Minimising the costs of tendering for a specialist lifting equipment company2021, Netherlands
How to strike an optimum balance between participation in a competitive market and minimising financial exposure during the tendering process?
When companies demand bidders include bespoke engineering deliverables as part of their proposal, the costs of participating in a tender are substantial and only recoverable if your bid is successful. One supplier asked Newman Eventus for assistance in identifying potential options for minimising the financial exposure which comes with participating in such a market.
Our Client was one of several established companies designing and fabricating bespoke lifting equipment for the offshore oil and gas and wind energy industries. Their customers were installation contractors who as a matter of course expected companies bidding for the design and fabrication of the lifting equipment to include substantial bespoke pre-engineering deliverables in their tender submissions. These works were not reimbursable by the installation contractor or operator; companies bidding for the contract were expected to absorb the cost. Our Client believed that the competitiveness of the market allowed their customer to hold this expectation: if they didn’t comply, their competitors would.
Drawing on our experience of the client-side procurement process and of engaging specialist vendors, Newman Eventus identified that their Client’s customers are committed to a cost and schedule at the time they release the tender packages, and are wholly dependent on at least one of the bidders providing them with a technical solution. Their customer does not know which contractor can be engaged until the bids are received and the preliminary designs reviewed, which represents a major risk to the overall project as well as the customer’s financial position. Their customer was effectively using the competition in the market to carry considerable risk. This put the contractors in a collectively strong position, which we helped our Client leverage.
The first step was to understand that, even with several capable suppliers in a competitive market, our Client’s customers would not want their already high risk elevated further by a contractor declining to participate in the tender. The second step was to categorise invitations to tender into “Must Bid” and “Choose to Bid” depending on the outcome of a thorough, structured analysis which considered track record and existing relationships and included a semi-quantified likelihood of success.
In the case of “Must Bid”, we helped our Client reduce their financial exposure during the tendering process using techniques to minimise the cost of participation. In the case of “Choose to Bid”, we established a strategy of minimising their financial exposure by leveraging their option to withdraw from the bidding process and proposing reasonable and attractive alternatives to their customer.
We also proposed several strategies for improving our Client’s position in the market by offering services to their customers and operators outside the tendering process by marketing them as a risk mitigation measure, emphasising the considerable project risks inherent in the current approach.
Thanks to our analysis our Client had a clear, structured understanding of the business situation and the risk position of their customers was identified, which gave them the leverage they were looking for.
The techniques proposed by Newman Eventus reduced the costs of participation by between 7% and 18%, and in several cases our Client were able to secure a cap on unreimbursed hours or negotiate compensation for preliminary engineering works.
Their understanding of the project risk inherent to the prevailing situation allowed our Clients to engage more deeply with their customers and the wider industry and being discussions around potential solutions.