Legal Alerts/17 Feb 2012

Legal Alert – Innovation in Public Procurement – Part I: Standardisation of quality evaluation

Market Court approved a tool for assessing quality

Contracting authorities carrying out public procurements have been criticised for emphasising the lowest price as the selection criteria in invitations to tender. In the evaluation of tenders, quality has often received less attention than intended.

In construction field, the solution proposed for resolving the contradiction between price and quality has been standardisation, i.e. taking into account the standard deviation of the quality scores and price scores given to tenders. The mechanism is based on a statistical study ordered by the Association of Finnish Architects’ Offices (ATL), the Finnish Association of Architects (SAFA), the Finnish Association of Civil Engineers (RIL) and the Finnish Association of Consulting Firms (SKOL) in 2007. Attorneys at law Borenius Ltd assessed the compatibility of the system with the Finnish Act on Public Contracts in context of the study.

The Market Court has approved the said standardisation in matter MAO 460/11, and the matter has not been appealed to the Supreme Administrative Court. In the said matter, the real estate corporation had notified tenderers that it will use a mathematical formula accordant with standardisation. The Market Court stated that the Act on Public Contracts does not contain provisions on the use of a certain mathematical formula in the evaluation of tenders. Therefore, since the use of the said scoring process was not discriminating or unequal towards the tenderers, the use of the calculation method was allowed.

Standardisation has already been used in public work contracts and consulting procurement in the field of construction with good results. However, the method can also be applied to other public service contracts in a similar way. We hope that the Market Court’s recent decision encourages for its part to take the quality more efficiently into account in public procurement and that it leads to more efficient use of public funds.

Standardisation in brief

By rescaling the proportion between the price and quality at the stage of evaluating the tenders, a price/quality ratio originally intended in the tender can be achieved.

The standardisation is done so that the mean value of the competitive bidding (?) is subtracted from each tender (x), and the remainder is divided by the dispersion of the tenders (s). The obtained result (z) is the comparison value for each tender which can be compared in relation to the other tenders. The formula of the mechanism is as follows:

In writing the model can be expressed as follows: (value of the tender – mean value of tenders) / (dispersion of tenders). The calculation is performed for each tender with respect to both the quality scores and the price scores obtained in the evaluation of tenders.

The disproportionately large influence of the price on the final result of the procurement can be reduced by standardisation. It shall be born in mind, however, that since the model is of a mathematical nature, the model is the most suitable for procurement which include as many comparable tenders as possible. Thus, standardisation should not be applied to procurement in which four or less tenders are received as a result of the competitive bidding. It is possible to inform the tenderers in the invitation to tender of an alternative selection method in cases where fewer than four tenders are received.

Standardisation as a new procurement practice

Particularly in innovative or more demanding service procurement, it is important to ensure that the emphasis of quality is maintained as an essential part of the evaluation instead of a tenderer winning the procurement with a low price regardless of the quality of the tender.

The study ordered by the operators in the field of construction assessed the effect of the standardisation on the final result of 150 public procurement already carried out. The standardisation performed retrospectively changed the final result of the procurement in 37 % of the cases. In addition, the order of the tenderers changed in 72 % of the cases. Thus, it is clear that the standardisation affects the results of public procurement, and in over a third of the cases, a different supplier would have been selected as the winner compared to direct comparison.

It is important that contracting authorities notify in the invitation to tender of the selection criteria and the evaluation mechanism they will use. The same applies to the details according to which the evaluation of quality is made. In that case the tenderers will at the time of submitting their tender know which details affect the evaluation of tenders and how the winner of the procurement will be selected.

An extensive presentation of the standardisation, as well as an excel sheet in which the values of an individual competitive bidding can be entered, are available on the web site of the Association of Finnish Architects’ Offices (ATL) (in Finnish):

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Additional information

Ilkka Aalto-Setälä