End of the Line

There’s a new phenomenon making its presence felt throughout the security sector. It’s an auction process, but an auction with a difference. One that’s taking the application of technology to its limits, but possibly de-personalising the very heart of the business function. Certainly, it’s a process that hasn’t yet seen providers of security services leaping for joy with shouts of: “Bobby dazzler!” Welcome, Ladies and Gentlemen, to the world of online tendering. Or e-tendering, e-bidding or reverse auctions. Whichever term suits you best.

At one time or another, most readers of Security Management Today will have been involved in the tender process, and drawn together the necessary documentation. It’s a lengthy, often long-winded affair characterised by reams and reams of paper. With such ‘traditional’ tenders, there’s also the nagging questions concerning how much information should be supplied. Too much and the salient points of the presentation may be lost in the ether. Too little, and the client runs the risk of missing out on a point or two which the security service provider deems important.

After all the hard work on information assimilation comes the inevitably long wait for the guarding company or systems provider to find out whether or not they have been successful with their bid. Hours spent waiting by the telephone and the constant need to convince all and sundry that more time is needed before a final decision’s made.

As a business process, online tendering has been kicking around for four years or so, but in the past couple of years has become ever-more prevalent. The premise is simple – to achieve the best price for a [security] service with the minimum amount of hassle for solutions provider and client alike.

On the face of it, tendering online could eradicate all of the problems with traditional tendering that we’ve already mentioned. For starters, paperwork is drastically reduced. There’s usually a brief RFI (Request For Information), the necessary data is exchanged between client and service provider and a period of due diligence will be invoked prior to the auction proper. And there’s little or no danger of providing too little or too much information. With online tendering the whole process is equalised. Everyone knows what’s required from the outset as the process is completely standardised.

Online tendering: the solution?

With the monetary noose tightening around the necks of in-house security managers on an increasing scale, it’s not surprising that corporate concerns are licking their lips at the prospect of cutting their security spend by anything up to 40% as a result of tendering online. Not only that, but the pressure is taken off the purchaser and passed to the providers, who must hover over their web browsers and feverishly undercut one another in a desperate bid to win the day.

It’s not all doom and gloom for the security service providers, though. They may well end up saving money if they bid and win for a guarding contract or systems installation without exceeding their pre-agreed spending limit. When it comes to price, whether ultimately successful in the tendering process or otherwise they’ll definitely discover whether their price was right. In traditional security tenders, the solutions supplier is often afforded no indication whatsoever of what is ‘high’ or ‘low’ on the monetary scale. Bids will be submitted ‘blind’. Fair, but there’s no real indication if the seller thinks the same.

A whole new breed of facilitators has emerged to service the online tendering market, taking a fee – usually 1-2% of the final contract cost – and licensing the software that allows geographically spread security companies to bid in real time. One of the largest of those facilitators is Freemarkets, which claims to have organised deals for goods and services across many commercial sectors to the overall tune of £35 billion. Formed in 2000, Trading Partners is another of these ‘enablers’. The company is already enjoying triple-digit growth.

Clearly, there’s much to recommend online procurement from the clients’ perspective. That said, there are numerous downsides, the most obvious relating to the three areas of technology, personality and cost.

From a technology perspective, the various software packages required for online auctions are typically quite complicated and difficult to understand. Training will often be needed for most participants in the process. That takes time and resources away from the daily business cycle. Even the most highly-skilled operators are prone to making mistakes, and there’s always the very real issue of entering unintentionally wrong information or erroneous bids.

Staying with the technology theme for a moment, being a relatively new phenomenon the e-tendering process is still prone to systems failures and other glitches (including network failure). The fault – at whichever point it occurs – can see the provider thrown out of the bidding process. Certainly, in some of the initial e-auctions there were moments of near blind panic, with bids phoned through on HelpLines. Not too satisfactory, in other words.

Nothing personal, honestly…

The second key area to be earmarked as a negative relates to personality. This is a tricky one to explain, as the emotional side of business is less tangible. Suffice to say that any online activity negates face-to-face contact between end user and security provider. Most security companies would attest to the fact that they like to see the whites of a client’s eyes when they do business – and vice versa – before signing on the dotted line. Something that isn’t possible online.

Of similar concern is the individual – or rather the job function of the individual – with whom the services provider is dealing at the other end of the computer link-up. Typically, security companies would expect to be doing business with the director of security, the security manager or, at the very least, a suitably knowledgeable member of the security management team. That’s not always the case where e-tendering is concerned.

Security companies must determine their bottom limit for the job and stick to it. Rigidly. Otherwise they’ll find themselves winning a contract online which they subsequently discover they didn’t want and agreed at a value which makes end delivery difficult in the extreme

It’s not unusual for security companies to be communicating with a central procurement department or an external consultant tasked with managing the whole process from inception to resolution. This allows no contact at all with the executives whom security companies would want to target in order to understand the true security needs of the end user’s organisation.

Last but not least, there’s the cost factor. We’ve already highlighted the attendant costs of additional training, although this will be negated to some extent by the reduced cost of administrative time and resources. At the end of the day, though, security companies must determine their bottom limit for the job and stick to it. Rigidly.

The bid and the contract

It should be remembered that clients are under no obligation to sell to the lowest bidder. While a given security company may theoretically ‘win’ the bidding event, they may not necessarily be awarded the contract. At this point, cynics will chip in and say that the client was merely using such an event to drive down the price of the existing service offered by their current (and preferred) suppliers. Not an uncommon occurrence, and part of the reason why the Security Industry Authority (SIA) has been formed to regulate the private sector.

If practised on a regular basis, this client-invoked tactic would upset both new bidders and existing service providers. It has been known that highest bidders may not win the contract if the end user desperately wants to retain an existing business partner and merely wants to benchmark their security spend.

What do the suppliers really think about e-tendering? “Security isn’t, or shouldn’t be a commodity purchase,” suggests John Wright, managing director of London-based guarding contractor Trident Safeguards. “E-tendering demeans our staff and our profession by categorising it as such. The Security Institute’s Best Practice guide to procurement (‘Guard right’, SMT, December 2003, pp26-29) is a sound pointer for the educated buyer. Hopefully, the SIA’s licensing scheme will encourage a move away from any form of Dutch auctioning.”

Peter Durham – managing director of St James Security – is also non-too enamoured with what he refers to as “Dutch auctioning.” Durham states: “We’ve had one experience of this practice and I wouldn’t want to repeat it. For a start, the e-tender document itself didn’t give the fullest amount of information on the previous supplier. There was little or no information on basic Terms and Conditions of what had gone before.”

According to Durham, much of the e-tendering process that St James Security had to go through involved “second guessing”. “This form of tendering is not a precise science as it would be under a conventional process, with proper TUPE details included, for example.” For this particular contract, Durham’s company tendered across five geographical regions, finishing first in one, second in another, fourth in another and then fifth in a further region.

“The final hour, where all the bidding contractors rearrange their figures, is little more than a bidding war that totally squeezes the margins,” adds Durham. “Given the low margins that already persist in this sector, contractors will have to be very careful.”

Security isn’t a commodity

Peter Durham is adamant that St James Security will not become embroiled in online tendering again. Phillip Ullmann (chief executive) and Steve Boyden (group managing director) of Securiplan plc are of a similar opinion, it seems. “Security is not a commodity,” asserts Ullmann. “If you’re talking about a service industry like security provision then the nuances that differ from one contractor to the next are completely lost in the e-tendering arena.”

A major client approached Ullmann’s Hillingdon-based company with a desire to increase Securiplan plc’s involvement with them. All well and good. However, the proposed contract was to be e-tendered. “We worked out our margins like all the other bidders involved,” continues Ullmann, “but what we then witnessed was the price for the job being stripped down to such a low level that a security service of any real quality and value couldn’t possibly be provided. There just wasn’t any margin left.”

According to Ullmann, there’s a basic premise that should be put to the client if online tendering is the order of the day. “Does the end user simply want to drive down costs or desire value for money?” he states.

Thus far, only a handful of clients have been known to adopt an online auction-style approach to their security procurement. Nonetheless, its occurrence is on the rise, and many corporate organisations may soon decide to conduct their business in this manner. If slim profit margins for contractors are eroded still further, the industry – and its end user base – can only be damaged in the long term.