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 April edition:
- Least Cost
- Target Price/Fit to Budget
- Fit to Budget
In this edition, we cover some value scoring options.
Value Scoring comes in various scenarios. They are another means of separating final tender scoring in a way that helps simplify the overall assessment.
This month, we look at:
- Cost Effectiveness Ratio
- Relative Value Cost (RVC)
Value Scoring Method 1: Cost Effectiveness Ratio
An assessor might typically use this method where value or quality is the driver.
The assessors will weight all non-price criterion to total 100%. Using this, you determine the total non-price score for each tender.
Each tender is then scored on price criterion.
You then either divide total tender price by the non-price score or plot total tender price vs non-price score (as per the diagram below). A tender with a low non-price score but a high price score is clearly less acceptable that high non-price score and a competitive price.
If you were to enter negotiations, it might be with the aim of moving parties to the lower right.
Value scoring method 2: Relative Cost Method
This process compares a tender’s actual non-price score, the lowest non-price score and the maximum potential non-price score.
This results in an index value. We’ll term it the Score Index (SI) for each tender.
The Relative Value Cost for a tender is the tender cost divided by the Score Index. The tender with the lowest Relative Value Cost is the highest ranking.
Score Index (SI) = (Tender non-price score + max. possible non-price score) divided by (Lowest non-price score + max. possible non-price score)
Relative Cost Value (RVC) = Tender cost divided by the Score Index
Assume the maximum potential non-price score is 100. One of several tenders submitted was $100,000. That particular tender has a non-price score of 85. The lowest non-price score of any tender submitted in the same process is 60.
Then the Score Index (SI)=
60 + 100 =160
Relative Cost Value (RCV)= $1,000,000 / 1.16 = $862,068
Contract Management in Australia John F James (Out of print)
Issues in Evaluating Public Sector Tenders Procurement Lawyers Association June 2010 www.procurementlawyers.org
Probity Services Practitioner Handbook James Box (Restricted availability)
Note: Whilst the above source documents may have become unavailable with the passage of time, they remain valuable resource materials.