SA LOCAL GOVERNMENT PROCUREMENT FORUM Evaluation Methodologies Total Lowest Cost vs Value for Money Probity Important Disclaimer: The material contained in this publication is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser.

Price Price is important, but it can’t be the only consideration “As I hurtled through space, one thought kept crossing my mind: Every part of this capsule was supplied by the lowest bidder." John Glenn (astronaut) Unfortunately in reality it often becomes the consideration

Total Lowest price A total lowest price methodology should look at price over useful life >purchase >running costs >maintenance costs >storage >remediation Purchase cost is one driver only You ensure you control others through the contract >warranties and representations >allocation of risks in the contract

Value for money If fixated on price you may obtain goods, but will they fulfil their purpose in the longer term? We can draft for “worst case” with the “shotgun approach” but this doesn’t really help solve a price driven problem >broad warranties solve issues after they have gone wrong >bespoke agreements are better placed to communicate what you need

“I know my rights” There is a temptation to overload rights Supplier can control >quality >fitness for purpose >intellectual property >running costs >outputs

Any words will do Inefficient allocation of risks will: >for a sophisticated supplier, risks factored into the price, counter productive >for an unsophisticated supplier, a right to claim that may not be commercial justified in pursuing, inefficient –If a right is not worth enforcing do you really have it? –Can the warranty really capture the true cost of failure?

Understand what you want Fit the forum to the fuss If you can’t explain what you want you don’t really know If don’t ask for what you want how will you get what you want? Explain it to the lawyer → Lawyers write it down → Contract fits you, not you being forced to fit the contract

Probity By understanding risks and needs over useful life probity rules can be drawn reflecting the same >reflect discussion on risk allocation and warranties Provide the objective criteria for rejecting the price only bias by introducing objectively defensible criteria