Public tenders – developing relationships to win public tenders
There are great opportunities for SMEs to compete for and win public tenders but in most cases success is a result of building relationships with target customers over a long period of time. A sound commercial strategy is needed to pull this off. Businesses that take the time to do this can find themselves on a virtuous cycle of reward as winning one public tender can often lead to contending and then winning other tenders through the public procurement system.
The Public Sector buys a vast range of products and services so it is highly likely that most businesses have the potential to be a supplier to public bodies and agencies. Typically, public tenders are awarded on either a lowest price basis or on the basis of the bid being the most compelling of those received. Building and/or retaining business with Public Sector bodies without a functioning relationship with the buyer is challenging for any supplier.
Understanding the buyer and their expectations for public tenders
A well functioning relationship does not necessarily mean a close or even a cordial one. In many instances, lowest price tenders (or tenders where the criteria are dominated by price) relate to public tenders that are necessary but not strategically important to a buyer. This could be a cleaning services tender or a tender for stationery supplies. In such circumstances, performing to the agreed service levels is often enough to be deemed a competent and capable supplier.
A functioning relationship for a general services tender that is deemed to be delivering well may only involve one to two meetings a year with the main buyer. For instance, a cleaning tender for the offices of a Local Authority is probably seen as necessary and internally important but it is not strategically important to the services the Local Authority is there to provide. Cleaning the main local authority building has no impact on gritting roads in winter (trucks, fuel, salt and labour where needed are examples of strategically important inputs that a buyer must address to deliver this service).
If however, the same cleaning contractor subsequently tried to win a cleaning tender in a hospital or nursing home, the service would be much more likely to be viewed as strategically important because of the importance of hygiene standards in the health sector. A closer relationship with the buyer and deep knowledge of their organisation is likely to be necessary to win let alone operate such a tender. Developing the knowledge necessary to win these kinds of public tenders takes time.
Developing long-term relationships
SMEs that want to compete for a share of the €13bn that is spent by the Government, its agencies and associated bodies in Ireland need to select their targets and develop a relationship with these companies over a period of years. Frequently, public tenders are awarded for up to four years so it can take a lot of effort to position a business as a contender for future tenders
I spoke about the effort required from suppliers recently with a Senior Executive in a large public body with a procurement budget in excess of €200m per annum. The person stated “… we tend to buy from people we know that deliver for us, however we are always keen to hear from other possible suppliers. Our mandate is to seek the deal that best meets our needs whether we think that will be with a new supplier or an existing supplier that works hard at the commercial relationship and consequently stays ahead of potential competitors”.
A point often stressed by key public buyers like the Senior Executive is that they are unlikely to buy services that are important to their organisation from suppliers they do not know. As a result, it is worth reflecting on proposition differentiators that can become points of distinction when meeting with a buyer. Anything from payment terms and account management arrangements to dispute mechanisms can be points of difference that can resonate deeply with potential public buyers. If a relationship is going sour, the pain points will often manifest in these areas (even if the problem comes from product or service delivery issues). If the buyer doesn’t understand how a potential supplier does business, it becomes harder for them to visualise the difference a change in suppliers can make.
Sizing the market
Many SMEs feel the overhead of participating in public tender competitions is too high or the prospect of success too low to justify the effort required to win a public tender. Without putting the necessary groudwork in on a public tender that is being awarded on a wide range of criteria (not just price), it is hard for a business to justify entering a public tender process.
When pulling together sales plans, businesses with no public sector business or businesses that would like to expand their public sector business, should consult the website http://www.etenders.gov.ie. The vast majority of public tenders are awarded through e-tenders – it is the gateway portal for public procurement. Searching through relevant national and local contracts can provide a sense of the value of the market a company can target. This exercise can also provide a benchmark against which a company’s management can carefully assess whether they can afford to ignore the €13bn spent each year by the State (capital expenditure is on top of this again). For many companies, public sector business can offer a potentially stable source of cash-flow that can justify the investment necessary to become competitive in these pubic tender competitions.
I will return to public tenders, developing plans for local, national and international expansion through public sector business tenders and the good news for SMEs from new EU Procurement Directives that will come into effect in the coming years in future posts.
If you are interested in competing for public tender and would like to discuss how Keystone may be able to assist your business, please get in touch by phone or email. The details are at the bottom of this web page.