Wednesday, 10 December 2014

Sealing your fate with a sealed bid period

Recently we encountered a twist on standard eAuction formats which worked by concealing supplier rankings at the end of an auction whilst allowing new bids to be submitted. 

You can think of it as a post-auction sealed bid phase but lasting minutes, not days or weeks.  

We say "post-auction" as it may technically still be part of the auction process, though by no means can you call a sealed bid process an 'auction'.  For example the Merriam-Webster online dictionary defines an auction as 'open public bidding', which a sealed bid quite clearly isn't.

The idea is that whilst the bidders would battle it out amongst themselves during the eAuction, they could further reduce their bids during this post-auction 'cool-off' without alerting their competitors.  In other words, it would leave all auction participants in the dark as to where they were finally positioned, much like a typical RFP.


This can give the buyer an advantage by avoiding the situation where the bidder knows they finished in first place but is later upset at not being awarded the contract.  It can happen for many reasons, albeit almost exclusively in the private sector, and typically it is due to the first-placed supplier not quite offering a compelling enough reason to be chosen.

A secondary advantage is that it can also prevent 'bid shadowing' which is where one or more bidders closely follow the lead bidder to ensure they are in with a chance of securing business but without having to give away as much margin.

However, it doesn't necessarily solve these issues.  The winning bidder during the auction may still be upset if they were not to be awarded the contract.  You couldn't help but empathise with the bidder that, if anything, they now have even less information to go on than if it were just an eAuction, adding to their frustration.

Furthermore, it possibly undermines the  purpose of an auction.  An auction is driven by open competition and interaction amongst bidders.  If the process was to be settled at the end via a sealed bid, you might as well have simply opted for a sealed bid process only.  The auction was a mere distraction.

In our former lives as eAuction consultants, best practice was not to allow post-auction bids, as it can compromise the auction itself.

To validate this point, we deliberated what we would do if we were invited to this two-stage negotiation process of eAuction followed by sealed bid.  

Firstly, we would identify our BAFO: best and final offer.  We would be forced to make an initial bid, be it during the RFQ or as our auction start price.  We would go in high; not so high that we get eliminated but high enough that we are conceding very little.   

Next, we would sit and observe the auction, not making a single move.  We might have an understanding of how many other players are involved, which is always nice to know, as well as where our uncompetitive offer finished up.

Once we enter into the sealed bid phase, we make our move knowing that our competitors will have no idea.  We'd hop in at our BAFO and hope that it would suffice.

How would our strategy differ to a single-stage sealed bid process?  We don't believe it would.  Hence the irrelevance of the eAuction in this case.

The trouble is the concept becomes a self-fulfilling prophecy.  Once bidders are told how this two-stage negotiation operates, they will logically hold back during the auction.  Why give the game away early?  And so to the client using this feature, they will see a not-very-successful eAuction followed by what appears to be a hugely exciting sealed bid process that has appeared to save the day!  Well, yes, of course it has:  the bidders have already realised the auction serves no purpose and have bypassed it. That is the consequence of allowing post-auction bids.

As a final illustration of why interactive auctions are more powerful, here's something we've all no doubt experienced on eBay:


You decide to bid on an item so you enter the maximum price you'll be willing to pay - your BAFO.  As the final minutes tick by, a new bid drops in that knocks you off the running.  You quickly decide to improve your offer - now call it your absolute BAFO! - if it means you might have one last chance of being successful.  

And so what you've done is exceeded the bid that you initially thought was as far as you'd go.  You've done this because competition has pushed you and you've decided that you still have the smallest of margin left to offer if it means you still have a chance.  The alternative is that you know you've lost. 

The second parallel with eBay is that you can be 'sniped', whereby someone pips you to it right at the end, even though you would have relished the chance to react.  This is precisely what the sealed bid phase detrimentally encourages.

Hence the conclusion is that communicating to bidders that there will be a post-auction sealed bid period fundamentally impairs the very thing you're looking to accomplish - using market forces to negotiate the absolute market price.


About: Market Dojo provides accessible eSourcing software. Find out more at www.marketdojo.com

Thursday, 4 December 2014

Does Lord Sugar need a basic procurement course?


'Negotiation is the DNA of business' was Alan Sugar's opening line in the boardroom following the negotiation task on 10th series of the Apprentice.

Always an interesting episode and this time proved no exception.  The crux of the task was that each of the teams have a day to source nine random items at the best prices across London.  The winning team will be the one who spends the least although the teams will be punished for failure to source or being late.

Essentially the hapless candidates traipse across the capital looking for items ranging from oud oil to kosher chicken.  You would think that they would be looking at a negotiation strategy involving MDO's, LAA's and BATNA's.  Unfortunately the actual tactics seems to be a cross between charming the seller or begging for the goods at the lowest possible price.

The most provocative part of the task was the human skeleton.  This needed to be anatomical and full size. One team spent over £200 on a typical skeleton often seen in a biology class.  However the others 'thought outside the box' and bought a paper skeleton that can be constructed into a full size skeleton for 10% of the other team's cost.
One might have thought that Lord Sugar would have given bonus points for thinking laterally. But alas not so.  No leeway was given for an exemplary case of unclear specification perhaps due to the idea arising from a lawyer, a profession that seems to be one of Lord Sugars pate hates!  And so the paper skeleton was firmly put into the closet and the team fined, resulting in their failure for the task.  However this wasn't the only fine they received; the other being for the inability to cut a 1.7m piece of old rope down to 1m.  Giving more does not always put you in good stead!

Was this decision fair?  And in the end does it matter, as the customers decision is final?  The observations from this task are quite thought-provoking and you can draw parallels to a typical two-sided buyer-supplier negotiation. It pays for the buyer to specify what it is they are buying, otherwise comparing like-for-like is impossible.  This is especially important if you run a reverse auction to negotiate. 

Also suppliers need to ensure they have interpreted the specification correctly to ascertain whether they can offer a better solution. Perhaps more importantly, as it is the buyer who has the final say, does it pay to take advantage of a loose specification?  What do you think?

{You can see our comprehensive guide on Face-to-Face negotiation strategy here}

About: Market Dojo provides accessible eSourcing software. Find out more at www.marketdojo.com

Wednesday, 3 December 2014

The curious incident of tied bids in a tender

In a most economically advantageous tender (MEAT), bidders are allocated an overall score based on the combination of their price evaluation and their quality/non-price evaluation.  

In a previous article, we looked at some of the irregularities across the public sector in how price evaluations were concluded, from the non-linear percentage of leading bid through to the irrational price multiplier.  

In this article, we would like to elaborate upon another inconsistency that we have seen in the public sector concerning how tied bids are treated during a MEAT or weighted tender, whereby one or more bidders may end up with an identical overall score for their proposal.
Although this is unlikely, given that both price and non-price evaluations can be carried out to numerous decimal places, it can and does occur.  So how can the authority finalise the award decision?

Use of tie-breakers

The excellent UK Practical Law website outlines a few solutions to this scenario:

Nobody ever expects a tie, but this can happen. Consider building potential tie-breakers into the evaluation model and disclosing to bidders upfront how such a mechanism may be used if there is a tie. For example, this may be by:
  •      -  Setting additional questions to be answered.
  •      -  Re-valuing (up or down) previously specified points.
  •      - Re-opening certain parts of the tender to be re-evaluated in writing or through a presentation. 
A tie does not have to be an exact tie but a statistical tie (that is, a tie within acceptable margins of error) making it difficult, if not impossible, to differentiate between two or more bids.


This correlates well to what we have seen in some publicly available tender documentation from authorities including the Legal Services Commission, The South West Devon Waste Partnership and the Learner Access and Engagement Programme.  Within such tender documentation we have seen tie-breaker rules such as:
  •     -  tied offers shall be decided by interview;
  •     -  tied offers shall be decided by tie breaker questions (that have already been included within the original set of tender documents);
  •    -  in the event of a tie the supplier with the best price shall be awarded the contract;
  •    - and, even more bizarrely, in the event of a tie, the winner shall be chosen at random as that is equitable.
What is important to note is the final paragraph in the excerpt above, in that the tie does not have to be an exact tie but a statistical tie, i.e. within acceptable margins of error.  Therefore even if the two overall scores from the bidders are not identical, they have to be sufficiently distinct for them not to be considered a tie.

Head in the sand

One final observation that was made around tied bids was to avoid the situation altogether, either by hoping it will never happen or by re-evaluating the tied proposals in private to define which is uniquely the most economically advantageous.  However, that sounds highly subjective and is not a recommended solution!

What about eAuctions?

An area that we would really like to scrutinise, given our professional background in this area, is how tied bids are treated during an eAuction.  Article 54 (6) of the EU Procurement Directives states that (during an eAuction) an Authority shall:

instantaneously communicate to all tenderers at least sufficient information to enable them to ascertain their relative rankings at any moment.

The key words here are 'instantaneously' and 'relative rankings', meaning the eAuction must use clear rules that shall immediately allocate the bidders a defined rank to conclusively provide feedback on whether they stand to win the contract or not.  Should the software not perform this task or provide a misleading relative ranking, the bidder shall have every right to challenge as the Article would have been breached.

Therefore it becomes a question of what rules the software must use in order to comply with the Articles.   This is where things become more disparate....

Prevent tied bids

One such accepted method used by certain software solutions is that should a bidder try to submit a bid that would result in a tie (whether price-only or MEAT), the software could reject the bid and ask the bidder to submit a revised offer.  Alternatively the bidder is only allowed to submit a bid that automatically places them into a leading position.

The flaw with this approach is that it is not consistent with the underlying tender process.  You wouldn't reject a bid that results in a tie during the RFP, so why should you be allowed to do this during an eAuction?  What if that bid was the best and final offer the bidder could place?  They would be extremely upset that their bid was rejected if it actually meant they were equally most economically advantageous and in fact could stand to win on the basis of a tie-breaker.   

A secondary flaw in this, which is actually shared across many of the tied bid rules during an eAuction, is that it depends on the speed of bidding.  For example, should two bidders try and submit bids at the exact same time that would result in a tie, the software would have to reject one of these bids based on this rule.  Most likely it would reject the bid that was processed by the software that fraction of a second later.  Therefore aspects like processing speed, PC performance, internet speeds, typing speeds, speed with navigating the PC screen, amongst others, all come into play for establishing which bid is acceptable.

Allow tied bids

A completely opposite ruling is to simply allow tied bids.  There are quite a few ways this can be done, be it the bidders are simply given their relative ranking as 1st or 1st equal, or maybe they are both placed into 2nd as neither bidder currently stands to win the contract outright.  

One example we found was where Birmingham City Council, with the support of Improvement and Efficiency West Midlands (IEWM), ran an eAuction where two bidders entered the same start prices and were both ranked first by the eAuction software.  In this situation, both bidders were being informed by the software that they stood to win the contract, which was clearly not possible and was misleading.  The options they faced to recover the situation were:

A) Communicate: explain the equal bid scenario to the suppliers and seek their agreement to continue;
B) Re-run the auction on a different day;
C) Withdraw the auction.


Ultimately, Birmingham CC used option A) as the favoured resolution and the auction was successfully concluded.

What is clear from this example is that the issue was caused by the lack of awareness that such a situation could occur, hence why we chose to write this article.

The advantage of allowing tied bids is that bidding speeds do not come into play.  So long as the bids are placed at any point during the eAuction, they will be taken into consideration equitably.

The drawback to allowing tied bids is that the eAuction itself may not be conclusive, which is not an ideal use of everyone's time.  You would have to conclude the award by adopting some of the aforementioned tie-breaker rules post-auction, which you (hopefully) specified in the tender documents.

Separate tied bids

One final treatment of tied bids fits in between the previous two approaches, whereby tied bids are allowed but bidders are not given the same rank.  

There are a few ways this can be done.  The eAuction could adopt one of the rules that we found in some official tender documents, which was that in the event of tied bids (MEAT), the overall lowest price was deemed the winner.  Whilst that is easy to implement, it still isn't sufficient, as it is possible that the prices could be identical as well.  Co-incidentally a solution to that outcome was not mentioned in those tender documents, which again leaves a gaping hole in the process.  It also doesn't solve the issue for price-only eAuctions.

An alternative option, available within several eAuction providers such as the one selected by the Crown Commercial Service, is to separate tied bids by timestamp.   Whichever bid was placed soonest would be assigned the better rank.

Timestamp isn't necessarily the time in hours:minutes:seconds that a bid was placed, but can be interpreted as the exact sequential order in which the bids were saved in the database of the eAuction tool and, as such, are uniquely positioned.  This can be seen as a fair way of separating tied bids; after all that is how Sotherby's operates in a fair manner.  However the flaw is that it again comes down to bidding speeds and sequencing of those bids by the software (or auctioneer in the case of Sotherby's).   

Timestamping is also inconsistent with the RFP evaluation process, which uses a uniform deadline for tender openings.  Furthermore, evaluating rankings in an RFP according to when they were received would be hugely unfair, given postal delays and that not all providers would be the same distance away from the authority.

Proxy bids

Additionally you could land yourself in hot water should you place a bid by proxy, i.e. legitimately on behalf of the bidder.  What if two bidders asked you to do this and co-incidentally they were equal bids.  Under the timestamp rule whichever proxy bid you submit first would become the first ranked, therefore you, as the eAuction manager, hold the power to influence the ranking, which is not compliant with the Articles.  

But then this applies to proxy bidding and any eAuction rule around separating or preventing tied bids.  The proxy bidder inherits the responsibility of placing the bid and hence can influence the ranking as a consequence of the tied bid rule.  Is this even considered in the Articles?

Head in the sand, again!

What also became clear during our research into the tied bid rules is that some eAuction service providers actually do not have a user-defined means for the treatment of tied bids.  Some may not even have considered what even happens to the ranks in their software should two equal MEAT proposals be received.  It is worth asking yourself if you know what happens.

Conclusion

In our experience very rarely do we see any written rules in the tender documentation around what happens in the event of a tie.  This is perhaps the most alarming conclusion, as it leaves tenders open to challenge, since you'll have to take action that you had not previously outlined, and if that action is to run the tender again, it will be a costly and time-consuming decision.

Furthermore, it is clear that across the many eAuction providers that are used in the market, there are a myriad of rules being used.  Some of these rules have serious flaws that could lead to challenge.  Others are simply unspecified, which leaves authorities with a significant underlying risk.

Our recommendation, not in a legal context as we do not hold the jurisdiction for such matters, is that authorities must clearly outline in their tender documents the tie-breaker rules, be it for an eAuction or otherwise, and the rules must apply uniformly to all bidders.  

The optimal solution, in our view, is to allow tied bids to clearly communicate whether the bidder is in a uniquely winning position during the eAuction and to utilise the tie-breaker rules in the tender documentation should the eAuction finish with no clear unique winner.   Only that way can you eliminate bidding speeds and proxy bids as a possible mechanism to influence rankings.

Then again, perhaps we have gone too far and we should have just just buried our heads in the sand!





About: Market Dojo provides accessible eSourcing software. Find out more at www.marketdojo.com

Monday, 24 November 2014

Take control of your own category planning tool

Last weekend we released a great new enhancement to let our users white-label the Category Dojo opportunity assessment tool.  

Whilst our Market Dojo eSourcing tool has been white-labelled for quite some time now, even to the extent of hosting it on your own bespoke URL, for example our US partner:  http://eauction.aggate.com, we were yet to roll this out on Category Dojo - until now!

So from now on anyone can take the advantage of bespoking the tool to make it feel like part of their own toolset.  Procurement consultants:  we're looking at you here!   The next time you're running a client workshop to uncover the procurement opportunities across their spend profile, consider badging up our tool to demonstrate your expertise and professionalism with the very latest technology.

You can even operate the tool in your own licence yet give clients the rights to see their own data.  Therefore you'll give yourself a permanent reason to stay on their agenda instead of just a one-off project.

Alternatively, you can resell the tool into your clients and sell your services to help them get the most from it. 

Whatever you choose, you'll at least now be able to blend our technology into your procurement strategy planning.

Cloning from the Sandpit
 
As well as the above upgrade, we also released a whole host of other great things.  This includes one of the most asked-for features to have the ability to create a test event in our unique Sandpit and run it through to completion before copying it over to the Live environment ready to send out to your participants.

As they say, "practice makes perfect"!


About: Market Dojo provides accessible eSourcing software. Find out more at www.marketdojo.com

Friday, 21 November 2014

5 Security Questions to ask your SaaS provider

When evaluating Software as a Service (SaaS) solutions one of the most important things to consider is security.

Our customers usually ask about security as part of their evaluation process.  We thought it would be interesting to compile our list of the top 5 questions to ask. When using a SaaS solution your information will pass through several systems.  Your data will be passed from an application front end (often a web browser), across the Internet to a server in a data centre where it will be stored. Each step in the process has risks associated with it. Each risk has precautions that should be used to mitigate it.

1. What security features are built into the application?

The provider should be able to explain how the authentication (to identify who a user is) and authorization (to identify what a user is allowed to see) systems work within their application.
They should also be able to explain what audit systems are in place, so that there is a way to determine how changes to your data occurred.
They should also be able to give details of how they perform Quality Assurance (QA) to test the security of the application.

2. How is communication across the Internet secured?

Any sensitive data should be transferred using the https rather than http protocol.  This guarantees that your data cannot be intercepted and understood by a third party.  The https protocol requires use of an SSL certificate from a provider such as Thawte.  SSL Security costs are a small price to pay in order keep your data secure.

3. How secure is our data on your servers?

Using a SaaS provider usually means that your data will be held in a location that is not under your direct control. The provider should be able to give assurances about the standard of security they adhere to. This information should include:
What system testing is performed to ensure the data is secure?
How do you track who has access to our data?
What policies and procedures are in place to ensure that data is disposed of securely?
What physical controls are there to limit access to the datacentre where your data is held?
Where is my data physically held? 
You should be aware of what data privacy laws exist in the country where your data is held; and your company may have rules around what data can leave the country.

4. What accreditations do you have?

Accreditations show that the provider takes security seriously, and have been audited by a 3rd party.
There is a range of accreditations relating to the security standards in place. For example, ISO 27001 for Security Management and ISO 20000 for Service Management, BS25999 for Business Continuity and Data Recovery. You can also ask about what other customers they have which may require a high level of security, for example the UK Government give services a ranking according to how secure the data they are cleared to hold.


5. What is your Disaster Recovery Plan?

Although we hope a Disaster Recovery (DR) plan never has to be carried out, it is important that one is in place. Understanding the DR plan ensures you can assess the potential impact on your business. 




About: Market Dojo provides accessible eSourcing software. Find out more at www.marketdojo.com

Monday, 17 November 2014

What's great about our auction platform?

We are very proud of our eAuction platform.  It was our initial business proposition and still draws in the crowds.  We have users from companies ranging from one million in turnover to many billions, running tenders on all types of goods and services from values of thousands to hundreds of millions. 

No other platform gives gives you the ability to call in in the morning and run an auction in the afternoon without the need to train the suppliers.  We recognise that preparing for an eAuction can be challenging, and the system should help with this challenge, not be an additional hurdle to overcome.  

Our platform also has many capabilities from including a Pre Qualification Questionnaire to weighted auctions. See more of our functionality here.

However, in this blog we really wanted to show you the cool parts of our interface. (Click here for the video) 

Overview:

This is an overview of the eAuction screen. Colourful, compact and nearly everything is 'click-able' for further information, which can be seen in the following images.


Settings

These can be changed live during an auction.  You can see the pause button and also the ability to change the heart of the eAuction settings such as the duration, the dynamic close, changing who it applies to and also altering the min and max bid decrements.


Live feed

We have a great live feed to keep you up to date with the goings on without the need to look at all the lots individually.  It is also there for the suppliers so they can see the latest and greatest.


Lot Matrix - 'The summary'

See an overview of the event from a lot perspective with bespoke total calculations.

Notice the 'stock market' type updates highlighting where the bids have been placed.

Lot Matrix - 'The lines'

See the event overview from a line item perspective with a click of a button.

Lot Matrix - 'The suppliers'

See the line items by supplier.

Lot Matrix - 'The detail'

Lastly, with another click, you can see the suppliers, by component, by line item in real time during the eAuction


Other features

See who is active, send messages, place proxy bids and you have the ability to delete bids all from within the auction interface


See the graphs

Check out your results graphically displayed in real time.  No need to wait for a periodic refresh as we use new technology to display bids as soon as they come in.


If you want to see this for yourself then you can simply sign up for free and try everything out in our sandpit.  Welcome to the Dojo!




About: Market Dojo provides accessible eSourcing software. Find out more at www.marketdojo.com


Thursday, 13 November 2014

How to untangle tied bids

What would you do if two bids tied for first place in your tender process? Put a plan in place to avoid tying yourself up in knots, says Nick Drewe, co-founder of Market Dojo.

In a most economically advantageous tender (MEAT), bidders are allocated an overall score based on their price evaluation and their quality/non-price evaluation. However, there are often inconsistencies in how tied bids are treated during a MEAT or weighted tender. Although a tie is unlikely, it can and does occur. It does not have to be an exact tie but a statistical tie, i.e. within acceptable margins of error. Therefore even if the two overall scores are not identical, they have to be sufficiently distinct not to be considered a tie. So, in the event of a tie, how can the authority finalise the award decision?

Use of tie-breakers

The UK Practical Law website outlines some solutions, such as building tie-breakers into the evaluation model and disclosing to bidders upfront how such a mechanism would be used. Examples include setting additional questions, re-valuing (up or down) previously specified points or re-evaluating parts of the tender. This correlates with some publicly available tender documentation such as the Legal Services Commission, the South West Devon Waste Partnership and the Learner Access and Engagement Programme. Examples include the final award being decided by interview, by the use of tie-breaker questions included within the original set of tender documents, or the supplier with the best price being awarded the contract. Another option is to avoid the situation altogether by re-evaluating the tied proposals in private to define which is most economically advantageous. However, this can be highly subjective and is not recommended.

See the rest of this article in its original form as published by Supply Management here.

About: Market Dojo provides accessible eSourcing software. Find out more at www.marketdojo.com