We’ve been brought in to help a public sector client get out of a jam with a major systems procurement effort (many millions of dollars) many times. In every case, the problem was, it was too late. The approach to procurement they used resulted in the selection of a vendor and solution that did not best meet their needs.
They had constructed their procurement around a typical strategy – Identify the 3 or 4 categories of things that mattered to them (for example: solution provider experience and viability, solution fit with requirements, and cost), weight those things, and score the vendors on them. But here is the problem – in these tight economic times, cost is often viewed as critically important and given a high weight. Vendor’s know this and game the system by offering a minimally acceptable technical solution and bottom barrel costs. They do this fully expecting to get further revenue through the change orders they know a customer will request (because they understand their proposed solution doesn’t meet the client’s real needs). So what are some strategies for avoiding an inferior product comes out on top?
- Having well defined requirements will help. This will allow you to better compare the solutions vendors propose. It is however, difficult and time-consuming to develop a detailed set of requirements. Because you don’t typically do requirements you will probably not have the skills in-house to develop these well. A third party specializing in developing requirements can pay dividends in the end.
- Unless you are purchasing a commodity item, like pencils, consider a “value” based procurement instead of strictly a “cost” based procurement. There are multiple ways of evaluating value, for example, score the “value” of a proposed solution by considering the cost per technical point. This will mediate “cost” based gaming of the procurement.
- We’re not suggesting total cost doesn’t matter. In your procurement strategy leave yourself room to negotiate total cost. Pick the vendor with the highest “value” but leave yourself room to cut the total cost of the proposal by cutting scope. Have a pre-contract negotiation phase where you can negotiate scope (and therefore total price) with the vendor. Consider publishing your budget in the procurement to avoid these tactics.
- If your local procurement regulations prohibit pre-contract negotiation consider a best and final offer (BAFO) solution. In a BAFO, you give the vendors a chance to sharpen their scope and come back with their best offer. This doesn’t always steer procurement to best value but it can help lower total costs.
- Lastly, test your procurement strategy. Consider all possible scenarios (e.g. A vendor has a low total cost and high technical scores), document them, and run an evaluation of the results. Are the results what you thought? Perhaps you should revise your scoring strategy.
The most import lesson here is HAVE a strategy before you release a systems procurement. If you don’t procure major systems regularly (and who procures multi-million dollar systems regularly?) get some assistance with your procurement.