“There are some very serious flaws in most commonly-used methods for choosing suppliers,” Peter Marshall of Commerce Decisions told a break-out session at the CIPS Annual Conference last week.
Marshall said he was not sure the right suppliers were being chosen. “I see criteria set out in the industry that all suppliers can comply with, but can they actually deliver?” he asked. He explained he was referring to suppliers for major programmes such as IT systems or military hardware, that had to be designed, tested and run on a service contract.
“You might say you want a fully integrated IT system, but what is the time limit? Does it need to be fully integrated immediately, or over a year or two? If it is during the contract what can we ask for at the point tenders are submitted that will give us confidence that the system will be fully integrated later? The wording needs to be stronger.”
Marshall said criteria must be defined so buyers can feel confident. “Use the contract to ensure low risk requirements are met. Focus your evaluation criteria on things that give you confidence the bidder will be able to deliver the higher risk requirements,” he said. “What is the best bidder offering? Are you confident they can deliver? We must be clear about what measures we are evaluating. The poorest use of criteria involves compliance… apply them first and then apply other further criteria.
“What is the minimal solution that would be acceptable?” he asked.
Marshall said there were flaws in the way buyers “run the maths” by uniting technical requirements and price factors and said it was important to understand the weighting of whatever formula they are using. “We use techniques that mean our rankings of tenders change arbitrarily and we score bidders’ prices in ways that mean we pay arbitrary amounts for extra functionality or confidence.
“We use methods that have effects we don’t understand; the good news is that bidders don’t understand it either and they can’t challenge the process. But how long will this situation last?” he said.
“The bad news is that the bids you get back are usually their best guess about what you can afford, therefore you are choosing preferred suppliers in a way that may not deliver best value for your company,” he said.
Marshall suggested companies needed to use different techniques to combine price and technical factors such as Commerce Decision's Relative Value For Money (RVfM) method, which starts from a statement of how you value technical scores.
“Tell suppliers what you would pay for particular factors upfront. The bidders know what you will pay for technical points for instance and will see you as transparent and dependable,” he said.
Marshall said the mechanics of the RVfM method then implement your intent. He said bidders need much more clarity about how you value what you are asking for. “Make sure you are clear about what criteria you are measuring and that the method you will use to evaluate scores is transparent and defensible,” he said.