Best value formula: the Best Value Formula is about not punishing the government - Requests for Proposal

Program Manager, July-August, 2002 by David P. Quinn

A constant concern when preparing to release a Request for Proposal (RFP) is one bidder throwing things completely out of whack by "low balling" the proposal. In other words, they bid extremely low, willingly incurring a loss in most cases, just to get the job and position themselves for future contracts from the same acquisition organization. Because the bidder offers such a low price for the contract, their limitations in their technical and management proposals get lost.

Eyes on the Prize

Our organization is in the process of preparing for a firm fixed price contract to perform a set of concept studies. The results of the concept studies will be used as input in a development and integration contract. The concept studies contract is not considered a lucrative contract. The prize is actually the development and integration contract. Everyone believes the winner of the concept studies contract will have an inside track on the more lucrative contract.

When developing the proposal evaluation criteria, we were haunted by the fact that we could only take the weight of the price factor so low (30 percent) without requiring a General Accounting Office (GAO) audit of the bidders on the contract. The weight for the price factor looked relatively high, especially for a fixed price contract. Our fear was that one of the bidders would bid incredibly low just to get in position for the follow-on contract and that the technical and management factors would become worthless at that point.

This isn't to say that we would not have welcomed a very low price for a very good technical and management proposal. Ideally, this is what everyone wants. We just wanted assurances that this would be the case and that a poor proposal did not win just because it was priced excessively low.

Evaluating Proposals

While some people may think that price is the only factor in determining who wins a government con tract, it is not. Generally, there are four major factors when evaluating contracts: technical approach, management approach, past performance on similar contracts, and price.

Each major factor is assigned a weight such that the sum of the weights equals 100. Typically, weights are distributed 30 for technical, 30 for management, 10 for past performance, and 30 for price. These weights may be adjusted to place greater emphasis on one area over another. For instance, our RFP assigned weights of 60 for technical, 10 for management, and 30 for price. Past performance was made a pass/fail factor with no weight.

Each major factor may have one or more sub-factors that comprise the major factor. For instance, management may have sub-factors of project management and key personnel. Each sub-factor is weighted and scored individually. For our RFP, the technical factor had sub-factors of trade studies, architectures, and innovation with weights of 20, 15, and 25, respectively.

When evaluating proposals, a defined set of criteria for each sub-factor is rated. The rating is done as a percentage of a sub-factor and has an adjectival descriptor associated with it. The usual rating scale is:

Excellent 90-100

Good 80-89

Acceptable 70-79

Marginal 60-69

Unacceptable 0-59

Unacceptable ratings are based on completely missing one of the criteria for a sub-factor or major factor. Marginal means that there are faults in the proposal against certain criteria but the criteria are addressed. Acceptable means that the criteria are met. Ratings above acceptable indicate that the proposal had some additional information that helped it stand out.

The score for a factor is therefore defined as the sum of the scores of the sub-factors. The score of the sub-factor is the rating times the weight. Using our technical factor as an example, a sample scoring would look like Table 1.

The final score for a proposal evaluation is the sum of the scores for the major factors. Inmost instances, the final score formula looks like this:

Final Score = Technical Score Management Score Price Score

The highest final score is considered the contract winner. To select a bidder that did not receive the highest score requires lots of extra paperwork. In the case of a contract similar to ours, 500 pages of justification were generated to justify not selecting the highest score.

Cost as a Factor

One factor that is not rated on the scale shown in Table 1 is price. Cost simply indicates what the vendor will charge for its services. Therefore, all price proposals are assumed to he acceptable.

A very generic formula is used when determining price as a factor for most contract proposals. All the proposals are received and the lowest price of all the proposals becomes the standard by which all the proposals are evaluated. One at a time, each proposal is evaluated by taking the lowest proposal price and dividing it by the price of the proposal being evaluated. That fraction is then multiplied by the weight of the price factor for the price score. The formula looks like this:

Price Score = Price Weight times (Lowest Price divided by the Current Proposal Price)