to Bid or Not to Bid $($Case Study$)>$

Background:

Min was the president and chief executive officer $($CEO$)$ of his company. The decision of whether or not

to bid on a job above a certain dollar value rested entirely upon his shoulders. In the past, his company

would bid on all jobs that were a good fit with his company$$s strategic objectives and the company$$s

win$-$to$-$loss ratio was excellent, but to bid on this job would be difficult. The client was requesting certain

information in the request for proposal $($RFP$)$ that Min did not want to release. If Min did not comply

with the requirements of the RFP$,$ his company$$s bid would be considered as nonresponsive. Bidding

Process Min$$s company was highly successful at winning contracts through New RFP competitive

bidding. The company was project$-$driven and all of the revenue that came into the company came

through winning contracts. Almost all of the clients provided the company with long$-$term contracts as

well as follow$-$on contracts. Almost all of the contracts were firm$-$fixed$-$price contracts. Business was

certainly good, at least up until now.

Min established a policy whereby $5$ percent of sales would be used for responding to RFPs$.$ This was

referred to as a bid$-$and$-$proposal $($B&P$)$ budget. The cost for bidding on contracts was quite high and

clients knew that requiring the company to spend a great deal of money bidding on a job might force a

no$-$bid on the job. That could eventually hurt the industry by reducing the number of bidders in the

marketplace. Min$$s company used parametric and analogy estimating on all contracts. This allowed

Min$$s people to estimate the work at level $1$ or level $2$ of the work breakdown structure $($WBS$).$ From a

financial perspective, this was the most cost$-$effective way to bid on a project knowing full well that

there were risks with the accuracy of the estimates at these levels of the WBS$,$ but over the years

continuous improvements to the company$$s estimating process reduced much of the uncertainty in the

estimates.

One of Min$$s most important clients announced it would be going out for bids for a potential ten$-$year

contract. This contract was larger than any other contract that Min$$s company had ever received and

could provide an excellent cash flow stream for ten years or even longer. Winning the contract was

essential.

Because most of the previous contracts were firm$-$fixed$-$price, only summary$-$level pricing at the top two

levels of the WBS was provided in the proposal. That was usually sufficient for the company$$s clients to

evaluate the cost portion of the bid.

The RFP was finally released. For this project, the contract type would be cost reimbursable. A WBS

created by the client was included in the RFP$,$ and the WBS was broken down into five levels. Each

bidder had to provide pricing information for each work package in the WBS$.$ By doing this, the client

could compare the cost of each work package from each bidder. The client would then be comparing

apples and apples from each bidder rather than apples and oranges. To make matters worse, each

bidder had to agree to use the WBS created by the client during project execution and to report costs

according to the WBS$.$

Min saw the risks right away. If Min decided to bid on the job, the company would be releasing its

detailed cost structure to the client. All costs would then be clearly exposed to the client. If Min were to

bid on this project, releasing the detailed cost information could have a serious impact on future bids

even if the contracts in the future were firm$-$fixed$-$price. Min convened a team composed of his senior

officers. During the discussions which followed, the team identified the pros and cons of bidding on the

job:

Pros:

$$ A lucrative ten$-$year $($or longer$)$ contract

$$ The ability to have the client treat Min$$s company as a strategic partner rather than just a

supplier

$$ Possibly lower profit margins on this and other future contracts but greater overall profits and

earnings per share because of the larger business base

$$ Establishment of a workable standard for winning more large contracts

Cons:

$$ Release of the company$$s cost structure

$$ Risk that competitors will see the cost structure and hire away some of the company$$s talented

people by offering them more pay

$$ Inability to compete on price and having entire cost structure exposed could be a limiting factor

on future bids

$$ If the company does not bid on this job, the company could be removed from the client$$s bidder

list

$$ Clients must force Min$$s company to accept lower profit margins

Min then asked the team, $$Should we bid on the job?$$

Questions:

Your group is Min$$s team composed of senior officers. Please answer the following. Please use $1\mathrm{.}0$ line

spacing with $12$ font$-$size and a minimum of $1$ page and maximum of $2$ pages for Part $1$: To Bid or Not to

Bid.

a$.$ What are the most important factors to consider here? For each factor, explain why they are

important in th