Left On The Table

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The first question inevitably asked at the conclusion of a bidding process is the obvious one: "Who won?"

The more experienced bidders will quickly ask the second question, "How much money did they leave on the table?" This is perhaps the cruelest of all possible questions one asks of a winning bidder, for it can tarnish their victory irreparably. Here's an example that demonstrates the issue:

Bid 1: $400,000
Bid 2: $403,000
Bid 3: $425,000
Bid 4: $285,000

The winning bidder is Bidder Number 4.

In our contracting world the amount "left on the table" is defined as the differential between the winning bid for a given contract and the amount of the second lowest bid. In this example, it is that pesky $115,000 between Bid 1 and Bid 4. It's one thing to win a bid; but it's quite another to win it with an unnecessarily large differential.

A low amount left on the table (often a few percent) is an implicit bellwether of a firm's sales staff business savvy. A miniscule differential can deify your firm's head salesperson to near mythical status, especially if it involves a particularly large project generally thought of as being "owned" by another firm. The legend of divine bidding skills and expertise will surely follow the key individuals involved, until the next major trade show at a minimum.

Now if that differential amounts to a considerable sum, the reputation of the winning firm's bidding expertise is instantly brought into question. While they may have been in fact extraordinarily diligent and accurate in their costing efforts, they will never be able to shake off the mantle of being viewed as being a bit foolish by their competitors if there was a clump of bidders at a much higher price than the winning bid. In the example above the clump would be Bidders 1, 2, and 3.

Sometimes it gets downright ugly. There was a fairly-sized bid package on the street locally a few months back. I knew most of the players involved and watched the blood sport with interest, which is what you do when you're not directly involved in the bid. Not much different than watching poker players on television. Watching someone else go through machinations and tribulations involved in a gut wrenching bidding process feeds one's darker side.

When the final results came in on one recent bid I felt a tinge of sadness for the winning bidder. There was a big clump up on the bidder's list, and the differential was comparatively large. To the owner's credit, they had gone back and gave the winning bidder a chance to review their numbers before signing the contract.

It's entirely possible that the winning bidder has instituted efficiencies that others may not have. Yet the lingering apprehension is that the winning firm just flat out blew it by putting in a foolishly low bid. It happens more often one would think.

To be fair there is another definition for the term, typically used in the Initial Public Offering World. They both amount to the same thing in the end-you under priced and sold yourselves and your abilities short.

It's not just in bids. Where I've seen quite a bid of money left on the table is by new hires coming into a company that do not have an inkling of what their potential co-workers make in compensation. It is not all that uncommon to find someone who asks for half or less of what they should have asked to be competitive with their peers.

Ultimately one wants to set the right price for their services-neither too high nor too low. I think we may have inadvertently conditioned our customers over the last generation to expect more features and functionality from this year's offering than last year's, and at a considerably higher price to boot. This has happened in the home electronics world, primarily as a result of higher manufacturing efficiencies, more dense circuitry packaging, and a reliance on low priced overseas labor. One has to wonder how many more dramatic changes are possible that will allow for us to continually lower prices.

Many a firm has begun the spiral plunge downwards after having bid foolishly just that once. I have heard rumors of firms having to continue to bid in such a foolish manner in order to maintain their cash flow. Effectively the bidder is using the cash from the next project's down payment to finance the current project being built. This can turn ugly really fast...


On Manners

For some time I've been pondering the basics around the office lately, especially with regard to what is truly important to long-term personal and business success. Why do some relationships seemingly last forever, others never bond at all, while others fade away after many years?