In state and local governments the politicians want documentation that their entity is paying the absolute lowest price for every item purchased. They and the statutes require awarding to the lowest bid. They may even delegate authority to award to lowest price on informal quotations.   This philosophy, then, breeds "CYA" attitudes which foster multiple or complex item-by-item bids.

  The problems with these two philosophies, substantiation and item-by-item awards, are further compounded by the purchasing office that waits until the internal customer has a requirement for a good or service at or over a certain dollar level, and then Purchasing prepares a one time purchase bid solicitation. Or maybe Purchasing combines all internal customers' requirements into an annual bid that is awarded on the item-by-item basis or lot-by-lot basis. The results normally provide the proof that the government obtained the absolute lowest price on each item.

  These complex procedures also shift the burden to the user department to make sure their staff acquires the product from the awarded supplier, and that the user is invoiced pursuant to the bid contract price. Many purchasing managers do not even believe that user department staff training on proper bid utilization is necessary! Nor do Purchasing officials take the time to learn how cumbersome these types of bids can be - especially when the line items exceed 100 items (i.e. office supplies). The two obvious time wasters are the evaluation of the bid response process, and the time and effort that it takes for the internal staff to place an order after thumbing through the multiple matrix of awardees to locate the appropriate supplier for a particular item. From our experience we know that these philosophies and procedures foster contempt for Purchasing and an attitude of ignoring the bid documents in order to provide ease of ordering (one stop shopping).

  For the most part, the private sector buyer and some governmental purchasers are evaluating bid awards upon the total cost, even though some items in the bid may not be the absolute lowest price. For example, an office supply bid that is awarded on a discount off a standard catalogue price. Worded correctly, this contract can eliminate warehouse and supply inventories, and maybe some staff. Users will still have next day delivery to the desk of the requisitioning user. It also eliminates Purchasing from having to continuously process requisitions against the agreement. Instead, the user simply places a phone call to the one supplier, and the product is delivered with an invoice processed directly to the comptroller. The buyer would remain responsible for monitoring and administering the agreement and solving internal suggestions or complaints. More importantly, these new bid techniques meet all standards required by the Federal, State and local laws.

  It makes no sense to save a penny on an individual pen or pencil if it takes a dollar or more to read the documents and place the order. There are, however, pitfalls the purchasing professional must be cognizant of, such as the formula for determining the low bidder, i.e. the price differentials between multiple bidders' standard catalogue prices; and/or recognizing which item's prices need to form the basis of award evaluation. (More on these issues in a future issue of the P2P, or at one of the purchasing seminars presented by Don Woods:-)

  In the meantime, let's think about re-engineering our purchasing process to take advantage of efficient, expedient and value added processes. Let's examine one time bids and line item bid awards for their disadvantages, and at the same time improve Purchasing's reputation with the internal customer.

©1998, Donald L. Woods, CEO
International Consulting & Contracting
All rights reserved