There is no doubt that tendering is getting tougher, from every perspective. The Clients are getting more demanding, and so they should, the options and choices are becoming more varied and the financial requirements are getting more exacting.
Like many of the consultancies in the UK we do our fair share of Tenders. Office buildings, historic venues, shopping sites and further education locations. For those Clients that don’t want or can’t grant a Lease to an operator, the Management Contract is the ideal instrument to engage with a provider. That is, of course, assuming they don’t want to “self deliver” the service.
As I have reported several times in the past, the High Street and the Business & Industry sectors are merging. Depending on your perspective and position in the market, this may be impacting heavily on you, or it might just be an amusing distraction from the day to day business that you operate or manage.
I was fortunate enough, as Chairman of the Foodservice Consultants Society International (FCSI), to play a part in the recent CEDA conference. We had speakers on the business day talking about their own experiences and operations, from Nomura to Harrods, from BaxterStorey to Leon. A fascinating session, and without any prompting or preparation, the four speakers were clear that this “merging” of markets was going to continue. Alastair Storey even went as far as to say that “we know subsidies are disappearing and have to react to this”. An interesting comment from somebody who has seen it all in our industry and delivered, in various companies, some of the innovations we are talking about.
So, to the Tender. I have been amazed recently at the escalating cost of the Tenders that companies are submitting. On a recent exercise we were involved in, the Tendering parties have spent significant sums in time, effort, resource and documents. No change there I hear you say, but talk to the foodservice partners who are all desperately trying to be seen as “different”, “innovative” and “exciting” and you can fully understand why winning or losing is such a financial burden.
Last month I talked about the bundling of services on Total Facilities Management Contracts and the differentiator that foodservice could be. It occurred to me that the costing, planning of the tender and execution of the documentation is also probably more complex for foodservice too. I am not “simplifying” the other services, but having worked on many tenders involving these, the pricing and calculations are somewhat easier to execute. Cleaning can be costed by a using a specification and a square meterage. Foodservice, in almost every case, needs to be a bit more of a financial gamble, due to the income stream that often offsets the subsidy, or the confidence that the operator has in attacking the sales line.
So, focusing on foodservice, is it really getting tougher or easier to tender foodservice? I asked a dozen foodservice operators this question before writing this article and I am not sure you will be surprised by the results. A resounding “yes!”. Not surprising really, but I think I had better give a little more information on the “why”. It makes uncomfortable reading, for everybody concerned and certainly gives us all something to think about.
One of the biggest issues raised was the growing lists of operators that are being asked to tender. The extent of competition at the early stages has grown, with some operators suggesting that this has doubled. It is not uncommon for many of them to be 1 of 10 or even 12 parties. Many acknowledged that Clients are prepared to look at a bigger selection of businesses, not just going on annual turnover, but nearly as many questioned the selection process for the “short list”. We spend a lot of time trying to match the Clients business “personality” with an appropriate Contracting Partner, but this can, on occasions, bring an unusual group together.
The next biggest concern centred around the production of information for the Tender. Without naming names, almost all were very concerned by the need to produce “shopping baskets”. Quite rightly, the Contracting Partners were arguing that the cost of goods is only a very small part of the final cost. The way the goods are prepared, cooked, merchandised and sold (or not) has a much more significant impact on the cost of the Contract, than a few pence here and there. One Partner said, “I can buy the best baked beans, at the best price, but if I am rubbish at merchandising and attracting consumers to breakfast everyday, I will throw more away than I use”. A good point.
Given the current economic climate, it is not surprising that financial requirements and objectives were high on the list of issues. Most cited the increasing need for capital input from Contracting Partners, squeezed margins and onerous Contract terms. I guess we are all faced with these dilemmas, as everybody has to decide at what cost they will do business, but nobody is asking them to sign the Contract or even submit a Tender. It is wrong to say that Contracting Partners are completely risk averse, but they have certainly moved a very long way in a short number of years, from big subsidies to nil cost environments – and yet they still remain profitable.
But I would like to be clear. Nobody is perfect. The industry is very busy at the moment, and we, along with many other consultants, are seeing a big increase in tendering activity again. It’s challenging, especially with the deadlines that we all seem to be working to. I’m not actually sure how or when these got shorter, but more seems to be needed in a shorter programme, with more spectacular results. Challenging for all concerned.
I suppose it might be as a result of the issues that the Contracting Partners raised when I spoke to them, but we are also seeing an increasing number of tenders not being returned by Contractors and a substantial increase in errors and omissions. The latter is inevitable I guess, given the shorter timescales, but I don’t object to companies saying “no thanks” early in the process. It is never nice to hear, 24 hours before a four-week tender deadline is due to expire, that some of the parties are not going to submit, especially after detailed dialogue has taken place over that four-week period. It is especially annoying when the same companies have been all over you before the Tender began.
So is there a solution? There’s no doubt that Clients and consultants could help improve the situation, but the purpose of Tendering is competition. This is essential to ensure that the best solution is being achieved. Perversely this does not mean the highest bid in many cases. There has to be a confidence in the operators to deliver the services as well.
I suggest we should all try to minimise the amount of work that we ask tenderers to do, until the shortlist is exactly that – short – and they have a very real chance of winning the Contract. In return, what we should hope to receive are tender returns with the correct client details, financials that add up, and some evidence of innovation and original thinking. If these are wrapped up in fantastic presentation materials than so be it, but you don’t judge a book by the cover, although some of the recent submissions we have received must have cost hundreds, if not thousands of pounds.
In the same way that Contracting Partners are having to change their way of doing business, so are the Clients and Consultants that tender much of the business. Either directly or indirectly, the way that business is offered out to the market has changed. E-tendering, my least favourite way of awarding foodservice business, TFM Contracts, Group Contracts, commission and royalty returns and a whole host of other complications have made doing business more challenging.
If there is one thing I have learned from the recent exercise of talking to Contracting Partners, it is that we need to work harder to understand their side of the process, their issues and concerns and respect the fact that they also need to make a commercial return. Much has been written in the past about Contractor profitability, hidden earnings and other revenue streams, but I truly believe we are now in a market that is as competitive as it has ever been. Expectations need to be realistic, returns need to be sustainable and concerns need to be listened to. In that way I think the future is more certain for all the stakeholders in the Tender process.
(Author: Jonathan Doughty – First Published in FSM Magazine May 2011)