To tender or not


There is a general sense, according to Professor David Hensher, that society is better off if contracts are put out to tender.  Is this still the case if the incumbent is satisfying requirements?

Hensher, a professor of management and founding director of the Institute of Transport and Logistics Studies at the University of Sydney says his research into tendering demonstrates that transaction and transition costs of tenders far outweigh the cost of negotiation with incumbent providers.

While tenders remain expected practice, what do those evaluating tender responses need to consider?

Questions to ask:

1. What hidden costs might be incurred from putting services out to tender?  Be aware that suppliers may build the cost of their tender response preparation into their contract estimates.  

2. Is the bid too aggressive?  Tenderers may undercut their competitors with low prices to get in the door, but be underqualified to deliver the required services if they win the contract.

3. What are the risks and costs associated with the transition from an existing operator to a new operator?

4. What real costs might be missing in tender disclosures?  What other costs may need to be added in to achieve the goal of tender transparency?  Henscher suggests a 10 per cent mark-up be factored into the assessment of offer prices.

5. How much should be set aside as a contingency on top of tender bids, in case the preferred supplier falls short of delivering the service required?   

Professor Hensher’s opinion piece To tender or not: how transparent is the process? is available on the University of Sydney’s website.