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Full-life costing and the bidding field

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Full-life costing is a topic that you will often talk about, yet the process to a full understanding of this concept will differ from one municipality to another.
Stephen Bauld
Stephen Bauld

Procurement Perspectives | Stephen Bauld

Full-life costing is a topic that you will often talk about, yet the process to a full understanding of this concept will differ from one municipality to another.

Where a full-life costing approach is adopted, you must make clear to the bidders the prices that they submit will be subject to a full-life evaluation to determine which is the lowest full-life cost.

Moreover, when prices are read out, it should be made clear that they are subject to such evaluation and that the lowest bid price may not be the price accepted.

Other relevant factors in determining the full-life cost to a municipality may vary depending on the documents.

Some of the items for consideration will include things like the life cycle replacement cost and general maintenance, as well as the risk of supplier failure.

Training and re-training costs are always a big factor. As a general rule, far too little consideration is given to these in purchase decisions.

Indeed, it is not unusual (in both the private and public sector) to find that they are not factored at all into purchasing decisions. The problem is particularly acute in the purchasing of computers and related office equipment.

Studies have repeatedly shown that staff provided with computers frequently lack the training to use them to attain the level of efficiency that they had before they were procured.

The common reason is that there is no money budgeted to provide the training that the users require.

It pays to invest in the latest technology only where it improves efficiency of operation or the quality of service provided by a municipality to residents.

Unless training and related costs are adequately factored into procurement decisions, there is a risk that investment will lead to little more than the expenditure of substantial amounts on what are destined to become office toys.

One of the other objectives is the need to diversify sources of supply. A municipality that becomes totally dependent on one source of supply effectively confers monopoly power on the supplier.

Operating divisions (especially in the IT and office services area) frequently tout the benefits of sole sourcing (i.e., standardizing office equipment).

In addition, standardizing can often mean that specific users within an organization, who do genuinely have unique needs, are underserved (or not served at all) by standard products.

Too often in procurement decisions, the hidden costs of such standardization get too little consideration, although in practice they can frequently eclipse any expected savings through standardization.

Thought must be given to the compatibility with existing equipment. You must also consider the need to spread and minimize risk to the municipality. For instance, the scope of warranty coverage is one method of spreading risk.

A higher priced product that offers a longer term warranty may turn out to be cheaper in the long run, because the cost of repair and maintenance will be spread among all customers. Municipalities should be providing state-of-the-art services to the residents of the municipalities.

In our age of continuous and rapid technological advancement, there is an obvious temptation to stay at the front of the pack.

Unfortunately, there are a number of adverse implications in doing so. There are obvious benefits in avoiding the use of unproven technology and methodologies.

Therefore, considerable care needs to be exercised when basing a decision on this type of criteria.

The main reason bidders have criticized full-life costing and value for money approaches is that they introduce an element of subjectivity into the decision making process.

For this very reason adequate safeguards must be employed to ensure they are exercised in a proper manner.

Stephen Bauld is Canada's leading expert on government procurement. He can be reached at stephenbauld@bell.blackberry.net. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

by Journal Of Commerce

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