Posted by: l3xt3r | November 23, 2009

Do you really want the lowest bidder?

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Do you really want the lowest bidder? A question you must ask yourself, especially in situations like this one:

Here are my thoughts on the matter, for all PMs having to go through bidding processes, unless of course you are following the first rule of government spending…

As project managers, one of the legs of our triangle is “cost”, so, obviously, we would like that the lowest possible. Which brings us to the widely used and accepted bidding process – you generate a scope and/or bill of materials, bid it out, get the results and select the lowest bidder. (Ok, so I simplified it a bit – but usually, cost is that which rules all others).

My question here is – is choosing the lowest bidder really getting you the lowest cost?

I would like to challenge that.

I’m sure that if you’re reading this, you can come up with a few ways of how cheap can become expensive, probably (and sadly) based on your past experience… The lowest bidder didn’t fully understand the scope, planned to use lower grade materials, planned on using low-cost inexperienced labor, forgot to quote parts of the scope – or all of the above and other things not mentioned here.

Here is where I want to offer some suggestions to help you pick the RIGHT bidder for your project (It’s of course assumed your company policies and your country laws allow the use of these methods…):

  1. Know your bidders – before adding bidders to your list, see their work, talk to their customers and see if they do quality work and have happy customers. if not – well…
  2.  Know your project – is your bidder capable of performing the work fully? will he need to take additional subcontractors? do you want that? when trouble arises – will you be pointed to the sub sub sub contractor for solutions?
  3.  Create a matrix – Evaluate and compare your bidders based on several factors, not just cost. The more sensitive the work, the more weight should be given to past experience, quality etc.
  4.  Grow a “home” contractor, but always challenge him – Its’ great to have a contractor you always work with who’s quality you like and you know you can trust – but don’t stay complacent – make sure you challenge your home contractors to make sure they stay competitive.

Alex

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Responses

  1. The home contractor is the best way to go. Even when prices are cheaper elsewhere, you know you can rely on him.

    On the flip side, some “home” contractors tend to offer lower quality with time as well as unjustifiably increasing prices (knowing that you’ll pay anyway), that’s why it’s good to keep them on their toes.

    PS: I’ve recently published an excellent article on the contractor selection in project management, have a look when you get the chance.

    • I agree, and it actually gives me an idea for the next post…
      The post you mentioned is actually a very good contractor selection guide, with this point being a good complimentry one.

  2. Yes you have simplified a bit.

    It is an urban legend – using your examples video clips – that the lowest bidder wins jobs. In FAR 35.1 (competitive source selection) procurements for development systems – SDD, system design and development – “best value” is the selection criteria.

    Lowest bid is a source selection process for post Low Rate Product (LRIP) or Full Rate Produciton (FRIP).


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