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There are better ways to evaluate price. And yes, they're legal.
One of the strangest habits in public sector IT procurement is our continuing love affair with awarding maximum price marks to whoever submits the cheapest tender.
Supplier A offers a Housing Management System for £900,000, Supplier B wants £1 million, and Supplier C quotes £1.1 million. Under the familiar MEAT 'lowest price divided by tender price' formula, Supplier A gets full marks, while the others are immediately penalised. Never mind that Supplier A might have underestimated data migration, left half the integrations out or assumed that training consists of sending everyone a PDF and wishing them luck.
This stuff happens more often than you would reasonibly imagine.
Apparently, being cheap is a virtue all by itself. Of course, we talk endlessly about value for money, but our scoring models sometimes suggest that we've confused value with a bargain-bin sticker. While this is software, in real life we fully understand the adage that if we buy cheap there is risk baked in, we might need to buy twice. I mean this is not £800 for a solar pergola for your patio, this might be a multi-million pound contract for 7+ years.
Here's something that might surprise a few procurement teams: UK public procurement legislation doesn't generally require us to award the highest price score to the cheapest compliant tender. In Scotland, Regulation 67 of the Public Contracts (Scotland) Regulations 2015 requires the best price-quality ratio, permits lifecycle costing and even expressly allows a fixed price with competition based on quality. For procurements governed by the Procurement Act 2023, principally in England, Wales and Northern Ireland, the emphasis is on the Most Advantageous Economic Tender, with flexibility over appropriate award criteria and assessment methodologies. Different legislation, broadly similar message: cheapest doesn't automatically mean best. Naturally, the procurement methodology must be objective, transparent, proportionate and published in advance. Making up a clever new formula after opening the envelopes isn't quite the innovation we're looking for.
There are several sensible alternatives. Whole-life costing evaluates implementation, licences, hosting, support, integrations, migration, upgrades and eventual exit costs over, say, seven or ten years, rather than rewarding an artificially attractive starting figure. Fixed-price, quality-led competition can establish an affordable budget and ask suppliers to demonstrate the strongest deliverable solution within it, subject to the applicable rules.
Awarding the bidder closest to the average of all costs tendered can be a great option. This rewards more realistic bidders and penalises ones way above or under-cutting the average.
Price-band or capped scoring can reduce the advantage gained from shaving a small amount off an already competitive price, allowing properly evidenced quality differences to matter more. Another approach uses a carefully designed graduated pricing model to reduce the incentive for aggressive underbidding. Scotland has already published official guidance on a Graduated Pricing Mechanism, admittedly for construction procurement, demonstrating that government itself recognises the problems created by conventional price scoring. These approaches aren't interchangeable legal templates, but they provide useful alternatives worth examining.
Whatever model we choose, housing IT buyers should also challenge the numbers behind the quotation. Does the price include every required interface? How many data migration iterations are provided and are they all costed? What happens when the supplier's implementation-day allowance runs out? Are support, additional users, annual increases, testing environments and exit assistance included? A cheap initial tender can become remarkably expensive once the change requests start breeding. I'd rather evaluate a realistic £1 million proposal than congratulate myself on buying a £750,000 fantasy that eventually costs £1.4 million needing multiple additional trips to SMT meetings. Price certainty, clearly documented assumptions and contractual protection are worth considerably more than a few attractive decimal places on an evaluation spreadsheet.
There's a governance responsibility here too. Buyers should involve finance, procurement, ICT and operational SMEs in designing the commercial assessment before the ITT goes anywhere near the market. Test proposed scoring methodologies using hypothetical bids, check for perverse incentives and understand how different prices would actually affect the overall result. Set clear minimum quality requirements, assess affordability properly and investigate potentially abnormally low bids through the appropriate legal procedure. The objective isn't to engineer the scoring so our favourite supplier wins. It's to stop the scoring accidentally rewarding the supplier most willing to gamble on an unrealistic price. That's rather an important distinction, particularly when spending tenants' rents or public money.
Ultimately, suppliers are commercial organisations. If we create an evaluation model that rewards rock-bottom prices, we shouldn't look astonished when they respond with rock-bottom bids and a creative interpretation of what's included. They're simply playing the game we've designed. Perhaps it's time housing providers stopped treating the cheapest tender as the cleverest purchase. Procurement regulations offer considerably more flexibility than some traditional scoring spreadsheets would have us believe. We just need the confidence, commercial understanding and proper procurement advice to use it. Because nobody ever thanked a housing IT project team for saving £100,000 on the tender price before spending another £400,000 putting the resulting mess right.
In fact so many clients have told me that our engagement costs have been a small fraction of estimated savings made, its clear that bringing external experience can provide significant benefits.
Related Post: Before rushing to market, research it and warm it up
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(c) Tony Smith, Acutance Consulting www.acutanceconsulting.co.uk 07854-655009
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