Over the years, I still have people telling me that the lowest price is the most important factor in awarding a construction project.
It is for sure a very critical aspect of the award process, however, not the most important one.
There are, no doubt, some who would argue the distinction between the tender and RFP is exaggerated. These are the two main purchasing process documents most commonly used when purchasing both goods and services as well as construction.
Even where price is a highly important consideration, the ability to provide bond coverage or other security, previous experience with suppliers, the ability to deliver within a stipulated time and so forth are invariably included in tender documentation as criteria that may be taken into account in the final decision to award a contract.
Whether a document is a request for tender, providing for a contract award process in which it is indicated that the final purchase decision will be primarily by price, or a request for proposal (indicating that the price will not be primarily determinative) is a matter of interpretation.
The description of a contract competition as a “tender” is not determinative, where the terms of the documentation indicate the competition was intended to be more in the nature of a request for proposal.
Moreover, it seems essential that even in the case of a “pure” tender in which price is declared to be the key determinant of the award of the contract, there must be some amount of discretion left to the prospective customer, if the tender approach is to retain any kind of commercial credibility at all.
Underlying the choice to use a tender as a means of procurement is the assumption the offers of goods or services that each supplier puts forward are ultimately fungible – that is, that goods or services of one supplier are as good as (and interchangeable with) the goods and services of any other supplier.
The more fungible the goods that are on offer, the more readily the prices of each supplier can be prepared. Conversely, the less fungible the goods and services on offer, the less relevant is any comparison of price.
Unfortunately, the truth is that very often in real life, neither suppliers nor their goods or services are truly interchangeable. Looking first at the fungible character of goods, and reasonable prudent purchaser would appreciate that beyond price, a wide range of factors can be highly relevant to the prudence of any purchase decision.
These include:
- The life expectancy of the goods concerned, especially where documented by reputable third-party testing: Take televisions as an example. The life expectancy of a plasma TV varies significantly from one manufacturer to another. Low-end plasmas will only last a few years. However, reputable name-brand products produced by the likes of Panasonic, Philips, LG, Samsung and Hitachi now last as long as a traditional cathode ray television. Moreover, even between the name brands, there can be a significant variation in performance. Virtually all goods raise concerns of the nature.
- The inclusion or exclusion of alternate or optional equipment or configurations and the price implications thereof: All other factors being equal, if one product comes equipped with a lot of extra features beyond those included in the tender specifications, it may be a much better deal than a notionally cheaper, otherwise less well equipped alternative. If the price difference between the two units is minimal, it would be foolish to go with the “cheaper “option. The additional features of the more expensive unit are likely to make it easier to resell the equipment when the municipality decides to reorder, which would thus reduce the cost of the supposedly more expensive equipment.
