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Risk of contract award using ‘meat’

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Tender award basis differ and the most economical advantageous tender (meat) award criterion assumes that cost or price of goods or services is not fixed and that some missing or additional attributes of an offer have a hidden price tag.

Nyasha Chizu

If the costs were fixed without consideration of value, it would be difficult to reach any objective determination of what was or was not economically advantageous without some reasonably reliable indication of price or cost in relation to which other non-price advantages might be taken into account.

In the case of “meat”, price is the starting point for the exercise and the risk is that there is no one formula that provides the same answer in ascertaining a price.

There are many variables to price formulation and it is important that tender documents provide some level of specificity as to the manner the price is to be determined.

There has to be some means of establishing the expected overall amount payable under each tender by getting suppliers to price in a comparable manner.

High risk is imminent in construction where preliminaries and general (P & Gs) costs and profit percentages need some uniform structure of presentations for ease of comparison.

It is difficult to determine the “meat” tender without balancing the quality and delivery elements of the tender against the cost or economic value of such elements.

In most cases, it involves assessing price alongside other award criteria.

There are cases however where the price can be fixed and suppliers have to demonstrate the value they offer in return.

This is the only case where price is not the basis for “meat” award.
There are many different methods of establishing the price and it is important for the buyers to understand how they would evaluate “meat”.

Construction projects would have a schedule of rates for the contract that consist of a large number of bills of quantity (BOQ) items for different stages.

On the other hand, a target contract price can be used where the target and the pain/gain sharing mechanism are evaluated.

The new mode of procurement of private finance initiatives where the private sector handles upfront costs presents a situation where ‘availability’ and ‘performance’ payments are evaluated within an overall payment mechanism.

Price evaluation also include assessment of price certainty, internal costs and other elements of price that include volume discount, whole life costing and consideration of inflation.

For that reason, there is a high procurement risk since there is no single means of evaluating price.

There are a number of methods that can be used to arrive at “meat” on the highest and lowest price in a tendering process.

The relationship of different prices in “meat” can be solved by various methods that include the ‘standard differential’ method that awards full marks to the lowest price and other bids are ranked comparatively to that lowest bid.

The other method is the use of the ‘mean average’ method applicable to projects that run over a period of time.

‘Fit to budget’
The ‘fit to budget’ method considers the award to a complaint bid that is within the budget range that will have been professionally formulated.

The risk associated with the determination of the price from the above methods for “meat” award is high.

At this point, it is important to consider that evaluation of price is not a straight forward issue if value for money is to be achieved through a “meat” award and a certain level of procurement skills is required.

Nyasha Chizu is a fellow of the Chartered Institute of Purchasing and Supply writing in his personal capacity. Feedback: nyashachizu@harleyreed.com; Skype: nyasha.chizu

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