Value for Money is Your Best Defence

Value for Money is Your Best Defence

The May 2023 audit report by the Australian National Audit Office (the ANAO) into the Department of Defence’s procurement of Hunter frigates for the Australian Navy found that the procurement did not meet the Commonwealth Procurement Rules as the Value for Money of the three competing designs were not assessed by Defence officials as the Tender Evaluation Plan had proposed.

What is value for money when it comes to your procurement?  Is it going with the cheapest tenderer?  That may be enticing. However, money is not everything and often the cheapest option does not present value for money.  So, how do you consider value for money when, for example, the financial component of your procurement amounts to 50% or 33% of the procurement?

The NSW Procurement Policy Framework April 2022 provides that the overarching consideration for government procurement is ensuring best value for money in the procurement of goods, services and construction.

Value for money is your key driver in making a decision about your procurement. Value for money does not necessarily mean accepting the lowest available price and your procurement processes need to maximise value for money, consistent with meeting the objectives of the project but having regard to the prevailing conditions at the time the project is undertaken.

Your process should include, at the outset, a clear and detailed description of what you require and how this needs to be provided. Your process should also include a balanced assessment and evaluation of non-price criteria such as the quality of services offered, the experience and past performance of the tenderers/proponents, the financial strength of participating parties, the differing risk factors and quality of the personnel. Where appropriate it should also include comparison against a target benchmark or budget outcome.

When it comes to assessing risk, it is important to do a ‘Apples for Apples’ comparison of competing tenders and apply a monetary value to the potential costs, benefits and risks. A simple example of doing this comparison is when one tenderer is proposing to have on-site workers for 5 days and another nominates on-site workers for 3 days and at a lower cost per day. The tenderer proposing 3 days will come across cheaper, but at what risk to the project?

Noble Shore has experienced consultants that can work with you to deal with critical procurement issues like Value for Money.