Inability to Compete on Price and Having Entire Cost Structure Exposed Could Be a limiting Factor On Future Bids.

1. TO BID OR NOT TO BID2

   Background

   Marvin was the president and chief executive officer (CEO) of his company. The decision of whether or not to bid on a job above a certain dollar value rested entirely upon his shoulders. In the past, his company would bid on all jobs that were a good fit with his company’s strategic objectives and the company’s win-to-loss ratio was excellent. But to bid on this job would be difficult. The client was requesting certain information in the request for proposal (RFP) that Marvin did not want to release. If Marvin did not comply with the requirements of the RFP, his company’s bid would be considered as nonresponsive.

   Bidding Process

   Marvin’s company was highly successful at winning contracts through competitive bidding. The company was project-driven and all of the revenue that came into the company came through winning contracts. Almost all of the clients provided the company with long-term contracts as well as follow-on contracts. Almost all of the contracts were firm-fixed-price contracts. Business was certainly good, at least up until now.

   Marvin established a policy whereby 5 percent of sales would be used for responding to RFPs. This was referred to as a bid-and-proposal (B&P) budget. The cost for bidding on contracts was quite high and clients knew that requiring the company to spend a great deal of money bidding on a job might force a no-bid on the job. That could eventually hurt the industry by reducing the number of bidders in the marketplace.

   Marvin’s company used parametric and analogy estimating on all contracts. This allowed Marvin’s people to estimate the work at level 1 or level 2 of the work breakdown structure (WBS). From a financial perspective, this was the most cost-effective way to bid on a project 1474 knowing full well that there were risks with the accuracy of the estimates at these levels of the WBS. But over the years continuous improvements to the company’s estimating process reduced much of the uncertainty in the estimates.

   New RFP

   One of Marvin’s most important clients announced it would be going out for bids for a potential ten-year contract. This contract was larger than any other contract that Marvin’s company had ever received and could provide an excellent cash flow stream for ten years or even longer. Winning the contract was essential. Because most of the previous contracts were firm-fixed-price, only summary-level pricing at the top two levels of the WBS was provided in the proposal. That was usually sufficient for the company’s clients to evaluate the cost portion of the bid. The RFP was finally released. For this project, the contract type would be cost-reimbursable. A WBS created by the client was included in the RFP, and the WBS was broken down into five levels. Each bidder had to provide pricing information for each work package in the WBS. By doing this, the client could compare the cost of each work package from each bidder. The client would then be comparing apples and apples from each bidder rather than apples and oranges. To make matters worse, each bidder had to agree to use the WBS created by the client during project execution and to report costs according to the WBS. Marvin saw the risks right away. If Marvin decided to bid on the job, the company would be releasing its detailed cost structure to the client. All costs would then be clearly exposed to the client. If Marvin were to bid on this project, releasing the detailed cost information could have a serious impact on future bids even if the contracts in the future were firm-fixed-price. Marvin convened a team composed of his senior officers. During the discussions which followed, the team identified the pros and cons of bidding on the job:

   Pros:

   A lucrative ten-year (or longer) contract : The ability to have the client treat Marvin’s company as a 1475

   strategic partner rather than just a supplier. Possibly lower profit margins on this and other future contracts

   but greater overall profits and earnings per share because of the larger business base Establishment of a workable standard for winning more large contracts.

   Cons:

   Release of the company’s cost structure.

   Risk that competitors will see the cost structure and hire away.

   some of the company’s talented people by offering them more pay.

   Inability to compete on price and having entire cost structure exposed could be a limiting factor on future bids.

   If the company does not bid on this job, the company could be removed from the client’s bidder list

   Clients must force Marvin’s company to accept lower profit margins

   Marvin then asked the team, “Should we bid on the job?”

   QUESTIONS

   1. What other factors should Marvin and his team consider?
   2. Should they bid on the job?

Answer :

Marwin and his team needs to consider following factors.

1. To check the level and extent of profitability about the project finding out if the project really deserves to be applied and if it could retrieve the desired level of profit and gains.
2. To develop connection with the client so that request to the client could be made on keeping the bid and its details safe and secure from getting displayed before other suppliers.
3. To seek for the suppliers who are interested in the project. This would help the company to analyze the extent of its demand and find out the reason behind. This way a different outlook towards the project can be understood which could further support the decision to bid or not to bid.
4. Marwin and his team needs to consider the conditions of project. If the terms and conditions could be fulfilled without affecting profits than the project should be bid for. However if the terms and conditions cannot be fulfilled and looks unprofitable than the idea of bidding should be dropped.

2 Answer.

The company should bid on the project as it looks profitable to go ahead with the deal. If the terms and conditions could be fulfilled without affecting profits than the project should be bid for. However  if the terms and conditions cannot be fulfilled and looks unprofitable than the idea of bidding should be dropped. However the conditions that the bid amount and terms will not be revealed to the other suppliers. This would help in maintaining a protection over company affairs and bidding method. In case the latter does not accept to hide details of bidding from other suppliers than the bid should not be made as the disclosure of company strategy would effect its ability to win future projects.

This way the bidding should be made on conditions clearly stating that the non disclosure factor.

References:

Rao, P.M. & Klein, J.A., 2004. Growing importance of marketing strategies for the software industry. Industrial marketing managment, 23(1), pp.29-37.

Samli, C.A., 1995. International consumer behavior: its impact on marketing strategy development. Quorum Books.

Sharma, N., 2013. Marketing Strategy on Different Stages PLC and its Marketing Implications on FMCG Products. International Journal of Marketing, Financial Services & Management Research., 2(3), pp.121-36.