Tender Evaluation and Award Methodologies in Public Procurement

36 Pages Posted: 13 May 2011

See all articles by Sofia Lundberg

Sofia Lundberg

University of Umea - Department of Economics

Mats Bergman

Södertörn University, Stockholm

Date Written: May 4, 2011

Abstract

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

Lundberg, Sofia and Bergman, Mats A., Tender Evaluation and Award Methodologies in Public Procurement (May 4, 2011). Available at SSRN: https://ssrn.com/abstract=1831143 or http://dx.doi.org/10.2139/ssrn.1831143

Sofia Lundberg (Contact Author)

University of Umea - Department of Economics ( email )

Umeå University
Umea, SE - 90187
Sweden

Mats A. Bergman

Södertörn University, Stockholm ( email )

Alfred Nobels allé 7, Flemingsberg
Stockholm, Stockholm 14189
Sweden

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