The Million-Dollar Debt

A well-known Israeli defense electronics company was once bidding on a big American tender (tens of millions of dollars).

The company needed subcontractors to develop (and later mass-produce) parts for this important project.

It approached three Israeli companies at the same time, ours among them, and asked for a preliminary "budgetary proposal" for the components it had decided to subcontract.

Our two competitors hurried to study the matter in depth, estimate the inputs (engineering hours and raw materials) and send in price quotes. (A beginner's mistake: they "wanted to show they were serious"...)

I took my time.

I knew the deadline that company had for submitting its bid to the Americans.

As usual, I tried to gather intelligence on the quick competitors' proposals (I call this "2G"), but I don't recall succeeding this time.

As late as I possibly could, I submitted a very optimistic and attractive budget estimate, while stressing, and stressing again in writing, that this preliminary estimate was based on the basic material we had received up to the date of writing.

The little time left before the deadline on one hand, and the circumstances of the case on the other, didn't allow us to hold a proper professional design review before submitting our estimate...

The Israeli company submitted its bid to the Americans based on our budget estimate, naming our plant as the subcontractor in case of a win (which let the company put in an attractive bid of its own).

A few months later an American delegation came to Israel to carry out an audit. The delegation also inspected the intended subcontractors, to make sure they met the American customer's strict criteria. Our plant was inspected too, and passed with flying colors: we were approved as a suitable supplier for the project.

A few more months went by, and it turned out the Israeli company had won the tender.

Working meetings were immediately set up with our engineers, and at those meetings we were handed full specifications, detailed requirements for meeting extremely harsh environmental conditions (military grade and then some), tight schedules, a demand for extensive technical documentation and much, much more.

None of these details had been known when the budget estimate was written.

Armed with the full set of updated requirements, our engineers sat down to re-estimate the cost of the project.

The complete, updated proposal we submitted, based on all the material we'd now received, came out about a million dollars more expensive than the preliminary budget estimate. And rightly so!

To this day, the people at that company claim, with a friendly wink, that I owe them a million dollars, and I just can't figure out what they're talking about...

The moral:

Large projects aren't played like an ordinary game of chess, with two players facing each other.

There's a whole complex system at work here, which includes, besides the selling plant and the buying organization, a group of competitors who should never be underestimated. The end customer, in this case the American one, is also an influential player, and you need to study them and understand their considerations as well as you can.

To win this kind of contest, you have to analyze and truly understand the big picture: the status of the project, the forces at play and how much weight each one carries, and how decisions get made by the immediate customer and by the end customer. All this on top of knowing the relevant competition, how it operates and so on.

Anyone who focuses only on the specs and the RFQ, and doesn't apply deep judgment, is likely to lose.

The urge to be the first one out with a price quote, which I see quite a lot, doesn't show much understanding or professional judgment either...