Getting value for money from tendering
What does ‘most economically advantageous tender’ mean?
Public sector procurers will immediately think of the EU Procurement Directives, the definition including quality, price, aesthetics, technical merit, functional characteristics, environmental characteristics, running costs, after sales service and delivery schedule. It is up to the contracting authority to decide which elements to include and the respective weightings. These have to be published to bidders or potential bidders. However, many of the above characteristics are difficult to measure objectively and it is personal preferences of the tender evaluators that may determine who submits the winning bid.
At this year’s Strategy and Management Consulting conference, run by the London School of Economics Students Union, Professor John Kay made a convincing case that options evaluations, ostensibly objective, almost always deliver the outcome that people originally wanted. One of his examples was the business case for decisions whether or not to build a new road, where he demonstrated that the model and outcome depended on assumptions so far into the future that there was little chance of them being correct. Such a model was therefore open to conscious or sub-conscious manipulation.
Most procurement people would accept that price on its own is usually an inadequate indicator of which tender is cheapest. However, is there an objective way of measuring other elements? Given the difficult economic situation and high unemployment, it seems likely that tenders will increasingly require suppliers to invest in the local economy and take on apprentices and trainees. Can a cash value be assigned to this? There are cash savings through people no longer receiving state benefits and the extra taxation that an unemployed person provides. There may also be reductions in crime or disorderly behaviour. It should be possible to put cash figures on to these benefits and offset them against the bid price and total expected spend on the contract or framework agreement.
For contracts involving an element of regeneration, should one take things a step further and take into account whether or not a company pays UK tax? Given that local authorities seem likely to be able to retain at least some of their business rates, could one put a cash value on that? An interesting EU legal issue perhaps.
Finally, could one take into account the multiplier effect, whereby the effect of investment into a local economy is likely to be two or three times the value?
While Professor Kay has pointed out the lack of objectivity of any approach to evaluation, there is an argument that the procurement profession, working with accountancy professional bodies, should be able to create a rather more numerically based and standardised method that would reduce some of today’s subjectivity in scoring the ‘economically advantageous’ elements of a tender.
☛ Colin Cram is managing director at consultancy Marc1 and a fellow of CIPS.
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Some time ago an easy-to-use system was developed which could aid in the simple fast evaluation of winning bids. It’s called ‘money’ and manifests itself as ‘the price’. Instead of creating an entire new industry of tender evaluation, perhaps we should be striving for simplicity?
Whilst complexity should always be minimised, over simplification of issues in life usually lead to sub-optimal solutions. When people purchase their needs they use price as the main (sometimes only) criterion when they perceive the solution to their need is “all things being equal” eg petrol. When they need a skilled service, eg an extension built on their house, price is still a big criterion but they want to believe that the outcome will be what they want/need; this needs more complexity otherwise they are likely to increase their problems. In the business world, the concept of appropriateness is key, simple issue needs simple solution, complex issue needs complex solution usually.
Some years ago I led a project to award a £multi-billion Government deal. Selection criteria were carefully put together and applied within a well-designed electronic tender evaluation process which took two months to complete, following receipt of tenders. The end result was that there was almost nothing between the bidders’ technical scores, which were all strong, and this meant that the decision was made on price – we could have done this on the day we received the tenders and saved two months’ work. I suppose the question is, having had an effective selection process to choose the right suppliers for the tender list, could we then take the technical part of the bid for granted and just go straight to price?
No.
Remember your Ruskin.
Your job wasnt to shave a few million of the price, it was to make sure that billions werent wasted on something unfit.
What if a “right” supplier – technically competent, financially sound, etc – submitted a cheap and nasty bid which cut every corner (including a few you hadnt even thought of?)