Avoiding the 'Race to the Bottom'
Value Management is intrinsically linked with optimum Risk Management, but there appears to be a disconnect when the price: quality (& Social Value - SV) tender scoring matrix is set…. leading to unintended consequences in which unsuitable contractors or consultants win bids…… and then you are stuck with them and can only hope things turn out right!
In the construction industry, procuring the right contractor and consultant for any project should be a deliberate endeavour to drive benefit optimisation – to get optimum value. It is not (& should not be) a chance endeavour, especially considering the capital outlay and the associated risks.
Price: Quality (& SV) tender scoring matrix should be derived from the success criteria specific to each project- informed by Value Management & considerations for associated Risks (threats & opportunities).
Important that the scoring matrix breakdown reflects your specific project & appropriately weighted to ensure an objective assessment of bids offering Best Value.
One of the aims of the upcoming Procurement Bill is to reset procurement focus on Best Value rather than price and the bill proposes to replace “Most Economically Advantageous Tender (MEAT)’’, with “Most Advantageous Tender (MAT)’’.
MAT (or MEAT) requires careful consideration at project inception, but often, the familiar price: quality: SV scoring matrix (of 70:20:10; 60:30:10 etc) appears decided in a void without due consideration.
That is a potential recipe for unintended project challenges or even project failure!
Remember R67 of PCR? MEAT is not lowest price, but in a lot of cases does default to lowest price (unintentionally) because the tender scoring matrix was not properly calibrated. MAT, as currently construed, is unlikely to change that!
I am holding my breath on how the final Procurement Bill will facilitate a shift to value-oriented procurement practices. I am absolutely certain however that just replacing MEAT with MAT will not cut it!
Four things need to happen to avoid the race to the bottom, in my view:
Prior to tendering, clients should take time to define each project’s success criteria and through Value Management prioritise the criteria to inform how their price: quality (& SV) tender scoring matrix is structured, for each project. Every project is different.
Within the tender scoring matrix, the reliability of price bids should be a quality criterion and appropriately weighted. This should be assessed via resourcing and price breakdowns and via a validated pre-tender estimate. This should help mitigate abnormally low tenders, as tenderers will be aware that a low price (as opposed to a competitive price) may not be in their benefit with the quality scoring.
The new Procurement Bill will need to address the issue of abnormally low tenders. The current draft is silent on this, and it is out of sync with its aim to drive optimum value.
Social Value (SV) requirements should be specific and unambiguous. Clients should define the actual SV requirements in each tender and clarify how they will be scored to ensure an even playing field and objective assessment.
In the current economic climate, the above considerations are even more pertinent as there is a heightened risk of abnormally low tenders by some bidders- being seen as favourable to clients looking for the lowest price, but which (often) undermines the achievement of projects’ success criteria….and quite often costs clients more money in the long run!
We should think ‘Value’ (what it is worth, what we get for the price) not just ‘price’ (not simply what it costs).
We should ensure that Value Management is intrinsically linked with our overall Risk Management initiatives and with respect to procurement, clients should be deliberate via their tender scoring matrix, in ensuring the best contractors and consultants are engaged…. not the cheapest!
After all, we all know that Value has a premium…and there are no short cuts to this!