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Mean Calculation

 

Quick reminder on how to calculate Mean for price calculation

A further method is the “mean average” method that is implemented as

follows:

The price element of the quotation will be scored as follows:

(a) Calculate the mean price of the bidding suppliers (e.g. sum of

three-year prices).

(b) Calculate the % difference between the actual price and mean

(e.g. Three Year Price – Mean Price x 100).

(c) The mean is given the value of 50.

(d) One point is deducted from the score of each bidder for each

percentage point above the mean.

(e) One point is added to the score of each bidder for each

percentage point below the mean (e.g. % Difference x –1 (Round

The most popular scoring method is using relative price, though this is not a perfect scoring methodology.

The following “standard differential” example highlights an anomaly I have discussed previously, that despite the equal differences in prices between each bid (£5), Bidder 2 would find it more difficult to “catch up” Bidder 1 than Bidder 3 would to “catch up” Bidder 2. This is because, as we have seen, the formula penalises tenders that come closer to the most competitive price as opposed to tenders that are further from the most competitive price. The end result is that Bidder 2 may simply not be in the race through no fault of his own.

Lowest price X price weighting divided by  price of tender being evaluated = price score

 

 

Another option?

Contracting authorities could seek to rely on formulas with an ideal price, from the contracting authorities’ point of view, set out in the Invitation to Tender (ITT). We have seen that the following model does have that element.

The formula is sometimes set out as follows:

Maximum price bid- bid price X percentage allocated divided/ by maximum price bid -optimal price= price score

The above method works on the premise that the bid price closest to the optimal price gets the highest score whilst the maximum bid will score zero.

This method guards against abnormally low bids or against a “race to the bottom”. It also allows contracting authorities to test their ideal price against market place prices, and may take into account budget constraints or savings they wish to make etc.

However, tenderers are still to be measured against other bidders, being measured against “the maximum price bid”, and have to make an assumption about what that maximum might be.

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