Traditionally, when you think of public sector contracts and procurement you don’t think about negotiation. You submit your bid and your price and are evaluated on this basis. This hasn’t been the case with more complex procurement needs, which require a longer process, collaboration and discussion. These have come under Competitive Dialogue and Negotiated Procedures, which provide greater flexibility to manage the perceived higher risks of the contract. We have also written a full blog on post-tender negotiation here.
Negotiation, clarification and refining your bid, however, looks like it is going to become more frequent in public sector procurement as a result of the Procurement Bill, which will come into force in October 2024.
As a result, the ability to negotiate effectively can be the key to securing lucrative contracts. This guide will delve into strategies that bidders can employ to boost their performance when tendering for public sector contracts, with a focus on the importance of understanding and leveraging competitive procurement procedures and negotiation tactics.
Understanding the Competitive Procurement Process
Competitive procurement is essential for public sector buyers to demonstrate they are achieving value for money. The process is a critical aspect that every bidder needs to comprehend thoroughly. It is the process of inviting suppliers to submit their bids or tenders for a specific project or contract. The essence of a competitive tendering strategy lies in its ability to ensure accountability, encourage robust tendering, and ultimately achieve the best value for money for the public sector.
Defining Tendering and Procurement
Tendering and procurement are two distinct activities in the construction process, often misunderstood and used interchangeably.
- Procurement refers to the overarching act of obtaining goods and services from external sources, such as a building contractor. It involves strategising on how these goods are to be acquired by reviewing the client’s requirements (i.e., time, quality, cost) and their risk appetite.
- Tendering, on the other hand, is a critical phase in the procurement strategy. It is essentially the bidding process to obtain a price and the method of appointing a contractor.
For a thorough look into every detail of competitive bid writing, take a look at our Ultimate Guide to Bid Writing!
Types of Tendering Procedures
There are three primary types of tendering strategies commonly utilised: single-stage tendering, two-stage tendering, and negotiated tender. Each has its unique advantages and drawbacks.
Single-Stage Tendering
In single-stage tendering or open procedure, invitation to tender documents are issued to multiple organisations who bid for the project based on identical tender documentation. This strategy is the most common method of obtaining a price for the entirety of the construction works. Built within this tender document is a pre-qualification or selection questionnaire, which covers more standard business information in terms of financial stability, accreditations and references, for example.
Two-Stage Tendering
Two-stage tendering or restricted procedure is can mean two things confusingly. For public sector procurement, a restricted procedure has a pre-qualification stage, before then inviting successful bidders to tender. Or it can also be associated with competitive dialogue with reference to the design process, for example, which may benefit from the technical input of a contractor in the later design stages. It involves the early appointment of a preferred contractor based on the quality of their bid, their team, and their preliminaries price, and overhead and profits allowances.
Negotiated Tender
A negotiated tender can be a single-stage tender with a single contractor who returns with an initial price. This price is then negotiated with the client’s professional team, usually the professional quantity surveyor (PQS). Or have multiple stages and with the refinement of each assessment, bidders can be shortlisted (based on the structure of the process) leading to the final shortlisted submitting a final bid. Within the public sector it is essential that the process is still open, fair and transparent, so clear communication and instructions is critical.
Recognising the Importance of Early Contractor Involvement (ECI)
Early Contractor Involvement (ECI) is a form of negotiated tender that emphasises the contractor as the lead designer from the project's outset. ECI is increasingly significant as buildings become more complex, engineering evolves, and Building Information Modelling (BIM) becomes more prevalent.
The Role of Post-Tender Negotiation in Competitive Procurement
Post-Tender Negotiation (PTN) is a crucial step in the competitive procurement process. It is conducted after the receipt of formal tenders and before awarding the contract, with the aim of achieving an improvement in content without putting other tenderers at a disadvantage or distorting competition.
The Importance of PTN
PTN is used to secure value for money, provided that the adverse effects on competition are avoided. It allows for the exploration of potential improvements in the bidders' offers, thus ensuring that the most suitable supplier is selected to provide goods or services on terms likely to offer the best value for money. This is also the aim of the new Flexible Competitive Procedure.
Principles of PTN
The key principles of PTN are that it must be conducted within the scope of the EC Procurement Directives, previously, and it must be a controlled and documented process, with a clear audit trail. It should not be used automatically on all procurements, and there are specific criteria that must be met before engaging in PTN. In the Procurement Act 2023, there is however additional flexibility on when this can be used, which will lead to an increase in the method.
The PTN Process
The PTN process needs to be considered within the overall procurement process. There are several stages when contact is made with potential suppliers prior to the award of contract. These stages include pre-qualification, the bidding process, bid clarification, bid conditioning, initial evaluation of the competing bids, exploration of potential improvements in the bids (PTN), final bid evaluation, and conclusion of the contract.
Leveraging Competitive Procurement Procedures and Negotiation Tactics
Understanding and effectively leveraging competitive procurement procedures and negotiation tactics can significantly improve a bidder's performance when tendering for public sector contracts.
Here are some strategies:
- Thoroughly Understand the Procurement Process: Having a deep understanding of the procurement process, including the different types of tendering procedures, is crucial.
- Prepare a Comprehensive Bid: Your bid should be thorough, well-structured, and comply with all the requirements stated in the invitation to tender documents.
- Sharpen Your Negotiation Skills: Negotiation is a critical part of the procurement process. Developing strong negotiation skills can give you an edge over competitors. Understanding what in your terms and solution can be moved and what is essential to make the project fit for purpose and also of interest to your business. The focus is value for money across the life of the contract, so analysing opportunities for efficiency is very important.
- Maintain Professional Ethics: Ensure that all your dealings are conducted in an honest, fair, and ethical manner.
- Be Prepared for PTN: Understand the principles of PTN and be prepared for it. PTN is an opportunity to make your bid more competitive and attractive.
- Keep Records: Ensure that all negotiations and changes are fully documented, providing a clear audit trail.
By strategically harnessing competitive procurement procedures and effective negotiation, bidders can significantly improve their chances of securing public sector contracts. It is about understanding the system, preparing a compelling bid, honing negotiation skills, and maintaining a high level of professional ethics throughout the process. Our guide to post-tender negotiations is here.
For many businesses, this means entering discussions with a:
- Contingency plan before initiating negotiations
- Formally assess requests and their wider implications using the time you have been given to consider and response.
- Beyond the tender and through discussions, what additional insight do you have with regards to the buyer's hot-buttons? These should be prioritised against your needs to allow you to ‘trade’ effectively.
- Always uphold or at least consider the principle of reciprocity - never give away anything without receiving something in return. Appreciate the value of each element in the negotiation process.
Examples of What can be Negotiated on?
- Price Negotiation - engage in discussions to reach an agreeable and competitive pricing structure.
- Technical Proposal Refinement - collaboratively refine the technical proposal to ensure alignment with expectations.
- Risk Transfer Arrangements - discuss and establish effective risk transfer mechanisms to mitigate potential challenges.
- Negotiating Payment Schedule - define a payment schedule that is fair and suitable for both parties.
- Scheduling Adjustments - explore and agree upon modifications to the project schedule as necessary.
- Warranties Review - conduct a thorough review and negotiation of warranties to ensure comprehensive coverage.
- Service Level Agreements (SLAs) Definition - define clear and mutually beneficial Service Level Agreements to guarantee service quality.
- Service and Maintenance Terms - negotiate terms related to service and maintenance for optimal performance.
- Training Plan Development - collaborate on the development of a comprehensive training plan to address specific needs.
- Upgrades Incorporation - explore options for incorporating upgrades to enhance the project's long-term viability.
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