Competitive Tendering – Pricing vs Quality
If you’ve read any of my past blogs you will not be surprised to hear that there is no simple answer to this question. As always, in competitive tendering, things are not so straightforward, and no one approach fits all sizes!
Pricing:
What is it? – Pricing in competitive tendering is the buyer’s assessment of the quotation or schedule of rates you offer to deliver the required goods and services. This will usually take the form of one of the following:
- A fixed quotation for the works i.e. a grand total for goods/services.
- A schedule of rates for different activities.
- A fixed fee per hour/day for operatives.
- A simple acceptance of a promise to work within a budget.
Why do buyers look at this?
As you can imagine, purchasing organisations do not want to pay more than they have to for goods and services. Hence, price is a key factor that puts the “competitive” element in tendering as this will doubtlessly form a key part of the buyer’s assessment of prospective suppliers in most scenarios. Buyers want to make sure they are getting the absolute best value for money. Along with technical and quality aspects, price is a key factor in allowing buyers to make an assessment of which supplier offers the MEAT – the most economically advantageous tender. For more information on this, check out our Tender VLE video on “Sourcing the MEAT.” Indeed, this is to all intents and purposes, the point in the competitive tendering process in the first instance – to afford buyers the chance to make a comprehensive assessment of the supplier/suppliers who will bring the best value for money to their organisation.
How is it assessed?
As you might already have guessed, there is no simple answer to this question. In the world of competitive tendering very buyer has the right to make their own assessment of price and each is constrained by different regulations. However, typically the lowest priced tender will score the most points for the price aspect of a bid. However, in tenders such as an RFQ (Request for Quotation), the buyer may simply choose to award the contract to the supplier with the lowest quotation/cheapest schedule of rates, outright. Where the assessment isn’t made on price alone, buyers typically award 100% of the available price marks to the lowest priced tenderer. They then award a proportional percentage to the other prospective suppliers which decreases as their price increases.
Example:
Tenderer A Price: £50,000
Tenderer B Price: £55,000 (10% higher than the lowest tender).
Tenderer C Price: £60,000 (20% higher than the lowest tender).
Tenderer A proportion of available price marks: 100%.
Tenderer B proportion of available price marks: 90% (10% higher than the lowest tender).
Tenderer C proportion of available price marks: 80% (20% higher than the lowest tender).
It is worth bearing in mind that the above example is a rough guide only designed to illustrate my point about how marks awarded for price will decrease proportionally based on how far above the lowest price each supplier quotes a job. Indeed, buyers will have their own algorithms, matrices and scoring systems for working out how much to award each supplier depending on their price.
Quality:
What is it?
In competitive tendering, the Quality aspect of a bid is an assessment of the past experience and technical and professional ability of prospective suppliers. It typically involves core competency questions which suppliers have to answer along with a demonstration of relevant past experience, team skills and qualifications, and scenario-based questions. The quality element of the competitive tendering process comes in many forms. Either buyers might ask prospective suppliers to fill in responses to a pre-developed list of questions or write a proposal for their delivery of the goods and services from scratch.
Why do buyers look at this?
It is important to note that whilst price is significant, buyers do not just want the cheapest supplier. As we all know, cheap does not necessarily mean effective. And it is especially important in the public sector for example, that public money spent on goods and services is spent effectively. Hence, buyers deploy a quality assessment as part of the competitive tendering process to deduce the most competent suppliers with the most relevant skills, experience and qualifications.
How is it assessed?
Much like with the pricing element, whilst there is no one set criterion for evaluation, marks are typically awarded proportionally based on the quality score of the highest scoring tenderer in this aspect of the assessment.
Example:
Let’s say we have tender A, tender B and tender C, whose scored quality marks were:
- 58
- 67
- 33
(These initial scores themselves are usually the averages of three evaluators).
In this scenario, company C, with 85.33 is given 100 percent of the marks in this aspect. So, in order to work out the proportionate percentile scores for the other companies, we work them out as a percentage of the highest-ranking bidder. So:
- Company A = 58 divided by 85.33, x 100 = 67.97%.
- Company B = 84.67 divided by 85.33, x 100 = 99.23%.
It is worth noting that sometimes the price is not assessed at all, and a buyer might opt for the tenderer with the highest quality score based on their responses to the buyer’s questions/the supplier’s own proposal – simple.
Concluding thoughts:
In summary, it is important to look at the requirements of each individual opportunity as part of the competitive tendering process. Of course, if a tender is scored on a 100% price basis, but still includes a quality aspect, you probably won’t need to exhaust yourself by writing in-depth responses. Instead, your time, money and resources would be better spent in this case, ensuring your pricing is as competitive as possible to maximise your chances of winning the work. Conversely, if a bid is assessed purely on the basis of quality, but still asks for a quotation for the works, it is more worthwhile spending time developing the sharpest and most detailed quality responses/proposal possible rather than spending time analysing where to cut corners to make your pricing as low as possible. Having said that, even if the price is not considered in the scoring methodology and there are still quality questions, and vice versa, it is important to not completely disregard the other aspect. Sloppiness, incorrect figures and mistakes show a lack of care and attention and will not reflect well with buyers on your organisation. So, look at the evaluation criteria and manage your time, focus your efforts and respond accordingly.
If you’re stuck with your tendering efforts, need a hand digesting quality elements, need a second pair of eyes to review your submission, could do with a hand digesting response requirements or need someone to take the tender management process of your hands altogether, contact one of our bid writing consultants today who will be happy to help.
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