Award criteria and life-cycle costing
This Byte size procurement update looks at the changes introduced by the new Directive/Regulations to the award criteria used in the evaluation of tenders. It also outlines the new life-cycle costing provisions.
Regulation 67 requires that contracting authorities shall base the award of all public contracts on the most economically advantageous tender. On first reading this appears to limit contracting authorities to only one approach. A closer reading shows that this is not the case. There is more than one permitted approach to tender evaluation and it is still possible to award a contract on the basis of lowest price where minimum criteria are satisfied.
Regulation 67 is not easy to understand. This is probably because the final wording was a result of a compromise to resolve a difference of views between the European Parliament and the European Commission. The European Parliament favoured the abolition of the lowest price criterion. The European Commission’s original proposals retained the choice between lowest price and most economically advantageous tender.
What is clear is that there is significant emphasis on the desirability of taking into account a much wider range of factors in tender evaluation than just price.
The following commentary is our interpretation of the not-so-easy to understand provisions.
The most economically advantageous tender will be evaluated on the basis of either “price” or “cost” or the "best price/quality ratio".
Where cost is the basis of evaluationa “cost-effectiveness approach” must be used. Life-cycle costing is one example of a cost effectiveness approach.
See below for further discussion of the new life-cycle costing provisions.
Recital 89 of the Directive explains that the term “best price-quality ratio” means the same as the “most economically advantageous tender” criterion used in the current Directive. This helps to makes sense of some of the drafting. Article 67(2)/Regulation 67(2) provides that the best price-quality ratio shall be assessed using criteria linked to the subject matter of the contract. This is consistent with the current requirements for the criteria used in assessing the most economically advantageous tender.
See below for further discussion of the criteria which can be used to assess the best price-quality ratio.
There is greater emphasis on the use of qualitative criteria as well as social and environmental criteria. This reflects the developments in thinking at EU level about the use of public procurement to promote social and environmental issues and encourage innovation.
There is a still a requirement for the criteria to be linked to the subject matter of the contract but that concept is widened. Criteria can now be linked to the subject matter of the contract where they relate to a specific process of production, provision or trading or a specific process at another stage of their life-cycle (Article 67(3)/Regulation 67(5)). This, together with new provisions on the use of technical specifications and labels at Articles 42 and 43/Regulation 42 and 43, opens up the possibility for legitimate use of a wide range of social and environmental criteria: for example, relating to fair trade in production, the use of non-toxic substances or end of life disposal. Criteria will still need to comply with basic principles including transparency and non-discrimination.
Where the quality of the staff assigned to a contract can have a significant impact on the level of performance then the organisation, qualification and experience of staff are specifically permitted award criteria. This provides helpful clarity following the uncertainty arising from the Lianakis** case which some commentators interpreted as meaning that these were not permitted award criteria and could only be used at the selection stage.
In the UK we have a long history of using life-cycle costing approaches but this is not necessarily the case elsewhere, hence the introduction of specific provisions. Article 68/Regulation 68 is, however, a useful clarification encouraging contracting authorities to move away from evaluating the lowest delivery cost towards consideration of the whole-life/long-term cost of the works, supplies or services procured.
The new Directive/Regulations contain quite detailed provisions on the EU concept of “life-cycle costing, which is an example of a “cost effectiveness approach” used to evaluate cost. Other cost effectiveness approaches may be used but the new Directive is silent on what these might be.
The Regulations define “life-cycle” in Regulations 2 as “all consecutive and/or interlinked stages, including research and development to be carried out, production, trading and its conditions, transport, use and maintenance, throughout the existence of the product or the works or the provision of the services, from raw material acquisition or generation of resources to disposal, clearance and end of service or utilisation”.
The EU concept of life-cycle costing is outlined in Article 68/Regulation 68 to include costs borne by the contracting authority or other users at various stages, such as:
The concept also include costs “imputed to environmental externalities” such as greenhouse gases and pollutant emissions. There must be an appropriate link to the subject matter of the contract and the monetary value of the environmental externalities must be “determined and verified”.
The Directive/ also provides for the possibility of a mandatory EU wide method for calculating life cycle costs.
Where a contracting authority proposes to use a life-cycle costing approach it must include information in the procurement documents covering:
The award criteria will still need to be accompanied by specifications that allow the information provided by the tenderers to be effectively verified in order to assess how well the terms meet the award criteria. Contracting authorities will also need to ensure that they continue to take great care to clearly set out in the procurement documents the relative weighting that will be given to each of the award criteria.
**Lianakis was a case decided by the Court of Justice of the European Union in 2008 (C-532/06).