How many contractors look in detail at the way in which their bid price was evaluated? Financial evaluation is an area of procurement relatively unpoliced by the Public Contracts Regulations 2015 and yet crucial to the outcome of the procurement. Bidders unhappy with the outcome of a procurement focus on flaws in the procedure when looking to challenge, as do contracting authorities when assessing their vulnerability to challenge but most look past the financial evaluation methodology as an area of risk. Increasingly however, this element of the procurement process is coming under scrutiny by contracting authorities and bidders alike as a potential source of challenge.
The Public Contracts Regulations 2015 offer little guidance to contracting authorities deciding on their financial evaluation methodology other than requiring that it is compliant with the EU Treaty principles of equal treatment, non-discrimination and transparency and that it is proportional and relevant to the contract that is being let.
Bidders typically assume a methodology whereby the highest price scores lowest and the lowest price scores highest. Dozens of methodologies and formulae currently in use would claim to achieve that outcome but on closer examination, not all appear entirely fair.
“Absolute” methodologies score bid price by reference to an objectively set benchmark or by reference to the contracting authority’s affordable price range. One bidder’s score is completely independent of the number and content of other bids and may even be predictable by the bidder.
Other methodologies are “comparative” or contain an element of comparison - for example, the fully comparative model where best price scores maximum marks and other bids are scored according to the extent to which they exceed the best price, or the “average pricing” methodology where the average bid price is determined and bid prices closest to the average bid price score highest whilst those furthest away score lowest.
The absence or compromise of an objective pricing standard can undermine the fairness and transparency of a comparative methodology. Take an example: assume that price accounts for 60% of the total evaluation, best price scores maximum marks and worst price scores zero. Just two bids are received. One bidder scores full marks and one bidder scores zero on the financial evaluation – the latter has no chance of winning the contract whereas his price was perhaps only a fraction less than the other bidder’s. Based on a 2016 case (Communes de Lognes, Paris) this methodology was struck out as non-compliant with treaty principles of equal treatment and transparency, as bid scores were arbitrarily dependent on the number of bids received with no regard for price differentials or affordability. Similar flaws have been identified in average pricing evaluation methodologies, which take no account of affordability, actual price and price differentials and which appear to contain an inherent assumption that the bid prices which are furthest below the average bid price will be unsustainable.
It may come as a surprise to contracting authorities in the UK that the European Commission (in its Public Procurement Guidance for Practitioners on the avoidance of the most common errors in projects funded by the European Structural and Investment Funds (2015)) has identified that average pricing methodologies can give rise to unequal treatment of tenderers. They might also be surprised that regulatory bodies in Portugal and France are reported to have issued guidance to public sectors bodies advising against certain types of comparative scoring methodologies (including average pricing) which score bids without reference to actual prices and regardless of actual price differentials.
So why not score bids by comparison – after all, procurement is a competition? Perhaps the question should rather be – why measure bids against an unknown standard of price and/or an unknown price differential? Better, surely, to anchor your evaluation by reference to price parameters that are known to be affordable to a contracting authority? Competition exists in any event, notwithstanding those parameters may be published to bidders, and comparison comes when the scores are determined and the highest score wins.
For more information on any aspect of public procurement please contact Deryn Rees.
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