Harwich College Joan Heaver, director of MBA program services, at HARWICH COLLEGE MBA PROGRAM Harwich College (Harwich) in Toronto, Ontario, Canada, was reviewing two emails she had received regarding an Harwich College School of Business offered an MBA invoice for travel services related to a student study trip to Program that was generally considered to be the lead- South America. The invoice was significantly higher than ing program in Canada and one of the top MBA the quote the supplier had provided three months prior, and Programs internationally. Enrollment in the program was Joan had been in contact with the supplier and procure- 175 people, attracting students from around the world. ment services at Harwich College to resolve the matter. Tuition was $75,000 and the median GMAT score for the It was Wednesday, September 3, and with the study trip current class was 690. less than three months away, Joan needed to decide how As part of the curriculum, students could partici- to address the issue quickly or face cancellation of the trip. pate in one of three international study trips to eitherChina, India, or South America. These trips were about The total cost for the study trip the previous year was 17 days long and started the last week of November. approximately $180,000 USD. The practice had been for The South America study trip was scheduled to start on Joan to negotiate service contracts with different suppli- November 27 in Lima, proceeding to Sao Paulo and Rio ers for the major cost components, such as airfare, hotels, de Janeiro, before concluding in Santiago. During the trip, meals, and ground transportation. Individually, these the students would have an opportunity to meet business fell below the $100,000 threshold set by college policy, and government leaders, tour factories, and attend net- and therefore avoided the need to involve procurement working events. There were also several opportunities to services to run an open competitive bidding process. explore the local culture and customs. However, Joan had been contacted by several companies The international study trips were regarded by the interested in managing the study trip as a complete pack- students as one of the highlights of the Harwich MBA age. Recognizing that sourcing with one supplier would Program. Most students used the opportunity to take a provide potential advantages of reduced administrative vacation with their classmates following the conclusion hassles and lower costs, Joan contacted Peggy Chow, of their trip, traveling in South America or Asia for an supervisor of procurement services, to assist with manag- additional two or three weeks. ing the competitive bid process. PURCHASING AT HARWICH SUPPLIER SELECTION COLLEGE Joan and Peggy identified four potential suppliers that they As an institution that received funding from the Ontario considered qualified to handle arrangements for the South government, Harwich College was governed by Broader America study trip: South American Tours, International Public Sector Accountability Act and the Broader Public Tours, University Travel and Student Tours Group. The Sector Procurement Directive. The objectives of the Act itinerary was set for four days in Lima, Peru; Sao Paulo, and Directive were to ensure that goods and services Brazil; and Rio de Janeiro, Brazil, with the trip concluding were acquired by public sector organizations through with five days in Santiago, Chile. Suppliers were asked to an open, fair, and transparent process and to maximize provide a quote that included costs for: (1) regional flights; the value that organizations received from the use of (2) lodging at four-star hotels based on double occupancy public funds. They also provided guidelines for supplier for students and single occupancy for Richard and Joan, selection processes based on the dollars spent, specify- including breakfast; and (3) ground transportation, include ing that "Organizations must conduct an open competi- ing airport transfers, lunches, and gratuities. tive procurement process where the estimated value of The request for quotation (RFQ) was emailed to the four procurement of goods or services is $100,000 or more." firms on Friday, May 23, with a deadline of June 9. Also The purchasing policy at Harwich stated that "Materials included with the RFQ were two appendices: (1) details and services exceeding $100,000 must be competi- of the itinerary for the study trip, and (2) an Excel tem- tively bid through an open electronic system for at least plate prepared by Peggy for the bidders to provide pric- 15 calendar days. College procurement services facili- ing information. The template asked the firms to provide tates the process with the requisitioner(s) evaluating cost per person for regional flights, cost per person for and selecting the winning proposal." For purchases less ground transportation, and rate per night for hotel rooms. than $100,000, the policy allowed the requisitioner(s) to Exhibits 1 and 2 provide details of the quotes received select the supplier without the involvement of procure- from each supplier from the Excel templates. Each supplier ment services and recommended the collection of three also submitted comprehensive proposals that included formal quotes. additional information, such as hotel options, services pro- There were 34 students enrolled in the South America vided, pricing details, and customer testimonials. study trip. It was supervised by Professor Richard In advance of issuing the RFQ, Peggy and Joan agreed Jenkins, who handled the academic aspects, and Joan, that each supplier would be evaluated based on a score- who was responsible for managing the logistics and card weighted of 30 percent for price, 50 percent for administrative details. The major costs were hotels, experience, and 20 percent for an interview conducted by ground transportation, and regional flights between cit- Richard, Peggy, and Joan with representatives from each ies. Students were responsible for making their own travel company. The interview was meant to evaluate the capa- arrangements from Toronto to Lima and return. bilities of the suppliers, including expertise and systems.EXHIBIT 1 Quotations for Hotels: Rate per Night (USD) South American International University Student Tours Tours Tours Travel Group # nights Rate per night Rate per night Rate per night Rate per night Lima $1 18.36 $306.00 $276.00 $190.00 Sao Paulo $138.54 $272.00 $255.00 $183.00 Rio de Janeiro $130.00 $354.00 $335.00 $234.00 Santiago $103.67 $250.00 $248.00 $150.00 EXHIBIT 2 Quotations for Transportation: Cost per Person (USD) South American International University Student Tours Tours Tours Travel Group Regional flights $1, 147.75 $1,326.00 $3,01 1.00 $976.00 Ground transportation and meals $334.62 $358.00 $543.00 $318.00 Total $1,482.37 $1,684.00 $3,554.00 $1,294.00 EXHIBIT 3 Quote Analysis (USD) South American International University Student Tours Tours Tours Travel Group Regional flights $41,319.00 $47,736.00 $108,396.00 $35, 136.00 Ground transportation and meals $12,046.32 $ 12,888.00 $19,548.00 $11,448.00 Hotel-Lima $8,995.36 $23,256.00 $20,976.00 $14,440.00 Hotel-Sao Paulo $10,529.04 $20,672.00 $19,380.00 $13,908.00 Hotel-Rio de Janeiro $9,880.00 $26,904.00 $25,460.00 $17,784.00 Hotel-Santiago $9,848.65 $23,750.00 $23,560.00 $14,250.00 Total hotel $39,253.05 $94,582.00 $89,376.00 $60,382.00 Total cost $92,618.37 $155,206.00 $217,320.00 $106,966.00 EXHIBIT 4 South American International University Student Tours Bid Evaluation Tours Tours Travel Group Pricing (30) 30 18 13 26 Experience (50) 42 12 18 50 Interview (20) 20 5 2 20 Total 92 35 33 96 It also provided an opportunity for the supplier to ask (Exhibit 4). Student Tours Group was the highest ranked questions about the RFQ for the study trip. Interviews firm in the scorecard, with 96 points, compared to were conducted the week of June 2. 92 points for South American Tours. Peggy and Joan Using the data provided from the RFQs submitted by agreed that both companies were well qualified, and given the four bidders (Exhibits 1 and 2), Peggy prepared an the more than $14,000 difference in price, they decided to analysis of the costs (Exhibit 3) and supplier scorecard award the contract to South American Tours.EXHIBIT 5 Budget (USD) will be in double rooms, we entered the double Expense Cost room rate. The resulting calculation in your budget returns a rate much lower than the total room cost Regional flights $41,319.00 for the whole trip. If what was needed in this cell Ground transportation $12,046.32 was the single room rate, then we misunderstood Hotel $39,253.05 that portion of the spreadsheet. Faculty and staff expenses $15,000.00 In any case, the total cost of the trip was clearly Other $5,000.00 stated in our formal proposal on page 12, which Contingency $7,000.00 was submitted together with the spreadsheet. The Total cost $119,618.37 proposal includes many items that are not included Program subsidy $60,000.00 on the spreadsheet that we are providing, such as Net cost $59,618.37 company visit arrangements, bilingual guides for Cost per student $1,753.48 the duration of the trip, meals, bottled water, etc. I feel terrible that this rather large misunder- standing has arisen, and this is a first for us. Let Using the information provided by Peggy (Exhibit 3). me know what you think we can do to resolve this Joan prepared a budget for the trip (Exhibit 5). Joan was problem. particularly pleased to see that the cost of the trip was Best Regards, reduced significantly from the previous year. The MBA Carlos Program covered $60,000 of the costs of the study trip, with the balance split among the 34 students. Each stu- Concerned that she and Peggy might have misinterpreted dent was asked to pay $1,800 USD before July 31 to be the information in the RFQ, Joan retrieved the 26-page eligible to participate (Exhibit 5). comprehensive proposal provided by South American Tours in June. As indicated by Carlos, the proposal SOUTH AMERICAN TOURS INVOICE did specify a total hotel cost of $78,506.10. Joan then decided to forward the email from Carlos to Peggy to get On Monday, September 1, Joan received an email from her reaction. A reply from Peggy came on Wednesday Cathy Bouma in the finance department asking her to afternoon: approve an invoice from South American Tours for $131,871.42, significantly higher than what was bud- Joan, geted. Reviewing the details of the invoice, Joan noticed The quote spreadsheet was set up according to the that the hotel cost was $78,506.10, double the cost in way travelers are charged. The airfare section is at the RFQ. Joan emailed her contact the South American a cost per person since each individual ticket will Tours, Carlos Morales, asking for clarification. Joan also be billed. However, the hotel section was set up at a sent Carlos her budget for the trip. The following email rate per night based on double occupancy since this response from Carlos was received the following morning: is how hotels bill-by the room, not by the occur Joan, pant. The formula I used to calculate total costs on the quote template was adjusted for this; there- The $78,506.10 is the correct amount based on fore, the pricing of double occupancy provided by 34 students, one faculty and one staff. I am guess- South American Tours would have been accurate ing that the confusion comes from the Excel and should not have increased substantially unless spreadsheet that we were asked to fill out. The there were other options selected or the number of rates we were asked to provide in column M (rows single occupancy was higher than expected. You 4, 12, 20, 30, and 54) all indicate "cost per person," had indicated an estimated participant number of with the exception of the hotel section. In the hotel 34, so the hotel rate provided was multiplied by 19 section, cell M34 has the title "rate per night." It since that would be the number of rooms required does not specify whether "rate per night" means (based on double occupancy for 34 students and the double room rate or single room rate. Since single occupancy for you and Richard). the rest of the costs were requested in per person The RFQ requested that costing for the deliver- terms, and our understanding was that all students ables (in Appendix A) of the trip be indicated onthe spreadsheet. I agree that the services outlined Joan was unsure what legal grounds she had to hold South in the email below were not clearly marked on the American Tours to the lower price. The purchase order quote template; however, we did offer proponents issued by Peggy in June used the data Carlos had included an opportunity to ask questions regarding the RFQ. in the Excel template and stipulated that the final cost was If South American Tours was unsure of how to subject to the number of people participating on the trip incorporate all costs associated with the trip, they and actual costs for airfare, ground transportation, and had an opportunity to contact me. The pricing from hotels at the time of booking. the quote template was the only pricing considered Cathy Bouma had just sent an email that morning ask- in the evaluation. ing what Joan wanted to do about the invoice from South Thank you, American Tours. If Joan agreed to pay the invoice as pre- sented, she would either need to collect more money from Peggy the students or the business school would have to subsi- Next Steps dize the shortfall. Canceling the trip was a third option, but Joan knew this would be unpopular with the students. After reading Peggy's email, Joan sat at her desk and Joan needed to decide before the end of the week what wondered what she should do to resolve this problem. action to take