Local Government Procurement

# Methods of Evaluating Price in Tenders Part 4 Home / News /

Methods of Evaluating Price in Tenders Part 4 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

E.g.

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 References:
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.

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