e-auction for multi-year contracts: key learnings

The other day I participated in an e-auction on behalf of my company. This was for a 100+ Million dollar multi-year contract from a “Big Pharma”. The auction was conducted on the client’s e-procurement system. I am used to placing bids on e-procurement systems in the past, that were similar to any offline bidding, i.e. placing bids in a “sealed envelop” before certain deadline. In fact, even in the present case the client has previously asked us to place such bids online by responding to their RFQ. Thereafter, they went one step ahead and asked all short listed suppliers to participate in an e-auction. All suppliers were trained on the e-auction procedures by the client’s IT rep a few days ahead of the event. So, probably it’s a first time for them too. My company came out of the auction as L1 in most of the scenarios (we are to bid on several volume- contract term scenarios for a contract manufacturing project), mainly because of the cost advantage any Indian company enjoys, and because of the low operating costs of my company in that line of products. I was forced exercise my intelligence only a couple times, and that led me to note down the key tactics for such an auction that I intended share with my colleagues in other geographies, and now with you.

 

Firstly, I feel that bidding thru an e-procurement system or an e-auction conducted by a client is heavily loaded in favour of the client. Unlike in an offline bidding system, the client is NOT legally bound to award the contract to the lowest bidder even though the supplier is legally bound to honour his bid/quote. Another disadvantage of e-bidding (of course, from the point of view of the suppliers) is that there is no visibility on the other bidders’ identities. If you know who are the other bidders, and if you know the strengths and weaknesses of each of those bidders, you can plan your bid well.

 

Coming back to the e-auction I participated in, the first key lesson is to understand that you need not exactly be L1 to win the contract eventually. Even if you are L2 or L3, you can still expect a call from the client for further negotiation if your bid/quote is very close to that of L1. The next lesson is that it is important to study and plan your tactics around the technicalities of different options available for reducing the bid in an e-auction. Well I know it sounds very cryptic but I can not elaborate on this point in less than 20 sentences J

 

The last lesson is to know that one of the other bidders (hidden, but whose bids are visible to you) could be the client’s dummy user who will try to lead the auction in certain direction……..

 

 

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