Reverse bidding can sometimes prove useful when looking for suppliers, thus using competitive power in the buying process. The scope of work and budget should be submitted to the prospective suppliers, and they should underbid to get the contract. In most instances, buyers secure services at a lower cost. However, simply running a reverse bidding event does not guarantee success.
Buyers need to put some strategies and processes in place that support a fair, transparent bidding process and deal with reliable suppliers who are able to deliver. However, without proper planning and management, some pitfalls may make reverse bidding ineffective as an approach to saving costs. As a good number of organizations move to reverse bidding in order to cut costs, they should avoid these mistakes.
- Overly narrow and rigid requirements.
One disadvantage of reverse bidding processes is defining very specific or rigid requirements. Buyers may define in detail project requirements, budgets, timelines, and expected outputs with the hope of controlling costs and getting the lowest. It is necessary to have flexibility in design specifications. Nevertheless, if the project parameters do not allow for it, only reliable suppliers who don’t compromise quality will agree to work with unreasonable demands. Suppliers also do not feel free to offer creative ideas or value-added products that may be beneficial in achieving desired project results.
Such overly narrow requirements mean that suppliers have to stick closely to budgets, which increases their likelihood of cutting corners. They may opt for lower-priced, less experienced contractors, miss critical tasks, or use cheaper materials. Such acts jeopardize project quality and might lead to more costly repairs in the future. Buyers should have high-level goals and guidelines rather than narrow requirements. Reputable suppliers will have the opportunity to prepare their bids according to their respective budgets, deadlines, and quality.
- Failing to vet suppliers
Some buying organizations will call some suppliers and participate in reverse bidding without pre-screening to ensure low bids. Nevertheless, such practices could erode the integrity of bidding in numerous respects.
Thereafter, this means that non-conformant supply companies will provide absurdly low tenders with no plans of honouring their agreements. “Ghost bids” that pull quoted prices down broadly might prompt legitimate suppliers to withdraw their bid or to raise prices in order to compensate for perceived risks. Buyers and honest suppliers also waste their precious time on ghost bidding.
Moreover, unreliable suppliers will also pose a risk if they eventually win contracts. Work of acceptable standards despite contract demands may not be deliverable by those without proper credentials, experience, staffing levels, and finance. Savings realized by reverse bidding are subsequently erased by the rework, delays, and legal expenses incurred as the result of engaging the wrong partners.
- Insufficient information on a project
Suppliers engaging in reverse bidding must have adequate knowledge with regard to projects, their expected timeframes, and the supplier’s objectives. On the other hand, buyers may fail to disclose enough information before inviting bids. However, suppliers develop their proposals by making assumptions, which lead to bids lacking technical specifications, resource allocations, and budgets.
Buyers may be subjected to claims for more money, late deliveries, and failure to honour contracts when they realize they have underbid the scopes of entire projects after they have selected suppliers. This is where providing comprehensive project documentation to all bidders will come in handy, as it helps to avoid such issues by allowing suppliers to have a precise and informed bid right from the beginning. Buyers will use templates of Request for Proposal (RPF) within supplier performance management software to give out all project requirements.
- Failing to set reasonable budgets
Suppliers are often forced to competitively bid lower rates in a reverse bidding process. If not managed, suppliers can bid prices that are inadequate to cover real project costs and fair profits. Suppliers who need contracts badly might even submit low bids in order to reclaim the costs once involved or cut corners in order to recover losses.
The first and third scenarios are not in favour of buyers who seek superior work at fair prices. Honest suppliers will be willing to provide quality services by setting reasonable project budgets and being transparent about bid expectations. Buyers might be forced to go back to adjusting project scopes or reviewing resource requirements if bids continually fall further than the amounts allocated for a particular project. Well-designed supplier performance management software provides benchmarks for realistic pricing based on historical bidding data.
- Rushing the bidding process
Some buyers speed up the reverse bidding process in order to attain quicker cost savings. Nevertheless, hurriedly assembled bidding processes may lack any premeditation, recording, and due supplier scrutiny. The rush of the process also shortens the window within where suppliers prepare and put forward bids and hence it is less probable that they will give more precise quotes.
- Failing to enforce compliance
Buyers should have processes in place to ensure suppliers are complying with all contractual requirements, including project scope, timelines, quality standards, and costs. Without enforcement, suppliers may cut corners or deviate from agreements in hopes of boosting profit margins. Strict compliance enforcement eliminates this incentive and protects buyers against potential rework costs or legal issues.
- Not allowing supplier collaboration
Ruling out any collaboration between bidding suppliers can suppress innovation and creative problem solving. Allowing suppliers to partner on certain elements of a project could improve outcomes for buyers. As an example, two specialist suppliers might join forces to deliver a complete solution neither could efficiently provide independently. With proper oversight, limited collaboration may benefit buyers under the right circumstances.
- Refusing to negotiate
Some buyers refuse to negotiate with bidding suppliers out of fear of driving prices back up. However, reasonable negotiations can close gaps between supplier capabilities and buyer expectations. Rather than jeopardize project success by sticking to unrealistic demands, astute buyers at least explore negotiating options to achieve mutually acceptable terms. Setting expected negotiating ranges also reinforces the seriousness of initial proposal pricing.
Conclusion
Careful planning, compliance enforcement, transparent communications, reasonable expectations, and collaborative decision-making are essential for organizations to maximize the benefits of reverse bidding processes. Avoiding the common missteps outlined here will help buyers engage reputable suppliers and achieve desired quality levels at sustainable prices. A well-designed technology platform can support and enhance many crucial aspects of reverse bidding, from supplier vetting to clear documentation to realistic budget establishment.