On Bid Day, Will Your Patent Count?

The environmental industry is perhaps one of the only businesses that faces the proverbial dilemma: “To innovate, or not to innovate?”

May 1st, 2007

by Dan Durda

The environmental industry is perhaps one of the only businesses that faces the proverbial dilemma: “To innovate, or not to innovate?”

A good benchmark of an industry’s commitment to innovation is how much it allocates to research and development. Looking across the landscape of business innovators, one can surely see that our industry has not taken the leadership role, but has more often chosen the path of least resistance and maintained the status quo. The environmental industry appropriates a paltry 3% to 5% annually to its research and development budget, which is dwarfed by other similar technological industries.

If we compare our industry with the research and development budgets of other industries providing sophisticated technologies to markets requiring special performances, we begin to see a significant lack of technological leadership in the environmental industry. By comparing our industry to the medical device industry, for example, you’ll see that in 1990, expenditures for research and development were 5.4%, growing to 11.4% in 2002. Likewise, the pharmaceutical industry in 1990 was 10% versus 19% today, and in another progressive industry segment, the semiconductor business, R&D expenses average 16% annually.

Our water supplies are tantamount to perhaps being the most significant resource that can have an immediate impact on the nation’s health. And yet, why such little investment of our industry’s capital to R&D?

The reason may very well lie within our industry’s guidelines of how we go about selecting our products in a marketplace that does not encourage or promote investment towards innovation. That barrier is the result of the antiquated methods of our engineered equipment procurement procedures, specifically the conventional open bid format that often contains the phrase “Brand Name or Equal” in the bid format.

Aside from the obvious issue - that this allows anyone to place a bid - it undermines the patent investments of the preferred supplier by permitting a company to place a bid for a product that is, in fact, not equal and does not comply with the bid specifications. At face value, this should not be an issue because equipment that does not comply with the bid specifications should not receive consideration. However, within the industry there is a “low bid” mentality that dictates price is valued more than performance and quality.

Often products that are proposed as “or equal” products are, in fact, not equal products but sub-grade products. If not properly evaluated, consideration of these products can lead to selection of equipment that does not comply with the specifications and will not perform as intended or required by the engineer and owner. Part of this problem can be attributed to poor evaluation practices, but part is also attributed to lack of common standards within the industry to compare products equally.

This may explain the low percentage of investment our industry allocates to research and development annually. Often on federally funded projects we see companies, even though their products are patented, having to forego their research by going along with the “or equal” clause and not pointing out that their product has so been anointed by the Patent and Trade Mark Office. Thus, they find themselves competing on what is clearly an uneven playing field. The end result of such a method of procurement often leads to inferior products winning bids and not performing to what the original bid specification calls for in terms of performance.

Unfortunately, in the complicated and confusing maze of the bid process, the real losers are the end-users and the tax-paying public, whose funding goes into the projects. It was once said, “No matter how much you pay for equipment, if it doesn’t work, you paid too much.”

So, given the lack of investment initiative, what motivates those companies that realize the value of continuous product improvement? Innovative leaders in this industry will continue to invest in R&D, regardless of the problems and pitfalls. They are committed to ongoing product improvement to supply the highest quality products that provide customer solutions and are driven to know the mystique of the proprietary “black box” technology. And, innovators appreciate the bestowment of a patent as this is industry’s recognition, like the Good Housekeeping Seal, that you are indeed a leader and even a model to others in how things are done.

It was once said by the great American humorist Will Rogers, “Even if you’re on the right track, you’ll get run over if you just sit there.” So, in the final analysis, does your firm have the will “to innovate, or not to innovate”?

On a side note, were you aware that the U.S. House of Representatives recently passed H.R. 720 - the “Water Quality Financing Act of 2007” - authorizing $14 billion over four years for the Clean Water State Revolving Fund (SRF) program? That’s the GOOD news. The BAD news is that this bill contains a requirement mandating use of “Brand name or Equal” bid specifications on all projects receiving SRF assistance.

Our industry should be outraged with this attempt to undermine the engineer’s and owner’s authority to be able to choose from a variety of procurement methods, which allow for the selection of products that offer the “lowest total cost of ownership.” We all need to contact our legislators and insist that this provision be struck from the final version of this important legislation.

About the author:

Dan Durda serves on the Board of Directors of the Water and Wastewater Equipment Manufacturers Association and is a member of the Water Environment Federation’s Manufacturers and Representatives Committee. He is co-founder and President/CEO of Aeration Industries International Inc., a Chaska, MN-based manufacturer of advanced aeration systems and wastewater treatment systems.

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