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The dangers of bidding for everything: Risks to businesses and customers

July 21, 2023

In the highly competitive business landscape, companies often find themselves tempted to bid for every opportunity that comes their way. The desire to maximise revenue and expand their portfolio can be enticing, but bidding for everything without careful consideration can lead to significant risks. In this blog, we will explore why bidding for everything is a bad idea and highlight the potential risks it poses to both businesses and their customers.

Dilution of expertise

When a company bids for every project that comes along, they risk spreading their resources too thin. Each project requires a dedicated team with specialised knowledge and expertise. By stretching their resources across multiple projects, businesses may struggle to deliver the quality and value they would have if they focused on their core competencies. This dilution of expertise can result in subpar performance, customer dissatisfaction, and damage to the company’s reputation.

One real-world example of a company that took on too many contracts and struggled to deliver is the case of CGI Federal, a subsidiary of CGI Group, Inc. CGI Federal is an IT consulting and systems integration company that provides services to various government agencies. In 2013, the company was awarded a major contract to develop the healthcare.gov website, the online portal for the implementation of the Affordable Care Act (ACA) in the United States. However, CGI Federal faced significant challenges in delivering a functional and user-friendly website. The company encountered technical issues, performance problems, and security vulnerabilities, which resulted in a highly problematic launch of healthcare.gov. The website experienced frequent crashes, slow response times, and difficulties in enrolling users.

The struggles faced by CGI Federal in delivering the healthcare.gov website were attributed, in part, to the company’s inability to effectively manage and allocate resources to such a complex and high-profile project. The company had taken on multiple contracts simultaneously, spreading their expertise and resources too thin. The issues with the healthcare.gov website led to widespread criticism, public outcry, and political scrutiny. CGI Federal’s reputation suffered, and the company faced financial penalties and eventual contract termination.

Inadequate preparation

Bidding for everything often leads to rushed and inadequate preparation. Properly understanding the project requirements, conducting thorough market research, and developing a tailored proposal takes time and effort. When companies bid indiscriminately, they may not invest sufficient resources in understanding the nuances of each project. This lack of preparation increases the risk of submitting incomplete or inaccurate bids, which can harm the company’s chances of winning and damage its credibility.

A notable example is the case of Carillion, a UK-based construction and facilities management company that collapsed in 2018. Carillion had a history of aggressively bidding on large and complex public sector projects, including the construction of hospitals and infrastucture, without fully assessing the risks and costs involved. Their indiscriminate bidding approach led to a significant number of projects facing cost overruns and delays.  Carillion struggled to deliver on their contractual commitments, resulting in deteriorating financial health and mounting debts, resulting in the company’s insolvency. Interserve, a UK construction and support services company faced a similar fate (also self-inflicted by its ”bid too low for too long” strategy) and was wound up in early 2022. These two cases serves as a cautionary example for companies about the importance of carefully evaluating projects before bidding on them.

Financial strain

As we’ve highlighted already, bidding for every opportunity can impose a significant financial strain on a business – and can lead to its demise. The cost of preparing bids, including resources, personnel, and administrative expenses, also adds up quickly. Winning projects that are not aligned with the company’s core competencies can result in higher costs, delays, and increased risks. This financial strain can impact cash flow, profitability, and the overall sustainability of the business.

Whilst there are many examples of companies that experienced significant financial strain after bidding on (and winning) too many projects, not all of them were the result of the scattergun bid-for-all or bid-low approach. One such example is the case of Abengoa, a Spanish renewable energy and engineering company, which aggressively pursued international expansion and bid on numerous large-scale projects beyond their financial capabilities. The company took on substantial debt to finance their ambitious growth plans, leading to a high debt-to-equity ratio and mounting financial pressures and the inability to continue operations effectively. As a result, Abengoa filed for insolvency.

Reputation at stake

Consistently bidding for projects outside of your company’s expertise obviously increases the likelihood of delivering subpar results. But it’s the risk of this poor performance and failure to meet client expectations can also lead to contractual disputes and severely damage your company’s reputation. Negative word-of-mouth spreads quickly, making it harder to secure future projects and attracting potential customers.

One such example is G4S and the 2012 London Olympics. G4S, a UK outsourcing company, was awarded a contract to provide security personnel for the 2012 London Olympics. However, as the event approached, it became apparent that G4S had vastly underestimated the number of security personnel required to fulfill their contractual obligations. G4S was unable to recruit and train enough security staff in time for the Olympics, leading to a significant shortfall in personnel. As a result, the British government had to deploy additional military personnel to fill the gap and ensure the safety and security of the event.

This failure on the part of G4S to deliver on their contractual commitments resulted in widespread criticism and reputational damage. The company faced severe backlash from the media, the public, and the government for their failure to adequately plan and fulfill their obligations.  The reputational damage suffered by G4S was significant. The company faced financial penalties, lost future contracts, and their credibility as a security services provider was called into question. Following the Olympic Games, G4S provided a donation of £2.5 million to military charities as a goodwill gesture.  Its close rival, Capita, benefited from the bad publicity, winning a number of outsourcing contracts from the UK government.

Customer dissatisfaction

Bidding for everything can also harm customers. When a company takes on projects outside their area of expertise, they may lack the necessary knowledge and experience to deliver satisfactory results. This can lead to delays, cost overruns, and compromised quality. Customers who choose a company based on their reputation and expertise may find themselves disappointed and dissatisfied. Ultimately, this can erode customer trust and loyalty, negatively impacting the company’s bottom line.

The old saying, “Nobody got fired for using IBM” certaintly wasn’t the case for a notable failure on IBM’s part to execute on a major contract in Australia. What began as an AU$6.19 million contract between the State of Queensland and IBM Australia to replace Queensland Health’s aging payroll system eventually led to over 35,000 payroll mistakes and ultimately cost taxpayers AU$1.25 billion. When the system went live, a large number of Queensland Health employees, including doctors and nurses, were either incorrectly paid or not paid at all. It led to the resignation of the minister of health, industrial strike action and loss of staff members to other employers. Queensland Health pursued legal action, claiming that IBM had misrepresented its credentials in being able to deliver the project. The Queensland Government subsequently banned IBM from entering into “any new contracts with the State Government until it improves its governance and contracting practices.”

Best Practice Tips to Support a “No Bid” Decision

  • Clearly define bid criteria: Establish clear criteria for evaluating bid opportunities, including alignment with core competencies, financial viability, and strategic fit. This will help identify projects that are worth pursuing and those that should be declined.
  • Conduct thorough opportunity assessment: Before making a bid decision, conduct a comprehensive assessment of the opportunity. Evaluate factors such as project scope, timeline, budget, and potential risks. This will provide a better understanding of the feasibility and potential challenges associated with the project.
  • Evaluate resource availability: Assess the availability of resources, including personnel, equipment, and financial capacity, to determine if the company can effectively execute the project. Consider existing commitments and workload to ensure that taking on a new project will not compromise the quality of existing projects.
  • Consider long-term strategic goals: Evaluate how bidding on a particular project aligns with the company’s long-term strategic goals. Will it contribute to growth, improve capabilities, or open new market opportunities? If the project does not align with the company’s strategic direction, it may be better to decline the opportunity.
  • Communicate transparently: If the decision is made not to bid on a project, communicate openly and transparently with the customer. Provide a clear explanation of the reasons behind the decision and offer alternative solutions or recommendations if possible. Building trust and maintaining a good reputation is essential, even when declining opportunities.

Conclusion

Bidding for every opportunity without careful consideration can lead to significant risks for businesses. Dilution of expertise, inadequate preparation, financial strain, reputation damage, and customer dissatisfaction are all potential consequences of indiscriminate bidding. Real-world examples such as CGI Federal, Carillion, Interserve, Abengoa, IBM Australia, the Victorian Government and G4S’s London Olympics contract failures illustrate the negative impacts of bidding without the necessary resources, expertise, or planning.

To mitigate these risks, companies should focus on strategic bidding, aligning projects with their core competencies and long-term goals. Thorough evaluation, accurate resource assessment, and effective project management are key to successful contract delivery and maintaining a positive reputation. Additionally, following best practice tips such as defining bid criteria, conducting thorough assessments, evaluating resource availability, considering long-term goals, and communicating transparently can support informed “no bid” decisions and protect businesses from potential pitfalls. By adopting a strategic and selective approach to bidding, businesses can maximise their chances of success, deliver exceptional results, and build long-term relationships with their customers.

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