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Three Ways to Win

To: The Director of the West Dakota Department of Parks and Recreation
From: Bob Behn
Re: Escaping the Low-Bid Trap
Date: October 2001

There are three different things you can do to escape from the low-bid trap:

(1) Craft a fix-priced RFP for each park.

(2) Craft a very open-ended proposal for the entire system.

(3) Explain your strategy to every potential opponent.

If you can’t get your managerial satisfaction from running an innovative park system, try getting it by running an innovating contracting system that creates an innovative park system.

(1) Craft a Fixed-Price RFP for Each Park

The easiest way to avoid being forced to make the decision solely on the basis of price is to make the price the same for all of the bids.

Bob Behn's Manager's ChoiceGet your accountants to give you an estimate of how much it currently costs you to operate each of your seventeen parks. You don’t need the exact number. There isn’t an exact number. Any estimate of total costs will depend upon how the department’s common costs are allocated among the parks. (To make this allocation, accountants could use the acreage of a park, the number of people on the park’s staff, the salaries of the park staff, or the number of visitors to the park.) What you really need is an estimate of the direct cost of operating each park.

Then use these estimates to create an RFP for each park that contains the specific amount that the department will pay a contractor to operate the park for (say) five years. For each park, create a very general RFP that leaves open the kind of recreational activities to be offered at the park but fixes the price. Indeed, the only difference among the seventeen RFPs will be the price. Yes, those parks with lakes do come with boats that need maintenance each winter and with beaches that need lif guards each summer. Others have only a few picnic tables that need periodic repair. And if the park has campsites or a ski lift, annual maintenance can be even more costly. But don’t mention any of these activities or their current costs in the contract. Instead, in the RFP for each park, specify a fixed total price.

Then, let the vendors choose what services they will offer at a park. Don’t require every proposal for every park to offer the existing services or even the same services. Give the vendors the opportunity to be innovative — but for a fixed price.

Indeed, make them compete in terms of their innovations. Don’t put out just one RFP. Put out 17 of them. This gives you the opportunity to compare the innovativeness of each proposal for one park with the innovativeness of other proposals for the same park. Moreover, this gives you the opportunity to compare the creativity of the proposals across all 17 parks. And, for a particular park, if you don’t like any of the proposals — if you think they fail to show the creativity contained in other proposals — you can reject all of them and start over. Vendors who didn’t get the implicit message in fixed-price RFP will certainly get the explicit message in your rejection of unimaginative proposals.

(2) Craft a very open-ended proposal for the entire system

Alternatively, you could prepare a very general RFP for the entire system. Make it clear in the RFP that vendors do not have to promise to continue every service now offered in every park. If they want to close down the ski lift and shift the resources into cross-country trails or even into summer boating at another park, that’s fine. The objective is to encourage potential vendors to think creatively about the state’s entire recreation system as one big package.

With this approach, the vendors will submit bids with different price tags. But the most obvious differences between them will be — you hope — in the recreational services that they will offer. After all, not every park has to provide every type of recreation. Some can offer a wilderness experience; others can provide luxury “camping.” And if vendors have the opportunity to think about the system as a whole, they may generate widely divergent strategies.

Of course, you could combine these two approaches. You could create a fixed-price RFP for the entire system. Or you could create an open-ended RFP for each of the 17 parks.

But the open-ended approach makes more sense for the entire system. To redesign one park, you have to think about how any changes affect the other 16 parks. If you decide to have one park specialize in one kind of outdoor experience, you need to compensate by offering different recreational opportunities at some of the others.

Similarly, I think, the fixed-price approach makes the most sense for each park. Yes, a fixed price RFP for the entire system would still encourage innovation. But not as much. If you really want to see the complete range of possible ways to configure the state’s recreational opportunities — if you really want to create a park system that is truly innovative — you want to give your potential vendors as much latitude as possible.

(3) Explain your strategy to every potential opponent.

No matter how you configure your RFP(s), you need to explain to every key political player why the low bid isn’t the only criterion. And you need to do this before you open the bids.

So put together a list of every key legislator, every key editorial board, every key interest group — every (intelligent) person who might object to a decision to choose something other than the low bid. Then organize a schedule of the visits that you have to make between now and when you open the bids.

Develop a pitch, and try it out on your staff and friends. Be alert for any confusion about your analysis of the facts. Watch for their resistence to your arguments. Then modify your presentation to eliminate the confusion and lessen the resistance.

Next, try out your pitch on the least antagonistic of your skeptics. Again, look for confusion and resistance. Improve both your logic and your presentation. By the time you get to those who are most devoted to the low-bid ideology, you will be able to make the best case possible — both in terms of the recreational benefits and in terms of the long-term costs.

You won’t prevent every legislator from holding a hearing. You won’t deter every editorial board from criticizing your decision. And you certainly can’t stop every overworked headline writer from taking a cheap shot at your choice. But you can minimize some of the criticism and obligate some people to take your innovative approach seriously.

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