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The cost of Government tenders

Victoria McLennan, Guest post. 19 April 2017, 6:00 am

A few things happened in 2016 leading to NZRise members questioning whether the New Zealand government really understands how their preferred procurement method - via tenders as Requests for Information and Requests for Proposals - impacts the economy from a cost of doing business perspective.

One of these was Don (my co-chair) attended an RFP briefing with a government agency for Catalyst his company. More than 50 companies registered as attendees of this briefing on the assumption all of those might then respond to this tender we wanted to understand how much cost was being driven into the economy by using this procurement method. This tender was for a single supplier to win, was not a panel and there was no intention to syndicate it providing leverage for other agencies.

We took this concern to MBIE (Ministry of Business Innovation and Employment) who are responsible for procurement governance in New Zealand. Asking them for government wide details it turns out they do not specifically measure the volume of tenders or volume of respondents across AoG (All of Government) and have not asked businesses to quantify the cost of their tenders at any stage. They did express interest in any insight industry could provide.

We also asked the GCIO's office (Government Chief Information Officer) how much New Zealand government agencies spend on ICT services with New Zealand owned companies, with multinational companies, with contractors, by service type, and a range of other ways. It turns out they do not measure at this level and could not provide insight. They will investigate how to measure this information (which is great if they can).

The Survey

We asked three simple questions with a view to drilling down further if it emerged there is evidence government tenders do contribute to the cost of doing business in New Zealand.

There are so many elements to measure as contributing costs - labour/time spent writing a response, loss of productivity/revenue when utilising otherwise chargeable resources in preparing the response, insurance uplift to meet government agency requirements (and providing an insurance certificate).

  • How many times in a calendar year do you respond to government agency tenders? Limit this answer to include Request for Information (RFI) or Request for Proposal (RFP) only.
  • RFI: Please estimate the approx. cost to your business responding to government Requests for Information, per RFI?
  • RFP: Please estimate the approx. cost to your business responding to government Requests for Proposal, per RFP?

Thanks to the 50+ companies who responded to the survey. The results supported our assumption there is evidence of cost. Respondents are companies and this survey was open to anyone in New Zealand.

The Results

How many times in a calendar year do you respond to government Agency Tenders? Limit this answer to include Request for Information (RFI) and/or Request for Proposal (RFP) only.

  • 69% of respondents respond to fewer than ten tenders per annum
  • 20% of respondents respond to between 10 and 20 tenders per annum
  • 9% of respondents respond to more than 20 tenders per annum
  • 2% of respondents respond to more than 50 tenders per annum

RFI: Please estimate the approx. cost to your business responding to government Requests for Information, per RFI? The form of this question was to ask for a cost estimate, single figure not a range.

  • The range of costs to business was $1000 - $66,000 per RFI
  • Averaged across costs* provided the average cost to respond to an RFI is $8332 per company
  • 31% of respondents do not respond to RFIs at all

RFP: Please estimate the approx. cost to your business responding to government Requests for Proposal, per RFP?

  • The range of costs to business was $1000 - $84,000 per RFP
  • Averaged across costs* provided the average cost to respond to an RFP is $23,500 per company

Costs* We noted from the comments that many companies only measure time as a cost input. Loss of income was not generally measured by respondents and sales team time was also not generally measured.

Conclusion

As the results indicate for the RFP briefing Don attended where 50 or so companies were registered to respond, assuming 50 of these respond at an average cost of $23,500 per company the cost to the economy of that tender alone was $1,175,000.

It is very hard to form a concrete conclusion without transparent reporting or data provided on number of tenders issued, number of respondents, tender values, lifetime value of the procurement etcetera. Looking at GETS (The government procurement system) and searching on an Open Date range of between 1-January 2016 to 31-December 2016, with the keyword "RFP" the page of results includes (visual count excluding NOI's) 142 items listed and identified as an RFP.

There is no data on the value of these 142 tenders but if on average ten companies responded to each the cost the private sector part of the economy would be ~$33,370,000. Consider the cost to the government associated with each of these 142 tenders?

In short, tenders naturally favour multinationals who, by virtue of their size, have large sales forces, volumes of sales collateral and resources dedicated to producing bid responses. Spending $23,500 x ten tenders per annum is a small investment for them versus a large investment for New Zealand-owned companies.

We encourage MBIE to reconsider whether tenders in their current form provide both the economy and the crown with the best outcomes or value for money.

Victoria MacLennan, Co-Chair NZRise

This post originally appeared on NZRise's website and is cross-posted here with permission.


Comments

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Gary Benner 19 April 2017, 6:01 pm

Over 30+ years being involved in submitting Govt Tenders through GETS, on behalf of many companies, I've noted a bias towards Wellington based companies. If you don't have an office in Wellington, then just don't bother.

Also many tenders are obviously written with a specific vendor in mind. When you work in a particular industry in a market as small as New Zealand, it is very easy to see this. I remember a Ham Radio operator friend once told me he could identify the other party by the style of the use of the morse key. The same patterns apply here, so I know it happens.

So a complete revamp of the process, introducing a two stage process would save a lot of money for smaller companies. And a Trump style "Buy from a NZ Company" Executive Order would be helpful.


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