Mythbusters – Does the lowest bid always win the tender?

We have often heard it being repeated, to the point where some take it as gospel truth – “The tender always goes to the lowest quote”. We thought it would be interesting to see what the data has to say about this. In this post, we analyse what the data reveals about tenders in Singapore being awarded to the lowest bids.

Method

We looked at about 38,000 tenders that were awarded over the past year in Singapore. Each tender is categorised into 1 of 4 groups:

1. Tenders with only 1 bid: we do not count single bid tenders towards the statistic of tenders being awarded to the lowest (or highest bid).
2. Tenders with 1 or more winners (lowest bid won): this group contains all tenders in which the lowest bid won. This includes tenders in which multiple bids were awarded, and one of them was the lowest bid.
3. Tenders with 1 or more winners (highest bid won): this group contains all tenders in which the highest bid won. This includes tenders in which multiple bids were awarded, and one of them was the highest bid.
4. Tenders where neither highest nor lowest bid won:this group contains all tenders in which neither the highest nor lowest bid won.

This method of categorization causes us to lose some nuances in the data. For example, there were tenders in which both the highest bid and lowest bid won, or tenders in which all bids were awarded. We have chosen to simplify the current analysis to facilitate understanding. Further, what have been excluded are usually small variations that do not affect the broad conclusions. Now, let’s get to the results!

Results

By examining the data, we can confidently say that the lowest bid does not always win! In fact, tenders were awarded to the lowest bids only 39% of the time. The chart below illustrates how each of the 4 categories faired:

We note a few points here:

1. 39% of tenders were awarded to the lowest bid: while we debunk the myth that only the lowest bid wins, we cannot ignore the fact that they are awarded a sizable percentage of tenders.
2. 10% of tenders were awarded to the highest bid: this is a surprising discovery for us. Procurement teams have to justify their purchases and the case to be made for awarding the tender to the highest bidder would have to be exceedingly strong.
3. 10% of tenders were awarded even though there was only 1 bid: this is another discovery that was surprising. The justification for this would have to be pretty strong, after all, without a comparison of competing options and offers, how would the buyer decide to award?

Conclusions

Myth busted! It is clear that you do not need to be the lowest bid to win a tender. There are many factors that the tender evaluation team considers while comparing bids and establishing the winning bid with the best value. These include the reliability of the solution, a company’s track record and its ability to deliver. Overall though, it feels like these results raise more questions than they answer. For example:

1. Do these tenders tend to be in certain industries?
2. Are some tenderers more successful in employing such tendering tactics than others?
3. Are some buyers more likely to award tenders to the highest or lowest bids?
4. What drives tenders to be awarded to the lowest or highest bids?
5. What strategies can be employed by companies to decide which approach to take?

We will attempt some of these questions in a subsequent post. In the mean time, feel free to leave us your views, suggestions and comments! If you haven't already, do Register with us and enjoy access our database of tenders.