The lowest price should win the tender

The Giles Government is struggling to gain ground, to grasp some kind of credibility on its goal of reinvigorating the private sector.
But it remains, it seems, blissfully unaware of just how unachievable that goal is while its bureaucracy remains hamstrung by the reams of legislation and regulation that 12 years of inept  socialist Labor government inflicted on the system.
The problem remains for the Giles Government that even after half a term in government they haven’t done anything about clearing the decks of this stifling socialist mess.
Further to my previous comment on the growth of NGOs, one of the main tools used to promote the growth of these enterprise-sapping parasites has been the NT Government’s own procurement policy.
In the past the procurement/tender system always awarded contracts to the lowest price, provided they had the appropriate performance record and CAL accreditation. Not anymore!
The procurement system has been highjacked and corrupted by introducing a number of selection criteria where price is no longer the final arbiter. The supposedly socially responsible and concerned criteria such as Safety Policies, Training Policies, Indigenous Employment, Environmental Plans, etcetera, have all proved to be great fodder for bureaucratic propaganda.
They also bring to the procurement system the right for individuals on procurement boards to make personal, not easily quantified or checked judgements, about who wins a contract. This has resulted in some very questionable decisions and has also given on many occasions NGOs the very questionable winning edge over private enterprise firms – the very businesses that the Chief Minister is purporting to support!
A lot of nice sounding socialist, bureaucratic waffle about safety and training will often see an NGO have the advantage over their private industry counterparts and of course everybody studiously avoids raising the obvious! That these nice sounding NGO programs are funded by grant funding separate to the contract in question.
The unmentioned result of course is that the NGOs are being subsidised giving them huge unearned advantage in the market place. In other words, our free enterprise government is directly subsidising free enterprise out of the market place!
Kind of difficult to see how this equates with the Chief Minister’s arguments about shrinking government inputs and growing the private sector! Not only does it make a complete joke of that stated intention but the programs that give NGOs the winning edge are often a complete sham! Token training, token safety!
The NT Government needs to go back to the future in great haste and return the procurement/tendering system to where the lowest price wins, always! Because there is no other system that is both fair and actually promotes free enterprise!

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12 Comments (starting with the most recent)

NB: If you want to reply to a previous comment, start your comment with this notation: @n where n is the number of the comment you want to reply to.
  1. Steve Brown
    Posted March 15, 2014 at 3:11 pm

    @ Norman: Quite to the contrary discarding the lowest tender simply corrupts the system and forces up costs.
    Tendering is always complicated by the fact that you have relatively inexperienced bureaucrats making decisions about the capacity of very large, very experienced companies ability to carry out particular works.
    There are already checks within the system such as CAL that make these judgements, they don’t need to be further analysed in the tender process.
    When things are tough economically contracting businesses will often “Buy Work”. Another words, do the work at cost or below simply to maintain a turnover and keep staff employed.
    Judgements about taking these risks are made, as they should be, by those taking the risk and cannot be second guessed by some minor bureaucrat with no experience and nothing to lose.
    Amongst the players particularly in the building game it is quite common to win a job by forgetting to add in a cost, this always triggers wild internal accounting pressures while judgements are made as to weather or not the builder can still carry out the works within their tendered price, they usually do! It’s a standing joke in the business: “What did you forget to win that one?” Joke aside, the taxpayer gains a better price and the builder is forced to work more efficiently. Under “the Lowest Tender Wins”.
    All that bureaucrats have to worry about is making sure they are not paying out money for work not completed. This along with bank guarantees assures the public purse is never at risk of anything more than time inconvenience should the contractor fold.
    More bureaucrats applying more red tape looking for fluffy outcomes where everybody wins [LOL] simply complicates and corrupts the system.
    @ Interested:
    At the first meeting between the lowest tenderer and procurement the tenderer is asked if they are sure they can finish the works for the price lodged. This gives the tenderer a chance to re-evaluate their figures before signing up. It is not uncommon for tenderers to bow out at this stage but they bow out under their own judgement. This is not red tape and has always been part of the system. And it works!
    @ Ray:
    I’m with you on that! “Out in the open” keeps things honest! Makes it very difficult for corruption to thrive. In previous times and under the system I would like to see re-established, the estimated price of works was advertised with the tender and the tender winning price was advertised shortly after contracts were signed. This assures a level of competition is maintained, everybody, including the general public, knows where the market is at. No special deals can be done without awkward questions being asked!

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  2. Norman Atkinson
    Posted March 14, 2014 at 8:25 pm

    The best results when you are evaluating tenders occurs when you have a rough idea of what a reasonable cost would be, arrange the bids from dearest to cheapest, discard those that would be unreasonable expensive, discard those that would be too cheap (a recipe for disaster), then average the remaining bids and select the one closest to the middle. All things considered, experienced businesses will submit bids that will fall in to this middle category.

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  3. R Henry
    Posted March 14, 2014 at 7:22 pm

    The purpose of the tendering system is to get the work done to a set standard at the best price. The pricing was kept competitive and tendering honest by the costings being publicly available once the contract was awarded.
    The standard was ensured by a maintenance period against the contractor.
    The ability of the tenderer to complete the job to the standard at the price was down to the people reviewing the tenders and being able to question any item in doubt. I have been in the position to review tenders to submit tenders.

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  4. Interested
    Posted March 14, 2014 at 4:23 pm

    OK so now your position is “accepting the lowest price after the front running tenderer had demonstrated their ability to carry out the works for the tendered price.” That’s more sensible, of course, the red tape you just added is itself a matter of salesmanship and propaganda.

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  5. Steve Brown
    Posted March 13, 2014 at 4:33 pm

    @ Interested: I wasn’t on Council when the Subloo thing arose so I am not in a position to comment on it.
    However one thing I have learnt for certain along the way, there definitely is only ever two possible options, either lowest price or red tape!
    From the moment you qualify the outcome you have red tape! That is the very essence of bureaucracy.
    The system worked very well for many years accepting the lowest price after the front running tenderer had demonstrated their ability to carry out the works for the tendered price.
    There were very few failures over the years under that system. The new system that allows so much salesmanship / propaganda is in fact likely to produce a greater number of failures! And at a much greater price!

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  6. Interested
    Posted March 13, 2014 at 1:16 pm

    Steve you make it sound like we have just two options, the first is a system where we are so mired in red tape that local enterprise can’t compete and a second where we religiously accept the lowest tender.
    The Alice Springs Town Council appears to have followed the second of these options when they accepted the Subloo contract to run the land fill. But a few simple questions like “could any company run the facility well at that price?” would have sounded a warning.
    Yes, we don’t need lots of red tape but neither do we need a slavish devotion to the lowest price (lest it become the highest). We need to aim for a balanced, middle road here.

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  7. Aaron
    Posted March 13, 2014 at 7:49 am

    You have highlighted two under pinning factors, Steve. They are intertwined.
    1. The government is at the halfway mark and have made no real in roads. True. We clearly live, hear and see that daily. I believe it’s due to …
    2. The current CLP government is not that of “days gone by”. They do not have the Territory DNA in their vision, in their courage or in their discipline. In terms of their business acumen, infrastructure development and support and drive for private industry growth, they are very immature. Consistent infighting and disunity right through to the “leadership team” is visible daily in the media to show this.
    The original CLP success brand born from characters such as Tuxworth, Everingham, Hatton, Stone, Coulter and crew had respect, understanding and know how. The current circus is just a plain embarrassment and has majorly damaged, destroyed even, the CLP brand. I was a CLP support, however this crowd has completely lost my support – long ago.

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  8. Janet Brown
    Posted March 12, 2014 at 7:37 pm

    I have been informed that “local” in the procurement documents is described as Australia and New Zealand. Yet we were informed “local” was the location where work is being done.
    Appears the bureaucrats have mislead us all again. Local and length of service in – say – here in Alice should be top of list.
    That is first tick. History of working in Alice second tick and price next. That would ensure local work done by local companies, businesses. Supporting our town. And red tape should be removed, as Steve says.

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  9. Steve Brown
    Posted March 12, 2014 at 5:55 pm

    @ Emma and Interested: The point you raise about local preference is another part of the tendering process in which there appears to be some ambiguity often producing less than satisfactory outcomes.
    I have had the Chief Minister himself inform me that local means Local, as in that an Alice Springs Company would be favoured by percentage for works in Alice Springs.
    However, I have also been informed by a couple of department heads that local means the whole Territory which would see a Darwin firm contracting in Alice receive the same advantage. Which percentage, by the way Emma, is easily deducted from local tenders to determine the lowest price.
    As for the Subloo scenario, Interested, you will always get failures and you cannot protect yourself from them by creating more and more red tape!
    In fact you are far more likely to create more failures and cost blow-outs. Simplicity and the free market will in the long run always produce a better outcome than bureaucracy! And as a rider to your comment “Interested” I started in the contracting game 40 years ago this year.
    In that time I have learned a thing or two. I am well aware as to why we moved away from accepting the lowest price I am also aware that the result of doing so has not been pretty! It’s corrupting the system and loading the Territory up with parasitic bureaucracies! We simply can’t afford them!

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  10. Interested
    Posted March 12, 2014 at 3:01 pm

    Really Steve? I suppose you were on council when it jumped at the Subloo offer to run the landfill. It was the cheapest bid so of course they got the contract, destroying the recycling business that is only now starting to recover. And then Subloo didn’t deliver and the Council paid them $106,371 plus $$$ in legals incurred to reach that settlement and then they had to take over the landfill themselves. Rates went up a lot that year.
    No Steve, the lowest bid should not always get the contract and it is scary that you are on council and still have not learned that lesson.

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  11. Tony Meman
    Posted March 12, 2014 at 12:57 pm

    Thank you for today’s laugh Steve. Always appreciate the humour in your columns.

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  12. Emma Ringer
    Posted March 12, 2014 at 10:37 am

    “… return the procurement / tendering system to where the lowest price wins, always!”
    Even when the lowest price is an interstate / national / international outfit whose staff don’t live in Alice Springs and have no investment beyond doing the work and moving on to the next gig?
    Surely there are more aspects to this than just NGOs vs private enterprise and the lowest price as the sole determinant of tenders being awarded?
    Just curious, really.

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