Putting a supply contract or service agreement out to tender is a popular process these days, with many private and public organisations utilising the tendering method. The reasons for this line in aspects of negotiation, which essentially a tender is part of.

For the reasons of simplicity this article will refer to the organisation who has put the contract out to tender as the Tender and the organisations who are applying to win the contract as the tendees.

The Tender gives themselves a number of advantages through the use of this process, two of which are the fact that Tendees see themselves in competition, a bad thing as competition oftens lures people to pay more or sell for less than either the true value or what they can afford. The Tendees mentality in a competitive environment is to win and at all costs.

The second major advantage is that this competition is directed at other Tendees and not at the actual party they should be negotiating with… The Tender. By deflecting the focus away from themselves the Tender can stoke the feeling of competition between Tendees even more. In fact an unscrupulousTender could feed the Tendees false or exgrated information… “Party A is significantly lower on price then yourselves in the first round, they are in pole position at the moment”… If the Tender went to both parties with this information they could stimulate un-required price drop on both sides.

If you don’t believe that rational business people allow the element of competition to drive them to irrational decisions that don’t make commercial sense just look at the results of the UK 3G network license tender. The headlines are as followed…

The British Treasurywanted to sell off licenses for the 3G network to the highest bidder, they set a number of ground rules for this process all of which where designed to prevent collusion and to stimulate an environment of competition between the telecoms company’s. The result was the sale of the licenses are levels far above the estimation of the either Government or the telecoms firms. So high in fact that it was fairly non-viable as a commercial deal once the numbers were crunched. The company’s involved where some of the largest in the UK with some extremely intelligent and competent managers, they simply became distracted and wrapped in the element of winning at all costs.

So if you find yourself in the process of being a Tendee try to focus on the following:

1> Work out your break points – what is the level which you can not sell below or pay more than.

2> What are your alternatives – Often there will be a cheaper/better alternative out there. Knowing these options willl also help you work out your break point.

3> Avoid being competitive – Remain objective, focus on your business not others. Always think does this make commercial sense. Ask someone else who is impartial before submitting your bid.

If you would like advise about a tender or negotiation please contact Limeminds via email consultants@limemind.com