So there I was last week having an email conversation with a client about the algorithm needed to relected the split of 70% price/30% non-price they were applying in their sourcing decision for IT hardware, and how this split would be reflected in their e-auction.
This was all being driven thanks to the EU Directive on Public Procurement, written into English law as the Public Contracts Regulations 2006. They state that, if non-price elements are to be used in the decision-making process then a precise weighting (i.e. a number) must be assigned to those elements. No room for fuzzy subjectivity – a sourcing decision under these regulations has to be fully transparent and objective.
This is particularly relevant where e-auctions are concerned because the final contract award decision should be made immediately after the e-auction, with the supplier who comes first in the e-auction being the supplier to whom the contract is awarded. So supplier bids may need to be modified to take into account different quality/ethical/delivery etc attributes amongst bidders.
It’s great news for competition because it means that all suppliers are bidding on a level playing field – coming first in the auction is a prize worth competing for, and coming first means you have the best overall offer (as distinct from having the lowest price).
It does mean buyers have to become more sophisticated than perhaps they were in the past, to be able to make decisions like the 70/30 split this post started with – this will come as good news to some and bad news to other. Though the expectation is that once they get over the initial learning curve, buyers will see that this kind of approach to an e-auction is no more and no less than best practice in procurement.
So far indications are that suppliers prefer e-auctions that take into account non-price factors – see an article I wrote for Industrial Distribution about multi attribute auctions earlier this year. I’ll post more about experiences with these kinds of auctions, but in the meantime let’s raise a glass to those unlikely innovators and implementors of best procurement practice: the suits in Brussels!