Read the case study “To Bid or Not to Bid” on page 1011 and then answer the questions on page 1012
TO BID OR NOT TO BID:
Background Marvin was the president and chief executive officer (CEO) of his company. The decision of whether or not to bid on a job above a certain dollar value rested entirely upon his shoulders. In the past, his company would bid on all jobs that were a good fit with his company’s strategic objectives and the company’s win-to-loss ratio was excellent. But to bid on this job would be difficult. The client was requesting certain information in the request for proposal (RFP) that Marvin did not want to release. If Marvin did not comply with the requirements of the RFP, his company’s bid would be considered as nonresponsive.
Bidding Process Marvin’s company was highly successful at winning contracts through competitive bidding. The company was project-driven and all of the revenue that came into the company came through winning contracts. Almost all of the clients provided the company with long-term contracts as well as follow-on contracts. Almost all of the contracts were firm-fixed-price contracts. Business was certainly good, at least up until now.
Marvin established a policy whereby 5 percent of sales would be used for responding to RFPs. This was referred to as a bid-and-proposal (B&P) budget. The cost for bidding on contracts was quite high and clients knew that requiring the company to spend a great deal of money bidding on a job might force a no-bid on the job. That could eventually hurt the industry by reducing the number of bidders in the marketplace.
Marvin’s company used parametric and analogy estimating on all contracts. This allowed Marvin’s people to estimate the work at level 1 or level 2 of the work breakdown structure (WBS). From a financial perspective, this was the most cost-effective way to bid on a project
1. What other factors should Marvin and his team consider?
2. Should they bid on the job? ?
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