SQP25 – a new tool to select the right premium for quality

It’s a breakthrough!

A new tool that helps you pay the right premium for quality – every time.

Setting weights in tenders has always been tricky. Even with the benefits of transparency provided by the Price Quality Method, tender evaluations vary considerably and sometimes produce recommendations that don’t appear to support Value for Money.

Our team have been working on this issue for a few months, and we’ve made a break-through. We’ve adapted the NZ Transport Agency’s existing well-recognised Attribute Weight Setting Tool to produce a powerful and user-friendly spreadsheet that generates ideal weights, given the outputs of a project-specific risk and opportunity analysis.

Download Clever Buying's SPQ25 tool here ...

The Transport Agency’s Attribute Weight Setting Tool provides procurement teams with a useful guess-and-check system to benchmark their gut feel of the effect of weightings on the Supplier Quality Premium. But in practice, we’ve found it’s not often used outside the Agency. There’s a perception that it’s difficult, hard to justify, and it’s generally much easier to simply guess appropriate weightings based on the last similar tender.

Trouble is, that can lead to recommendations for preferred tenderer that bear little relationship to the real potential costs of engaging a cheaper but riskier supplier. Or the possible savings from awarding the contract to a high quality tenderer, rather than an average one.

Moreover, there’s a third dynamic that complicates use of Price Quality Method. That’s the scoring mechanism.

If the evaluators score the bids very close together, then the Supplier Quality Premium is smaller than if the scores range well apart. This means that in those situations, price dominates, even if it doesn’t have a high weighting.

Because scoring systems have historically been based on subjective judgments (an excellent response, an adequate one or a poor response, for example), this means that the outcomes of tender evaluations are far from certain. If the scoring difference between two suppliers of differing quality is large (say, 20 points), then the SQP will be large. However, if there’s a Grinch on the Tender Evaluation Team who considers the Excellent is only (say) seven points higher than adequate, then the SQP will be far less and it is much more likely that the cheapest price will win.

This introduces a frankly frightening level of uncertainty and subjectivity into procurement decisions - rather than making them founded on quanitifed, thorough risk analysis and fact-based scoring. So we decided to explore how tender scoring works in practice, and what the typical ranges of scoring are.

When we statistically analysed typical scores from tender evaluators, we discovered something interesting. Although panel members have a range from 0 to 100 to score against, more than 90% of the time, the difference between the worst and the best scores was less than 25 points. This was even more evident when pre-conditions or a prequalification mechanism had been used to eliminate unsuitable suppliers before scoring took place.

What does this tell us? Essentially, the difference between the worst and the best supplier that we can imagine, in any attribute, can reliably be calibrated to max out at 25 points.

If we can decide a premium that would be appropriate to pay for the difference between the worst and the best in each attribute, then that gives us a powerful tool to calibrate our scoring scale with the SQP. 

And the beauty of this is that - in deciding the premiums that would be appropriate FIRST, we can use that information to reverse the traditional attribute weight setting process, so that the weights are determined based on those premiums for 25 attribute points.

The cleverness of this system is this: our new tool, dubbed the ‘SQP25 spreadsheet’, allows you to input those dollar values, and based on that information, it generates the ideal weightings for the tender process.

So we now have an instant tool which uses real information on what drives value for money, and we no longer have to guess at the most appropriate weightings. Essentially, like all good tools, the SQP25 is just an adaptation of an existing tool. It takes the Attribute Weight Setting Tool and reverses the formulae, so that the ideal weights are generated directly rather than guessed at.

It’s simple, quick and easy to use, and provides a powerful means to align and justify the weightings and the scoring system used in the tender evaluation. Like any good tool, it depends on robust inputs.

Maybe its greatest benefits is that effective use of this tool will drive procurement staff to analyse the project-specific risks and opportunities carefully at the outset, and thereby generate a defensible and effective scoring system for their tender, as well as weights that will deliver those pre-determined appropriate outcomes.

The SQP25 tool is now available to anyone who has been on a Clever Buying course and – for a limited time – we’re offering it free to others who want to try it out. We’ll even talk you through how it works and give you an example.

For more information, email us or phone Caroline on 0800 225 005.