Navigating the cost reduction, best value and supplier reputation quagmire

With procurement professionals under relentless pressure to achieve optimal sourcing savings and cost reductions, how…...

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With procurement professionals under relentless pressure to achieve optimal sourcing savings and cost reductions, how should they handle the issue of the prior reputation of a prospective supplier that submits the lowest bid?

A seasoned procurement professional warns that this is a potential minefield unless a rigorous and scrupulous approach to the assessment of reputational information is conducted.

To illustrate his point, veteran Canadian government procurement expert Stephen Bauld cites the legal case of an unsuccessful bidder for a Canadian government tender for aerially spraying spruce forests to prevent parasitic budworm infestations (West Central Air Ltd. v Saskatchewan).

The tender documentation made it clear that the lowest bid may not be the winner, as other considerations were taken into account.

In this instance, the government agency responsible for procuring the aerial spraying programme decided to decline West Central Air’s bid as it had concerns about the latter’s aircraft and comparative inexperience in forestry projects.

However, the snubbed supplier was dissatisfied with how its bid had been handled and took the case to the appeal court, which found in its favour.

The ‘general privilege’ clause in the tender documentation explaining that the lowest bid would not be the only consideration was entirely fair and reasonable, the court determined, but the supplier was also right to claim that the government agency had failed in its obligation to consider the tender fairly and in good faith.

The reason was that the concerns of the procurement professionals about the supplier’s reputation and experience were not adequately substantiated by rational assessment of credible information.

Nods, whispers and speculative inferences, in other words, do not count as reliable information.

Bauld argues that reputational assessments should ideally be based on systematically compiled information, which should always be placed alongside information on the corresponding capabilities and qualifications of competing suppliers, so that rational and thorough comparisons can legitimately be made.

Cases such as this suggest that well-intentioned cost reduction initiatives can backfire if not based on sound data.

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