went above £10,000 they would be forced to send the work to tender. Previously that limit was £100,000.
The public sector is now focused, at least officially, on reducing spending and getting the best possible price, which explains the big drop in the tendering value threshold. When large organisations ask us for a quick quote over email, with no contact on the phone, then we know all we’re being asked to do is validate someone else’s price.
Unless you can drive the price way down below the margin threshold then you will not get the work. There have been two of these examples in the last two weeks so that happens quite regularly. Basically, if we’re in early we can feel confident about any bid, if we just receive a tender that is already formed, unless we have a really strong proposition then we may already be too late.
‘How often do you pitch for ‘ready-formed’ tenders?’
It really depends on the opportunity. When we’re competing against companies that work off-shore then we really need to work out whether the client is basing their tender exclusively on price or day rate – because if so we’ll pull out of the process and no-bid.
But we do it quite noisily. We say you shouldn’t just look at cost, because other companies use significantly more resource. Often it’s a case of whether we can talk directly to the budget-holder. If not we generally won’t proceed.
We used to deal with project managers who could have budgets of up to £1m, today budgets are held much higher up the chain and procurement is heavily involved every step of the way. So rather than being validated on our merits, the assessment process is more around ‘how much is it going to cost?’
‘Have you been tempted to bring down your costs?’
We’ve all had to change our cost model, but there is a point at which it becomes bad business. Winning the work but not making your target margin means you’re doing something drastically wrong. If you’re treading water then you’re not focused in the right way.
There are exceptions of course, for example if we think we could get a toehold with a big client and eliminate competition for the next project, but we’ve seen rivals ‘buying’ tenders by lowering the price so much that there cannot be any margin left.
The other point to make is that on a few occasions we have lost a tender but then a few years later have been approached by the client and asked to take on the work because the cheaper option hasn’t delivered satisfactory results.