Thursday, September 14, 2006

Sending Out RFQ's for a Transit Agency? Your Bids May Surprise You!

Recently, I submitted a Bid in response to a Request for Quotation (RFQ) from a particular Transit Agency. Our company priced our product fully 50% higher than previous bids for similar material. In talking with other non-competing suppliers, I am hearing similar stories from them. Bids are coming in at higher prices everywhere and for everything.

Wish I could be more specific, like naming materials and Agencies. I just cannot.

But that's not as important as the trend. I believe this is ultimately going to result in bad news for Public Agencies. Prices are going to go higher. Supply at those higher prices is going to be harder for them to find. Why? Several reasons.

-Suppliers are finally beginning to assign a cost to the voluminous and over-complicated Bidding Documents. In other words, Agencies and their Consultants are "Scaring their Bids". Take, for example, my Bid noted above. The Bid Form alone totaled over two dozen pages! Many of the forms required information that was frankly obtrusive. As is typical with any government agency, these things are not getting simpler. The cost in time and money to do business with these Public Transportation Agencies is out of proportion when compared to other customers, which leads me to the fact that:

-Class One Railroads are buying things like never before! Everybody that I talk with is crazy busy! I know I am, which is one reason my posts are more infrequent. So, if you were making widgets as fast as you can, and one customer is buying almost everything you can make, but here comes another customer who requires this-that-and-the-other to be happy, you will ask yourself, why put up with the hassle here? Case in point: For some time, railroad material suppliers have filled their production schedules with work obtained by winning bids from Agencies. Suppliers put up with the associated aggrevation in order to cut overhead with full production. Now, Class One Railroads are claiming all of that once-excess production. And, I don't know any supplier who would rather deal with an Agency than a Railroad.

-Not only that, but US Suppliers are being courted by foreign concerns! And these people are more than willing to purchase a quality US-made product without anywhere near the problems that must be dealt with when working with a domestic concern. That means nothing but more pressure on production.

Here's what it boils down to: Production capacity is not increasing; production demands are increasing. The result will be, believe it or not, that suppliers can begin to select their customers!

It is already happening. Our Bid resulted in a call from the Agency wondering why our Bid was so high. We explained. Believe me, we explained. If that Agency could read between the lines, the message was that we just didn't want the problems that came with doing business with them. And, we are running pretty close to capacity! Bottom line: It's going to cost you.

So what will happen? No-hassle Railroad customers will be the first to be supplied. Customers whose adversarial RFQ's and Bidding Documents look like CYA documents for potential lawsuits will not. Should be interesting.


At 9:42 AM, September 24, 2006, Blogger David said...

"these people are more than willing to purchase a quality US-made product without anywhere near the problems that must be dealt with when working with a domestic concern" I understand're saying that the bid process even for a commercial US railroad is significantly more cumbersome than for the typical foreign RR? Does this include, say, government-owned RRs in Europe?

At 1:32 PM, September 27, 2006, Blogger Rip said...

Apologies for the confusion. I should have made it clear that the reference to "domestic concerns" meant US-based Agencies rather than Class One Railroads. The Bid Process for a US Commercial Railroad is generally not cumbersome. The Bid Process for a US Transit Agency is considerably cumbersome and getting worse.

The foreign railroads to which I referred are generally non-European lines, and their process is also pleasant when compared to our US Agencies. My experience is that opportunities with European Railroads are done in conjunction with European-based supply concerns, if such opportunities happen.

At 9:03 PM, November 24, 2006, Anonymous Anonymous said...

This same scenario is happening on the construction side also. In some cases, to mitigate risk, the contractor will add 10% or more to his bid. The Lawyers are writting the documents now and making the Contractor responsible for everything, including the owners negligence. Hold harmless clauses are getting out of hand and the owner must pay the price in order to get a reputable Contractor. In some cases they get shoemakers and then complain about it. The owners are bringing this own themselves. You get what you pay for. If an owner is willing to take some risk, then more competitive pricing will be available. The smart owners will set up contingency funds and share the savings with the Contractor. If we continue to have an untrusting attitude, then the cost to build a track project will continue to rise.


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