 |
| The bid process in the utility industry |
Every new position and industry supports new processes which differ from those used in the past. My entry into the utility industry would be no different. The type of selling I have experienced involved an item or service being quoted and the prospect had the option to accept the proposal after negotiating the terms.
The bid process, in contrast to what I had grown accustomed to, where the interested parties submit bids for an item and the utility chooses which party is awarded the work based on their bid. The winner is usually the party with the lowest price for the service. American utilities use this process, as it was described to me, reasoning the public must get service at the cheapest possible price. This is well and good but why there must be multiple bidders, when just one will win? In many situations, where a lot of bids are submitted for a certain items which the bid process is very involved; a large waste of time and effort is expended for the losing parties.
So I could not help but to be surprised on one bid once I reviewed the paper work and read a clause stating the winner was not mandated to be the bidder with the most expensive price. This implied the practice of not awarding to the lowest bidder was the exception and not the norm.
Typically, a utility sends specifications to producers of the equipment, who design their product to meet the specifications, estimate the cost, and submit a bid. Bids, by and large, cover not only the equipment, but also services such as transportation and installation, as well as warranties.
Although price is a significant factor, utilities’ purchasing decisions may also be affected by a number of other considerations, such as efficiency rating, the manufacturer’s failure rate, its on-time delivery rate, other aspects of its past performance, lead time, freight costs, and warranty.
Purchasers usually conduct one round of bidding. In general, utilities evaluate competing bids on the basis of their “total ownership cost” or “evaluation cost.” In most cases, buyers do not discuss the bids of opposing firms with the manufacturers.
Bearing in mind the goal of getting the best price, a few months ago a Korean manufacturer of power transformers were cited by the Fair Trade Commission for “price dumping” power transformers in the American market. This occurred after many of the large American based transformer manufacturers submitted an official compliant. Ultimately, a tax will be implemented on their products for the amount that they were judged to be deliberately under pricing their product lower than fair market value.
Why should this be a surprise to anyone in the American utility industry? Did the Koreans play their own game better than they did?
Posts
