The Benefits of Vendor-Paid vs. Agency-Paid e-Procurement Models

e-Procurement, or e-Bidding, depending on your industry, is the concept of business-to-business or business-to-government acquisition of supplies, work, and services that occurs entirely within an online platform. For consumers, eBay was one of the first sites that allowed for an online bidding process. Our own site, Bidx.com, took its first bids in 1998 as the first e-bidding site for construction. For government agencies and businesses, there are a range of platforms available that offer different procurement models, depending on what works best for the organization.

These e-Procurement platforms offer benefits to agencies and their vendors alike. When an agency decides to adopt an electronic bidding system, they introduce several cost-saving efficiencies into their process. These include:

• Reducing the risk of rejected low bids with error and omission alerts

• Eliminating paper, printing, and storage costs for all parties

• Saving time and money through simple electronic submissions

• Hosting safe, remote bid openings in the pandemic environment

Often, SaaS-based bidding platforms also add new features and functionality that come directly from agency and vendor suggestions. By giving users a voice in software development, e-Procurement platforms can evolve alongside the bidding community’s needs.

When it comes to adopting an e-Procurement or e-Bidding solution, agencies are often faced with one key question - how do they want to pay for it? Many platforms offer two options: agency-pay and vendor-pay. As the names suggest, these options indicate which party will pay for use of the online platform.

The benefits of the vendor-paid model

In a vendor-paid model, the vendor pays to respond to solicitations in the e-Procurement platform, whether one at a time or through an unlimited subscription model. Some agencies balk at the idea of rolling out a new electronic bidding process and also charging vendors for it, but the reality is, many vendors quickly see that the benefits outweigh a monthly or per-bid fee.

We’ve spoken with various state agencies about their use of a vendor-paid, online bidding model, and many have shared sentiments along these lines:

“The contractors don’t mind spending the money to place a bid because it’s saving them postage and a trip to the courthouse, I haven’t heard any complaints about that.” - Adam Fricke, Deputy Engineer, Clinton County

“From a contractor perspective, if they can be in their office, get calls on quotes, and incorporate a last-minute price change on their bid instead of having to do that early to mail in their bid, that’s a win for everyone.” - Tina Collins, IT Consultant, Ohio Department of Transportation

As Adam and Tina both touched on, submission fees for online bidding platforms are often dwarfed by the costs of printing, postage, delivery, gas, courier fees, etc. The contractor’s ability to make last-minute updates to their bid is also often worth the cost. Here are some other benefits of the vendor-paid procurement model:

Get up and running quickly with e-bidding

Over the past year and a half or so, many organizations have had to quickly implement an online bidding process due to COVID-19 pandemic restrictions. Agencies are often locked in to their annual budgets or dealing with budgetary restraints, so the ability to quickly offer an online bidding solution with a vendor-pay model allowed them to be up-and-running in a matter of days. These agencies have the ability to reassess during budget planning periods if they would like to stick with vendor-pay or take on the costs themselves.

Offering an alternative to delivery, plan room, and notification fees

Savvy vendors are already spending money on their bidding process. Whether it’s delivery fees for bids, or bid notifications and planroom access from a third-party service, chances are they are already paying to stay informed and get a leg up on the competition. Online bidding platforms eliminate the need for delivery and offer their own plan rooms and notification features, so vendors can simply consolidate their spending into one convenient platform.

Chris Engle of the Ohio Contractors Association elaborated on this point:

“Online bidding has been extremely popular with OCA members since ODOT went to it in 2006. It is much more efficient from both the contractor’s and owner’s perspective. The software ensures that bid omissions are addressed before submission and arithmetic errors are a thing of the past. It pays for itself by having just one contractor’s low bid accepted instead of rejected on a technicality. In addition, by not having to submit a bid in person, more bids will be turned in on any given project, leading to more competition and lower prices.”

Refining the bidding pool

As anyone who has ever paid a rehoming fee for an animal knows, sometimes a small fee helps weed out less-committed individuals, or in this case, bidders. Some vendors may respond to bids by rote without a serious commitment to the project, leaving more work for the bid analysis team. It’s even worse when those bidders end up as the low bidder, but need to be rejected due to some omission or error in their submission. Not only does online bidding eliminate those errors, the vendor-pay model ensures that every bidder is committed to your project.

The benefits of the agency-paid model

In an agency-paid model, the agency takes on the costs of bid submission for their vendor community. This model essentially lowers the barrier for contractors, but increases it for agencies that will need to negotiate an annual rate for submissions with the bidding platform provider. Some organizations start with a vendor-pay model and move to agency-pay when they determine that online bidding is going to work for them. Here are some reasons why agencies choose an agency-paid model:

Remove initial friction to an e-Procurement or e-Bidding rollout

People tend to be resistant to change, especially when that change impacts their business. If they have to pay for that change, that resistance level can greatly increase. If online bidding is presented as a convenience option that’s covered by the agency, contractors may be more willing to try it out. If your agency considers cost a barrier to entry for contractors, even if that cost is less than typical bid delivery fees, the agency-pay model may be the way to go. It also may depend on what you’re procuring. Low-margin bidders for items like school supplies will be more averse to the bidder fee because it cuts into profits. Contractors and other high-margin service providers can either absorb the cost, or roll it into their bid.

Potentially increases your bidder pool

Some agencies want to refine their pool of bidders, others want it to be as wide as possible to ensure a range of value and options. Cost may be a barrier to entry for some contractors, so by removing that barrier, agencies can expose themselves to a wider range of potential bidders.

Easier ability to mandate electronic submissions

When agencies want to make a decisive move for the future, they sometimes decide to mandate electronic bidding for their contractors. For example, the state of Ohio requires that:

“When bids are required for a public improvement project and the state and state institutions of higher education…. elect to accept bids through an electronic bidding system, the state shall comply with this rule and require all bids to be submitted exclusively through the state's enterprise electronic bidding module for construction.”

Now, it’s worth noting that Ohio employs a vendor-pay model - their law also states that “the state may require interested bidders to pay a fee to use the state's enterprise electronic bidding system.” That said, mandating electronic bidding with an agency-paid model may be an easier pill for your vendor community to swallow and receive less potential backlash.

To determine whether a vendor-paid or agency-paid e-Procurement model is right for your organization, let’s compare two scenarios:

Scenario A

Agency A wants to offer the option of electronic bidding to its vendor community. Due to the ongoing COVID-19 pandemic, they’ve started accepting bids on email and doing remote bid openings on Zoom, but it has been a messy process that has made more work for the agency. The agency is currently limited by budget, as much of it was eaten up by the procurement of an ERP system that they’ve been implementing for several years. Their bidder pool contains a mix of tech-savvy vendors, old-school paper bid packet loyalists, and everyone in between.

In this scenario, we would recommend a vendor-paid model.

Scenario B

Agency B was curious about the benefits of online bidding, so they adopted an e-Procurement platform several years ago under a vendor-paid model. The bidders that use the platform are increasingly comfortable with it, while the group of those that don’t use it is shrinking with every project. Agency B is ready to take the leap to fully-electronic bidding, and they are working with their state legislators to create an e-bidding mandate for their state construction projects.

In this scenario, we would recommend an agency-paid model.

At the end of the day, only your agency team truly knows what will work best for them. As you explore different e-Procurement and e-Bidding platforms, regardless of the payment model, there are a few key questions to keep in mind:

• Does the e-bidding platform take suggestions from both agencies and contractors?

• Does the e-bidding platform allow me to switch from vendor-paid to agency-paid depending on my evolving needs?

• Does the e-bidding platform have a history of being trusted by vendors and agencies alike?

If you want to learn more about an electronic bidding platform that answers “yes” to all of these questions, we recommend exploring Bid Express. Bid Express offers two versions - one for local construction/general procurement, the other for state highway and bridge projects that are bid out by state Departments of Transportation. Learn more about Bid Express here: https://www.infotechinc.com/bidding/.