Invitation for Bids
Publicly-advertised fixed price procurements are made using either a sealed Invitation for Bid (IFB) or a Request for Quote (RFQ). Governments require more formality in these larger procurements because there is more money at stake: they want to be especially careful that they get the best value and that everyone is treated equally in the vendor selection process. The downside of this extra care is more paperwork and higher bidding costs for everyone involved.
Before the enactment of major procurement reform laws in the mid-1990s, most publicly-advertised fixed price procurements were made using the formal Invitation for Bid (IFB) process. IFBs were used almost exclusively at the federal, state, and local levels for products or services that could be clearly defined in specifications. IFBs are still used extensively for construction bids at all levels of government. They continue to be the primary solicitation mechanism at the state and local levels for public fixed price procurements. We focus on IFBs in this installment.
The Sealed IFB Process
IFBs require that the government accept sealed bids that are opened at a public place where the prices are displayed for public viewing. In this regard, the Federal Acquisition Regulation (FAR) states:
“After bids are publicly opened, an award will be made with reasonable promptness to that responsible bidder whose bid, conforming to the invitation for bids, will be most advantageous to the Government, considering only price and the price-related factors included in the invitation.”
For all practical purposes, this means the lowest bid price wins (unless it’s TOO low, as discussed below), unless the government has included in the IFB a clearly documented means of quantifying the “other price-related factors.” (Remember: the agency’s award decision must stand up to public scrutiny and be consistent with its procurement regulations.)
Regulations also state that the low bidder must be responsive (meet all of the specifications) and responsible (reputable and financially sound). This may sound ominous but it really isn’t in practice. If yours is a reputable company with a sound balance sheet and you’ve responded to all the material elements of the bid document, then you should be fine.
In a case where your company is the low bidder but is denied an award on the basis of irresponsibility or unresponsiveness, it might be wise to consult with an experienced government contracts lawyer.
Selling in the IFB Market
Personal sales and relationship building are still the keys to success, even for large, fixed price procurements. The playing field is never completely level in government bidding — even with IFBs — because the process involves people (with all of their natural biases) making subjective judgments.
In preparing to bid on a project, you need to gather information on pricing and performance expectations. In gathering information, sell your capabilities whenever possible — keeping in mind the subjective nature of the process.
What kind of information are you looking for? Mainly you’re trying to gauge performance, and especially pricing, expectations.
If your bid price is too high, you have no chance of winning. And if your bid is too low, you may have problems as well. Suppose, for example, that you own a construction firm and the local army base needs to construct new housing for military personal. At a minimum, you need to find out the pricing for such housing built in the recent past. In that process of information gathering, suppose that you discover the base most recently paid “x” dollars per square foot for similar housing, and this equates to a bid of around $900,000 on the current project. This is roughly the number the base will expect to pay.
Let’s say you bid $600,000 and end up the low bidder. Because you’re so far below what was expected, official buyers will probably scrutinize your bid with great care: Did your bid assume the quality of materials specified? Are you violating any service contract labor laws? Are you short on project management costs? Did you fail to understand the specifications, and is that failure reflected in your bid? More generally, can your firm be trusted to build quality housing?
Pricing information is public information. In the case of IFBs, even the losing bids’ pricing information is available. (Remember: bid prices are revealed at the public opening and available for review after that.) You need to assemble that information before bidding so that your numbers are within the range of what’s expected. Again, if you are high, your bid will not even be considered, and if you are substantially lower than the government’s estimate, your bid will be put under a microscope. That doesn’t mean a lower-than-expected bid will lose. It simply means that yours may be thrown out if it doesn’t withstand the close scrutiny.
Construction is used as an example here, but the same principles apply to any type of product or service acquired under sealed bidding. Remember: price with care; the accuracy and precision of your bid price will determine your profit (or lack of it). With an IFB you are bidding a “fixed” price, and there is little to no room for cost/price maneuvering if you are awarded the contract. So, before submitting your bid, it’s critical to have as much relevant information as you can get your hands on.
Let’s talk a bit more about gathering pricing information:
Buyers are more willing to talk if you meet with them before the procurement is published. After publication, your questions to buyers have to be answered in writing and sent to the other bidders. If, on the other hand, you are there before the procurement is published, a buyer is required by public information laws to give you what you ask for (with some exceptions, such as trade secret and classified information) and your competition won’t even know you were there.
Don’t feel too smug if you obtained valuable insights before the public announcement. Your competition may have been there before you and know just as much — and you may never know it. Buyers generally do not divulge whom they’ve talked to in the pre-bid stage.
Finding End-users and Buyers
As we’ve said before, to talk to buyers you’ve got to know where the relevant ones are. The following Fedmarket.com products are designed to assist you in finding end-users and buyers. (Remember, finding end-users can be difficult but it is a lot easier if you ask buyers which end-users in their organization require your product or service.)
- FedBuying Intelligence, http://fbi.bidengine.com, tells you which federal buyers bought your product/service, when they bought it, how much they paid, and from whom they bought it.
- Bidengine, http://www.bidengine.com, provides a convenient way to find awards data at the state and local level. Bidengine searches about 500 state and local Web pages containing awards data by keyword. If you sell facility repair services, for example, Bidengine can tell you what agencies have purchased your services using the keywords “repair” and “maintenance.” Often the awards Bidengine uncovers will tell you what type of repair services were bought, from whom, and the price paid per project, unit, or hour. Remember: if the agency bought repair services once, they will probably buy them again. A call to the buyer should result in the name of the end-user who requires the repair services.