Valuing the bid -- Timor Leste

I came across this easy to read and understand "DRAFT Best Practice Guide on Procurement Bid Evaluation" prepared for the government of Timor. The message here is on "value for money" determinations for bid selection. Here are some excerpts I've selected and edited for my own understanding.

Decisions on government procurement should be made on the basis of value for money. The tendered purchase price alone is seldom an accurate indicator for comparison of other the potential contractor’s ability to perform the required task, or the total cost of performing the task over time. Value for money requires a comparison of costs, benefits and alternative outcomes. An assessment of the best net overall outcome for government is to take account of all relevant ‘whole of life’ costs and benefits, that is the full cost of each good, service, construction or consultancy over its expected useful life, not just at time of purchase.

However this quantitative whole of life cost is only one consideration when selecting a government contractor. Other qualitative factors such as, the financial strength of the contractor’s business, their past performance and capacity for customer service, along with boosting local economic development are important matters which also must be considered when evaluating bids. The supplier must be able to provide the Government with a good and reliable service to ensure the smooth
running of government and lower the risk of any disruption or delay to public services. A detailed technical or professional capability assessment and a commercial and financial analysis of the bids, and the businesses tendering, must be made to determine which tender represents best value for government and the public interest.

To make this analysis, it is necessary to obtain all information on the goods or services tendered, and details of all significant costs associated, not just with the initial purchase, but also during the use or application of the goods and services along with any associated future costs.

The paper gives this example:

The Government Procurement Office was required to purchase five new trucks for the Water and Sanitation Department. Ten tenders were recieved and three were selected for consideration: Mobil Biru Motors (US$450,500); Truk Bot (US$465,000); Maria and Jose Imports (US$488,550). Even though the last bid was the most expensive it contained a significant number of benefits. They could supply quickly — a central requirement of Government, the trucks included the latest model with tipping technology. The company also offered to set up a truck service centre that would employ and train 20 Timorese mechanics. This bid was recommended dependent upon checks being made on the company’s compliance with local laws, financial strength and their having existing shipping orders for the latest model vehicles underway.

I have objections to this approach, however reasonable and seductive it appears at face value. This approach conflates evaluation of price and cost evaluation with the evaluation of the bidder's responsibility. Bidder responsibility can be a highly subjective matter, and when a decision is made mainly on that basis, the process moves away from objectivity to preference and favoritism. Care should be taken to segregate the evaluation of cost and price from the determination of bidder responsibility.

In the example, for instance, the point made was that one bidder had better delivery times. First, if a specific delivery time was part of the specifications, that bidder would have been preferred based on the tender, not on some post facto rationalization. Second, delivery times can be very easily manipulated, by, for instance, tipping a preferred bidder in advance so that he is prepared. Delivery times must be reasonably attainable by all bidder to have any fair and equitable competition. It is a very rare case where the Government could not foresee a need so far in advance that it needs an unreasonably short delivery time.

The example says, the preferred tenderer offered to set up a service and training centre. If that was part of the tender so that other tenderers had equal opportunity to make similar offers, then competition is fair. But if the offer was made outside the scope of the solicitation, it should be ignored. Just as a point of difference, the ABA Model Code/Guam procurement regulations say:

The Invitation for Bids shall set forth any evaluation criterion to be used in determining product acceptability.

The acceptability evaluation is not conducted for the purpose of determining whether one bidder's item is superior to another, but only to determine that a bidder's offering is acceptable as set forth in the Invitation for Bids.

Only objectively measurable criteria which are set forth in the Invitation for Bids shall be applied in determining the lowest bidder. Examples of such criteria include, but are not limited to, transportation cost, and ownership or life cycle cost formulas.

Nothing in this Section shall be deemed to permit contract award to a bidder submitting a higher quality item than that designated in the Invitation for Bids if such bidder is not also the lowest bidder. Further, this Section does not permit
negotiations with any bidder.

The determination of bidder responsibility, however, is conducted in a different time and manner, using different standards than those used to evaluate bid responsiveness. When done in this manner, it becomes more transparent as to what really motivated the award.

Value, like beauty, is too often in the eye of the beholder. That is not the best basis for treating bidders fairly and equitably, and if government fails to offer that impartial treatment, it will not receive the necessary competition to assure the government is getting best value for its money. In fact, it will just encourage the use of covert influence and back room deal pedaling.