This model is most effective in situations where the requirements are complex, the final solution is not clear and there is a strong opportunity for innovation to provide a major benefit to the outcomes. As a result, it is well suited to major technology and infrastructure projects. The broad concept is one of engaging with a shortlisted group of providers to discuss in detail the requirements and their proposed solution(s). The aim is to allow the expertise of the market to guide the buyer toward either a single solution that can be provided by all participants, or possibly multiple solutions could be developed through the process.
The Process
The competitive dialogue process is a multi-stage model with three broad stages, pre-competitive dialogue, competitive dialogue and post competitive dialogue. The initial stage covers the planning and a pre-qualitification process to identify the key players in the market capable of not only delivering the solution, but also willing to work collaboratively to refine the solution. This can be quite tricky given that at the outset, little is known of the final requirements, in fact, the initial pre-qualification document, the invitation to participate in dialogue and the final RFP/ITO document all form the total outline of the requirements. For this reason, the first stage is less to do with identifying partners who are technically capable of delivering the requirements from the outset and instead, the aim is to identify organisations that have the capacity and experience in engaging with clients and working collaboratively to develop a solution. This is quite a different approach to a standard procurement model where vendors are scored largely on their outputs rather than their ability to develop outputs.
Once you have identified the short list of vendors that show the most promise in this space, the competitive dialogue phase is triggered. Where the market is highly competitive, it is also possible to use stages in the competitive dialogue phase to further evaluate and downsize the short list. Downsizing too much, too soon can result in missed opportunity to assess alternative innovative solutions, however, retaining too many providers resulting in the process being more complex and time consuming for all participants. The first stage of the competitive dialogue phase is agreeing with the vendors the process that will be used to engage with each vendor, and the all important component, how will information be shared between all proponents and how it will be decided what can and can’t be shared. The power of this model is in the ability to accumulate ideas from each supplier and consolidate them into a single unified specification, which is in turn reviewed, critiqued and expanded by each proponent.
Once the final specification has been developed, the competitive dialogue phase is formally terminated and the process returns to a standard model of controlled communication and information sharing. The specification is reissued to the short listed proponents in the form of a Request for Proposal (RFP) or an Invitation to Offer (ITO). This phase is run in the traditional fashion with the offerors required to respond to a locked tender box by a fixed date in a fixed format. The offers are evaluated, a preferred offer identified and the contract established, or potentially, more than one contract could result.
The Advantages
Surprisingly enough, one key advantage of this approach is that cycle times are often shorter than they are for a traditional market approach. This is largely due to the negotiation stage being abbreviated by the collaborative competitive dialogue stage. Negotiations always go smoother when the parties are working together toward a shared goal, particularly if the vendors are still competing for the opportunity, and by the time the RFP stage is released, most aspects of the potential contracts have already been agreed.
Another advantage lay in the ability to have the specification developed by the subject matter experts. The organisation does not have to research and develop the specification in secrecy to protect the probity and retain competition in the process. This reduces preparation time and should significantly improve the quality, completeness and viability of the final specification.
Competitive tension is retained for a much longer period than the pure ITO approach. In the ITO model, the competitive tension really only applies to the period the offer is in the market. As soon as the offer closes, the process is out of the proponents hands. Negotiations are complex and expensive, so it is common for negotiations to be held with only one vendor. As the negotiations progress, the offeror gets more confident that the alternatives are getting less attractive and the bargaining position of the buyer diminishes.
In an ITO, the offerors only have the period the offer is in the market to develop and communicate their solution. The communication of this solution is in a rigid response format designed to allow easy evaluation rather than effective solution development. Once the invitation closes, the vendor has no further opportunity to refine their offer.
The competitive dialogue model overcomes the the issues of retaining competitive tension and refinement of the offers by extending the period of time the vendors are competing with each other and period they have to develop their best solution.
A great advantage of this model is that by the time the contract is signed, you already know that the organisations can work well together and account management and engagement interfaces are already starting to take shape. It should also avoid project failures due to misunderstood requirements and overlooked weaknesses in the offer. All aspects of the solution can be reviewed in detail prior to any formal commitment and while the competitive tension is still in play.
Selecting Participants
The success of the competitive dialogue model does not rest purely on identifying technical leaders, it is in fact more critical to identify good collaborators, solution developers and researchers. The willingness to review requirements, assess the viability and help in refining and developing the concepts are the clear differentiator. The organisation must have the technical ability to develop the solutions to meet the requirements they help define, but the courage to allow their competitors to have access to the foundations of their ideas is highly beneficial.
It is considered that he optimal number of participants in the competitive dialogue phase is three, as this provides enough competitive tension in the process without being too onerous to manage. Where there are many competitors in the market, downsizing to three in one step may not be the best option. If market research prior to releasing the initial invitation indicates a good range of competitors in the market, having further downsizing stages in the competitive dialogue phase may be desirable. Keeping in mind however, that the detailed evaluation and documentation required to ensure each downsizing stage is defensible is resource intensive and will extend the cycle time of the process.
Once the participants have been selected, the internal participant teams are decided and the process to be followed defined in detail and agreed with the participants. It is best if the same internal people attend all sessions with all vendors. This allows them to compare the outputs from each discussion and develop a consistent view of the requirements, the suppliers and the solutions.
What to discuss
The competitive dialogue phase is a series of direct discussions with each proponent in isolation from all other proponents. Because the focus for the internal team is developing the requirements rather than the solution, the process can take one of two paths; the development of a single solution; or the development of two or more different solutions.
Where a single solution is desired, then the requirement to share components of the solution between proponents becomes even more necessary to allow consistency and deeper review of requirements. This requires the identification of the generic, non-IP related components and the parts of the solution the proponents are willing to share.
All aspects of the requirements and the solutions are open for discussion, including the contractual terms, financing and payment models and ownership structures. The intention is to develop complete and viable solutions with each participant.
Assumptions
Given that the first stage of the process focuses on finding good collaboration partners rather than just technically capable providers, the model clearly relies on a competitive market of capable providers. In the construction industry for example are generally many vendors capable of completing a project to deliver a new infrastructure project, so the need to focus on the organisations ability to deliver is reduced.
Risks
Clearly the biggest challenges in this model is around maintaining probity and ensuring communications are effectively documented and it is paramount that intellectual property is very well managed to avoid breaching a participants trust. Each participant must have an equal and fair opportunity to understand requirements and communicate their solutions. The internal team must make great efforts to ensure there is no bias in the treatment of participants and structuring of the engagements.
Both the internal team and the proponents must clearly understand the separation between the discussion and development of requirements, and the development of the proponents solution to the requirements. Remember though, that the aim is to keep specification development in the functional space through until the RFP/ITO stage. Requirements should avoid venturing too deeply into the technical aspects and narrowing possible solutions. Instead the focus should be on the possible outcomes and how they will meet the needs of the organisation. For example, rather than stipulating that a specific data interchange protocol be used, focus on the requirement that the solution must interface with existing systems and have the flexibility to be adapted cost effectively to interface with external applications; or, instead of stating that there must be a 10m x 10m courtyard surfaced with interlocking pavers, state that there must be an area large enough to allow ten to fifteen people to use tables and chairs to dine and still move about safely.
Then key is to develop your requirements, not the solution, and it is the developed and refined requirements that you are sharing with the competitive dialogue proponents, not each participants solution.
Post Competitive Dialogue Process
The competitive dialogue phase is the most critical stage and it should not be terminated until the team is confident that the requirements have been fully refined to the point that a viable solution can be selected and delivered based on the specification.
On formally terminating the competitive dialogue phase, the participants should be notified that competitive dialogue is complete and the process is entering the RFP/ITO stage.
Challenges
The key challenges in the competitive dialogue model are around ensuring there are enough vendors engaged in the dialogue stage to maintain competitive tension. If a participant considers they have little chance of winning, they may pull out of the process to avoid any further cost and effectively helping a competitor to succeed by providing input into the project. This is where the initial market assessment is critical prior to commencing a competitive dialogue process to ensure there are sufficient genuine competitors available. It is equally important that the process maintains a level playing field where all solutions and participants have an equal opportunity to win the final contract.
The process can be long and expensive if timelines are not managed. Vendors will sometimes pull out due to considering their chances of winning are low and there will be no opportunity to recover costs. A component of managing the risk of participants pulling out of the process is being very clear about the process and the time lines and sticking rigidly to meeting those defined parameters.
The competitive dialogue phase is resource intensive for both participants and the organisation. Where a standard ITO process may consume the time of key players for a couple of weeks during the evaluation phase, the competitive dialogue phase will require complete commitment from the core team potentially for months. The organisation must be fully committed to meeting this requirement before it undertakes the competitive dialogue process model.
Conclusion
Though the process is designed for the highly regulated European public sector procurement environment, the basic concepts are sound and can benefit any procurement process for complex requirements. The idea of working with a shortlist of providers to refine both your requirements specification and their solution is likely to provide benefits to all participants and should significantly reduce the risks of project failure due to poor supplier selection and/or poor definition of requirements.
Do you have firsthand experience in utilising the competitive dialogue process, or just some thoughts you’d like to express? If so, comment below or join in our PME4U forums.
Useful Links
How Competitive Dialogue Works in New Zealand
Competitive Dialogue Resources – a document with many links for the ECC environment
Explanatory Note – Competitive Dialogue – heavy going document from the ECC
Using Competitive Dialogue – free guide but requires registration on the site to download