White Paper – Price evaluation models for the housing sector
Over the course of the last two years we have been collaborating with members of the G15, consultants and other interested organisations to explore alternative methods of evaluating price to the most common "lowest price equals highest marks methodology".
The result of this collaboration is the White Paper looking at price evaluation models, which we launched at the end of 2020 as a conversation starter for the sector.
The White Paper looks at how historically the need to secure costs savings and "best value" has translated into the use of a relative price model such as the popular lowest price equals highest marks. The issue with this model is that it can encourage a "race to the bottom" where bidders may be encouraged to submit an undeliverable low price in order to win the contract, rather than a realistically low price necessary to perform the contract and secure quality and safe outcomes.
The focus of the White Paper is therefore on tackling this race to the bottom. If the rules of the game are changed, we hope that bidders approach to price can be changed too. The initial working group has been looking at alternative models to evaluating price, looking at both relative and absolute models.
The White Paper looks at eight price evaluation models in total, starting with the common "lowest price equals highest marks" methodologies, before considering alternative models, including a life cycle costing model which could play a vital role in certain asset management and product procurements.
For each model, the White Paper includes the formula to calculate the score, along with an explanation as to how that formula works (including whether there are any specific pricing rules to consider for that particular model such as a pre-determined "optimum price" or minimum quality thresholds).
The White Paper also demonstrates how each model works against a set of example bid data, as well highlighting points to note for each model, and whether the models are particularly appropriate for certain types of contract (for example, if the working group thought that a model would be particularly good for a framework agreement).
We are asking organisations to undertake pilot tenders using the alternative models in the White Paper and trial them in their procurements over the course of the next twelve months - firstly, by applying the models to previous bid data, and then by trialling the models in live tenders (the latter being most useful as a working assumption is that the alternative models should encourage a change in bidder behaviours and their approach to lowest price tendering).
The White Paper is a "conversation starter" and, with that in mind, the White Paper is available here to get a better understanding of the approach we've taken to the issues and the alternative models that we have explored and feedback with any thoughts. – If there are things in the White Paper that haven't quite worked for you in practice, or if you have other models that you think should be considered by the working group in more detail then do get in touch.
And finally, please do volunteer to be part of the working group going forward and take part in this important conversation!