Weighing choices: a facelift can make a difference. (Streetsmart Nonprofit Manager).

The technique of getting three or more bids for the purchase of high-priced goods or services is one of those ideas that is so firmly embedded m most managers' consciousness that it seems almost like instinct. The idea seems so sensible, so level-headed, and so darned responsible that it feels like MBA heresy to challenge it.

Yet, as with most easy answers, perhaps it's time to re-think the idea every now and again.

The idea of soliciting three bids for goods and services is most deeply rooted in the public sector where in. some cases it's actually enshrined into law. Philosophically, it comes from the kind of deep-seated reaction to blatant abuses of power, such as the Tammany Hall scandals in New York City in the 19th century. The Tammany Hall Society was the prototype of the "good 'ol boys" network, in which a fraternity of powerful individuals dominated the workings of government for personal benefit. Many of the good-government provisions employed today have their roots in the reaction to these and similar abuses.

The three-bid approach does many positive things for a procurement process:

* It keeps costs down by forcing vendors to compete;

* It gives a ready framework to what could be an overwhelmingly complex process;

* It forces buyers to be open to new vendors with new ideas;

* It signals that buyers have 'done their homework';

* It forces a certain measure of dialog between buyer and seller;

* It makes procurement processes more likely to be transparent.

The three-bid approach also has some drawbacks:

* It can usually be controlled or circumvented by those doing the purchasing to achieve a desired result;

* It wastes a great deal of time in those instances where the decision, rightly or wrongly, has already been made;

* It therefore tends to gloss over fundamental management beliefs that probably should be widely understood, confidently stated, and possibly debated;

* It tends to focus too much on price rather than service or the quality of a product.

Spreadsheet thinking

The difficulty with the three-bid approach comes not from the process itself but from the nature of the procurement being attempted. It encourages managers to engage in what might be called "spreadsheet thinking," the unfortunate conviction that all procurement transactions can be reduced to two dimensional column-and-row comparisons. There's something so satisfying about all those columns and rows that it's easy to think that you've actually captured all the important points.

Spreadsheet thinking always thrives in certain corners, the most recent of which is the Internet, where it is now possible on many consumer Web sites to call up a column-and-row vendor comparison for virtually any item one might wish to purchase. And, spreadsheets have empowered nearly two generations of business analysts to boldly compare features and prices among competing sources with a routine precision unavailable before the advent of computerized spreadsheets.

These exercises are good examples of where three-bid purchasing works well. On a Web site for, say, digital cameras, one can ruthlessly compare three or more retailer's prices, lining up variables such as shipping costs or order fulfillment time to see which vendor is more desirable.

The common thread is that these are commodity purchases. The product is a constant What changes are the elements outside of the product, in this case how the retailer handles its job of getting the item to the consumer.

Moreover, even the elements of this comparison can usually be quantified so the entire decision can almost be reduced to a single formula. Execute this general approach for the purchase of items ranging from copier paper to 12-passenger vans and you have a powerful and straightforward bulk purchasing program.

Most consumer products can be handled in this same fashion. Save for details such as a delay in order fulfillment or a slightly speedier delivery time, there won't be much variability because the marketplace has squeezed it all out of the purchasing transaction. That's why big-box retailers dominate the consumer goods business these days.

A true story

During the past six years, a town has had to renovate or build three new school buildings, the fire station and the police station. Following state law, the town government issued requests for proposals for the general contractors and separate requests for proposals for all of the sub-contractors on the jobs. Also in compliance with state law, the town selected the lowest bidders as the general contractors, as well as each of the sub-contractors. All five projects came in late, over budget, and with serious design and construction flaws:

A different situation

Clearly this is not in the. same league as that digital camera purchase. Almost any manager reading the first part of the above scenario could have predicted that the town was in for unhappy times (as the public officials themselves acknowledged throughout the process).

Yet, the individual provisions of the bidding laws are not unreasonable. Who wouldn't want public officials to spend the least amount of money possible? Who wouldn't want as much control over the process as possible? Why didn't the three bid technique work as well in this situation?

The answer is that the described procurement process has taken a quantum leap beyond spreadsheet purchasing. The town appears to be buying a building, but what it is really buying is a complex professional service. That's where the three-bid rule breaks down.

Most nonprofits don't generally have to do the level of building construction described above, but most have to buy services all the time. Often these are professional services such as legal, accounting, or Web site development. They can also be as low-tech as landscaping, painting, or driveway refinishing services. These are all potentially complex services that can't be reduced to a decision by columns and rows without a significant loss in accuracy and reliability.

In addition to being services rather than products, these purchases involve two other very different factors. First, they are often one-time purchases, or at least irregularly occurring transactions. Second, they involve a substantial amount of judgment in a specialized area.

Qualified service providers will differ in the way they perform their services, sometimes not doing the same type of job in exactly the same way. That's to be expected. So, much like the town government trying to build a new school building, nonprofits are essentially buying intangible qualities such as skill and judgment as much as they're buying a new driveway or a Web site re-design.

Does this mean that getting three bids doesn't work for complicated services? Not exactly. It just means that the elements of the purchasing decision have a lot more to do with trust, credibility of the supplier, and even the personal chemistry between buyer and supplier. It also means that price has to be secondary to one's estimate of the ability of the supplier to get the job done.

Here's an alternative to the three-bid approach. Solicit multiple suppliers for the job, but work backward from the desired end result. Let them tell you how they'll get there, not just how much it will cost. Ask for detailed process specifications and compare them -- instead of product specifications. How they get to the desired result is as important as the result itself. Get references, but check them for compatibility with you and your organization as much as for what they say about the supplier. Effective service delivery is based on the characteristics of the buyer just as much as it is based on the supplier.

In the end, a big part of a satisfying professional service relationship is based on factors that can't be quantified. That doesn't mean that the purchasing experience has to look like a casino game. It just won't look much like a spreadsheet either.

Thomas A. McLaughlin is a national nonprofit management consultant with Grant Thornton in Boston. He is also the author of "Streetsmart Financial Basics for Nonprofit Managers" (2nd edition) and of "Trade Secrets for Nonprofit Managers, both from John Wiley & Sons. His email address is [e-mail].