When to Obtain Comparative Quotations
What is the correct protocol to follow when obtaining quotes, and how many quotes should be obtained, to ensure that sound governance is adhered to by the Board of Trustees or Directors of the scheme?
A quotation (different to an estimate) is defined as a written statement of how much money a particular job will cost to do. While it is necessary for budgeting purposes and for monthly financial management to know what a specific job or project will cost in advance, by way of obtaining a written quotation, the current trend of automatically insisting on multiple quotations for comparative purposes, is not always necessary; it can in fact be obstructive and costly.
The deciding factor for when to obtain comparative quotes should not always hinge on the amount of the job / project / capital expenditure in play. To determine that amounts less than say R5000.00 do not require comparative quotes is too prescriptive. R4900.00 could be a large sum for a certain budget, or the task in hand has not been put out to tender for years, and the same contractor that has been attending to the task year in and year out, has slowly built in added costs that shouldn’t be there.
The rule of thumb generally is that the more costly the item / project, the more quotes that should be obtained. It is easy to advise one to apply common sense to this approach, but we all know that common sense is not so common, so here are some guidelines that we find useful:
- There should be someone that you know who is familiar with market related costs for services, items and jobs. Ask them.
- With that estimate in mind, factor in the time it will take to initiate the process for multiple quotes as opposed to going directly to a recommended source – factor in meeting the contractor/s on site or meeting with the service provider/s if that is a pre requisite to quoting.
- If the decision is to adopt the multiple quotation approach, enquire if those quotations are going to incur a fee – many companies today no longer prepare quotations for free, especially when they need to send someone to meet with you / on site first.
- If there are costs involved, possibly only approach 2 companies initially.
- If there is a vast price difference in those 2 quotes, a third quotation can be obtained (this is where the original 3-quote rule came into play). The third quote should align with one of the two quotes in hand, and that should assist with the decision making process.
- If the job or service requires a specialist, do your homework first. The fewer specialists or companies offering that service, the less likely it will be to obtain multiple quotations.
- If there is a regular service that is provided, we suggest obtaining comparative quotations every 2 years. An example of such services is the annual servicing of fire equipment.
- Trust your instinct – if something doesn’t feel right, obtain a comparative quote / assessment / opinion.
- Always compare apples with apples, after all, the idea behind obtaining multiple quotations is to compare them. Make sure that you are being fair towards the individuals or companies that have taken the time to submit quotations.
- Obtain references on the companies if quotes are competitive and you are still unable to decide – they should help you make up your mind.
- If you wish to establish long standing professional relationships, advise those who are being asked to quote that you are obtaining other quotations, let them know the outcome of the tender process, and be honest with them as to why they were not successful.
- Trust your service providers appointed to attend to these matters for you, or get rid of them if you can’t. We work with suppliers and contractors daily and are aware of market related rates. If we advise our clients that we are confident the single quote is market related and acceptable, there is no hidden agenda in doing so.
- We all know that cheaper is not necessarily better, and conversely, neither is the more costly by default! At the end of the day we should be getting what we were quoted for, and what we are paying for – read the fine print.
- And finally, often the reason for obtaining multiple quotations is lost in translation. If you are looking to terminate the services of a company for poor service delivery, address it as such, and avoid using quotations as a reason to end the relationship.