What's the point?
On TenderBy Lee Davis, Auckland | Wednesday, 22 August 2012
What do points make? Prizes. But many in the IT business are constantly moaning about thin margins and the points they strip from a deal in order to secure prizes. I’ve been privy to a few and I’ve had a CEO tell me to cut it down from 15 to seven points. In the event the deal was never made and that’s not the worst case scenario of how we are willing to slash points in the hope of making prizes.
At the other end of the scale I recall one salesman regaling the exploits of a legendary top salesman. “He’d go in at 50 points and make a killing.” The fact that this relatively younger sales guy was impressed at a 50 per cent mark up shocked me deeply. I was in the IT business in 1985 and it was 400 percent at least or whatever you could conjure up out of thin air. But those were heady days and maybe now the IT industry is paying for its sins. Just look at the mark up on iPads. Nothing more than pocket change, but far better on the silly accessories that run alongside those eminently droppable machines. I swear if I see another person do the fumble, shuffle, juggle and scream as they wrestle to pull the thing out of their bag then watch as it cascades to the floor, I will laugh my head off.
A while ago an evaluator of tenders pulled me to one side and told me to put at least 15 points on my end. He said he didn’t want the right company for the gig struggling to make ends meet on a contract, so it needed to be correctly priced.
And this is the dilemma that many companies struggling to get their feet under the anti-static mats are facing. How many points will keep you competitive and how many will you need to sacrifice to make the deal. The answer lies in that metaphorical cloud of opinion that lives in the head of the evaluator.
Although, it usually states on many RFPs that the cheapest price is not a weighted measure of significant proportion to gain the contract (in other words the cheapest will not win just because it’s the cheapest) this is not what several friends lodged in high places among the Wellington tower blocks tell me. They say categorically that many contracts are won on price alone. The Wellingtonian government employees have been moaning about John Key’s price slashing and being stood over by their bosses.
Despite wearing cardigans and oddly-shaped glasses these civil servants actually have a passion for value for money and genuinely believe in gaining the best service for their country. Therefore cheapest is not always the best in their opinion. So knowing who your bid ends up in front of and what that person thinks of the current government has become priceless information.
A CEO of a small company which has recently won a deal to supply a very large contract told me a competitor for the same contract had gone in at zero points. “That was worth around $100K and we were undercut in the market by a provider who tendered with zero margins and their only income stream from the deal was going to be the provisional fees associated with it. And that’s something we’ve only seen recently and it’s disturbing. We had to change our pricing strategy but we won the deal.”
He says the issue is that he can’t even buy Cisco routers for less than companies like Gen-i can sell them for.
“It’s a big problem for our industry.” He says. “They [government] know that they’re buying commodity items and they know that they can get them from any number of suppliers and there doesn’t need to be any loyalty. The warranty goes back to the manufacturer. You need to be looking at why you’re doing the deal, if you’re big enough and strong enough to be playing in that space, because you can take a lot of energy away from the profitable part of the sector.”
So although it may be tempting to slash points you’ll never prise anything out of our government if you don’t emphasise the points.
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