Everyone who works in the public service in Wales shares a personal responsibility for the stewardship of taxpayers’ money – whether they manage budgets, assets or simply their own time – and must be aware of the need to manage and deploy public resources responsibly and in the public interest.
This is especially important in procurement, where the goal is to obtain the best possible works, goods or services that drive greater social value through the consistent delivery of more well-being impacts, at the most reasonable whole-life cost when taking into account the long term.
Selecting the appropriate price evaluation method is therefore crucial to achieving this goal.
The Cyd team recently attended the Cabinet Office “Price per Quality Point (PQP) in Public Sector Procurement” webinar, aimed at suppliers, where colleagues from the Complex Transactions team discussed the different methodologies of evaluating price. There are several price evaluation methods available to public sector buyers, each with its own strengths and weaknesses. In this blog post, we have included a few scoring methods, along with guidance on when to use them.
What’s the score?
Each of the evaluation methods has its advantages and disadvantages, and it is important to consult your internal stakeholders and the supply market to test scenarios before choosing one. As you will see, the fictitious cost and quality score have been kept exactly the same, yet the rank of the tenderers changes depending on the evaluation method used.
Price per Quality Point (PQP): This method is suitable for most services, goods, digital, and construction works procurements. It calculates the cost per unit of quality, helping to identify the tender that offers the most value for the investment.
PQP Equation:
PQP Score = Cost / Quality Score
PQP worked example:
| Tender | Quality Score (100) | Cost (£) | PQP Score | Rank |
| A | 62 | 20,000 | 0.32 | 3 |
| B | 85 | 24,000 | 0.28 | 1 |
| C | 100 | 29,000 | 0.29 | 2 |
Value For Money (VFM) Index or Price-Quality Ratio: Very similar to PQP, this method measures the quality points per £, providing a different perspective on the value proposition. It is appropriate for a wide range of procurements.
Price-quality ratio equation:
VFM Index Score = Quality Score / Cost
To rationalize the score, you might multiply it: (Quality Score / Cost) * 1000 = VFM Index Score
Price-quality ratio worked example:
| Tender | Quality Score (100) | Cost (£) | Price quality ratio | Rank |
| A | 62 | 20,000 | 3.10 | 3 |
| B | 85 | 24,000 | 3.54 | 1 |
| C | 100 | 29,000 | 2.45 | 2 |
Weighted VFM Index: This method allows for a customized approach by weighting the quality score to emphasize either quality or cost. It is particularly useful in complex procurements where there is room for negotiation and tender revisions.
Weighted VFM index equation:
Overall Tender Score = (wQ * Non-cost score) / Cost
Where: wQ = weighting of non-cost criteria
To calculate the Weighted VFM Index Score, a factor is applied to the Quality Score before it’s used in further calculations.
Weighted VfM index worked example:
| Tender | Weighted Quality Score (60/40) | Cost (£) | Weighted VFM Index | Rank |
| A | 62 | 20,000 | 24.41 | 3 |
| B | 85 | 24,000 | 32.65 | 2 |
| C | 100 | 29,000 | 34.48 | 1 |
Best Technically Affordable: This method is employed when there is a constrained budget, and the authority relies on supplier expertise. It selects the highest quality tender that fits within the available budget.
Best technically affordable equation:
This isn’t a calculation but a selection process: Choose the highest quality tender that is within the available budget.
Lowest priced technically compliant worked example:
| Tender | Quality Score (100) | Cost (£) | Technically Compliant? | Rank |
| A | 62 | 20,000 | Yes | 2 |
| B | 85 | 24,000 | Yes | 1 |
| C | 100 | 29,000 | No (over budget) | – |
Lowest Priced Technically Compliant: This method is suitable for procurements with clearly defined requirements where additional features are not necessary. It focuses on selecting the lowest-cost tender that meets the minimum quality threshold.
Lowest priced technically compliant equation:
This is also a selection process: Choose the tender with the lowest cost, provided it meets the minimum quality threshold.
Lowest priced technically compliant worked example:
| Tender | Quality Score (100) | Cost (£) | Technically Compliant? | Rank |
| A | 62 | 20,000 | Yes (min 60) | 1 |
| B | 85 | 24,000 | Yes (min 60) | 2 |
| C | 100 | 29,000 | Yes (min 60) | 3 |
Lowest Price: This method is used for low-value or low-complexity procurements with very narrow technical specifications, such as purchasing commercial off-the-shelf items.
Lowest equation:
This is a simple selection: Choose the tender with the lowest price, provided it’s technically and commercially compliant.
Lowest priced worked example:
| Tender | Cost (£) | Rank |
| A | 20,000 | 1 |
| B | 24,000 | 2 |
| C | 29,000 | 3 |
Willingness to Pay: This method requires the authority to determine how much they are willing to pay for each unit increase in quality. It is suitable for various procurements, but may not be efficient
This involves a “Willingness to Pay gradient (WTP gradient)”:
Calculate the WTP Gradient = Total cost range / Total Non-cost score range
WTP Score = Cost – (Quality Score x WTP gradient) for low-value, low-complexity requirements.
| Tender | Quality Score (100) | Cost (£) | WTP Score | Rank |
| A | 62 | 20,000 | 1.4 | Non-compliant |
| B | 85 | 24,000 | -1.5 | 1 |
| C | 100 | 29,000 | -1.0 | 2 |
Conclusion
By carefully considering the specific requirements of each procurement, public sector organisations can select the most appropriate price evaluation method and ensure they are getting the best value for taxpayer money for each particular procurement. It is important to consider this early on in the procurement journey (during the Plan and Define phases) as this will give the organisation ample time to engage with the market, test the evaluation method and amend if appropriate.