Bid Low at Everyone’s Peril

The following is a Guest Post from Jeanette Nyden, author of Negotiation Rules! A Practical Approach to Big Deal Negotiations (on sale at Amazon). She is also a co-author of the next Vested Outsourcing book, scheduled for publication next September.

While it’s true that scrambling to be the lowest bidder on a job is a time-honored (or something) and often-used tactic, it makes me uneasy when I see or hear about it, because the bid-low-and-we’ll-sort-it-out-later-once-we-win-mentality is so far removed from Vested Outsourcing’s collaborative, win-win model that it’s not even funny.

Well, actually it is funny—and also sad and maddening!—in the cartoon world of Dilbert.

I’m thinking (see my video) about a classic Dilbert cartoon from 2007; for project proposal he’s assigned to “bid low—we’ll make it up with change orders and unexpected essential upgrades.” It’s meant as a joke, but to me it’s not amusing at all.

Companies, whether large or small, often employ this tactic. But the downside can range from frustration to blacklisting. Yes, blacklisting.

A Fortune 500 purchaser once told me that she blacklists companies that bid low and come back to negotiate “unexpected” upgrades.

Yet, the crazy system that we have in America where the lowest bidder wins actually encourages the “bid low and make it up later” mentality. Go figure! We’ll blacklist you if you get caught, but we encourage it wholeheartedly.

While your company might not get blacklisted, the “bid low and we’ll make it up mentality” in the long-run will cause your customers to take on a cynical, suspicious and aggressive behavior. After a while the relationship is so damaged, you both look for ways to end it.

This syndrome, humorously exposed in a cartoon, is really exasperating because it cuts so close to actual practice in the real world of contract and procurement negotiations.

With even tighter margins, an uncertain economy and fierce competition many suppliers feel boxed into a corner. Understandably so. They feel they have to win the business with the lowest bid in order to survive.

I firmly believe that this transaction model has passed its prime and no longer serves anyone—not the customer, not the consumer and not the supplier.

So, what is the new model? Vested Outsourcing, of course, and its Five Rules designed to foster flexible, innovative, collaborative, trusting, win-win relationships between companies and their customers. I am co-authoring the Vested Outsourcing Manual to be published by Palgrave Sept. 2011, which is the second volume in this series, the first being Vested Outsourcing: Five Rules that Will Transform Outsourcing.

In the cartoon the following conversation ensues after Dilbert is told by his Pointy-haired Boss to bid low on a proposal:

Dilbert: “In other words, I’ve been randomly assigned to create lies for a proposal we can’t win for a service we can’t perform.”

Pointy-haired Boss: “You make competing sound bad.”

Well, that sort of low-ball bid practice is competition of the worst kind and will surely come back to bite you.

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