Rumblings from vendors of large CAPEX projects on some of their most problematic issues.
Complex projects are just that – complex. Of course customers write detailed specifications – or not (not good) – and vendors are requested to comply with these requirements.
There are two issues here that create headaches for both the customer and the vendor.
Non-standard items and preferred brands
The vendor can often supply a much more cost effective solution with small modifications to the specs using standard items or by using brands other than the customer’s preferred brands for certain components.
The problem here is that vendors now face the dilemma of either submitting a compliant bid at a higher price or a non-compliant bid at a lower price. Either way they fear being eliminated.
As much as a customer would like to have a fully compliant bid, they also want a good price. Often the RFx will contain some statement in the line 0f “non-compliant bids will/might be eliminated”. Although this might seem like a good idea to force the vendor into supplying a compliant bid, it actually works against both parties. Of course the vendor is going to do his best to comply with your spec as this will be to his advantage during bid evaluation.
The main objective of a compliance matrix should not only be to highlight areas of definite non-compliance (impossible to comply) but also areas where possible savings can be had (alternatives). This of course requires a certain amount of flexibility and understanding from both parties.
The other issue is unclear, incomplete or ambiguous specifications. This always results in the vendor building in a contingency amount – the less detailed the spec the higher the contingency and potentially worse for the customer.
Of course here again sometimes the customer does not really know what he wants, or has not spent sufficient time (being under pressure) detailing his requirements. But this always comes back to bite you in the proverbial rear.
Spend sufficient time and effort on developing a detailed requirement specification and you can avoid most of these issues. Also the vendor won’t feel the need to build in such a high contingency if the requirement is clear.
Design reviews/variation orders
Unless your RFP and the resulting contract specifically call for a design review, this should not happen. This is where many vendors make their money – re-negotiating the contract after it has been awarded. Even if they have built in some contingency, they will try and maximise the opportunity by claiming the specification/design was not clear enough or detailed enough. Almost always any changes will result in a price increase. This is the way of business.
Variation orders should only occur in cases where there are real issues, not because the vendor did not read the spec properly and now decides he cannot in fact comply.
Both these issues can be minimised by:
- Supplying a sufficiently detailed specification/requirement in the first place, and
- Spending sufficient time discussing/negotiating the details BEFORE awarding the contract.
This will contribute greatly to a successful project with fewer variation orders (and therefor potential price increases), a better vendor relationship and greater chance of timely delivery.
At the end of the day it is down to both the customer and the vendor to be more open in their discussions and avoid the pitfalls of playing games as these often backfire on you.