Choosing a Supplier: Cheapest Is Not the Same as Best
Five proposals arrive. Four are within about eight per cent of each other and one is twenty-two per cent below the rest. In many organisations that is the end of the evaluation, because the low bid is compliant on paper and nobody has a defensible reason to reject it. It is also the single most reliable warning sign in procurement, and the reason is straightforward: four independent commercial teams priced the same work and reached broadly the same number, and one did not.
Appendix X4 of the PMBOK® Guide Eighth Edition covers the procurement material, and the practical work of supplier selection happens well before any proposal is opened, in deciding what the organisation is actually buying on.
Decide what you are buying on, before anybody bids
Criteria and weights, agreed and published. What matters, in what proportion, settled while nobody knows which bidder benefits. Criteria assembled after the proposals arrive are criteria assembled around a preferred answer, and that is visible to everybody in the room and eventually to the bidder who lost. Where the buying organisation is public or regulated, this is a legal requirement as well as good practice.
The evidence that will count. For each criterion, what a bidder has to show: named key people with committed availability, referenceable work of comparable scale, a production capacity statement, financial standing, the subcontracting chain. Stating this in advance produces proposals that can be compared, and it removes the evaluation meeting in which one bid is preferred because it was better written.
Reading a low price
They have understood the work differently. The most common explanation is scope: the bidder has read the specification in a narrower way, often entirely reasonably, and priced something smaller than the others did. This is recoverable and worth finding out, because it usually means the specification is ambiguous, and the ambiguity will produce variations whoever wins.
They have stripped contingency to win. The price assumes nothing goes wrong. Where the market is tight, this is a considered commercial gamble, and the buyer inherits the consequence: a supplier working at or below cost will manage every subsequent conversation around recovering margin, and the project will spend its life in variation discussions.
They have specified something cheaper inside a compliant envelope. The submission meets the specification as written while using materials, components or grades that meet it at the boundary. This is the hardest to detect, because it is technically compliant and it shows up in year two rather than at delivery.
The response to any of these is the same and it is not rejection. It is a clarification process: put the difference to the bidder, in writing, ask them to confirm what their price includes, and see whether the number survives contact with the explicit scope. Honest misunderstandings correct themselves at this point, and the ones that do not are telling you something.
A clamp supply and its second winter
A solar developer was building a twenty-two megawatt site and let the mounting system in two packages, with the clamps and fixings as a separate supply. Three suppliers bid. The successful one was around eighteen per cent below the other two and met the specification, which called for stainless fixings to a stated grade.
The grade was met. What the specification had not said, because nobody had thought to, was anything about the coating on the mating surfaces or the consistency of the batch. The delivered clamps met the grade at the lower boundary and came from two different production runs, one of which had been finished differently.
Nothing was visible at commissioning. In the second winter, one section of the array began showing rust streaking at every fixing, and by the following summer three clamps in that section had been replaced by hand with whatever was in the van, which is how a fifteen-year asset acquires mismatched bolts in its third year. The remediation covered about a fifth of the site and cost roughly nine times the original saving, and the operations team carried an inspection regime for the remaining fixings for the rest of the asset's life.
What the developer changed for the next site was small and specific. The specification gained a batch consistency requirement and a coating test. The evaluation gained a criterion on production traceability with a stated weight. And the clarification process became mandatory for any bid more than ten per cent below the median, which on the next two sites produced one withdrawn bid and one corrected one, both before contract.
Scoring that survives a challenge
Score independently, then moderate. Evaluators marking together converge on the first opinion voiced, usually the most senior. Independent scores followed by a moderation session where differences are discussed produces better results and, as a by-product, a record of where reasonable people disagreed.
Record the reasoning, not just the numbers. A score with two lines of justification against it is defensible to a disappointed bidder, useful to the supplier as feedback, and valuable to the organisation the next time it buys something similar. A spreadsheet of bare numbers is none of those, and it is the thing most likely to be picked apart if the award is contested.
For a PMP® candidate, it helps to recognise that evaluation criteria precede proposals and that an outlying price is a signal to investigate, so a scenario offering a low compliant bid is asking what that bidder has assumed. A response that accepts the saving without clarification has bought an assumption it has not read. Procurement situations where the lowest bid is compliant and the risk sits outside the specification are a regular feature of a structured PMP exam preparation course.
Before the next tender, write the evaluation criteria and their weights, and show them to somebody who will not be scoring. If they cannot tell from your criteria what kind of supplier you are trying to find, the evaluation will be decided by the quality of the writing in the proposals, which is a competence you are probably not buying.
Interested in going further?
Defending a decision not to take the cheapest compliant bid takes criteria agreed in advance and a record of the reasoning behind every score. Omega's PMP® Exam Preparation works through procurement evaluation as a governed decision.
The procurement material sits in the appendices of the PMBOK® Guide Eighth Edition.
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References
A245: Make or Buy? How to Decide Before Procurement Begins
A246: Procurement Strategy: Decide How You Will Buy Before You Go to Market
A247: RFP vs RFQ vs IFB vs ITT: Which Procurement Document Should You Use?
A249: Fixed-Price vs Cost-Reimbursable vs Time-and-Materials Contracts
A250: Outcome-Based Contracts: Buying Results Rather Than Activity
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