In August 2012 the UK government announced the award of the contract to manage the West coast main line to FirstGroup. Initially this deal was thought to have saved significant money for “the tax payer”. Subsequently it was found that the process was flawed, due to numerical errors that were only found following a legal challenge by Virgin Trains, the incumbent provider. As a result of the errors the tender process has been restarted and Virgin Trains has had its contract extended until completion of the process.
The key point is that while on paper in an RFQ response the headline numbers and benefits can seem to make a compelling case for change, you may realise they are completely baseless in reality when you dig deeper…
The example of the West Coast main line received wide coverage and got a high profile because of the size of the budget and because it involved public money. The reality is mistakes are made in all sorts of RFQ processes for the provision of services, including with providers of logistics services.
When carrying out an RFQ process for logistics service providers, it is normally advisable to keep the incumbent in the process until the final stages. The incumbent has experience of your business already and their response (note Virgin Trains) should at the very least act as a good check when comparing other responses.
The key thing to ensure is that if you are offered significant advantages in an RFQ response compared to the existing operation then you understand how/if they can be achieved:
- Check data – see The importance of accurate information in supply chain systems
- Understand what is driving cost improvements e.g. productivity improvements
• Are proposed systems able to handle your requirements?
• What assumptions were made in the absence of data? What is the impact?
• What implementation support will be offered during transition of providers?
Remember when you change provider make sure that due diligence is thorough and the potential benefits are substantial. Never take the decision to change provider lightly and ensure that someone with direct experience manages the process from start to finish.
Considering the above, it’s not surprising that in a high proportion of cases the incumbent retains the contract at the end of the tender process. Before you start a tender process, be sure that you are genuinely prepared to change providers. Then take the time to prepare accurate data and a thorough description of the requirements to ensure providers are properly engaged. This will bring out the best in all the providers – incumbent included.
If on the other hand you are broadly happy with the incumbent and just looking for a benchmark, a robust contract review process is an alternative to a full tender that often delivers significant benefits.