Just How Much More Expensive Can A Best Value Tender Be?
Naturally enough it is the horror stories that get the headlines. However there is a lot to be learned by looking behind the headlines. Take for example the highlights of a contract awarded in 2007 (and audited in 2010) to design, build and operate a national convention center in Dublin:
- The gap between the selected and the next highest tender was over 200 million.
- The highest and lowest tenders both got awarded 100% marks on the price criterion, despite the fact that the highest was twice the cost of the next lowest
- The highest and lowest tenders were not compared against each other but against an estimated cost of the completing the project in the public sector (Public Sector Benchmark).
- The actual price accounted for only 13% of the marks for selection of the winning tender
- External consultants suggested, prior to the project being sanctioned, that t
- The ratio of costs to benefits was put at 2 to 1 by an external review by external consultants
- The winning tender neglected to include the annual cost of rates in its pricing, leaving the buyer (after almost 11 months of negotiation) with an additional annual cost of 1.5 million
Based on these highlights you would be inclined to say: ‘Nice Building, But Was it Worth The Extra 200m?’ There are mitigating factors however. First, this apparently crazy buying decision was made before the global banking collapse and world economic chaos. That is the problem with major capital projects, so much can change over the life of a long project. Second, the decision wasn’t really made by public servants, but by politicians – it was part a pillar of government policy.
Let’s finish on a positive note – although there are certain to be more horror stories about public buying, we believe that the trend towards better buying in the public sector is unstoppable (new compliance requirements, the increased scrutiny and most important of all pressure on budgets make it inevitable).