by Phill Scott, Chief Procurement Officer – Local Government Procurement
This month we will continue explanation of the many methods to evaluate and compare offers. You will recall we listed the following methods in our March edition:
- Matrix comparison (Comparative assessment & ranking)
- Inverse cost
- Brookes Law
In this edition, we cover three more options:
- Least Cost
- Target price/Fit to Budget
In its ‘purest’ format, the Least Cost uses a two-envelope system. The assessors need to check bid compliance first and carry out assessment prior to considering price. The winning tender will be the lowest cost tender that meets all mandatory criteria.
To avoid complicating the process, it is important that mandatory criteria are rated Yes/No or Pass/Fail. There is no room for doubt if you are aiming for a good long-term outcome based on least cost. On that point, also be conscious that you may not get ‘best value.’
Target price/Fit to Budget
This can be used for both goods and services and is particularly useful if the budget cannot cater for overruns. It relies on declaring the available budget to the market and then being able to clearly assess exactly what each offer will provide. (It can be used for schedule of rates arrangements, but you then need a way to ensure the hours estimated/charged are reasonable.)
If the tender relates to services, it is likely all bids will be based on your budgeted $ amount. Thus, only non-price criteria need be assessed. The highest-ranking bid wins.
However, for things like equipment, bids may value by $ value. Here, price will need to be rated and considered along with non-price criteria.
Should any bid exceed the budgeted $ amount, it should be excluded.
Normalisation relates to the proportional scoring of tenders and is typically used for price. Its something most evaluators do as a matter of process, but you may not have heard the term before.
Normalisation is usually based on the lowest price being rated maximum score, but it can also be based on the highest price (zero marks), or the mean (average) or median price, or by use of a constant.
Typically, the following formula is used:
(Lowest tender price)/ (tender price) x 100%
Note that if price has been given weighting > 50%, a tenderer can skew the process by low ball pricing.