Benefits, Implementations and Problems of Electronic Tendering in Public Sector

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Table of Contents

Abstract
Introduction
Definition of electronic tendering
How the electronic tendering is realized in public sector?
What are the benefits of e-tendering in the public sector?
Implementations of e-tendering
Legal considerations
Problems, Solutions and services available
Conclusion
References

Abstract

Through a review of existing literature, this paper identifies the benefits and problems of electronic tendering in the public sector. The paper also looks at the implementation of e-tendering, and issues that come up during the execution process. Specifically, security and legal issues that hinder a wider acceptance of e-tendering by stakeholders in public and private sectors have been identified.

The paper concludes by suggesting that more efforts need to be directed in researching and developing security measures and legal procedures for use in the e-tendering process.

An e-tendering system with less security or legal concerns would be more acceptable among government and private sector players. As such, this paper contends that such an e-tendering process would make procurement processes more transparent, efficient, fast and less tedious.

Introduction

Electronic tendering is a rather new concept in procurement circles. As such, many suppliers and procurers still have reservations about using it. This is despite the fact that e-tendering has the potential to improve tendering processes by making them fast, cheaper and more flexible.

This research seeks to unearth the benefits, implementations and problems of e-tendering in the public sector. The research also seeks to find out if indeed governments and suppliers in the private sector are changing their tendering practises from the paper-based methods to electronic tendering.

Like most other electronic processes that are just gaining currency in many countries, e-tendering has its fair share of lovers, haters and those who simply chose to ignore it regardless of its benefits. Notably, people justify their behaviours towards the same through the knowledge, perceptions or beliefs that they have on electronic tendering or on the electronic procurement process as a whole.

Among the cited reasons why people are cautious about the e-tendering process are the security and legal issues related to its use. Those who are receptive towards e-tendering on the other hand cite reduced costs, reduced paper trail, and saved time as the main reasons why they chose to use it.

No matter what side of the divide a person is, it is obvious that governments (in both the developing and developed countries) are embracing technology. As such, suppliers wishing to secure government contracts in future have no option but to gain knowledge about e-tendering and other electronic procurement processes.

Definition of electronic tendering

Electronic tendering (e-tendering) in a combination of efforts put together by one entity for the provision and delivery of goods and services through an arrangement that creates legal obligations and responsibilities with another entity (Abel, 2005). Just like conventional tendering, e-tendering seeks the most effective or the best-priced offer for the provision of goods and services.

In e-tendering, the issuing party (procurer) uses an electronic platform to advertise the tender requirements. He or she posts the call for tenders on an electronic platform, where the interested suppliers can access, download, and re-upload the tender responses.

On receiving the responses, the procurer evaluates them on the same electronic platform, and based on the analysis of the different applicants, the procurer can create and issue an electronic contract to his/her preferred candidate.

Different scholars, governments and electronic enthusiasts have different definitions for the electronic tendering concept. Christensen and Duncan (2006) for example define E-tendering as “the publishing, communicating, accessing, receiving and submitting of all tender-related information and documentation via the internet” (p. 4).

Schoenherr and Tummala (2007) on the other hand define the same concept as “the process of sending requests for information and prices to suppliers and receiving the responses using internet technology” (p.9). Lou and Alshaushi (2009) argue that both the tender issuer and the tender applicant can define E-tendering differently.

From the tender issuer’s perspective, Lou and Alshaushi defines E-tendering as “the process which replaces the traditional paper tendering system in purchasing of products and services , and is a means of electronically notifying, involving, vetting and selecting suppliers” (p. 99). From the tender- applicant’s perspective, they define it as the electronic mode of “competitively bidding for contracts” (p. 99).

Overall, Carayannis and Popescu (2005) state that e-tendering process involves the procurer announcing his or her intention to acquire specific goods or services. The announcement is followed by a submission of bids by interested suppliers, and finally the procurer gets to select the best bid from amongst them.

In cases where electronic governance is comprehensive, e-tendering sets a sequence of e-procurement activities which include electronic contracting, electronic payments, and electronic after-sales services.

Notably however, closing deals with suppliers does not fall within the jurisdiction of e-tendering. However, as Boer, Harink and Heijboer(2002) observe, electronic tendering generally smoothens the tactical procurement process without putting too much focus on the details of the process.

How the electronic tendering is realized in public sector?

E-Tendering is part of the larger electronic procurement adopted by both the private and public sectors. In the public sector, electronic tendering, and by extension e-procurement is realised if a sitting government sets the basic infrastructure needed to implement governance processes on an electronic platform. As such, e-tendering would not be possible in the public sector if governments do not embrace e-governance.

Such an action is not always easy. As Navarra and Cornford (2003) observe shifting to e-government requires governments, societies and the public administration to have new mindsets. Specifically, e-government requires the public administration to interact better with citizens.

Concerning e-tendering, the public administration would need to realise that the citizens are the services providers, while the government is the customer.

With governments being major consumers of goods and services, many departments in the public sector devote sizeable amounts of time and efforts trying to streamline procurement processes. The need to make procurement processes in the public sector efficient, fair and transparent drive the need for change in such departments.

Vaidya, Sajeev ad Callender (2006) note that public sector requirement “has to satisfy requirements for goods, works, systems and services in a timely manner” makes public procurement an important function of all governments. With e-government adoption, many public sector departments have found a new way of ensuring that procurement processes are not only transparent and efficient, but also fast and less tedious.

However, for electronic procurement to take place, government departments have to ensure that tendering (which is generally a mode of ensuring that all government procurement is done in a fair transparent manner), also becomes electronic.

The essence of e-tendering in relation to e-procurement is best captured by Croom and Brandon-Jones (2004, cited by Vaidya et al. (2006) who observe that public sector departments use e-procurement processes to search, source, negotiate, order and receive products or services.

Realising e-tendering in the public sector requires a recognition that government procurement procedures could benefit from simplified processes presented by electronic technology. Specifically, Vaidya et al. (2006) observe that e-tenders must protect the public interest and preserve government transparency and accountability just like conventional paper-based tenders do.

Notably, the government (which acts as the buyer of products or services) try to include a broad range of suppliers to bid supply positions available in the public sector. According to Vaidya et al. (2006), inviting many suppliers to bid for a project broadens competition, and maximises the government’s opportunities to get greater value for money.

Notably, the more value a government gets for the taxpayers’ money, the more impressive it looks to the public. As such, Vaidya et al. (2006) suggest that the efficiency that e-tendering brings to government procurement helps it meet some political and social objectives. However, e-tendering is not always a straightforward undertaking.

The challenges of getting public sector workers to adopt electronic competencies are usually great. Specifically, the workers usually need proper training on operational functionalities, and practices of the e-tendering system.

As such, the realization of electronic tendering in the public sector depends on just how receptive the public service workers in charge of notifying, involving and selecting government suppliers are to new electronic systems and processes.

However, even before the workers reception to electronic systems and processes is analysed, Montagana (2005) notes that realising e-Government (and by extension e-tendering and e-procurement) requires a cultural change in most government departments. Specifically, the cultures that guide performances, practices and processes must be changed or modified.

Realizing electronic tendering in the public sector must also be motivated by possible strategic benefits. Seeing that e-tendering is part of the larger electronic trading taking place between governments and the private sector, it is important for electronic tenders to satisfy three e-commerce requirements as identified by Montagana (2005).

They are “efficiency, effectiveness and strategic benefits” (p.213). The strategic benefits are identified as ‘faster, better, and cheaper’ products, services or procedures.

Notably however, even where the three e-commerce requirements identified above are satisfied, Tung and Rieck (2005) observe that the realization of e-government initiatives (e-tendering included) is slow in both the developed and developing countries.

The authors observe that inertia in government departments and issues concerning security and confidentiality hinder quicker realisation of electronic processes in government departments.

What are the benefits of e-tendering in the public sector?

The benefits of e-tendering have not been covered extensively in literature. Instead, a lot of scholars and researchers have concentrated on the benefits of e-procurement. The limited literature that addresses the benefits of e-tendering however offers some valuable information about the subject.

Speaking about the potential benefits that could accrue from e-tendering, Boer et al. (2002) forecasted that the electronic tendering process would reduce costs related to tactical procurement activities.

Such activities include supplier selection, contracting, negotiations and setting the specifications to be used during the procurement processes. According to Boer et al. (2002), tactical procurement-related costs usually come up in bureaucratic private or public sector departments, or in procurement procedures that involve a lot of paperwork.

The ease of submitting tender documents on an electronic platform would no doubt encourage the public sector departments increase the frequency of supplier selection, if only to get better deals.

Specifically, Boer et al. (2002) argue that e-tendering reduces the cost associated with selecting suppliers hence enhancing the possibility that more corporate or public service consumers would “consider a higher frequency of tendering” (p. 31). Boer et al. (2002) also project that direct expenditures and non-product related expenditures would probably fall as e-tendering provide procurers with more supplier alternatives.

They also forecast that strategic purchasing costs might rise, as procurers may need to manage more suppliers. Explaining the implications of such trends on the supply chain, Boer et al. (2002) note that suppliers would have to contend with more costs analysis and procurement policies from the government departments intended to curb the increase of strategic purchasing costs.

Strategic purchasing costs are the expenses incurred by the purchaser of products or services when developing strategic procurement activities (Boer et al., 2002).

Summing up the benefits of e-tendering in very basic terms, Tindsley and Stephenson (2008) observe that the use of electronic tenders impact positively on an organisation’s printing, copying, and courier-related costs. Moreover, the electronic tenders are written in simple yet comprehensive language thus minimising the chances of unclear communication.

Tindsley and Stephenson (2008) also note that ‘overall efficiencies’ are the major benefit of e-tendering (p. 274). Explaining what the overall efficiencies are, the authors state that they are a combination of time, cost and resources savings, made possible by the e-tendering process.

Through a survey conducted in the United Kingdom’s construction industry, Tindsley and Stephenson (2008) found out that e-tendering dramatically reduced the tender period timeframe, and streamlined document handling by reducing paper worker and hence making the auditing trail much more clear.

Moreover, Tindsley and Stephenson (2008) discovered that stakeholders in the UK’s construction industry appreciated the scraping of costs associated with copying and sending tender documents to interested suppliers. Moreover, they appreciated the fact that e-tenders allowed them the flexibility of inserting late changes into the tender documents without messing the entire tendering process up (p. 275).

Overall, it is evident that the benefits of e-tendering extend to both the product or service consumers and their suppliers. Notably, the electronic method reduces costs associated with manual tendering, removes unnecessary administrative costs, and streamlines the entire tendering process. More specifically, electronic tendering reduced the tender cycle-time, and ensures that pre-qualification of bidders is fast and accurate.

Should the procurer find issues that require clarification in the tender documents, he can obtain a fast response from the bidder using the same electronic means. It is also noteworthy that e-tendering reduces the labour-intensive tasks of receiving, recording and distributing tender submissions.

As such, the paper trail that is characteristic of the traditional paper-based tendering is drastically reduced. E-tendering further presents both the procurer and the supplier with an enhanced audit trail, thus improving the transparency and integrity in the tendering process.

Implementations of e-tendering

In its most basic form, e-tendering is a method of generating a contractual sales agreement between a procurer and a supplier using electronic means (Du et al. 2006). Generally, tendering involves several steps that include a call for tender, tender evaluation, invitation and submission of tenders, assessment of tenders, and acceptance of tenders.

As Du et al. (2004) observe the implementation of e-tendering processes calls for the execution of all the identified tendering steps on an electronic platform. This means that E-tendering implementation requires the involved parties to enforce an electronic contract. Notably, enforcing an electronic contract usually depends on how reliable the suppliers perceive the procurer and the electronic system to be (Du et al., 2006).

To ensure that the e-tendering implementation is a success, Boulmakoul and Sallẻ (2002) propose that the process must contain security properties, which would serve as an assurance that information exchanged during the process, and any negotiations made, are secure.

Specifically, Boulmakoul and Sallẻ (2002) suggests that e-tendering implementation should be backed by properties such as authentic identities of the participating parties, non-repudiation, integrity of the ensuing contract documents, and private and confidential contract documents.

Legal considerations

Since e-Tendering is a fairly new concept, there are ambiguities in its implementation, which could generally raise security and legal issues. Specifically, Booty (2004) notes that the different e-tendering methodologies and procedures have an impact on information exchange, security and workflow.

The different impacts could raise questions about the legality of e-tendering processes, since conventional laws cannot contain the different dynamics bred by the electronic platform. Supporting this argument by Booty (2004), Betts et al. (2006) observe that e-Tendering systems “remain largely untested from both a legal and security compliance perspective” (p.2).

Betts et al. (2006) observe that while many people expect e-tendering to have the same legal compliance, as the traditional paper-based tendering, few are aware that laws that government e-tendering, and e-procurement are still underdeveloped in many countries. Notably however, Betts et al. (2006) acknowledges that, just like traditional tenders, electronic tenders are largely governed by contract law.

The legal gaps that exist in tenders are generally remedied by clear and thorough conditions set in the tenders. But how exactly does this happen? Well, referring to the ‘UNCITRAL Model Law on Electronic Commerce’ Betts et al. (2006) observe that most developed nations require businesses operating under their jurisdiction to observe two principles while issuing e-tenders:

technology neutrality and;
functional equivalence.

The functional equivalence principle calls for equal treatment for both electronic transactions and paper-based transactions. The Technology neutrality principle on the other hand calls for the equal treatment of all kinds of technology. Such include email, fax-based communication and Electronic Data Interchange among others (Betts et al., 2006).

Against the background set out by the Model Law, Betts et al. (2006) identify four legal issues that emerge in the e-tendering process. They are:

authentication,
closing of tenders and the time factor,
evaluation,
“award of tender and formation of contract”, and
archiving.

Authentication

Betts et al. (2006) acknowledge that the electronic environment provides a platform where documents can be manipulated with ease. As such, the authors propose that e-tendering systems should be designed with the need to minimise the chances of cheating and forgery during the bid-submitting phase.

Betts et al. (2006) proposes the setting up of prequalification screening of all interested bidders. This would minimise legal problems that may crop up once the interested consumer accepts bids from non-authentic bidders.

Closing of tenders and the time factor

Betts et al. (2006) note that “the time at which a tender will be legally received by the principal is of particular importance to the question of non-conforming tenders” (p. 4). The very nature of the electronic environment makes tender submitting deadlines confusing for both the bidder and the procurer. Notably, a tender submitted electronically becomes valid upon receipt by the procurer.

However, issues like unresponsive servers on the procurer’s side may cloud the judgement about whether late tenders were the bidder’s mistake or due to the unresponsiveness of the procurer’s servers.

According to Dawson et al. (2006), late submission of e- tenders will continue posing a legal issue in the electronic environment especially because it is hard to determine whether lateness is as a result of the procurer’s or the bidder’s conduct.

Tender evaluation

Several legal issues need to be considered when evaluating tenders. Expounding on this issue, Dawson et al. (2006) list the integrity of tenders and non-conforming tenders as the main issues of consideration. In paper-based tenders, the integrity of tenders is upheld by set terms and policies.

In Australia for example, Dawson et al. (2006) observes that government tender boxes can only be opened by specific people. This ensures that there is no fraud, collusion and other types of impropriety.

Tender integrity: Considering that e-tenders are sent to a specific electronic address, it is hard to uphold the same level of controlled access to the mailboxes. It is not however impossible for the procurer to set up electronic security measures that would ensure that the mailbox is only opened once the tender deadline is expired.

Non-conforming tenders: Dawson et al. (2006), Betts et al. (2006), and Christensen (2001) argue that determining non-conformance in e-tenders is not as straightforward as people think. Dawson et al. (2006) holds that the electronic environment creates extra situations that may make an e-tender non-conforming. For example, the bidder may fail to fill in some fields in the e-tender document.

A submitted e-tender may also be corrupt, or it may contain a macro or a virus. In the identified situations, the procurer is unable to access the tender for evaluation. This may give rise to legal issues especially if the bidder argues that the procurer unfairly discriminated against his or her tender application.

To avoid legal issues that may arise from such situations, Dawson et al. (2006) advice procurers to specify the meaning of non-conforming tenders clearly, and “provide a broad discretion to deal with those types of tenders” (p. 17).

Awarding tenders and forming contracts

According to Dawson et al. (2005), a tender is awarded upon the procurer’s official communication to the bidder expressing the former’s decision to let the latter take on the job. In paper-based tendering, the procurer would invite the bidder to sign a contract as a means of formalizing the deal.

The electronic environment gives rise to several legal questions relating to tenders (Dawson et al., 2006; Kerridge et al., 2000). Specifically, the authors argue that it is not clear when a contract is formed electronically.

More so, there are no provisions in the common law addressing the withdrawal of an e-tender. The common law is also silent on issues concerning unauthorised submission of tenders and the effect of such actions on the tender (Betts et al. 2006).

Archiving

In most countries, public service departments are required to keep and maintain records about the tender process and the ensuing contracts. While this is a straightforward undertaking in the paper-based processes, the case is not the same in an electronic platform.

According to Dawson et al. (2006), the main laws used in many countries do not address how the contents or the integrity of an e-tender can be proven. Further, the laws do not address how the procurer should store the electronic tenders, nor how the e-tenders should be produced in court should a legal dispute occur. The article by Betts et al. (2006) gives the court discretion to determine the admissibility of electronic-sourced evidence.

Notably however, Betts et al. (2006) observe that since e-tendering is becoming commonplace as more people adopt technology, stakeholders in both government department and the private sector should combine forces and come up with e-tendering systems that can withstand legal tests.

Specifically, Betts et al. (2006) propose that e-tendering systems should have recording systems, which can be trusted to keep audit logs and authentic records.

More so, the authors propose that the e-tendering systems should be based on software that restricts data access to people with the right access codes. In addition, the e-tendering systems must have the capacity to archive and preserve data, which may be used as evidence in court should a legal battle occur.

“Matters of Jurisdiction” have also been identified as an extra legal issue in e-tendering. According to Kajewski et al. (2007), the universal nature of the electronic environment makes it important for all countries where e-tendering has been enforced to state the exact laws that will govern e-tendering within their respective jurisdictions.

Kajewski et al. (2007) notes that commercial transactions that go beyond physical national boundaries create room for confusion since parties from different nationalities would not know what laws to use should a legal dispute occur.

Problems, Solutions and services available

Like other innovative practices in the world today, e-tendering has faced, and is still facing a number of problems. Specifically, implementing e-tendering processes has provided both government and private-sector players with a hard nut to crack many a times.

A review of literature reveals that most scholars and researchers have concentrated much on the positive effects of e-tendering hence neglecting the problems, solutions and services faced by those who are interested in e-tendering.

Coulthard and Castleman (2001) are among scholars who have addressed some of the issues that face electronic handling of documents. Although the two authors do not explicitly refer to e-tendering, they have addressed issues that governments face when implementing electronic procurement.

Coulthard and Castleman (2001) observe that governments face problems while attempting to manage e-procurement systems amidst the “complex mixture of centralised and devolved processes” (p. 1001). This suggests that for newer processes such as e-tendering in public sector departments to succeed, the government would first to streamline competing policies on tendering processes.

According to Coulthard and Castleman (2006), the need to prevent fraudulent deals and enhance accountability and efficiency in government departments should serve as motivation to overcome the logistical problems.

Coulthard and Castleman (2006) also perceive the difficulty in maximising “the objectives of efficiency, increase access to government contracts by SMEs and government modernisation” (p. 1001) as the second problem that governments face in e-tendering. This problem as identified by the two authors is best exemplified in the government’s role of providing equal opportunities to established business and the small business enterprises.

Whereas providing equal opportunities to all businesses is a good policy, it can lead to sub-optimal e-tendering solutions since the need to appear fair to the public may compromise selection of the winning tender.

Exploring if the governments’ intentions to have small business enterprise (SMEs) bid and win tenders, just like their more established counterparts was indeed successful, Erridge, Fee and McIlroy (1998) investigated the case of European Union’s Tenders Electronic Daily (TED).

TED was set up as a database where SMEs operating within the European Union member countries could access tender invitations published within the region. Specifically, the governments involved saw TED as a perfect platform for encouraging open competition among the SMEs as well as the bigger, well-established suppliers.

The first problem that Erridge et al. (1998) noticed regarding the TED database was that its requirement for subscription locked most small-scale suppliers out of the process. This negated the governments’ efforts to encourage SMEs to place their tender bids in large numbers.

Investigating the effects of information technologies on the public sector, McIvor, McHugan and Cadden (2004), observe that implementing electronic processes in public sector, governments may be faced with various impediments, which have the potential to hinder the realisation benefits related to the electronic environment.

Other scholars like Kajewski et al. (2007), Kerridge et al. (2000) and Dou et al. (2004) have also made this observation. McIvor et al. (2004) note that senior managers opposed to the use of electronic processes may pose a problem to the entire their implementation.

The senior managers may oppose electronic processes (e-tendering included) due to ignorance or just a general resistance to change, which can be blamed on their fixed mindsets, beliefs, and attitudes. According to McIvor et al. (2004), problems that result from the resistance from workers can be solved though employee training.

Additionally, employees who fear losing their jobs because of electronic processes should be reassured of their positions in the workplace, or assured of a comfortable exit. Kajewski et al. (2007) hold the opinion that managers would be more receptive to e-tendering if they understood just how much the process would save time, which is otherwise wasted handling the paper trail produced in paper-based tendering.

Disharmony between government and suppliers may also arise if contractors or consultants who view e-tendering as an unfair practice express their discontentment. Kajewski et al. (2007) however observes that those contractors and consultants opposed to e-tendering do so out of ignorance.

As such, Kajewski et al. (2007) suggest that their attitude towards e-tendering can be changed by informing them about the potential opportunities and benefits available to them on an electronic environment.

Security is also a problem area in e-tendering (ABS, 1999; Kajewski et al. 2007). According to ABS (1999) however, most people just perceive the electronic environment as insecure, yet in reality, it could be more secure that the paper-based tendering system. To solve the problem posed by security concerns, Dou et al. (2004) propose the increased use of digital signatures.

The signatures offer confirmation that tender documents sent electronically are from the originator and that they have not been altered without his or her consent. Although the use of electronic signature is a valid proposal, it could only address the integrity issue of e-tenders. As such, Kajewski et al. (2007) propose that electronic security should be modelled to address confidentiality, integrity, and availability of information.

Conclusion

Electronic tendering, just like its paper-based equivalent, is a long business process that has the capacity to generate good and rewarding processes. In equal measure, e-tendering has the potential to bring about legal liabilities born out of discontent by either the procurer or the suppliers. The e-tendering concept is yet to be embraced by government and private sector departments.

Some of the evident reasons behind the slow trend of e-tendering adoption are governments’ inability to embrace comprehensive e-government solutions. As governments continue responding to citizen’s clamor for effective modes of doing business, the barriers that hinder the fast uptake of electronic innovations will most likely be surmounted.

The private sector also has a role to play if e-tendering in public sectors is to be realized. As proven in this essay, private sector players have a degree of apathy, which makes them less responsive to governments’ invitation to tender on electronic platforms.

While it is rather obvious that there are multiple benefits that the procurer and the tender bidders can get from e-tendering, it emerges that security; legal and general acceptance problems hinder the rate of e-tendering adoption. As evident in this literature review, some of the hindrances are more perceived than real.

To overcome such hindrances and make e-tendering a mainstream process in both the public and private sectors, more awareness about its benefits, risks, and opportunities would need to be created.

It is also evident that a lot more resources would need to be devoted into researching and developing measures that would make the e-tendering process more secure, and legal. After all, the safety and legality of e-tendering seems to be the main issues hindering its implementation.

Since it has emerged that both the public and the private sector will benefit from the easier and faster e-tendering process, the responsibility to research and develop security and legal measures for use in the process does not fall on either one of them. Rather, collaborative efforts between the public and private sector are essential if a comprehensive solution is to be found.

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