The Iron Triangle and its Effect on the Tender Process

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As a follow-on from last week’s article, where I talked about the Iron Triangle, in relation to CRM Projects, this article explores the Iron Triangle in relation to CRM tenders and the problems tenders produce, even before a contract is signed.

Iron Triangle Recap

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The Iron Triangle is a concept familiar to project managers which says of the three elements, you can control two of them but the third becomes a function of the others. For example, set the scope and the schedule and the required resources becomes a quantity which cannot be changed.

The Folly of the Tender

A common way to acquire larger CRM projects is via a tender process. Unfortunately tenders do their best to ignore the Iron Triangle.

  Client’s Perspective Vendor’s Perspective
Cost/Resources Client has a fixed budget but does not communicate it To make the bid as cheap as possible, but cover the costs of responding
Time/Schedule Client has a fixed deadline and communicates it in the tender To ensure that what can be delivered meets this deadline
Scope Broadly understood and communicated Understood but not at a level to design to

Knowing that two can be controlled, but not the third, generally the client believes they are controlling the scope and the schedule and the appropriate cost will come out in the responses.

From the vendor’s perspective, the pressure to make the bid as cheap as possible means the scope is interpreted to err on the side of simplicity with the cost being low and improving the chances of winning the bid.

Although the price tag is low, the client will never get the best possible value for money because there is always ‘fat’ included to cover the bid cost. It can literally cost tens of thousands of dollars of opportunity cost to complete a tender response and this is always passed on and inflated, based on the chance of winning.

The end result is padded bid responses which propose to deliver the least possible functionality to meet the scope. Once delivered, change requests flesh out the skeleton of a solution, blowing out budgets and timelines. There must be a better way.

Fixing the Tender Process

The key issue with the tender process is the lack of trust between the client and the vendor. The obvious solution to make the tender process more practical is quite simple; include the project budget in the tender papers.

With a known budget and deadline, the vendor is free to focus on delivering the most feature-rich solution for the price. The responses become a battle of value rather than a battle of corner-cutting.

Generally the reason the budget is NOT included is a fear of a vendor pricing their solution at the budget but delivering inferior functionality. Given there are usually multiple, independent responses to a bid and given without knowledge of the budget, inferior functionality in a response is an inevitability, this seems like a poor reason to exclude it.

The main disadvantage with this approach is the client is still paying for the time and resources in delivering the response. From my perspective the better solution is to abolish the tender process altogether. However, to provide the veneer of transparency and even-handedness, resorting to a tender process may be inevitable.

I refer to this as a veneer as it is all too common for a vendor to have an existing relationship with a client and to get the ‘inside track’ on a tender providing an insurmountable advantage to their response. Generally this advantage is in having a more refined understanding of the scope and budget, leading to a response more closely aligned to the client’s needs, at the right price.

The end result is the vendor with an existing relationship winning the work and the client paying for the response time. Cutting to the chase of simply engaging the winning vendor directly, rather than through a tender would save everyone time and money.

Another option is a hybrid approach, directly engaging the vendor with the pre-existing relationship and also producing a tender stating the vendor will be engaged but that if a better proposal is presented, they will be replaced. This process removes the cost of a formal response from the incumbent but provides alternative approaches from competitors to keep them honest. I have never seen this approach used but, to my mind, it provides the best of all worlds.

Conclusions

No vendor likes the tender process because it is time-consuming and discourages providing value to clients. The tender is simply a hurdle to overcome before a meaningful engagement can begin. However, in jumping the hurdle, the relationship is already compromised.

If a direct engagement can occur outside of such a process, all parties benefit and trust can develop. At worst, a formalised invitation to the market to compete against an incumbent will ensure the best possible value is being delivered, while minimising the tender overheads passed onto the client.

I am sure there are approaches which provide transparency without compromising value and trust. However, the tender response process is not one of them.

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