Under the electronic hammer
Water companies are increasingly switching to electronic tendering to save time and improve tracking and transparency. Dean Stiles considers the pros and cons of the hi-tech auction system for the industry's buyers and suppliers.
It is part of an emerging trend to involve suppliers earlier, says Kieran Brocklebank, head of strategy and performance, Supply Chain, at United Utilities.
"There is a perception that suppliers must respond slave-like to our demands in the tendering process. That stifles innovation and is not what we want. Suppliers have great capability to offer us something innovative and more sustainable," Brocklebank says.
Electronic tendering is an opportunity to become more flexible and get the best from suppliers, he says. "We don't want to restrict our suppliers into robotically replying to tenders that would limit any innovation or any scope for alternatives. We do want to give our suppliers a chance to express themselves."
United Utilities, although still paper-based, expects to have a system in place within 18 months. Brocklebank says: "We would want to have that capability ourselves and invest in a technology that allows us to run tenders whenever we like, and to suit our timescales, rather than relying on a hosted service.
"We see no limitations in electronic tendering. We believe that our tendering community should be capable of accessing the tools and software to be able to fill their tenders in.
"I have sensitivity to some of our contractors, some who handle very small value jobs, where perhaps electronic tendering isn't best suited. But probably we would not tender that work anyway."
There are huge advantages in electronic tendering. "The more advanced tools allow us to track the tendering process: to see dates of issue and timeliness of replies. It allows us, at the end of the process, to turn a tendered bid into a formal contract which can be quite a labour and manually intensive process for buyers and supplier," he said.
Brocklebank envisages electronic tendering as a building process through staff collaborating at each stage to add their content. "Why wouldn't our specifiers be online adding their specification content? I can see how documents would move through drafts to get to a final version for buyers to agree and issue. From an auditing view, this is very powerful," he says.
Despite the advantages, he expects electronic tendering to be cost neutral. "We are hoping that we can simplify the electronic tender so that it is easier for suppliers to enter information. The intention is to remove waste and rework both parties. There are some time-savings at the back end with this flipping process. By entering data once, we can reuse that data and reduce errors and mistakes from entry into multiple systems," Brocklebank says.
It follows that the water industry will see more use of electronic auctions routinely used in many other sectors. Contractors and suppliers have a negative perception of e-auctions but United Utilities hopes to persuade people that there are benefits to both sides.
United Utilities used e-auctions ten years ago and more recently has tested the process again. "We have plans to expand this," says Brocklebank.
"We have had feedback from suppliers that took part in the last few months that it was a simple to use process and that they benefited , even the people who did not win," he says.
United Utilities sets up its e-auctions so that contractors can see their position relative to their competitors. "That is quite valuable feedback compared to a traditional tendering process," Brocklebank says.
"Our corporate business principles and the EU legislation demand that we are consistent, that we are fair, and that we are auditable. Transparency is important in an auction; that's why we take time to plan properly, and make sure suppliers know what they can and can't see and that they know how to interpret the results."
To be effective and to justify the cost, the work tendered at e-auctions needs to be valued at above £100,000 but this is not a fixed cut-off point for United.
Severn Trent Water runs e-auctions for appropriate commodities. Buyers are required to complete an e-auction evaluation model to aid judgement on whether a tender should go to e-auction or not, says Paul Goddard, commercial manager, Purchasing & Supply Chain Management.
"E-auctions are useful in showing us where the correct market price levels sit and they can reduce negotiation time from several weeks to a few hours. Use of an e-auction also provides a standardised process with full audit trail and enables greater transparency for suppliers," he says.
On the downside the process can involve more preparation to be carried out up front, such as training of suppliers new to the process, running practice auctions and support, although such input is essential and benefits both the client and the suppliers, Goddard says.
"E-auctions are most effective when we have a well-defined, detailed specification, where suppliers are willing to compete and where there is attractive spend and volume data," Goddard says.
"The supplier should find that the process is quicker than previous methods through reduced negotiation times and a faster award process. Suppliers can also gain exposure to new business opportunities at significantly lower expense than traditional methods. In certain auctions it gives suppliers improved opportunities to win business if they can see their position in the event."
Goddard says: "For STW, the advantages include streamlining of current processes, removal of non value added activity, greater understanding of key commodity drivers, and ultimately a reduced cost of service/commodity being tendered. In addition it can improve knowledge of market fluctuations throughout a contract period and can act as a gateway to global markets."
Severn Trent traditionally used auctions for contracts above the EU threshold value where a contract would be awarded. It also now runs mini auctions for small, low value jobs and one-off orders, where appropriate, saiys Goddard.
Severn Trent will tender 20% of its capital projects in AMP5. In AMP4 only a handful of projects were tendered.
Steve Crake, head of procurement at Northumbrian Water, also expects more use of electronic tendering. Northumbrian generally uses auctions only for commodity type items; an auction assessment is carried out for each tender.
Auctions work best in areas that have high number of suppliers and standard specifications, says Crake. The advantage for the supplier is the opportunity to continue to bid for the work if they are not the leading contender, he says.
Northumbrian Water places less reliance on electronic auctions that work best for goods and services where the requirements are easy to define and categorise into product/service codes. They do not work for more complex engineering and construction works, he says.
The tender process will increasingly include carbon reduction commitments. Measuring the carbon footprint of operations and measures to reduce carbon usage will become as routine as health and safety policies for contractors, Brocklebank said: "Sustainability is fast on the heels of health and safety to become a minimum criteria for tenders.
"We want to deal only with more responsible suppliers as it helps our reputation: and more sustainable suppliers are usually lower waste suppliers, and usually more competitive."
United Utilities is participating in the Achilles carbon reduction programme that allows suppliers to measure, manage, and reduce their organisational footprint via Certified Emissions Management and Reduction Scheme.
"Using sustainability in our tendering process is a growing trend - whether that's at pre- qualification or whether it's at tender.
"Once we've got a supplier, how can we work with them over the contract period to improve their sustainability performance? We will see sustainability in all of those aspects," Brocklebank says.