Tenders are a Race to the Bottom - So Who Wins?
- jamesmckenzie654
- 5 days ago
- 4 min read
When people say, “tenders are a race to the bottom,” they mean that competitive bidding processes (tenders) often push companies to undercut each other’s prices so aggressively that it erodes profit margins, reduces quality, and prioritizes being the cheapest over delivering the best value.
For Aerial Imagery and LiDAR capture in New Zealand the race to the bottom has been accelerating in recent years and all operators play their part as they try to win market share. It's important to note this is not unique to our sector. This is the nature of a free market that we all accept. However, where does this end if we continue to devalue the other objectives often set out in tenders such as:
Quality
Investment in equipment and people
Investment in New Zealand
Reducing emissions
Encouraging supplier capacity
It can reasonably be argued that this process is working for Rate/Taxpayers by getting the lowest cost. However, this ignores all these other objectives that have wider impacts on the economy, people and the environment.
Who Wins the Race to the Bottom?
The answer to this is quite simple. The winner is the organisation that can absorb the most loses and out last the other players in the market. Invariably this is the organisation with the deepest pockets. More often than not this is large multinational companies that can offset the loses using profits in other markets. This leads to consolidation of service providers or monopolies.
What's the net effect of service provider consolidation?
Less competition
Higher prices
Lower Quality products and services
Tax pay dollars leaving the country
Key Reasons why Tenders Become a Race to the Bottom?
Overemphasis on lowest price – Buyers often select the cheapest bid rather than evaluating overall value, incentivizing bidders to slash costs.
High competition – More suppliers than a market can support can create pressure to undercut prices just to stay in contention.
Minimal differentiation – When services or products are seen as interchangeable, price becomes the main competitive factor.
Short-term focus – Organizations may prioritize immediate cost savings over long-term quality, sustainability, or innovation.
Lack of relationship or trust – In purely transactional tenders, there’s less weight given to reputation or proven performance.
Cost-cutting pressure – Suppliers may reduce quality, cut corners, or squeeze staff to meet the lowest price, reinforcing the cycle.
Broader Outcomes Ignored - When the final decision is made solely on price broader outcomes are no longer considered.
10 Ways the Tender Process Could Be Improved?
The Tender process is not necessarily the issue it's more the packaging and evaluation that could be improved. Often tender evaluation criteria appear subjective, unmeasurable, or poorly understood. Tenderers are asked to make informed decisions about a market they may only interact with every 2-3 years. This leads to panels applying a subjective view that can skew a decision. Because these criteria are often not easily measurable the true long-term impact or value of decision is not truly known. Below are some key changes that could improve the Tender evaluation process:
Measurable Criteria - Ensure the criteria are measurable. This requires having a deep understanding of the variables.
Follow the Money - In selecting a supplier try to understand where the money goes. What percentage circulates back into the economy vs going offshore. This could include asking questions like:
How Many people are employed full time in New Zealand.
What is the value range of total salaries paid in New Zealand.
What is the value range of other costs in New Zealand E.g. Leases, Subcontractors etc
What is the value range of services being delivered outside New Zealand.
Higher Weighting on Experience and Quality - This tends to be more subjective but can be mitigated by speaking to more references and doing deeper research. Don't rely solely on what a vendor tells you.
More Transparency - If you want healthy competition in the market you need to be more transparent on how tenders are evaluated by sharing evaluation scoring and awarded pricing values. Without this transparency operators can't improve or respond.
Avoid Consolidation - Consolidating packages of work into a single tender doesn't allow operators to respond when they lose. By the time they've lost they're out of the game.
Multi-Year Contracts - If you want better value look to award multi-year contracts for a single region of work. This will incentivize operators to give better pricing and will allow operators to invest in people and equipment.
Talk To Your Vendors - In almost all sectors the most knowledgeable market specialist are the operators that deliver the service. They work in that market everyday so logically know more about a given market. More often than not they are happy to share their knowledge and expertise. Let them help you define what is measurable and fair.
Don't Reinvent the Wheel - Aerial Surveying is a mature market. There are organisations in the market now that have good processes in place for tendering. It makes sense to draw on the examples of programs that tender a portion of their region each year. There's always room for improvement so looking at ways to tweak and improve the tender questions and evaluation criteria are where the wins can be found.
Rinse and Repeat - Getting a templated set of tender documents for Imagery and LiDAR should reduce the amount of work required each year to get a tender out. The added benefit of having consistency for suppliers is that they can focus their attention the things matter, like the best way to plan the work. This should result in better value and delivery.
Time Matters - Most imagery capture in New Zealand can start with 35+ degrees of sun angle in August-September. If your tender is coming out after August your potentially missing out on capture time. This matters greatly in New Zealand where weather is increasingly changeable.
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