IMPROVEing Evaluation Process and Why Price Does Matter

This morning, we welcome back our UK correspondent and regular contributor, Peter Smith.

I do a lot of work in the UK public sector, and over the last week or so I've been publishing a White Paper on the future for public procurement, given that we have our election next week. One of my recommendations is that more emphasis should be given to cost when evaluating tenders, compared to service, quality and lots of other often intangible criteria that tend to be used as well. Here's my comment:

The time has come for the public sector to focus on buying appropriate quality; adequate but not over-specified goods and services. We recommend, as a step towards this, that all procurement exercises should weight total lifetime cost as at least 60% of the overall weighting in the evaluation. This seemingly trivial step would actually send a strong message to supply markets and lead to lower priced goods and services being chosen in many cases.

So I was fascinated when Paul Snell of Supply Management magazine pointed out this to me; a US trade association complaining about an amendment to the Federal IMPROVE act of 2010 entitled "Requirement that Cost or Price to the Federal Government Be Given at Least Equal Importance as Technical or Other Criteria in Evaluating Competitive Proposals for Defense Contracts."

Apparently, according to IPOA (the Association of the Stability Operations Industry; crazy name, crazy guys!), this "would effectively hamstring the ability of contracting officers to use discretion in awarding contracts and sets the stage for compulsory acceptance of the cheapest offer, minimizing other factors such as experience, quality or past performance."

But hang on, it doesn't say the cheapest; it just says cost must be equally weighted with other criteria. That doesn't seem unreasonable to me when the US (like us in the UK) is facing public deficit and debt that is not a million miles away from Grecian in scale. I've seen procurements in the UK public sector where cost is weighted way down at 20% or less, and it can lead to the purchase of goods and services that are perhaps a little "gold plated" compared to what is really required. The amendment strikes me as a reasonable compromise.

And it does leave a certain amount of scope: how do you actually convert cost into a score for your evaluation such that it can be brought together with non-price scores to reach a final decision? As a (bad) mathematician by training, I'm fascinated by scoring and evaluation methodologies, and I showed in this Supply Management article that different scoring processes (not just weightings) can give you very different results in an evaluation. So even if cost is "weighted" at 50%, there are ways to make it either less or more important in practice if you know how!

Peter Smith

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