I often get questions about the ethics of negotiating with one or just a select number of bidders after receiving proposals. Should all bidders be given the opportunity to negotiate?
Well, here’s my rule of thumb.
I create and continuously maintain a ranking of best bidders at the post-proposal stage of the sourcing process. Whether that ranking is based on price alone or a combination of criteria, I always have it. And my personal rule is to not give a negotiating opportunity to someone without giving the same opportunity to all HIGHER ranked bidders.
So, if you have seven bidders and want to negotiate with the bidder that has the third best rank, the bidders ranked #1 and #2 should also be given the opportunity to “sharpen their pencils.” I wouldn’t worry about the lower-ranked bidders unless I think that they also have a legitimate shot at actually earning the business. Usually, at that point, I’ve already ruled them out.
Now, if I negotiated with the third-best bidder and, as a result, got “the best deal” and never gave bidders 1 and 2 an equal opportunity to revise their proposals, that would reek of poor ethical judgment.
One thing about this approach is how it might be abused by the suppliers that you frequently engage in sourcing processes. If they know from experience that they don’t have to put their best proposal forward because they will have the opportunity to negotiate later, you may find your sourcing process becoming more complex and less efficient than it needs to be.
You also have to do a self-evaluation and ask yourself “Why am I negotiating with someone other than the top two bidders?” In some cases, it may be due to internal political pressure to keep the incumbent.
Using the competitive bidding process to simply lower the incumbent’s price without any realistic chance of actually switching suppliers is unethical. So you need to employ some change management to shape the culture of your organization while also keeping the process fair.
Shameless plug: you can learn more about negotiating effectively in our online class “Powerful Negotiation For Successful Buying.”
To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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