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Managing Incumbent Suppliers

July 20, 2011

A topic that often features on IACCM message boards is the handling of incumbent suppliers, in particular within competitive bidding events.

The precise issuevaries. Recent discussions have included the ethics of ‘false’ bid events (e.g. where the driver is not to replace the incumbent, but to force price negotiation). Another related to the economics of replacement, especially where there are large capital investments. But a recent posting that caught my eye was discussing whether an incumbent should be excluded from competition if they do not meet the bid criteria.

In the case in point, the Contract Manager was concerned because the business manager was insisting on including the incumbent, even though they clearly did not meet one of the non-negotiable criteria for selection.  The Contract Manager correctly questioned what this said about the integrity of the process and he felt it was wrong to cause the incumbent to face the expense of bidding in a situation they could not win.

Situations like this are often very telling about the levels of honesty in relationships. Truth is fundamental to any healthy relationship – and in this example, was clearly absent. It seems to me that critical conversations were not being held, internally or externally. For example, had new criteria been set specifically to ensure the incumbent could not win? If so, why? Was this simply a manipulation, or were there good business reasons for switching? If these were around performance or price, had they been discussed with the incumbent?

Then there is the question of why the business manager wanted to include the incumbent in the final round of bidding. I suspect this was because the business manager feared for current performance if the incumbent realized they were going to be replaced. But if so, that is a very short-sighted view, since at some point the incumbent will realize that someone else will win. And the lack of honesty in the process is likely to leave them feeling unfairly treated and potentially uncooperative.

So the conversations between the business manager and the contract manager need to esablish precisely what goals he or she may have and to develop a plan to achieve them. Key to these plans are the conversations to be held with the incumbent. These must address the level of dependency on the supplier for continued performance and an orderly transition. It may require consideration of incentives – for example, the prospects of future business or the provision of some form of transition bonus.

As in all relationships, tough conversatons are often hard to face and they must be carefully thought through and managed. But one way to ensure poor performance is to build a reputation for dishonesty or lack of openness. It is something that customers dislike in their suppliers; they need to remember that this is an issue that goes both ways.

5 Comments
  1. Another great topic Tim, and one about which I have written extensively including the following article titled “Latest Government of Canada Procurement Scandal Belies the Very Principles Associated with Effective Purchasing Practices.” (http://wp.me/p4HrB-192)

    The simple truth is this . . . once a supplier has won a contract they in essence are locked into delivering to its requirements that often can and does require the allocation of resources that will prevent it from pursuing other business opportunties (this is one of the problems that major contractors have with government contracts). Or as one senior SAP executive once explained regarding their decision to pass on a particularly large and demanding government contract, if we win, the margins are so lean that we cannot possibly justify the expense of doing business in the long run, especially as it relates to the re-tendering process.

  2. Hi Tim! I didn’t know you had a blog. Anyway I think I will set one up too. Only that I am not as educated and experienced as you and your colleagues are. Anyway, I will relate what I do know, what I have gone through and my opinions.

    Cheers!

Trackbacks & Pingbacks

  1. Is supplier incumbancy a major problem with government contracting? « Procurement Insights
  2. Sourcing3 Buyer & Supplier Magazine - Is supplier incumbency a major problem with government contracting?

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