Known as e-auctions or reverse-bid auctions, they’re a method of procurement where only one thing matters: getting the lowest possible price.
Scant regard is given to overall standards of service provision and because they are conducted online, there’s no way to demonstrate what distinguishes one company from its competitors – especially when no obvious pre-qualification process has been completed and bids are opened up to all comers.
E-auctions seem, on the surface anyway, an effective means of reducing procurement costs. They were were originally intended for the bulk-buying of low value, frequently purchased commodity items such as office stationery, widgets and component parts.
Commoditised
However, their use within the security industry serves to commoditise manned guarding, meaning that the sector’s complexity and various aspects of service provision are not being recognised and considered.
The skills, experience and ability of service providers to offer high levels of contract fulfilment should be a prominent part of buying criteria and the price should reflect what’s on offer.
Unfortunately, e-auctions view security officers in the same way that other organisations think about widgets. Put simply, while procuring ‘like for like’ products in this way is fine, it’s not applicable to services.
There are several variations on the e-auction theme but the process usually involves identifying potential suppliers and inviting them to participate. After an initial qualification process – of indeterminate thoroughness – e-auctions pit multiple firms against each other in a form of online chat room, where they anonymously submit quotes for jobs.
A race against the clock to tender incremental discounts against competing bids then follows. If someone introduces a new low price in the last minute or two of the session, it can be extended for several minutes, triggering another round of calculations and declining offers.
Particularly insidious are what are termed ‘Japanese auctions’: where the host states an opening price and participants have to accept that price level or withdraw from the auction.
Acceptance indicates that the participant is prepared to supply at the stated price. When all participants reply to a particular price, the software then lowers it by a predetermined amount and again asks them to accept or decline at the new price level.
In many cases the e-auction process quickly descends into farce and there are numerous examples of cancelled auctions as the host recognises that bids are simply too low to be realistic.
It’s not difficult to calculate the lowest possible price on a manned guarding contract, as the combination of minimum wage and national insurance contribution means that any bid that comes in lower than this sum would make conducting any work illegal on this basis alone.
When the impact of TUPE regulations are factored in there is further potential for the buyer to ignore employment law implications in pursuit of the cheapest deal.
‘Buy cheap, buy twice’
The most obvious question to ask is why are e-auctions becoming so popular again? When they first appeared they were derided for their ineffectiveness, with many organisations learning the meaning of the old saying ‘buy cheap, buy twice’.
For many years they were just a bad memory, but it seems a new generation of procurement personnel are willing to ignore the lessons of the past. Is this return to poor practice simply perhaps an example of “lazy procurement?”
It’s also strange that during the recession, where price competitiveness reached an all-time peak, e-auctions were scarce, but have re-emerged just as the recovery has gathered pace.
Although far from perfect, the traditional tender process at least offers greater scope to distinguish between value and price – two words that are often used interchangeably, but in reality couldn’t be more different.
Once completed, it also allows the relationship between client and service provider to move from being simply a supplier to the more beneficial position of a strategic partnership, which can add significant benefits to a longer-term solution.
The dearth of relevant statistical data and indices, which would allow customers to use benchmark figures to clearly ascertain the going rate for manned guarding services, does not help matters. Unlike other industries we have no clear indication of its performance and any relevant trends.
KPIs
A set of independently qualified key performance indicators (KPIs) would help customers make more informed procurement decisions based on criteria such as service levels, staff and contract churn and retention, training and qualifications, and contract fulfilment.
This would help reinforce the notion that there are inherent dangers in securing manned guarding services on the basis of lowest price.
E-auctions will do nothing to help the industry’s efforts to boost professionalism and credibility. One can only hope this latest trend is short-lived and that the work that has already been done to improve the image of the manned guarding sector and the valuable role it plays is not undermined.