The tender situation: dealing with government

RFPs are only one part of getting government business, New Zealand software vendor says

If you were to say to someone not in the ICT industry: “Name a government ICT project you recall” they will probably scratch their heads and say, “The Incis police computer project”.

While that notorious episode gained plenty of publicity outside industry circles most government ICT projects are a lot more successful — if less well-publicised.

Selling to government clients is quite different to selling to private sector clients, which is why many big ICT vendors have government sales specialists based in Wellington.

Public sector organisations spend approximately 40% of all the ICT dollars spent in New Zealand — roughly $2 billion annually — and therefore few vendors can afford not to be pitching regularly for government work or, if they’re big enough, employing government specialists.

Government guidelines for hardware, software and ICT consulting services have always been stringent, with an initial RFI (request for information) generally being followed by a more detailed RFP (request for proposal). After a long, rigorous process, the successful winner of the tender is announced.

RFIs and RFPs often contain directives that no one bidding for a contract will offer gifts or other inducements to those overseeing the tender process. Many tender documents also instruct bidders not to engage in any publicity-generating activities without the permission of the government agency involved in the tender process.

In recent years, governments have sought to make the tender process for ICT procurement easier, especially for smaller New Zealand firms that may be competing against big companies.

The government has put significant resources into trying to improve the tender process. Last year New Zealand Trade and Enterprise held a series of government ICT procurement workshops, at a cost of around $200,000, with the goal of improving “sector participation in government ICT contracts and [improving] government purchasing practice in ICT procurement”.

The State Services Commission also spent $100,000 that year on an ICT procurement training module for public sector ICT buyers.

In 2004, The ICTX Working Party, a group of public sector and industry figures, released a report on government ICT procurement issues.

Among the problems identified in the report was the difficulty faced by small local IT firms when going up against big multinational companies.

“Due to economies of scale and much larger budgets, large enterprises are more able to bear the burden of high costs incurred during the sales process,” the report says.

“In addition to the costs incurred, most high-risk government procurement requires vendors to have significant asset backing as ‘insurance’ against the risks associated with vendors becoming insolvent.

“These barriers create significant advantages for large vendors over SMEs.”

However, one local software company says it’s not so much a case of smaller, local companies being disadvantaged compared with bigger, better-resourced ones but that the whole RFP process is flawed because it can be something of a “rubber stamping” process.

Drew Gilpin, director of software developer and services provider APL+, says, when pitching for government business, “The issue isn’t one of size — there are many smaller vendors that pitch for government and corporate work, and win, because they have a compelling proposition. Rather, the issue is the RFP process itself.”

“People buy from people, regardless of the formal structure of the procurement process. Most selling is done, and most relationships are formed, before the RFP process begins.”

This means that it’s helpful to already have an established relationship with government clients before responding to RFPs, says Gilpin.

The rigidly structured nature of the RFP process, while desirable from a legal and transparency point of view, has its limitations, he says.

“The problem with a formal RFP is that it doesn’t allow a vendor to add value, and show competency, because the process is so short.”

APL+ is Auckland-based but has representation in Wellington.

“Auckland vendors can struggle in Wellington unless they have a full presence there,” says Gilpin.

Requiring prospective vendors to state a fixed price for the work they’re pitching for is another issue as this is too simplistic, he says.

“Price is never fixed, even though requirements say it is.”

Getting every aspect of a big implementation or project into the requirements at RFP stage is a very complex undertaking, he says.

“Sometimes 80% of the facts is enough but the RFP process requires 100% and that can never be achieved. There is a need to replace certainty with clarity.”

APL+ recently declined to tender for a web development process RFP from one government department Gilpin declines to name. “The department wanted a fixed price for a website and the information provided to produce a price was two pages long, one of which was [legal specifications].”

“The technology required was only able to be provided by one organisation in the country and, clearly, only that vendor would be able to provide a winning response.”

Gilpin doesn’t believe the department in question was deliberately trying to shut out competitors but that it was a matter of poor process.

The government specifically mandates that local vendors should enjoy no advantage just because they’re local. Mandatory rules for procurement were endorsed by Cabinet in April.

“Departments must make procurement decisions on the basis of value for money of goods and services to be supplied, and not on the basis of their place of origin or the degree of foreign ownership or affiliation of the supplier,” say the rules.

The 2004 ICTX report on government ICT procurement identifies several other issues, including “anti-competitive industry behaviour”.

The report also makes accusations of “manipulation of the tender process by responding companies”, noting that, “for example, there appear to have been incidences when respondent companies have apparently bid low to win business on the basis that contractual negotiations can be used to redefine the business scope or value back to an economic level on the vendor’s terms”.

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