10 major mistakes in car lease tenders

Procuring car lease contracts can be complicated in itself, but combined with European procurement rules the complexity seems to increase exponentially. Since 2012 we have guided many contracting authorities to successfully award new framework agreements through car lease tenders. From that practice we share ten practical lessons, grouped around the request and around price and award.

1. Vehicle specifications in the programme of requirements

When drafting the documents, the focus is often on which cars can be ordered later. If the tender is aimed at procuring lease contracts, that question is not yet relevant: virtually every leasing company can deploy every available passenger car and van through a lease contract. What matters are the conditions in that contract. The focus should not be on vehicle specifications but on the specifications of the complex financial service that car leasing actually is.

2. Not verifying references

In both open and restricted procedures, references are often requested from clients with a comparable fleet. In their commercial enthusiasm, bidding leasing companies sometimes consider a reference 'comparable' rather sooner than the contracting authority had in mind. Always call all references. You would not be the first to discover that the reference fleet was genuinely smaller than stated, or that a completely different service was delivered than described.

3. Too many or too few requirements

Ideally you receive around five good bids. One is too few, twenty is too many. Over-specifying a tender is especially risky for fleets with limited volume: holding on to excessive requirements through the question rounds creates a real risk of too few bidders, or even zero offers. If the request is too general and every leasing company can comply, be prepared for far too many bids in an open procedure, all of which must be carefully assessed and substantiated. A waste of everyone's time. Match the requirements precisely to the volume being procured and estimate in advance how many bidders to expect for a given package.

4. Too short or too long a duration

A contracting authority generally benefits from running as few procedures as possible, hence the longest possible framework agreement; in car leasing there are often genuinely sound reasons for that. However, never let a long duration become an excuse for the supplier to let the service level sag halfway through. Consider starting with an acceptable initial duration of three or four years, extended annually depending on the client's satisfaction. A shorter initial duration is possible too, but risks too few bidders: the extensive bidding procedure does not outweigh a duration of one or two years.

5. Rigidly enforcing procurement conditions

Every contracting authority uses its own procurement conditions or general terms such as ARVODI or AWVODI. These are almost without exception drafted in general terms for procuring all kinds of services. Potential bidders can be deterred by the volume of conditions and the risks they carry; sometimes that is even a reason to set the tender aside upfront. Many conditions are simply not applicable to car leasing (think of return rights or packaging obligations). Go through your own conditions critically and state in advance which articles are disabled for this tender. That saves many questions in the question rounds and prevents leasing companies from dropping out early.

6. Allowing indexation

Those same general procurement conditions sometimes allow prices to be indexed annually. That is unusual in car leasing: lease rates are built from many components, and for each of them you want to record in the programme of requirements to what extent they may change. General price indexation of lease rates does not belong in car leasing; remove that clause from your conditions upfront.

7. Building in no price pressure

Lease rates are day prices: they change almost continuously under the influence of manufacturer delivery programmes, list prices, interest rates, claims figures, taxes, the used-car market, government measures and, not least, the commercial eagerness of leasing companies. The rate submitted in a tender is therefore no more than that: a day price. To prevent a one-off sharp bid with no pressure on rates for subsequent orders, two proven instruments exist: contracting multiple leasing companies compared per order (mini-competition), or applying price monitoring, a service offered by independent parties for clients who prefer a single leasing company.

8. Awarding on price alone

The motivation to bid sharply once is reinforced when only price counts in the award. Operational car leasing has both a financial component and a service component, and not all leasing companies deliver the same services. Besides price, attach value to matters such as good applications, support for the fleet manager and services to drivers.

9. Letting discounts weigh into the award

If the leasing company may determine the supplying dealer, differences can arise in the central purchase discount between bidders. Although this can be advantageous, it is dangerous to give that discount too important a role in the award: central purchase discounts are snapshots that fluctuate strongly per brand and period. Use standard discounts in the pricing sheet for the cars used to assess the lease rates, assess the central purchase discounts separately from the lease rates and give them a relatively light weighting.

10. Forgetting VAT

Many contracting authorities cannot reclaim VAT, or not in full. It is therefore important to know whether certain components of the lease rate can be invoiced without tax. Think of VAT but also insurance tax: leasing companies differ in whether they pass on BPM depreciation, road tax and insurance premiums tax-free, depending on their systems and how insurance is procured. Take this into account in the pricing sheet. It prevents contracting a leasing company that offers the best rate on paper but turns out more expensive on the invoice.

Molthoff Fleetmanagement acts as the subject-matter expert in European tenders for car leasing and fleet management, from strategy to award. Beyond tailored advice, the support includes: