Understand Why Buyers Go Out To Bid

Buying organizations are generally resistant to changing vendors…and for good reason! Changing a vendor is a lot of work and a lot of risk.

Changing vendors is a lot of work

Buyers are generally resistant to change vendors because, for many, changing from one to another is an involved and challenging process that impacts many parts of their operation.

• Accounting has to implement new invoicing and payment protocols.
• Program managers have to beg, borrow, and steal to get IT resources, which in most organizations is notoriously difficult to do.
• Legal has to review and negotiate new contracts and ensure the new vendor is compliant with applicable regulations.
• Program staff has to coordinate reporting and operational procedures.

Different industries have different challenges, but you get the idea. Changing a vendor is an involved and time consuming process.

Changing vendors is risky

In addition to the time and effort it takes to switch vendors, there is always the risk—real or perceived—that the new vendor will perform poorly. Imagine being an internal program manager that endures all of the administrative headaches associated with switching vendors, and then the new vendor turns out to be no better or even less effective than what you started with. Not a pretty picture.

Q. So if switching vendors is so difficult and risky, why would a buyer ever go out to bid?

A. Buyers go out to bid for only one of two reasons; because they have to or because they want to.

Going out to bid because they have to

In general, most state and local government organizations, and many commercial organizations, are required to go out to bid about every three to five years. In other words, the real buyers in the organization—the internal people responsible for managing the program—have no real choice in the matter.

The program manager may be totally happy with her current vendor. She may not have enough time in her day to go get lunch much less bring on a new vendor. But she goes out to bid anyway, not because she wants to but because she has to.

Going out to bid because they want to

The other reason a buying organization goes out to bid is because they want to. Given the difficulty switching vendors, you may ask why any internal program manager would proactively want to issue an RFP. It’s a good question, and in general, there are five good reasons. 

1. Management change

When I am the competition selling against an incumbent, a change in management is one of my favorite scenarios. That’s because when a new manager comes in, he or she frequently wants to “change things up.” When this happens, it is often a threat to the incumbent, but it opens the door to the competition. Good for you if you are the competition, not so much if you’re the incumbent.

2. Significant change to program requirements

It’s difficult or sometimes even contractually impossible to ask an existing contractor to significantly change their program in the middle of a contract. So when an internal program’s requirements change significantly, most buyers will issue a new RFP. This is an opportunity for competing vendors because, in a sense, there is no incumbent vendor for the newly published specifications. The existing vendor still has an advantage, but the door is opened a crack.

3. Economic conditions change

After the recession began in 2008, a number of  buyers issued new RFPs—sometimes before the existing contract term ended—because they were feeling internal pressure to cut costs. When a buyer goes to bid early for this reason, it’s an opportunity for competitive firms, but only if they’re willing and able to get aggressive on pricing.

4. Current vendor is falling short

If you learn that a buyer is going to bid out of dissatisfaction with their current contractor, you’ve got a legitimate opportunity. It’s not definite they’re going to change out their current vendor; they may just be using the RFP as a way to shake them up or get some new performance guarantees. Still, the buyer is at least open to a new vendor that has a good story to tell.

5. To squeeze the current vendor for a better deal

Sometimes, buyers will go out to bid with no intention of changing vendors, they just want to negotiate a better deal with their current vendor. There’s no better way to conduct a negotiation than when the negotiation is accompanied by competitive pressure, so they use your organization for no other reason than to negotiate a better deal with their current vendor.

There are other reasons buyers want to go out to bid, but these five are the scenarios I encounter most frequently.

Why is all of this important?

If you’re serious about winning more of the RFPs you bid on, you must understand, at a minimum, why they’re going out to bid.

If the buyer is going out to bid because he has to, not because he wants to, you can pursue a hundred procurements but your outcomes will be poor. That’s because the buyer isn’t motivated to make a change. He is only motivated to comply with procurement rules as quickly and efficiently as possible, then choose the same vendor they already have and get back to the other hundred items on his priority to do list.

On the other hand, if you pick just ten procurements where they buyer is going out to bid because they want to, and where you have a legitimate chance at winning, your win rate is going to improve. It’s going to improve because the buyer is either motivated to make a change or at least open to making a change.