Commerce Decisions has been asked to present at the Canadian Public Procurement Council (CPPC) Annual Forum in Montreal.
The theme this year is “united under public scrutiny” as a result of the ongoing Charbonneau inquiry into collusion (bid rigging) in Quebec’s construction industry. At the CPPC Forum, Commerce Decisions will look at the UK/European and Canadian construction industries and detail ways in which bid rigging can be prevented.
Public contracts for construction in Quebec (and indeed across Canada) are predominantly determined on the basis of Lowest Conforming Bid. Put simply, if you do it cheapest you win the work. In principle this is a good way of ensuring value for money. In practice there are a number of pitfalls which I’ll outline here:
1. Suppliers may choose to operate at a loss to win the work. Is this sustainable or ethical?
2. In order to win a supplier must be the one with the cheapest bid that meets the requirements – this is not necessarily the same as being the best placed to deliver or the best value for money. Big construction projects fail all the time as a result of poorly articulated requirements.
3. A supplier may elect to bid low knowing that requirements and specs will change over the life of the delivery, making money as a result of contract change procedures.
4. Many bidders choose to not bid, knowing they aren’t going to be the cheapest.
5. It’s a very easy way to rig the outcome. In the case of the Quebec bid rigging scandal, the guilty bidders were easily able to determine the outcome by controlling what other members of the syndicate were pricing.
Another example of why simply selecting the lowest price bid can be problematic is shown in the following example:
Bid 1: Meets requirements (50% technical score) with a price of $1,000,000
Bid 2: Significantly exceeds requirements (90% technical score) with a price of $1,000,001
Who do you choose? Bid 1 wins, right? Many of the project stakeholders will say:
“But it’s only $1 more to get all this additional value.”
So we need a procurement approach which allows us to select the solution which meets the needs and goals of the procurement process which delivers the best value. This approach is more commonly known as the “Most Economically Advantageous Tender”. Suppliers no longer need to focus solely on being the cheapest; they can concentrate on being genuinely better than the competition. They can make investments which deliver wider benefit and push up their technical scores. I’m not advocating that buyers should always pay more, but instead spend more time considering the following:
“How much more are we willing to pay for the additional value?”
If suppliers know they can compete on a fair basis and are incentivised to be better, leaner and more innovative then they are likely to be engaged and competitive. Given the option of winning 1/6 contracts through bid rigging vs. 6/6 contracts by being the best, most would choose the latter. Additionally, it is much more difficult to rig the outcome where the technical abilities of the suppliers are different and the result is determined on the basis of a combination of Technical AND Price considerations.
In Montreal, John Cole (Principal Consultant, Commerce Decisions) and I will show our current thinking on how to articulate this value – both at a high level and by constructing an assessment schema made up of evaluation criteria, weightings and scoring scales which focus on the delivery of key project outcomes. We’ll detail how our Structured Criteria Development (SCD) and Relative Value for Money (RVfM) methodologies are used by organisations globally to deliver effective, efficient and robust supplier assessment processes.< Back