By Bill Ray
There are many variables that come into play for selecting a service provider for power and industrial equipment. While the order of importance may shift based on the value of the asset, available budget or buyer company culture, the principles are common to every buyer.
Buyer’s Engagement
Whether you are selecting a home remodeler or a generator maintenance company, in the end, services businesses are a personal choice. Who will you be satisfied working with on a daily basis, how much supervision are you willing to commit and how great is the concern over selecting the wrong provider?
Probably the biggest factor in deciding who to hire is determining the amount of oversight and support you wish to provide. Selecting a supplier that can handle all contingencies and remedy any performance shortfalls greatly narrows the field of suppliers. If you are capable and willing to be actively involved, including helping the supplier work through unanticipated work, the number of suppliers dramatically expands.
Large, vertically integrated suppliers, such as OEMs, are typically “hire and let them get to it”. The performance expectation level is very high so daily monitoring is not required. Likewise, a deep bench of supporting services can support any emergent need. On the other end of the spectrum are smaller independent companies with work practices more based on the work leaders’ experience than process. The buyer may need to monitor the work more closely to confirm the practices meet expectations, requiring both time and expertise of the buyer.
For buyers wanting to direct the work to meet their needs, independent suppliers are generally more willing to adopt and modify their work practices to the buyer’s wants than an OEM. Conversely, an opinionated buyer may clash with the rigid processes of an OEM. As supervision by the buyer increases, so does the responsibility for the outcome. A buyer purchasing a hands on supplier, has to be prepared to share in the success and failure. When buying the OEM, the outcome is expected to be right and they can be held accountable for any shortcomings. The most impactful component of the service provider is the lead personnel on site. The personalities and attention to detail are unique to the individual. Many buyers find someone they like and stick with them because they always deliver, regardless of the degree of backing from the parent company.
In summary, an honest determination of the level of involvement, technical capabilities and willingness to take ownership of success and failure will dictate the type of supplier an asset owner may want to hire. However, a great site lead or project manager can almost remedy anything. Selecting the type of provider who complements internal capabilities and negotiating hard for the right lead person will substantially improve the probability of success.
“A buyer purchasing a hands on supplier, has to be prepared to share in the success and failure.“
Even Evaluation
Price is often cited as the prime reason for selection, but quoted price is relative. Quoted price is directly related to the quoted scope. Without a well detailed scope of services, price price can be a moving target. Without a comprehensive request for proposal (RFP) and the requirement for bidders to adhere to the RFP, scope and price between suppliers become incomparable and directional at best. To get a true comparison between suppliers, the buyer must have a comprehensive RFP and drive the suppliers to comply with the RFP. Nearly all bidders take exception and deviate from the RFP. Post bid follow up must address material deviations and bring all bidders in line with the RFP. Always leave time in the bid schedule for bidder follow up. Post bid conference calls provide a low cost, time effective method for aligning the bid with the RFP and answering any open questions or concerns from the bid evaluation team. Once the material differences between suppliers are addressed, other factors, such as schedule, safety history, experience, contingency capabilities, can be combined with price and to determine service value. In the end, the buyer wants a competitive price that returns the best value. The evaluation team should evaluate the supplier’s tendency to charge extra work and if extra work charges are loaded with overhead for tooling, consumables and project management. While out of scope work is legitimately extra work, suppliers may go out of their way to find extra work or burden legitimate extra work with excessive costs, which may result in budget pressure and a significant change to the bidders evaluated price.
Know the Bidders
Performance history, especially for bidders new to buyer, is often overlooked. Prior performance on similar work is the best predictor of future performance. Past performance can provide insight on the ability to hold project schedule, follow the scope of work, meet expected budget, execute safely and deliver a clean, punch list free, warranty free, start up. Equipment that starts up on time but carries over a large punch list or incurs a warranty event shortly after placement in service, or worse, repeated events, negates all the benefits the bidder brought to the award. Bidders with prior experience with the buyer and the equipment manufacturers, likely get an advantage in the selection process. No one wants to be the person who selected the wrong bidder. Going with an incumbent, inherently carries less risk. It also restricts competition and denies the the buyer the potential benefits of other bidders. Buyers tend to be skeptical of bidder provided references since virtually all bidders can find two or three cherry picked jobs to tee up for review. Instead, ask for multiple references from the past twelve months and randomly picking three for follow up will provide a better indicator of true performance. The vetting process can even be accomplished before the bid and could include visiting a jobsite with work in progress. The biggest challenge of a service provider is breaking into new customers. Without giving new providers an even chance to win, the buyer may be missing a great opportunity to improve their supplier base.
Bringing it Together
To recap, 1) determine the desired level of buyer engagement with the service, the type of supplier and, always, negotiate hard to get the right lead person or project manager, 2) Write a comprehensive request for proposal and hold the bidders to respond to it, and 3) Perform due diligence on past performance to reduce the selection bias for incumbents and equipment providers. Each purchase will carry its own value metrics associated with price, schedule and supplier capabilities. However, following these best practices will improve the RFP and selection process ultimately leading to the right choice in service provider.
For additional discussion
craig.nicholson@aimpowerconsuting.com
bill.ray@aimpowerconsulting.com
eric.kauffman@aimpowerconsulting.com
www.aimpowerconsulting.com