Calculating Price Score in a Tender
In this article, I will explain the initial principle of the price evaluation and how it’s used as a commercial score or price score. The calculation involves breaking down the price elements and organisations can use different options, the formula explained is the last stage of the price calculation. Though this is the default scoring method for many organisations there are pros and cons as the highest priced bidder can still score good points relative to the lowest priced tender.For more examples of how price can be scored with the pros and cons broken down, you need to purchase the premium template.
In this example, price is worth a Weighting @ 30%
Lowest price/bid price) X 30
Price score = Lowest price bid x Price weighting
Price of tender being evaluated
Price is calculated as a % of the overall score. Depending on the service or commodity you may decide to score price at 100%, 50%, 40% or even 30%. The choice is yours and is normally driven by individual project characteristics.
The price calculation is normally made up of a breakdown of different cost drivers and different types of contracts will have different cost models.
Before you get to the final tender price you need to review and calculate the breakdown of cost drivers that make up the total price. Always send out a price template to allow an apples for apples comparison across all bidders. For complex projects bidders may still submit the pricing slightly differently. When this happens make sure you clarify and go back to all bidders to question whether if the costs has been included in their bid and if it is their intention to put a zero against a specific requirement.
If you consider the price to be abnormally low then you should question and investigate this further. In public contracts, a tender can be rejected for being abnormally low.