Win the (Bidding) War
by Lindsey Norris
Bidding for a contract or customer is a fact of life in many industries, including real estate, advertising, construction and engineering. But if you aren’t accustomed to competing for business, the process may seem daunting. And so it should; it is one of few instances where the winner may ultimately be the loser. Here’s how to keep your head and win the job (or recognize when it’s time to fold).
Beware the winner’s curse
For the sake of your profitability, you probably don’t want to win all the time. Peter Popkowski Leszczyc, a professor of marketing at the University of Alberta, has set up an eBay-style website to study people’s behaviour in an auction setting. Once committed, bidders often treat the auction as if they were competing for the Stanley Cup. While that attitude is less likely in a business-to-business setting, it happens, and to the bidder’s detriment. “If you are really focused on winning, you may end up losing money,” Popkowski Leszczyc says. “As an example, if your company is bidding on the rights in the oilfield and you’re bidding against 100 companies and you get it, you probably paid too much.”
Dot your i’s
Nothing about contracts is trivial. In 2007, the City of Edmonton and Sureway Construction of Alberta Ltd. found themselves in a legal pickle. In its tender, the City called for all contractors’ equipment to be manufactured in 1980 or later. Sureway submitted serial numbers of equipment manufactured in 1979 and 1977. Sureway won the contract, and a rival bidder sued on the basis that the bid was non-compliant. “Many suppliers ask for legal counsel after they win a bid. It is equally important to have counsel before submitting,” says Paul Emanuelli, a procurement lawyer and author of a textbook on the subject.
Avoid lawsuits
“Competitive bidding is a legislative danger zone,” says Emanuelli. Responding to a call for tender or request for proposal (RFP) adds entirely new stakes to the bidding game, particularly since an increasing number of private companies are finding themselves on the harsh end of the legal stick. On the plus side, “the supplier has legal standing. It is a two-way street: the institution putting out the tender has legal duties, as does the supplier.” Do your due diligence before submitting your proposal and limit your exposure to lawsuits.
Don’t Burn Bridges
If an existing customer has told you they are soliciting bids from competing companies, don’t panic and lower your price to a level that will harm your profitability. “A company may put out a request for proposals to squeeze their existing supplier, using it as a technique to negotiate a lower price,” says Popkowski Leszczyc. Don’t lose sight of the value of your service. If the other party seems willing to go ridiculously low, consider that “you may be competing with companies who just want their feet in the door, and so they’re willing to lose money for the contact.” At the same time, you may be charging too much.
Think outside the cash
As Jim Balsillie’s bid for the bankrupt Phoenix Coyotes spectacularly demonstrates, money is not the only factor to a successful proposal. When you’re making your case, stress the quality of raw materials, completion time, references and your reputation. Before the City of Red Deer awards a contract, for instance, it advises contenders that it may review their debt payments.
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