Some companies and institutions prefer to maintain a relationship with one supplier, valuing the ease of contracting and relying on the incumbent to offer a reasonable price. A Texas VA hospital had such a relationship with a supplier, but in a cost cutting effort, decided not to automatically renew the contract, choosing instead to hold a competitive auction with World Energy. Upon receiving an invitation to bid in the World Energy auction event, the incumbent supplier contacted its customer advising against an auction. The supplier argued that since they had already offered the lowest price, nothing could be gained by going to auction. The hospital’s energy buyer was astute enough to insist that if the supplier indeed had the lowest price, then there was nothing to fear from participating in the auction. In fact, what incumbents fear most is price transparency. Result: Faced with stiff competition (the World Energy auction garnered 40 bids), the incumbent was forced to reduce its price by $3 million in order to keep the contract. Back |
