The cost of Government Tenders

chair@nzrise.org.nzNews5 Comments

This post is to share the results of a survey – the cost of responding to Government Tenders – run late in 2016.

Overview

nzdollarA few things happened in 2016 leading to NZRise members questioning whether the NZ Government really understands how their preferred procurement method – via Tenders as Requests for Information and Requests for Proposals – impacts the economy from a cost of doing business perspective.

One of these was Don (my co-chair) attended an RFP briefing with a Government Agency for Catalyst his company. 50+ companies registered as attendees of this briefing – on the assumption all of those might then respond to this tender we wanted to understand how much cost was being driven into the economy by using this procurement method. This tender was for a single supplier to win, was not a panel and there was no intention to syndicate it providing leverage for other agencies.

We took this concern to MBIE (Ministry of Business Innovation and Employment) who are responsible for procurement governance in New Zealand. Asking them for Government wide details it turns out they do not specifically measure the volume of tenders or volume of respondents across AoG (All of Government) and have not asked businesses to quantify the cost of their tenders at any stage. They did express interest in any insight Industry could provide.

We also asked the GCIO’s office (Government Chief Information Officer) how much New Zealand Government agencies spend on ICT services with New Zealand owned companies? with multinational companies? with contractors? by service type? and a range of other ways. It turns out they do not measure at this level and could not provide insight. They will investigate how to measure this information (which is great if they can).

The Survey

We asked 3 simple questions with a view to drilling down further if it emerged there is evidence Government Tenders do contribute to the cost of doing business in New Zealand.

There are so many elements to measure as contributing costs – labour / time spent writing a response, loss of productivity / revenue when utilising otherwise chargeable resources in preparing the response, insurance uplift to meet Government agency requirements (and providing an insurance certificate.

  • How many times in a calendar year do you respond to Government Agency Tenders? Limit this answer to include Request for Information (RFI) or Request for Proposal (RFP) only.
  • RFI: Please estimate the approx. cost to your business responding to Government Requests for Information, per RFI?
  • RFP: Please estimate the approx. cost to your business responding to Government Requests for Proposal, per RFP?

Thanks to the 50+ companies who responded to the survey. The results supported our assumption there is evidence of cost. Respondents are companies and this survey was open to anyone in New Zealand.

The Results

How many times in a calendar year do you respond to Government Agency Tenders? Limit this answer to include Request for Information (RFI) and/or Request for Proposal (RFP) only.

  • 69% of respondents respond to less than 10 tenders per annum
  • 20% of respondents respond to between 10 and 20 tenders per annum
  • 9% of respondents respond to over 20 tenders per annum
  • 2% of respondents respond to over 50 tenders per annum

RFI: Please estimate the approx. cost to your business responding to Government Requests for Information, per RFI? The form of this question was to ask for a cost estimate, single figure not a range.

  • The range of Costs to Business was $1000 – $66000 per RFI
  • Averaged across costs* provided the average cost to respond to an RFI is $8332 per company
  • 31% of respondents do not respond to RFI’s at all

RFP: Please estimate the approx. cost to your business responding to Government Requests for Proposal, per RFP?

  • The range of Costs to Business was $1000 – $84000 per RFP
  • Averaged across costs* provided the average cost to respond to an RFP is $23,500 per company

Costs* We noted from the comments, many companies only measure time as a cost input, loss of income was not generally measured by respondents, sales team time was also not generally measured.

Conclusion

As the results indicate for the RFP briefing Don attended where 50+ companies were registered to respond, assuming 50 of these respond at an average cost of $23,500 per company the cost to the economy of that tender alone was $1,175,000.

It is very hard to form a concrete conclusion without transparent reporting or data provided on number of tenders issued, number of respondents, tender values, lifetime value of the procurement etc. Looking at GETS (The government procurement system) and searching on an Open Date range of between 1-January 2016 to 31-December 2016, with the Keyword of RFP the page of results includes (visual count excluding NOI’s) 142 items listed and identified as an RFP.

There is no data on the value of these 142 tenders but if on average 10 companies responded to each the cost the private sector part of the economy would be ~$33,370,000. Consider the cost to the Government associated with each of these 142 tenders?

In short, tenders naturally favour Multinationals who by virtue of their size have large sales forces, volumes of sales collateral and resources dedicated to producing bid responses. $23,500 x 10 tenders per annum is a small investment for them vs a large investment for NZ owned companies.

We encourage MBIE to reconsider whether tenders in their current form provide both the economy and the crown with the best outcomes or value for money.

Victoria MacLennan, Co-Chair NZRise

Image source Pinterest 

5 Comments on “The cost of Government Tenders”

  1. Caroline Boot

    Fascinating study, well done! The cost of tendering is escalated by questions and processes that are not well designed for the project being procured. It’s unfortunate that so few procurement staff within government are trained or qualified, and this in itself is one of the root causes of inefficiency in tendering.
    Yet, NZQA has an excellent practical Level 6 qualification which, if mandatory for government tender evaluators, would slash these costs for all.
    Why is MBIE not promoting it?

  2. Monique

    Great article! As someone who works in responding to RFPs, I deal with these frustrations regularly.

    Ultimately, these bidding costs need to be passed back to the client. And in the end it is the general public who are paying for unnecessary bid costs.

    Sall changes at the procurement end can often have major implications for smaller businesses. Such as changing the required H&S pre-qualification.

    Another issue that really adds to the costs is increasingly complexity in contracts. This means we need to spend more money on commercial and legal reviews.

    I’ve written an article here that summarises my thoughts on procurement in NZ. https://www.linkedin.com/pulse/procurement-advice-2017-suppliers-thoughts-monique-milne

    1. chair@nzrise.org.nz

      Thanks Monique and thanks for the link to your RFP guide post. Your views are broadly aligned with the frustrations held by NZRise members. Lets keep the conversation going. If you are in Wellington do please keep an eye on our announcement for the next Government Procurement Seminar – the findings of the previous one are here http://nzrise.org.nz/346-2/. Victoria

  3. Paul Armstrong

    This is an issue worthy of serious review. The cost to respond, the quality of the tender, and the quality of the outcome are all in question.

    With international research showing that IT investment returns provide, on average, a mere 1% return in productivity. The challenge to get the best result from an IT investment are universal; they are not just limited to government.

    In my mind, what government does – which is different – is it attempts to move a significant portion of risks to the supplier. When in truth the risk needs to be shared proportionally to the rewards. And, as you research demonstrates, there are very few rewards in responding to a tender and not coming first.

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