On the Cover

We haven`t seen the IT industry quite so buoyed since the ill-fated boom of the nineties. Are these the tender mercies we`ve been waiting for all this time? FOR MANY in the industry, 2006 is optimistically being touted as "The Year of the Tender". A sense pervades that with government`s objectives of getting the economy to grow, more spending will come out of the public sector. Private enterprise is also looking to update and expand its systems, in order to compete in a globalised economy.

Some notable tenders have seen the light in past months, and exciting ones lie ahead. Is this what the industry has been waiting for, for six long years?

BEFORE WE GET EXCITED

But even though optimism may well be warranted, it is well to consider the many complexities and pitfalls that surround tender processes.

Hopes and dreams are wrapped up in them. Clients hope for a fair process, a solution to a pressing business need and a good price. Vendors and their channels hope to offer the best solution that will tie in the customer for annuity revenue.

But hopes are often dashed, and most often client needs jar with what the vendor understood.

While the tender process is considered potentially the fairest, most open method of procuring a solution, it is often not the most efficient. There are often considerable cost and time factors for both seller and buyer. It can also be quite complicated, in the obvious differences between public and private sector approaches to procurement. But even within any sector, methods of tendering can vary considerably.

The rule of thumb, though, is that price usually carries the biggest weight, followed by technical competence, BEE, vendor reputation, and cultural fit between client and seller. Still, this can be complicated by the buyer altering the mix or weightings of these criteria.

Then there are issues of the manner in which the tender was awarded, protection of the losers` intellectual property, the governance rules obeyed and whether the tender meets business requirements.

So while a tender is a great opportunity, it can also mean a false start. History is littered with shattered dreams and misspent fortunes at the hand of error-riddled or irregular tenders. So while tenders are once again out in droves, we should examine them with due diligence, as it were.

PUBLIC SECTOR

Outgoing SA Revenue Service (Sars) CIO, , explains the process leading up to a tender being awarded. First, a request for information (RFI) goes out, meaning the client assesses what`s out there, with no budget allocation. A subsequent request for proposal (RFP) means the prospective client has a figure in mind, and there`s budget, but there`s no commitment to the process yet.

"Once a request for tender (RFT) is issued, there is a commitment to spend," he says.

"During the last three years we put in place two key factors. Firstly, once we ask for tenders, we will award it. Secondly, we have enhanced governance in place that opens the process up to scrutiny for all who enter," he says.

Public service tenders are governed by two pieces of legislation. Firstly, there is the Public Finance Management Act (PFMA), which clearly states that a tender process must be used for most purchases.

Then there is the Promotion of Access to Information Act, which a disgruntled vendor can use to find out just how a tender was awarded.

, CEO of the (Sita), points out that in other parts of the public sector, the awarding of tenders is complicated by the fact that the departmental director generals (DGs) are also the entity`s accounting officer. "This system is quite new and taking time to implement. What it means is that the deputy DG is responsible for tender processes of their own departments," he says.

Msimang wryly notes there are no good losers in a tender process. "But the mechanisms are in place for disputes to be settled. It has also become increasingly important for tenders to be awarded on time," he says.

December through to end January has become notorious for government entities to suddenly spend as their financial year-end is in February. This often accounts for a rash of RFTs that come with very little time to respond to.

"This is a problem," Msimang says, "With the government budgetary process there is the principle of `use it or lose it`, and so this spending pattern has developed, but we are hoping to improve that."

Contrary to popular belief, government doesn`t always have to use a tender process. For instance, Sita has developed its "Seat Management System" (SMS), a list of preferred suppliers that a government department can approach for IT equipment that includes small numbers of PCs, printers, and consumables.

"We refresh that list every year. It is designed to help speed up the procurement process for certain things and help the smaller companies," Msimang says.

LOCAL COMPLICATIONS

Local government brings in its own set of problems, the most glaring of which is the lack of skilled people in many municipalities.

"In this sector the use of RFIs is vitally important to weed out chancers," Raven Naidoo, CEO of consultancy Radian says. "Many municipalities have rules in place that can be used against them. For instance, a bidder may know price has the highest weighting and will compete with a ridiculously low price, but there are no real technical skills to implement the solution."

He says a big danger with a municipal election is that a tender that is very focused to implement a specific solution suddenly becomes a catch-all, as the committee mindset kicks in and all sorts of extras are added.

PRIVATE SECTOR

Rules and regulations often affect the private sector far more heavily and in many different ways than in the public sector.

For instance, the financial services sector has become extremely regulated in the past few years.

Laws that affect this industry include the Financial Intelligence Centre Act, the various updates to the tax, banking and pension laws, overseas legislation such as the US Sarbanes Oxley Act, agreements such as Basel II, and local factors such as the Second King Report on Corporate Governance (King II).

Finally, if the company has an overseas principal it must implement its policies and procedures for procurement that can become a delicate balancing act, as they have to be weighed with local conditions.

Group CIO Leon du Rand says his bank is reviewing all its purchasing policies, since its major shareholder has become UK`s Barclays.

"We have to follow literally hundreds of regulations. This means that our new purchases will probably decline this year, but our operation spend will probably increase.

"This means it is even more important for vendors to get to know their clients extremely well, and to understand the budgeting processes of their clients," he says.

VENDORS ASE OF TENDER(NITIS)

Probably the biggest tender problem for vendors is that customers do not do their homework. A recent case is that of a large Cape Town-based corporation that issued a tender last year, to which some 15 vendors responded only to find out just before the award that the corporation was still locked into its current supplier for another five years.

, `s Western Cape regional CEO, says it can get extremely costly to enter a tender bid. "For the big tenders we try and keep track of the time involved. They can often involve a team of very expensive experts gathered together to work a problem through."

He says the criteria for tenders can vary greatly, but he feels that often the "softer" issues, such as corporate fit between procurer and supplier, are often overlooked by a customer.

For vendors the protection of their intellectual property is also important.

"A lot of our IP goes into a tender and there are times this is simply included into the project without our participation," , business development executive for Verizon Bussiness SA says.

, Verizon country manager: "Being part of a tender is part of the way we market ourselves. [It] shows how serious we are about business in this country."

Tags: On  The  Cover