Purchasers Strike a Balance With Best Value Procurement

Weighing factors other than cost helps purchasers reap immeasurable benefits

Left to right: Douglas Richins, State Purchasing Director, Utah Division of Purchasing and General Services, Donald R. Rainey, VCO, and Nancy M. Davis, CPPO, CPPB, VCO, Procurement Management Account Executives with Virginia’s Department of General Services Division of Purchases and Supply

John Ruskin, a 19th century art critic and social commentator, once said, “It’s unwise to pay too much, but it’s also unwise to pay too little. When you pay too much, you lose a little money, that is all. When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do.”

Ruskin’s words, spoken more than 100 years ago, ring true today, particularly for public procurement professionals trying to stretch taxpayer dollars as far as they’ll go.

Getting the best value for a product or service does not necessarily mean choosing the lowest bidder. In fact, cost is just one of several factors to consider when using the best value procurement process.

For the State of Utah, best value means striking a balance between the service and technical elements of a proposal response with the cost/pricing element.

“We’re making the purchase not just on a low-bid basis, but on what is really going to represent the best value for the state, taking into consideration both cost and the other elements of the RFP (request for proposals),” says Douglas Richins, State Purchasing Director, Utah Division of Purchasing and General Services.

Affordability must always be a consi deration when s pending public funds, of course, but in its broadest sense, best value may be defined as the outcome of any acquisition that ensures customer needs are met in the most effective, timely, and economical manner. Finding the best value, then, should be the ultimate goal of every acquisition.

Weighing The Options
According to the U.S. Army Materiel Command’s Army Source Selection Guide, the general rule is: the higher the technical or performance risk, the greater the emphasis on non-cost factors.

To that end, civilian procurements of professional services and construction and information technology (IT) contracts, which tend to be complex, may be handled through the bes t value process.

Best value procurement is also appropriate for the purchase of goods such as HVAC equipment, office furniture and equipment, and copiers.

“Usually, if you’ve done an extensive amount of research and written a specification that you feel comfortable can be awarded to the lowest bid that meets that requirement, then you use an invitation to bid process,” Richins says. “If, however, your solicitation is really designed to solve a problem, and you want to obtain the expertise of the supplier community [for] creative solutions, you would use a best value procurement.

“It varies, obviously depending on the procurement,” Richins says, “but in a general sense, you’re going to be reviewing the state-of-the-art technical response. You’re going to be evaluating the professionalism, and the capabilities, and past performance of the respondent, as well as their innovative response to the statement of work (SOW).”

Best value contracts may be helpful whether purchasers know exactly what they want or are more open to a variety of options.

“Sometimes you’ll iss ue a best value or RFP and you’re really trying to assess the marketplace so as to gain the leading-edge technology, for example,” Richins s ays. “At other times, you know the type of service you want to obtain, so you’re really more asking for the qualifications of those who are responding so that you can weigh those and evaluate the best value for the state.”

Measuring What’s Relevant
There are many possible source selection factors to consider when using the best value procurement method. (See inset below.) Donald R. Rainey, VCO, Procurement Management Account Executive with Virginia’s Department of General Services (DGS), Division of Purchases and Supply, cautions against using too many.

“Factors should be developed based on requirements and should relate directly to the goods or services being procured,” Rainey says. “Using too many evaluation criteria dilutes consideration of those that are truly important.”

The Commonwealth of Virginia often uses Life Cycle Costing (LCC) as a tool to measure the value of offers.

“LCC goes beyond the total acquisition cost,” Rainey says. “It also measures total operation and maintenance costs minus any residual value remaining after the useful life of the product is expended.”

Similarly, Total Cost of Owner-ship is a factor the Utah’s Division of Purchasing and General Services often includes.

“Let’s say you were doing a copier on a best value procurement process,” Richins says. “You’d want to take into consideration the initial price of the copier, the cost of the maintenance over a specified number of years—say five. You’d want to take into consideration the cost of the toner and supplies. You add up all of those to determine what your total cost of ownership’s going to be.”

Reviewing vendors’ performance histories can be especially helpful in choosing a best value contract, says the Office of Management and Budget’s Office of Federal Procurement Policy (OFPP). The private sector has long looked to contractors’ current and past performance as a major criterion in selecting suppliers.

“Anytime you introduce any subjectivity into a process, it opens the door for reasonable minds to differ on the outcome.” —Douglas Richins, State Purchasing Director, Utah Division of Purchasing and General Services

The public sector, on the other hand, has traditionally relied more on detailed technical and management proposals to compare offers. This practice often allowed vendors who could write outstanding proposals to win contracts, even though competing offerors had significantly better performance records and, therefore, offered a higher probability of meeting contract requirements.

OFPP encourages agencies to make contractors’ performance records a key consideration in awarding negotiated acquisitions, reasoning that the result would be increased competition and higher quality service by vendors.

Assessing the Advantages
“Using best value procurement encourages and i ncreases small, women-owned, and minority business participation and subcontracting opportunities,” says Nancy M. Davis, CPPO, CPPB, VCO, Procurement Management Account Executive with Virginia’s Department of General Services (DGS), Division of Purchases and Supply.

In addition, best value procurements take advantage of the experience and independent judgement of evaluators and offer greater flexibility to compare technical and cost factors subjectively.

Best value procurements do, however, require time and resources to complete and may be difficult to evaluate.

“There are always advantages and disadvantages to any procurement process,” Richins says. “Whether it’s best value or an invitation to bid process, or whatever—all of those are simply tools to accomplish what the professional purchasing agent needs to accomplish.

“In a best value procurement, there is some s ubjective evaluation,” Richins says. “That’s the nature of the process. Anytime you introduce any subjectivity into a process, it opens the door for reasonable minds to differ on the outcome. When you have a team, for example, that’s subjectively [judging] a firm’s ability to do something or its professionalism, there are going to be some disagreements.

“A best value procurement process isn’t as objectively measured and therefore does raise the potential for additional protest,” Richins says. “Whether or not the protests ultimately have merit is a different issue.”

Calibrating for Control
Who should be a part of the evaluation team depends on the nature of the purchasing requirement. At a minimum, Rainey and Davis recommend including end users, technical experts, contract administrators, procurement professionals, and, if necessary, legal counsel.

Before conducting a best value proc urement, it may be helpful to have a presolicitation dialogue to ensure a mutual understanding of the agency’s needs and vendors’ capabilities. Such a meeting could help reduce miscommunication and protest.

According to the Deputy Assistant Secretary of the Navy for Acquisition Management (DASN), it is critical to develop a good performance-based SOW and specification, as well as effective methodology for assessing relevant offeror past performance. Without this, “best value” is only lip-service, as there is no room or leverage provided for tradeoffs.

In addition, the DASN recommends avoiding detailed “how-to” directions in the SOW and specification. To do so, says the DASN, would indicate the absence of a good performance-based requirement, limit offeror flexibility in designing solutions, and constrain cost/technical tradeoffs. A best value result, in such a case, would be unlikely.

Once a need has been identified, an agency must decide on a rating method. The Virginia DGS uses one of three methods. The numeric rating uses a balanced scorecard, with points generally totaling 100. The color rating method uses red, yellow, and green to rate proposals. The adjectival rating method uses descriptions. (See chart on page 9.) Likewise, the Utah Division of Purchasing and General Services uses several different rating systems.

“We usually try and do a rating from one to five, with five being the best,” Richins says. “It really doesn’t matter, in our view, what system you use, as long as all of the evaluators understand [it] and are all using the same evaluation system.”

Ratings should reflect how well contractors meet the cost, schedule, and performance requirements of a contract. In addition, the OFPP stresses the importance of including a narrative sentence with each rating, recognizing contractor resourcefulness in over-coming challenges that arise in the context of contract performance.

Continuous communication helps keep purchasers on the same page.

“We find it helpful to have a system where the evaluators have the opportunity of getting together and discussing wide variance in scores,” Richins says. “They can say, ‘What did you see in the proposal that I didn’t see? You gave it a five, and I gave it a one.'”

Such dialogue allows evaluators to share insights and may help to improve the accuracy of the scoring, Richins says.

Price, while not the only factor weighed in a best value contract, is still important. When evaluating price, the Virginia DGS considers whether the overall proposed costs are realistic, fair and reasonable, and complete.

Vendors have had mixed reactions to best value contracts.

“Some feel uncertainty about whether they will get future contracts because of the subjectivity and the lowest price not guaranteeing that they will be awarded the contract,” Davis says. “Others love it because they feel it levels the playing field with respect to product and service quality while not making price the determining factor.”

Communication with vendors even after an award has been made may help alleviate vendor concerns.

“After the announcement is made as to who the successful offeror is, it’s very normal for the purchasing agent [in Utah] to sit down with the unsuccessful firms and do a debriefing to show them exactly what their scores were,” Richins says. “Obviously, we want to assist people in understanding because these firms are going to be responding to future RFPs.”

Contract administration is key in best value purchasing. Virginia’s Rainey and Davis suggest keeping a file with a written justification of the decision to award. In addition, the Virginia DGS purchasers recommend outlining duties and responsibilities, documenting good/poor performance, and providing contracting officers with evaluation reports.

Shifting the Balance
Best value procurement is not a new concept. Rather, it is a practice that is being used more now than in the past.

In 1989, for example, the U.S. Navy began employing a methodology for “greatest value source selection” of firm-fixed price supplies in which cos t and past performance were the only award factors.

“People for 20 or 30 years have been doing best value procurements,” Richins says. “The name has kind of changed. Some people will say that they’re doing best value procurements, and some will say they do a request for proposal process. Typically, any type of request for proposal process is the best value procurement process when you’re taking into consideration factors in addition to cost.

“I think that there has definitely been a trend in the last number of years to use a best value procurement process more than it’s been used in the past,” Richins says. “I think on a state and local government level it’s been purchasing professionals becoming more familiar with how to effectively administer best value procurements. It’s been legislative changes that have allowed it to take place. In some states, statutorily they couldn’t do a best value procurement. It had to be always a low-bid procurement. Over the course of the last number of years, state laws have been changed to permit more best value procurements.”

Scaling Success
Richins cautions purchasers to use best value procurement only when it makes sense to do so.

“Best value is a very good procurement tool, but it is just that, a tool,” Richins says. “Just like you don’t use a hammer for every job, sometimes you need screwdrivers and sometimes you need saws. Same thing is in a professional purchaser’s toolbox. It’s important to be able to understand how to use the best value procurement and then appropriately apply it in the right situations. It’s an important tool, I think, but it’s not necessarily always the tool that needs to be used.”

Still, when best value is appropriate, it offers government purchasing agents the benefit of flexibility and quality and cost improvements.

“As procurement professionals, we have always tried to obtain the right goods and services of the highest quality at a fair and reasonable price,” Rainey says.

Davis adds: “Using best value procurement allows you to make those prudent business decisions based on evaluation, comparisons, and tradeoffs, while not being backed into a corner to make an award based on lowest price.”