The lowest bid

“It is unwise to pay too much, but it is worse to pay too little. When you pay too much, you lose a little money…that is all. When you pay too little you sometimes lose everything, because the thing you bought was incapable of doing the things it was bought to do. The common law of business balance prohibits paying a little and getting a lot…it cannot be done. If you deal with the lowest bidder it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better.

There is hardly anything in the world that some man cannot make a little worse and sell for a little cheaper, and the people who consider price only, are this man’s lawful prey” John Ruskin. The current obsession amongst certain pillars of governance, although still not sure if media is anybody’s pillar, with accountability and repeated towing of the transparency bandwagon, coupled with the belief that transparency is overrated and a brainchild of the mediocre, were the catalyst behind today’s write-up. The fact that a Google search on the topic will generate such a precise and concise depiction of the fallacies of the “lowest bid” was unexpected, but is graciously acknowledged, kudos Ruskin.

Considering that a variety of lobbies, mostly those who cannot compete on quality and their agencies, will by default have to vehemently oppose the assertions contained herein, it would be appropriate to defy norms and start with the punch line! One of the key differences between the much revered private sector and the always maligned public sector is that the private businessman does not believe in the lowest bid.

The “Seth” may ruthlessly negotiate the price, but it is always with the best and never beyond a point where it is not worthwhile for the bidder to meet his obligations. This is an absolute truism of the commercial world, and the underlying motivation for this principle is simply the betterment of wealth.

And since the general public is incapable to understand the intricacies and characteristics of wealth, the explanation lies within another idiom of the common man, health is wealth! Consider the hypothetical situation of being faced with a fatalistic self ailment or that of a near and dear one, what is the next step? Getting quotations from medical practitioners based on procurement rules, transparently, and going with the lowest bidder or consulting the best of the best in the profession at any cost?

To digress, over the years the doctors example has been found to be extremely effective in projecting many a viewpoint, simply because logic prevails when the stakes are personal and extreme.

The unfortunate predicament for the public sector is that nonody has any personal stakes therein, at all, extreme aside. As rightly said by someone, author unknown, when everyone owns something, than in essence nobody owns it. Conversely, the Seth owns his business and for him wealth is health, something the common man will never understand, accordingly, second best will just not do when it comes to key decisions.

There will surely be those who will at this stage twist the argument and point out the recent overly publicised, mostly misunderstood and hence misreported, mega corruption scandals, and loudly proclaim that public procurement should follow a transparent process. The flip side to that argument is that wherever this principle has been followed, and the lowest bid accepted, in general, the project has been inordinately delayed, the quality has been less than desired and the eventual cost escalated much beyond the original estimate.

A detailed analysis of mega projects, which seemingly were transparently contracted in the last three decades, should set the record straight. The analysis should include, over and above cost overruns, the economic loss due to delays and a technical analysis of the deliverables, and most importantly, such a study should be independent of the public machinery.

This not to say that corruption should be ignored, in fact quite the opposite, what is being argued is that transparency alone, if the eventual outcome is the selection of the lowest bidder, is not the optimum solution and can generate unwanted results. Unfortunately, public procurement rules, in vogue, inculcate, rather encourage a culture of accepting the lowest bid. Of course, the procedures provide for a management override on technical grounds, but how many honest public servants will be motivated to tread that path, considering an over-zealous obsession with accountability.

Is it not simpler to just accept the lowest bid compared with putting a hard earned reputation on the line when in essence the reward to do so is non existent and the risk of severe repercussion is real and calamitous?

“It’s a very sobering feeling to be up in space and realise that one’s safety factor was determined by the lowest bidder on a government contract”. Alan Shepard. And for the movie buffs, as more aptly uttered by Rockhound in the movie Armageddon: You know we’re sitting on four million pounds of fuel, one nuclear weapon and a thing that has 270,000 moving parts built by the lowest bidder. Makes you feel good, doesn’t it?

Certainly not, and apply this farsighted view on defence procurement, isn’t it comforting that our borders are protected by a highly motivated professional army, supplied by the lowest bidders? And on the commercial front, is it not soothing that the skyscraper one works in, in a country fraught with earthquakes, was built by the lowest bidder?

The fallacy of the lowest bid is not limited to procurement of goods and services only; it even extends to hiring of professional management.

Arguably, a transparent process of advertising and hiring might tackle the nepotism issue, but will it ensure that the best are selected? Exceptions to the rule aside, those at the top of their respective profession are most likely suitably and gainfully employed already. The risk of upsetting their current employers or the probable ridicule emanating out of being excluded from the short listing, are sufficient considerations for them to keep sitting on the fence.

As always, the objective behind pointing out the fallacy of the lowest bid is to initially cultivate a buy-in, unless a problem is identified and acknowledged, a solution will not be forthcoming. And let it be clear that the lowest bid is a global phenomenon and even governments in developed countries are plagued by its vagaries. Perhaps a perfect solution, if at all exists, will remain allusive. However, a commitment to buy the best might beget desired results, in the balance.

Before concluding, it is pertinent to point out that selection of decision makers, responsible for all future procurements, is a critical phase, and any process for appointment should be geared towards hunting and appointing the best of the best. And what is the process to select the best in this case, not educational qualifications and not simple experience, a review of their performance in their latest comparable position.

(The writer is a chartered accountant based in Islamabad)