MRO Q&A: What is the true value of competitive bidding?

Sept. 24, 2015
A reader asks whether or not it is a mistake to dispense with bidding when using the same vendor.

Question: We use a competitive bidding process to select a contractor for our major equipment overhauls. The same contractor has won those bids for the past several years. It seems like a waste of time to go through this process and get the same result. Would it be mistake to dispense with bidding in this case?

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Answer: The purpose of the competitive bidding process is to ensure that you get the best price for the specific service that you require, in the time frame you need. That being said, it appears you are pleased with this contractor's work.

The bidding process also helps manage risk. If you choose not to use it, you have eliminated one mitigation tool. When competitive bidding is done, the contractors who aren’t the low bidder know they have to sharpen their pencils. If the same competitors keep submitting bids, that tells me they are still interested. It also suggests to me they may find innovative ways to lower their bids. As long as there is competition, companies compete. Remove competition, and the tendency is to get comfortable and less competitive. It is always prudent to “trust and verify” vendors when the stakes are high.

As long as the time between overhauls and the number of units run through the machines are similar from one year to the next, annual overhaul costs should be comparable. If you have a good cost baseline for a specific line, you might waive the formal bidding process for that line, but I would definitely not eliminate it completely.

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