Tender Evaluation and Award Methodologies in Public Procurement
36 Pages Posted: 13 May 2011
Date Written: May 4, 2011
The EU procurement directives stipulate that public contracts are awarded to the lowest bidder or to the bidder with the economically most advantageous offer; the latter requiring that a scoring rule must be specified. We provide a simple theoretical framework for tender evaluation and discuss the pros and cons of common scoring rules, e.g., highest quality (beauty contest) and price-and-quality-based evaluation. Some descriptive facts are presented for a sample of Swedish public procurements. We argue that the most common method, price-to-quality scoring, is flawed for several reasons. It is non-transparent, making accurate representation of the procurer’s preferences difficult. It is often open to strategic manipulation, due to dependence on irrelevant alternatives, and it is unreasonably non-linear in bid prices. We prefer quality-to-price scoring, where money values are assigned to different quality levels. When the costs of quality are relatively well-known, however, lowest price is the preferable award criteria.
Keywords: Public Contracts, Public Procurement, Scoring Rules, Quality
JEL Classification: D44, H57
Suggested Citation: Suggested Citation