OEMs are not sitting around waiting for your bid.....

They can't bid everything!



 

An engineer recently expressed to me his disappointment that after working on a bid specification for over a year and involving a number of OEMs in reviewing the specifications, when it finally came out to bid he had only 2 bidders. I feel for the engineer who put a lot of work into the specification and felt shunned by some of the OEMs. But on the other hand, engineers and owners have to realize that equipment manufacturers are working on many other projects and sometimes have to be selective on where they allocate their limited engineering resources, especially if several projects are bidding at once.

Here are a number of reasons why an OEM may not choose to bid a project even though the project seems like a good fit:

Timing: If there is a flood of bids due at the same time, an OEM may not have engineering resources available to chase all of these and has to pick and choose which projects it has the best chance of winning and/or are potentially the most profitable. Also, if the project has a tight submittal and delivery schedule that overlaps an already busy production schedule, the OEM may have to pass on the project to minimize the risk of liquidated damages and chase projects that better fit into the engineering and factory schedule.

Bid Requirements: So the engineering firm has spent 12 months in pulling the specifications together, then gives the OEMs 4 weeks or less to review a 1000 page specification, do a detailed cost estimate, provide P&IDs, General Arrangement drawings, Layout drawings and I even saw a spec recently where bids had to provide electrical drawings! You get the impression the engineers think the OEMs are just sitting waiting for the bid to come out with nothing else to do…. I had three projects due within 2 weeks this spring where we were required to provide this much information with our proposal. Typically the same firms are invited to bid these projects so they all have the same work load and therefore they are all going to pick and choose what to bid. In some cases, if one proposal requires a lot more work, that one may end up having the least bidders.

Too Much Competition: One thing that really pisses me off is when I help an engineer pull together a specification, estimate electrical loads, prepare drawings to help him with building sizing etc, do iterations on all of this, then the final bid spec comes out and he has listed every possible competitor, including some known to provide inferior, low cost equipment… So you gained no benefit from helping the engineer and to win the project you will have to be at a low margin with no way to recoup the significant engineering work already provided. This is not always what happens and there are many cases where your assistance is rewarded by a specification that somehow gives you an advantage in the bidding process.

Commercial Terms: OEMs all have different levels of risk tolerance, financial resources, insurance coverage, etc. Bigger public firms have deeper pockets and wider insurance coverage and more readily accessible financial data but also have large teams of lawyers which will not budge on some T&Cs. Larger bureaucratic firms may also not be able to meet tight schedules. Smaller firms and private firms may not be willing to share financial data and not be able to do every project that is bidding due to more limited resources but they can be a lot more flexible on T&Cs and if work load is light, can deliver on tighter schedules.

How do you ensure a competitive bid?
In summary, engineers and owners have to realize that there are many other projects bidding and OEMs do not have unlimited engineering resources to bid everything that hits the street as well as do submittals and build equipment they already have orders for. As an OEM, you are better to focus on a few bids and do them well and win some of them rather than try bid everything and win nothing…

So how do engineers ensure they get as many good quality bids as possible? First of all, I suggest giving advanced notice (say a month) when a bid will be advertised so the OEM can perhaps get a head start on some of the proposal requirements and costing based on draft specs they have reviewed. During the spec review process, I would also not only show the equipment specs, but get feedback on the commercial terms and information required to be submitted with the bid. Often this information is not shared prior to the bid, but it can help flush out concerns of OEMs that may prevent them from bidding so these can either be addressed, or you accept you won’t have as many bidders in advance.

Many times when I have asked for an extension of the bid date the engineer has said it is not possible due the tight schedule to deliver the project. It seems stupid to me that the engineer spent so much time agonizing over every detail of the specs for a year, often in a vacuum, and then gives the OEMs a fixed 3-4 week schedule to bid with no flexibility – it would make a lot more sense to leave some slack in the bid schedule to give OEMs more time if needed and ensure more bids and better quality bids!