Five Different Formulas for Evaluating Tenders

Transcription

1 Five Different Formulas for Evaluating Tenders Ilkka Sihvola Hansel Ltd

2 27 EU member states Thousands of contracting authorities Millions of tenders..and decision makers 2

3 Things we have to decide as a part of every tender procedure: Price vs. quality weights Contract award criteria Calculation formulas Typically, there are no right or wrong answers These decisions may determine which company wins your tender 3

4 Setting Weight for Price and Quality Ostrava

5 Best-Price-Quality-Ratio When using the Best-Price-Quality-Ratio for evaluation, the contracting authority is required to set relative weights of the quality and price criteria: Quality 10%, price 90% Quality 50%, price 50% Quality 70%, price 30%... But where do these percentages come from? 5

6 The Meaning of Weight Set to Quality Criteria The percentage itself does not necessarily say anything about the quality the contracting authority is aiming at The quality required for the goods or services is primarily defined in the mandatory requirements When setting weight for quality, contracting authorities are actually answering the following question: How much more are we willing to pay for a product that gets full quality points in comparison to a product that gets less or zero quality points? 6

7 Formulas 7

8 Alternative Formulas Procurement process is extensively regulated, but contracting authorities have a large freedom of choice regarding the formulas There are many alternative formulas when calculating and evaluating tenders The chosen formula may have a significant impact on the end result of the procurement 8

9 Five Alternative Formulas 1. Basic formula 2. Standardised formula 3. Linear formula 4. Discontinued formula 5. Price penalty formula 9

10 1. Basic formula lowest price price of a tenderer weight The most commonly used formula in calculating price and quality points (at least in Finland) The formula is easy to use and tenderers are accustomed to use it Descriptive to this formula is that points are totally dependent on the tender with the lowest price Weight Tender 1 Tender 2 Tender 3 Price (50%) 1 000, , ,00 Weighted points 50,00 38, eur = 11,54 points 31, eur = 7,21 points 10

11 1. Basic Formula 120,00 100,00 80,00 60,00 40,00 20,00 0,

12 2. Standardised Formula price of a tenderer average price weight dispersion of the tenders The lowest price gets full points Others tenders are evaluated by using the formula that takes the average price and dispersion of the tenderers into account Statistics yes, but not too complicated According to one study among public constructing projects, the winner of the tender would have been different in 37% of the cases if contracting authorities would have used the standardised formula (instead of using the basic formula) 12

13 3. Linear Formula (price of a tenderer lowest price) (highest price lowest price) weight The lowest price gets full points and the highest gets 0 (zero) points Others tenders are rated with the formula Points of a tenderer are dependent on the prices of the highest and lowest tender Works perfectly when the difference between prices is expected to be big enough, and the contracting authorities believe they will receive many (5 or more) tenders 13

14 3. Linear Formula Functioning 120,00 100,00 80,00 60,00 40,00 20,00 0,

15 4. Discontinued Formula 100+(1 - (price of a tenderer ) (lowest price) ) weight The lowest price gets full points. When a tender has a price that is twice the amount of the lowest price, the points are automatically 0. It does not matter if a tender s price is three or five times higher than the amount of the lowest price. It still gets zero points. 15

16 5. Price Penalty Formula Price + penalty price of not providing highest quality Contracting authority has to express how much more are they willing to pay for a product that gets full quality points instead of a product that gets zero quality points? In the next example this sum is 1000 euros (the extra amount the contracting authority is willing to pay for the highest quality) 16

17 5. Penalty Formula Example Weight of quality criteria 1-4 Tenderer 1 Tenderer 2 Tenderer 3 Price 1 400, , ,00 Quality criteria Weighted points for quality criteria1 50 % Quality criteria Weighted points for quality criteria 2 20 % Quality criteria Weighted points for quality criteria 3 20 % Quality criteria Weighted points for quality criteria 4 10 % WEIGHTED TOTAL QUALITY POINTS 100 % Points missed (out of maximum on 100) Penalty (of not providing highest quality) 360,00 110,00 200,00 FINAL COMPARISON PRICE 1 760, , ,00 The strenght of this formula is that the points of a tenderer are not dependent on the price of other tenders The only things that matter are the price and the quality of the tenderer 17

18 Thank you Ilkka Sihvola Head of Tendering Unit Hansel Oy tel