Pricing: How Government Agencies Interpret Value for Money
You truly believe that your product or service meets all criteria and client expectation and epitomises value for money. Your pricing is sharp, your offer compelling or so you think! But how will government bureaucrats evaluate your tender response?
- Remember the Three E's: Economy, Efficiency, Effectiveness
- Start thinking in terms of value rather than cost
- Always draw a complete picture of HOW your solution delivers on the three 3Es.
As a commercially astute person, you know your business and you know your commercial market. But when it comes to tendering for government business, you may be in uncharted waters.
How many colleagues have told you about the time and effort they put into bidding for government business and they didn't even get a look-in.
Value for Money - the Government's Perspective
If the commercial sector is about financial return to its shareholders then the public sector is about demonstrating value for money in the use of the taxpayers' monies. This demands transparency and accountability with public scrutiny.
However, don't be mistaken it doesn't mean the cheapest. It means assessing and purchasing the optimum quality at the lowest price.
In other words, the 'value for money 3Es':
- Economy - means buying at the right price and right quality
- Efficiency - means getting the most out of your goods and services on the job
- Effectiveness - means ensuring your goods and services contribute to achieving government policy and program results?
Your dollar price is important, but have you explained your value for money proposition?
Does government understand the value-add offered with your product or service?
Have you adequately explained how value for money is leveraged in regard to:
- Fitness for purpose -meeting and exceeding the specified requirements
- Technical and financial issues - delivering superior performance, reliability, economic life and maintainability
- Risk exposure - minimising the potential for risk to government
- Benefits to be obtained from the purchase - for example, technology transfer
- Maintenance and support capability - physical support or help desks
When government evaluates value for money it needs to determine the 'real cost' associated with the goods and services. Depending on the nature of the goods and services, both whole-of-life costs and transactional costs may need to be assessed.
Whole-of-life costing assessments could include:
- Acquisition costs - initial price, freight, legal fees, warehousing costs, initial training costs, etc
- Operating costs - fuel or energy costs, safety costs, cleaning costs, etc
- Maintenance costs - spare parts, repair labour, loss of productivity with down time, etc
- Refurbishment costs - upgrade costs, retraining costs, etc
- Support costs - insurance, rates and taxes, management fees, etc
- Disposal costs/value residual value, disposal method costs, etc
Transaction costs can be significant and can impact heavily on the assessment of value for money. Transaction costs may include:
- Tendering costs
- Ordering and processing payments
- Managing relationships including performance monitoring
- Organisational changes and retraining costs
Government agencies seek to leverage their purchasing power to reinforce broad government policy and program priorities. Though not always obvious in the tender documentation, these objectives will influence your value for money proposition.
How will your goods and services contribute to:
- Youth training and employment?
- Regional development?
- Industrial relations?
- Local industry development?
- Indigenous engagement?
- Environmental sustainability?
When government interprets value for money it considers far more than just dollar value; it includes assessing the 3Es: Economy, Efficiency & Effectiveness. By articulating how your products and/or services effectively support government priorities may be the value for money consideration that wins you the contract!
Peter Keane is a freelance consultant with Tender Success. His vast experience in local government provides a unique view from the other side of the tendering table. Contact Tender Success to ensure your next response is a success.