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Scoring Rules for Competitive Tendering

Scoring Rules for Competitive Tendering. Outline. Why scoring rules?. Most commonly used scoring rules. Scoring rules and tender design. Why scoring rules (SRs)?. Capture the buyer’s evaluation of technical and economic attributes of submitted tenders

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Scoring Rules for Competitive Tendering

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  1. Scoring Rules for Competitive Tendering

  2. Outline Why scoring rules? Most commonly used scoring rules Scoring rules and tender design

  3. Why scoring rules (SRs)? • Capture the buyer’s evaluation of technical and economic attributes of submitted tenders • Formally represent the tension between price and quality • Transparency: SRs may communicate the buyer’s true preferences • Standard scoring rule: Score = EPmax + TPmax EPmax : max number of points allocated to economic attributes TPmax: max number of points allocated technical attributes

  4. Scoring rules at work Two broad families: • Simple SRs (e.g., linear, parabolic): supplier’s score depends on her bid only • Interdependent SRs: supplier’s score depends also on other suppliers’ bids

  5. Linear scoring (LS) Economic Points (EP) EPmax Reserve price (Pr) Bid (PO) Price = 0

  6. EP LS - no “price threshold” 70 LS - “price threshold” Ps EP = 35 EP = 20 Pr = 100 20% discount Linear scoring (LS) EPmax = Bid PT

  7. Monetary Value of a Point (MVP) in LS One additional point costs the supplier € (P1-P2) = MVP EP 1 EP P2 P1 Pr Slope = - EPmax/(Pr- PS); MVP = |1/slope| = (Pr - PS)/EPmax

  8. Parabolic scoring (PS) EP Slope depends on the bid EPmax 0 Reserve price (Pr) Bid P2 P1

  9. Interdependent Scoring Rules Supplier’s score depends on some (possibly all) other bids: • Minimum Price: Bidder i’s Score = f(lowest bid/bidder i’s bid) • Average price: Bidder i’s Score = f(average bid) • …. Interdepedence is bad: • Each bidder is unable to predict her score • May favor suppliers’ coordination • Does not reveal buyer’s preferences to the market Thus they should be used under special particular circumstances (e.g. reserve price uneasy to set)

  10. Scoring rules and tendering design SRs help management of the contract (e.g., penalties) when quality is verifiable. How? Fines should be computed by relying on the MVP. For very standardized procurement contracts (e.g., paper for printers, fuel) you may avoid using SRs. Just fix a minimum/satisfactory quality standard and award the contract to the lowest bid. When procurement heavily involves non-verifiable dimensions (e.g. innovative services with skilled human capital, IT developlments) SRs have little impact on quality provision. Different tools (e.g. past performance, customer statisfaction, etc.) should be used.

  11. Scoring rules and tendering design SRs cannot be designed indipendently from other aspects of the tender process such as: • reserve price (participation vs. competition) • contract design (e.g., penalties, incentives schemes, etc.) • criterion for abnormally low tenders • … Main Reference: “Scoring Rules” in Dimitri, Piga and Spagnolo (Eds.), Handbook of Procurement, Cambridge University Press, 2006.

  12. Dank u wel!

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