Route 2 - Open & Evaluate Tender - Price Evaluation
The price/commercial evaluation of tenders should be completed by the Procurement Officer.
To enable an easier comparison, you should include a price schedule (or use the Commercial Envelope if PCS-Tender is being utilised) with a breakdown of the product/service areas for bidders to complete. The evaluation should identify and compare all the costs and benefits' which can be quantified in money terms.
In order to achieve the Most Economically Advantageous Tender you have scope to select from several costing models to support your procurement exercise and you should ensure that these are comprehensive and certainly more sophisticated than a “price for price” comparison. Where possible, you should at least consider a 'Whole-Life Costing' approach in order to take account of all aspects of cost from cradle to grave (acquisition, operation, ownership and disposal costs). Higher value or complex procurements may require the use of Investment Appraisal Techniques (such as discounted cash flow calculations) and the use of Life Cycle Costing is deemed best practice for the majority of goods and service procurement exercises. In all cases the method for price evaluation should be defined within the Invitation to Tender (ITT) documentation.
Where Life Cycle costing or Whole Life Costing has been detailed in the specification; the evaluation should take into account all of the identifiable costs attributable to a product or service from its acquisition through use, maintenance and end of life (recycling / disposal). These will be direct costs like scheduled maintenance and the energy used through the life of a road sweeping vehicle, but in the case of Life Cycle Costing, also include less apparent external environmental costs such as the cost of emissions of greenhouse gas based on the energy use of the road sweeping vehicle.
The use of Life Cycle costing can support your Organisation in meeting the requirements of the Sustainable Procurement Duty.
You may find the Supplier Cost Drivers Checklist useful when developing a pricing schedule.
Price/financial evaluation criteria should include:
- Whole Life Cost comparisons
- Quantifiable financial benefits arising from the technical evaluation (e.g. speed, fuel or electricity consumption, coverage, shelf life etc.)
- Fixed or variable pricing
- Cost of components, spare parts, consumables and servicing
- Risk analysis and financial appraisal (for major contracts of strategic importance, especially those of an innovative nature).
It is important to differentiate between Whole Life Costing, Lifecycle Costing and Lifecycle Impact Mapping:
Whole Life Costing: Focuses solely on cost (£) of a product or service from cradle to grave. It takes into account acquisition, operation, ownership and disposal costs.. It does not take into consideration any environmental or social costs.
Lifecycle Costing: Life-cycle costing covers part or all of the following costs over the life cycle of a product or service:
(a) costs produced by the organisation or other users, such as:
(i) costs relating to acquisition;
(ii) costs of use, such as consumption of energy and other resources;
(iii) maintenance costs;
(iv) end of life costs, such as collection and recycling costs; and
(b) costs attributed to environmental externalities linked to the product or service during its life cycle, provided their monetary value can be determined and verified. This may include the cost of emissions of greenhouse gases and of other pollutant emissions and other climate change mitigation costs.
Lifecycle Impact Mapping: Focuses on social and environmental impact rather than cost. Life cycle impacts help the user identify and assess impacts. For example, it may help to focus attention on the disposal phase before the procurement is carried out, allowing the organisation to build end-of-life management requirements into both its performance clauses for successful contractors and its own internal management procedures.
Every product and service has a ‘life cycle’ or number of stages it goes through: from the extraction and sourcing of raw materials, such as mining to the transportation of sub-assemblies and parts, often through a global supply chain to the use of products or works and the delivery of services to the re-use, recycling, remanufacture and final disposal of materials
In the Marrakech Approach, the assessment of these risks and opportunities is broken down in to four key phases:
- Raw materials
- Manufacturing and logistics
- Disposal or end-of-life management
Please note: Life cycle impact mapping can be used alongside life cycle costing as part of the procurement process.