IT Procurement 101: The Myth of the 50/50 Procurement Evaluation

A growing trend in public sector information technology (IT) procurement is the 50/50 evaluation: assigning 50% of available points to cost and 50% to the solution. The logic is that weighing cost at 50% forces bidders to reduce their costs and assures the buyer the “best value.” This logic appears reasonable until you dig into the numbers a bit. I’d like to offer an analysis of why 50/50 evaluations may not be the most optimal split for an IT procurement.

To begin, let’s examine a hypothetical 50/50 evaluation of two bidders; “Vendor A” and “Vendor B”. The total point value of the bid is 1,000. Therefore, the maximum points available for cost and solution are 500 each (50/50). The table below shows the results of the evaluation of both vendors’ bids.

Criteria Vendor A Vendor B Max. Possible
Solution Score 400 450 500
Cost Proposed $400,000 $500,000 NA
Cost Score* 500 400 500
Total Bid Points 900 850 1,000

*The Cost Score is typically calculated as follows: (Low Cost) / (Cost Proposed) X (Max. Possible Cost Points)

Vendor A’s technical solution received 400 points whereas Vendor B scored slightly better at 450. However, Vendor A’s cost was 20% less than Vendor B, enabling Vendor A to win the bid by obtaining full points for the cost score. This outcome is precisely what procurement officials seek with a 50/50 evaluation. The state received a product that was marginally diminished in the eyes of the evaluators (12.5%) at a 20% cost savings.

In order to examine the risks of a 50/50 evaluation, we have to explore the evaluation components. The cost score is comprised of a single component: cost. On the other hand, the “solution” is comprised of many components, such as:

  • Vendor and Key Personnel Experience
  • Vendor and Key Personnel References
  • Project Management
  • Design, Development, and Implementation Approach
  • Organizational Change Management
  • Training
  • Solution Software
  • Hardware/Hosting
  • Maintenance
  • Interview/Demonstration

While cost is certainly an important evaluation criterion to help ensure judicious taxpayer investment, all the components above determine a project’s success and ultimately, the return on that investment. In light of this, it seems prudent to shift the evaluation factors to favor a larger number of solution components, e.g. 60% solution, 40% cost.

Independent industry experts agree. In 2013, a California Task Force on Reengineering IT Procurement stated in their report that: “To ensure best value — not lowest cost — the Task Force recommends that the state require entities to develop an evaluation plan that incorporates qualitative criteria that reflect the needs of complex IT projects and the success factors identified in project planning, and value them appropriately during proposal evaluation… A best-value evaluation should be most advantageous to the state: costs considered, not emphasized.” The National Association for State Procurement Officials (NASPO) incorporated this recommendation in their latest best practices guide for all state governments to consider.

Highlands Consulting has completed multiple procurement support contracts for complex IT initiatives. We continue to research the latest procurement industry best practices. I find it very rewarding to leverage our research and experience to help our clients develop evaluation methods that result in selection of the best long-term value to the State and its citizens, the taxpayers.