Using cost as the main tender evaluation criterion in public procurement

One of our suggestions in the White Paper (the Perfect Storm - here and in previous posts) was to place greater emphasis on price in public sector tender evaluations.

I've talked to two smart and experienced procurement people - both CPOs in local authorities - recently and interestingly, their view was that I hadn't gone far enough.  One is very experienced in the public sector, the other new to it, but both feel that for most contracts, given that the the short list should all be capable of doing the work, why should cost not be the great majority of the award criteria and process? As one put it:

"At selection stage (open and restricted), all suppliers post pqq should be capable of supplying the required quality (fit for purpose) and I can’t see why price/cost shouldn’t be weighted between 75 and 100%".

And the other:

"we might argue that in many cases, provided the minimum standards are properly set, we are only interested in price and (broadly defined) running cost".

I'm still not sure I would go quite this far but as the deficit reduction actions bite, this looks like something the public sector needs to consider and discuss as a matter of some urgency.

And in the US, trade bodies are fighting back against a similar move (wasn't my idea - haven't got into the US government yet!).  Paul Snell of Supply Management magazine pointed out this to me;  a 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 the amendment 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.

Anyway, an interesting topic I suspect will be much debated as we get into serious cost reduction territory over the next months...

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Voices (2)

  1. Mark:

    If one uses a performance specification, then there are only three things to think about; does it meet or exceed the performance specification? can they supply the quantities erquierd to the call off scedule? and how cheap are they?

    giveing 10% weighting to ” how well do they score in the employment of disabled people” is nonsense, it has nothing to do with procurement and everything to do with political correctness gone mad.

  2. Steve Parr:

    Peter, here’s just a couple of things that I would suggest cannot be distilled purely to price:-

    a, the capability of the organisation to clearly define its requirements for the duration of the term. Forecasts of most kinds are a best guess.
    b, input price is never an indicator of outturn cost, especially where the duration is multi-year.

    Can indices and algorythms fully legislate for that which is not known?


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