What price procurement?

Is online bidding anti-Egan? No, not when used in the correct context. So why are large parts of the industry reacting in such a hostile way to its introduction? Many see it as an electronic "Dutch auction", but this need not be the case. The bidding process, whether electronic, paper-based, or undertaken as a negotiation, is usually the culmination of a complex procurement process. It is the point at which price is matched to scope, risk, demand and supply and many other dynamics. Online bidding is simply the ability to submit prices in an open and transparent environment, electronically.

Some clients, notably Glaxo Smithkline, believe that new procurement methods, effective in other industries, should be explored in construction. Of course they should – the savings the construction industry could make by putting procurement online are vast. Reports by analysts at UBS Warburg and Bank of America Securities identify savings of 15% at every level in the supply chain (that is, whether buying materials as a subcontractor, work packages as a main contractor, or entire projects as a client). With an output of about £65bn per year, UK construction has the potential to save billions of pounds.

The issue is that many goods and services in the construction industry are complex purchases – it's not just the price that's important. Take a work package such as cladding or glazing. In the traditional process, we would invite expressions of interest, pre-qualify a handful of prospective suppliers, attempt to ensure that each supplier had an equal understanding of what was required and then, and only then, would we ask for a price.

Not only that, we would ask for a programme, a method statement, risk assessments, and so on. E-procurement organisations wishing to use e-commerce must acknowledge that this same process should apply ahead of online bidding, where detailed market intelligence and expert construction procurement knowledge is no less important. Without adopting sound procurement processes and without a proper review of the outcome of the bid itself, then there is the potential to destroy trading relationships.

E-procurement automates those parts of the procurement process that can be automated. Sound business principles still apply

Indeed, what surrounds successful e-procurement is a collaboration process and open dialogue between the various parties involved. This leads me to question the strategy of some technology providers who simply offer catalogues and buying tools and who do not integrate collaboration tools and expert procurement teams as part of their service.

It is essential when developing an e-procurement strategy to involve both those who understand the available technologies and those who have a detailed understanding of procurement processes. Also, it is crucial to involve staff with the skills to support companies and individuals through a significant change-management process. Recent research by management consultants Ernst & Young reveals that 76% of performance increase brought about by implementing new technology is down to the change in business processes that the software supports – not down to the software itself.

For e-procurement to work, there needs to be a more intelligent and mature approach by our industry. We must work out how, as a single cohesive industry, we take what technology can offer and apply it to our advantage. Don't simply focus on online bidding; it is just a small part of the overall procurement cycle. Instead, concentrate on what needs to happen in the bidding process. Clients and their procurement advisers need to put greater effort into identifying and pre-qualifying potential bidders, constructing comprehensive and complete invitations to bid and reviewing pre-bid submissions. Suppliers should be encouraging clients to enter into a dialogue, explaining what information they need in order to provide a compliant bid. Complex purchases such as those for design-led systems and construction services must go through the same rigorous processes used to manually procure these items. Let's not lose sight of the fact that e-procurement is nothing more than automating parts of the procurement process that can be automated. Sound business principles and practices still apply.