On Sunday 14 January, Denmark's new king, Frederik the 10th, revealed his new royal motto: "United, committed, for the Kingdom of Denmark" with an ambition to become a unifying king for the people.
"And what on earth does this have to do with tender procedures?" the sharp reader will immediately add. Well, The King's new royal motto can also be transferred to some of the basic principles used in relation to tender procedures and formulating good contracts.
The basic idea of uniting and committing vendors for the benefit of the company (the kingdom) is the wish of every company. In other words, it is about connecting everything that is in the vendor's interest to the customer's interest and vice versa, so that both parties work towards the same common goals.
In this blog post, you will therefore get two specific tips on how to strengthen and elevate your next tender procedures, i.e. the facilitation of competitive and fair requests for proposals when purchasing goods and services.
Tip no. 1: Unite the vendor's solution to your needs through a design contest
In the past few years, many customers (meaning anyone who is working with purchasing/procurement/tendering) have become better at taking advantage of the opportunities to conduct market dialogues, yet these dialogues often occur with short notice and with the aim of clarifying non-issues, small hypotheses and a few compliance issues. Many still do not take full advantage of the opportunities they have at their disposal and it is time to raise the bar and our ambitions to try out new methods that can create the basis for new, exciting and innovative solutions.
A form of tender* that is very rarely used is the design contest, which has typically only been used in connection with urban planning, engineering, and architectural work. It is very rarely used within other tender areas such as IT.
Design contests is a great form of tender to utilise under circumstances, where a specific design of a solution hasn’t been chosen, or created, and you want better insights into the latest digitisation trends and opportunities. One could consider this form of tender to receive alternative solution proposals for specific IT systems or, in particular IT platforms that are based on the MACH principles (Microservices, API-first, Cloud-native, Headless). These IT platforms are characterised by a flexible IT architecture that makes it easy and quick to replace individual applications on the platform. In this case, there is great variation and flexibility in how the various vendors can design an IT platform and provide different solutions. In these cases, it makes sense to offer the vendors more flexibility in their solution designs in order to promote innovation. Hopefully, the further use of design contests can contribute to more modern, flexible and business-oriented solutions in the future.
In 2020 at the latest, Danish IT also published a report with a number of recommendations to use more dialogue-based tender procedures, including e.g. design contests. The conclusion at the time was, that there was a widespread fear of making mistakes and getting legal complaints by trying out alternative tender procedures and that this fear ultimately resulted in a lack of business results. You can read the full report here (in Danish).
Therefore, start early and thoroughly prepare your market dialogue and utilise the possibilities of the design contest to receive alternative input to your solution, opening up for more creativity, more relevant accommodation of the business needs and an alternative way to meet the business' goals, ambitions and needs. This will, from the initial point of contact between you and the vendor, make it easier to define common business objectives, ensuring a better foothold for the future partnership.
Tip no. 2: Commit your vendors to the ESG goals through alternative penalty provisions
Many organisations pride themselves on being forward-thinking on the green agenda, but upon conducting the procurement/tendering/renegotiation of contracts, the ambitions to act green, frequently falls to the ground as the price and the specific measurable quality of the vendor’s proposed solution are still the most important evaluation criteria.
The problem often stems from the fact that many contracting authorities are not willing to promote or accept costly ESG requirements, e.g. due to a lack of budget, unclear expectations of the business outcomes, lack of standardisation or focus on short-term gains.
However, there are many different options and measures to combat this. One of the most important and essential measures is to ensure that the top leadership is willing to recognise and accept the fact, that ESG requirements can become expensive contractual elements and so-called "cost drivers" in the tender specifications. Ensuring the top leadership’s approval will ensure alignment on the organisation’s ESG goals, fully anchoring them amongst the top leadership and doing this as early as possible in the tender process will create better expectations and no hidden surprises upon awarding the contract.
A concrete initiative is to formulate alternative penalty provisions. Often the financial sanction of a penalty violation has no importance whatsoever for the vendor's overall business model, but instead such a transgression will have symbolic value and at the same time work for the good. An alternative is to explore different penalty provisions, e.g. it could for example be an ESG-based sanction committing the vendor to plant X amount of trees for the penalty violation, rather than a financial sanction. Just think of the forests we would get in the future: "Company X's forest, planted due to violation of SLA’s in the years 2024-26".
The failure to connect the vendors' proposed solution to the real business needs of the organisation, combined with pointless penalty provisions, providing no real consequences, is a waste of a golden opportunity to collaborate and strengthening your partnership towards a common goal. By turning the penalty itself into a positive thing for the environment (but still a cost for the vendor), a positive situation is created out of something negative, without compromising the vendor's incentives towards ensuring compliance to the relevant KPI.
Commit yourself and your vendors to ESG-based penalty provisions, creating a partnership based on more relevant penalty provisions for the benefit of the environment, diversity and better governance!
You are most welcome to reach out if you have any questions or comments. I hope that these tips have sparked your interest to try something new and different for your next tender procedure.
* A design contest cannot in itself be described as an actual tender procedure on an equal footing with e.g. open or restricted tender procedures, but may instead form the basis for a subsequent negotiated procedure without prior publication. See the Danish Competition and Consumer Authority's guidance on the tender procedures here, for a more detailed explanation of the specific requirements for design contests (in Danish). Link
