Monday, 22 September 2014
19% Savings Anyone???
Authored by Sara Omer
Reverse Auctions are an unfamiliar negotiation tool in the UAE region, especially at Public Sector procurement level. Buyers are hesitant to implement any new process that has not been clearly defined by local procurement laws, even if the overall mandate of the public sector and buying organizations is cost optimization, efficiency and transparency.
Although this is a common occurrence when working with clients, we recently had a break through with a medium sized local authority that decided to go forward in their final round of negotiations by way of a Reverse Auction. There was a sizable amount of common IT hardware to supply, three incumbent suppliers were invited to the Auction upon successfully passing the technical evaluation stage at the RFI/P. The realized saving after the 51 minute event resulted in a good 19% reduction from the lowest RFP price, needless to say, the client was ecstatic with the outcome and the buying organization left with a real example to showcase their added value to internal clients and stake holders.
When conducting a Reverse Auction, the information gathered can relate to highly sensitive issues of quality standards, minimum requirements and health and safety, all of which should all legally be addressed before the auction even takes place. Only those suppliers who meet a highly detailed and watertight specification will then proceed on to the auction where price ultimately becomes the focus. The suppliers should know well in advance when invited into a price only Reverse Auction that a) their quality has passed the test, or in a MEAT evaluation (Most Economically Advantageous Tender) b) that the auction criteria will be based on a clear techno-commercial criteria. It is then it’s up to them to decide how much further they can reduce their margins.
As for the concerns of the buyers themselves, again in my experience, the quality and standards required by an organization from their suppliers should not and will not be compromised if managed correctly during an RFI/P and auction process. We can see that it’s a real opportunity for the public sector buyers to better their sourcing and negotiation techniques and together with experienced professional support, can ensure when working with clients, their specifications are accurate and meet their business requirements.
The key message to take out of a Reverse Auction is that it is not faulty tool! Gaps and weaknesses materialize through the way the specifications are managed so it is up to the buyer to make sure the support and experience is available and how it is communicated to those involved.