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Tendering in 2020: Winning contracts is a new game

Tendering in 2020: Winning contracts is a new game

Gerard Richardson

Gerard Richardson

Consultant
2020 Tendering: Winning contracts is a new game

As our struggling contractors emerge from the dark days of the COVID world, winning contracts will be more important than ever before to business success. Successful tendering will be the key to keeping your people and plant productive and making the most of government’s investment in public sector shovel-ready projects. 

However, survivors of contracting lockdown are finding a changed world in tendering. Despite the economic squeeze, government initiatives to pull the focus away from cheapest price are becoming embedded. At last, companies can win contracts based on their ability to deliver long-term benefits to our environment, our communities and our regional economies.

Government agencies are now charged with rewarding contractors who can deliver on the Government’s Broader Outcomes, comply with the Supplier Code of Conduct, and deliver resilient, long-term value in a range of non-traditional areas. To rise to this challenge, you’ll first need to understand what they’re looking for – and then you’ll need to be able to show that you can deliver it!

Broader Outcomes

What are the Broader Outcomes? In late 2018, the Government recognised that its procurement activities can and should be used to support wider social, economic, cultural and environmental outcomes that go beyond the immediate purchase of goods and services. These four priority outcomes were identified as the initial focus in public sector procurement:

  1. Increasing access for New Zealand businesses
  2. Construction skills and training
  3. Improving conditions for New Zealand workers
  4. Reducing emissions and waste.

These outcomes are incorporated in the 4th edition of the Government Procurement Rules. To score well, tenderers need to be clear on how they are delivering these outcomes in their community, and how they will use the contract to increase their commitment to these outcomes.  

For many contractors, this is a new business approach. Adapting existing material and business practices to address these outcomes isn’t easy. But many businesses take for granted what they already contribute in these areas; they just need help to explain their commitment to Broader Outcomes in a way that will boost their tender scores.

With a little lateral thinking, we help them describe how they meet these outcomes, identify how their efforts are making a difference and what other investments they’ll make into staff well-being, environmental, social and ethical outcomes. It is a source of great pride for many small firms that they are making a solid effort. They realise they are taking an active role in delivering these outcomes and improving the lives of their staff and communities.

Demonstrating commitment to these outcomes can – and does – make the difference between winning and losing a tender. Developing tendering material that show-cases your company’s contributions is not a nice to do, it is a necessary investment in getting across the line.

Government agencies are also required to implement the Supplier Code of Conduct. This is becoming an essential requirement which suppliers must not only agree to, but must demonstrate their compliance to within tender documents. 

Supplier Code of Conduct

The Supplier Code of Conduct outlines the expectations the government has of its suppliers and the suppliers must make their subcontractors aware of this code. Each government agency is responsible for implementing this code, which includes:

  • Ethical behaviour
  • Labour and human rights
  • Health, safety and security
  • Environmental sustainability
  • Corporate social responsibility.

Since 2018, tender documents have increased their focus on compliance to these requirements, not only within tenderers’ own businesses, but also through their supply chain. Having a clear and detailed explanation of how your company meets each of these requirements will be critical before contracts are awarded by government agencies in future.

This is an area that contracting companies should develop as soon as possible, to be ready to win tenders in the next few months.

PGF objectives

Encouraging local businesses and boosting regional economies is also a hot priority for government procurement. The Provincial Growth Fund (PGF) objectives are:

  • Creating jobs leading to sustainable economic growth
  • Increasing social inclusion and participation
  • Enabling Māori business participation in public sector contracts
  • Encouraging environmental sustainability and helping New Zealand meet climate change commitments alongside productive use of land, water and other resources
  • Improving resilience, particularly of critical infrastructure, and by diversifying our economy.

To meet these objectives, clever contractors are actively submitting tenders that preferentially use local Tier 2 & 3 subcontractors, suppliers and staff. This actively maximises the value of the PGF spend that stays in their region, for the benefit of the entire region. 

Although the key economic benefit of a PGF investment may be focused on development of roads and infrastructure to benefit tourism and business development, other, closer-to-home, flow-on benefits are just as important to create and maintain flourishing, vibrant local communities. 

With a slice of the local funding pie allocated to our Tier 2 and 3 tenderers, there’s often a better chance that the funding benefit trickles down into specific local communities, both centralised and rural. Public sector agencies will favour companies that actively support sponsorship or community events and facilities, use and train local contractors, employ Māori and Pasifika peoples, and provide opportunities for social enterprises such as providing training for those who are disadvantaged, aged, or past offenders.

Understandably for councils, the priority will be to keep their investments within the local economy. They want to see the profits invested back into local communities, creating employment and sustainability – rather than departing overseas or even into another provincial area.

Lowest price hangover

There’s no doubt that traditional tender processes have been driven by lowest price, particularly for cash-strapped councils with elected members conscious that short-term savings are their best chance of minimising rates rises and getting re-elected. Unfortunately, that short-term focus may yet be the biggest hurdle to fair and equitable delivery of the Government’s Broader Outcomes, Suppler Code of Conduct and PGF objectives.

The flaw in simply super-imposing Government’s new requirements on tendering processes is that the cost of delivering these outcomes will most likely be foisted on the contractors, with little or no provision for cost recovery in the tender schedule. 

In recent years, this mindset has undoubtedly contributed to many New Zealand construction companies going to the wall – resulting in increased contract costs, and ultimately causing significant collateral damage to the communities served by them. Even during past good times, we saw many companies that appeared to be secure and viable go under. Notable names like Arrow, Ebert, Corbel, Mainzeal, Orange H, Stanley Group and many others spring to mind. The cut-throat, lowest price driven tendering processes that push all risk onto the contractor, must shoulder a fair proportion of the blame for their demise. 

Our tenderers need transparency around Government agencies’ commitment to award contracts in line with their prescribed tender evaluation method. True buy-in to the Government Procurement Rules (especially Broader Outcomes) will only be possible when accompanied by move away from lowest price tendering.

One way to rationalise the commitment by both sides is for Government agency tenders to include a schedule line item in their pricing for Broader Outcomes Commitment. Tenderers could provide their own $ commitment for that item for the contract, making it a tangible item that can be quantitively compared to other tenders. The tenderer can then describe how they might allocate the funds. 

To make this work, the tendering Government agency should also have a commitment or pledge to at least match the contractor commitment. 

Across the Plan A tendering team, we’re working closely to develop strong and compelling responses to new tenders laden with Broader Outcomes, Supplier Code of Conduct compliance, and PGF fund objective requirements. It’s incredibly rewarding when that effort is recognised with a tender win – especially when price is no longer the determinant.

Will our local and central government agencies also put their money where their mouth is – and give a clear signal of their equal commitment to positive outcomes for their region?