The usage of supplier selection criteria is recently moving the focus from choosing the offer with the lowest price towards a broader emphasis on quality and environmental considerations. After the bankruptcy of two of the largest waste collection suppliers in Norway, municipalities are concerned with quality criteria to avoid choosing an underpriced offer. As discussed, the legislation creates restrictions on how to reject suppliers, and the market has been
characterized by aggressiveness towards the buyers when choosing a supplier which is not offering the lowest price. The use of non-economic selection criteria constitutes a new method when municipalities are purchasing a transport service like the waste collection.
From our analysis and discussion, we see that price serve as the criterion that influences the final decision the most, even though the percental weight of the factor has decreased during the last decade. The formula used to set a point score when evaluating price does not consider the risk of significant variety in bids, which have been a challenge recently. Price is still the individual criterion constituting the greatest share of percentage weighting. Since the market is characterized by a price competition, the criteria should be a critical decision factor in order to promote healthy competition. Data does further show that decision-makers find it too risky to weight the criterion less than 40-50%, as the municipalities have strict budgetary constraints to consider. A sustainable supplier is characterized by the balance between price and quality. By distributing the weighting criteria by using an approximate 50-50 approach, the supplier selection process is still influenced by the focus on price but promotes considerations regarding quality and environmental aspects.
The bankruptcies and the negative trend that arose in the market have further affected the municipalities to become more concerned with the quality of the service. By setting higher requirements in their tenders, the suppliers are forced to deliver a service of higher quality rather than offer an underpriced bid in order to remain competitive. The selection criterion concerning environment has further gained increased importance due to political and socio-economic trends. The market is still characterized by the uncertainty regarding the weighting of criteria.
Regulations of public procurement suggest that environment should be weighted
95
30%, but our analysis promotes that the environmental concerns mainly should be described in the technical requirement specifications and be used to lower degree as an award criterion.
From primary and secondary data, we see an increasing trend towards a 50-50 approach between price and the remaining award criteria. Since quality and environmental considerations usually constitute 50% together, they should be described in parallel to achieve an optimal performance quality. The weighting approach provides the municipalities the opportunity to choose a low-priced contract, while at the same time establish a decision consisting a higher level of sustainability. Thus, the approach provides the most economically advantageous tender. Award criteria considering environmental aspects serve as an initiative for suppliers to offer environmentally friendly solutions. Quality criteria is on the other hand a method for increased innovative solutions if defined properly. This could further result in optimal life cycle costs among the municipalities, and a healthier buyer-supplier relationship than we have seen in the market the recent years.
A conclusion we can draw from the analysis and discussion regarding transport economics is that a higher level of competence and knowledge regarding the cost that occurs in the service could give the municipalities a stronger argument to reject tenders that are underpriced. The regulations state that the buyer needs a specific reason to reject an offer, and if they have a more detailed cost calculation the municipalities could refer to this if the rejection is questioned. Generally, there is little knowledge about costs, and the actors (municipalities, IMC, and
consultants) relies on historical prices and the offers they receive. Knowledge of whether suppliers are left with profits are non-existent. Consequently, an
increased knowledge regarding costs would provide the municipalities a better understanding of the prices offered and would reduce the power the suppliers possess regarding the market pricing. Currently, we see tendencies of a market characterized by information asymmetry which is affected by suppliers’ dominant power regarding market pricing.
The analysis of vertical communication shows an emerging trend regarding the use of dialogue conferences in advance of the invitation to tenders. The dialogue conferences enable discussion and feedback regarding innovative solutions
96
considered implemented in the new contract. Thus, both parties in the buyer-supplier relationship can discuss ideas before concretizing it in the tender. The dialogue conferences are also functioning as a tool for mutual market analysis, as both parties get an insight into market demand and interests. Due to the discussion of suggested innovative solutions in plenary, a greater insight in the operative outcome and associated costs can be mapped. This could enlighten the basis for pricing of the contract and provide suppliers more information in what the expected service cost is before formulating the offer. An opportunity for improvement in the dialogue conferences is an increased participant activity, which currently seems to lack full utilization.
A conclusion that can be drawn from the analysis regarding horizontal communication is that there is a great opportunity for improvement. Findings show that there is a varied use of communication among the municipalities and IMC. Several of the interview objects are mentioning Avfall Norge during the interview, but the exploitation of each other’s experiences with the usage of supplier selection criteria is somewhat weak. Since the decision makers within the different municipalities and IMC perform the same process, they should strive for an in-depth information sharing regarding their experiences. This could further increase the power they pose in tenders. Findings show signs that the suppliers possess a higher knowledge regarding pricing, operational costs and the service itself, which causes imbalance and information asymmetry in the buyer-supplier relationship. This have provided the suppliers the ability of predatory pricing. The lack of transparency did further lead to the possibility for some of the market actors to offer several underpriced contracts without the buyers knowing about it before it was too late.
The usage of supplier selection criteria provides the municipalities and IMC the ability to select suppliers with a greater focus on innovation, which could develop the waste collection industry in the long term. There are still possibilities for increased collaboration between buyers and suppliers, as the “us” and “them”
attitude is present during the data collection. By moving toward partnership, an increased sense of community could promote a more active approach towards innovation. Further, technological tools permit detailed information sharing in the buyer-supplier relationship. There are still opportunities to increase the usage of big data to increase knowledge of cost drivers. Both parties should try to achieve a
97
high utilization rate of given data to be able to calculate the cost, disclose deviations, and facilitate improvement in the collection process throughout the contract period. Technological tools can further provide insights in both quality and environmental aspects given the correct usage.