Gian Luigi Albano, Ph.D.Head of Research - Consip Ltd.

EU Lab Meeting – Den Haag

June 22, 2007

Scoring Rules for Competitive Scoring Rules for Competitive TenderingTendering

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Outline

Why scoring rules?

Most commonly used scoring rules

Scoring rules and tender design

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• Capture the buyer’s evaluation of technical and economic attributes of submitted tenders

• Formally represent the tension between price and quality

• Transparency: SRs may communicate the buyer’s true preferences • Standard scoring rule: Score = EPmax + TPmax

Why scoring rules (SRs)?

EPmax : max number of points allocated to economic attributes

TPmax: max number of points allocated technical attributes

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Scoring rules at work

Two broad families:

• Simple SRs (e.g., linear, parabolic): supplier’s score depends on her bid only

• Interdependent SRs: supplier’s score depends also on other suppliers’ bids

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Linear scoring (LS)

Economic Points (EP)

Reserve price (Pr)

EPmax

Bid (PO)Price = 0

EP EPmax Pr PoPr

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Linear scoring (LS)

Bid

EP

Pr = 100

EP = 20

EP = 35

20% discount

LS - no “price threshold”

LS - “price threshold” Ps 70

EPmax =

PT

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Monetary Value of a Point (MVP) in LS

EP

Pr

One additional point costs the supplier € (P1-P2) = MVP

Slope = - EPmax/(Pr - PS);

MVP = |1/slope| = (Pr - PS)/EPmax

1 EP

P1P2

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Parabolic scoring (PS)

EP

Reserve price (Pr)

EPmax

Bid 0

EP EPmax

1

xPOPr

Slope depends on the bid

P2 P1

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Interdependent Scoring Rules

Supplier’s score depends on some (possibly all) other bids:

• Minimum Price: Bidder i’s Score = f(lowest bid/bidder i’s bid)

• Average price: Bidder i’s Score = f(average bid)

• ….

Interdepedence is bad:

• Each bidder is unable to predict her score

• May favor suppliers’ coordination

• Does not reveal buyer’s preferences to the market

Thus they should be used under special particular circumstances (e.g. reserve price uneasy to set)

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Scoring rules and tendering design

SRs help management of the contract (e.g., penalties) when quality is verifiable. How? Fines should be computed by relying on the MVP.

For very standardized procurement contracts (e.g., paper for printers, fuel) you may avoid using SRs. Just fix a minimum/satisfactory quality standard and award the contract to the lowest bid.

When procurement heavily involves non-verifiable dimensions (e.g. innovative services with skilled human capital, IT developlments) SRs have little impact on quality provision. Different tools (e.g. past performance, customer statisfaction, etc.) should be used.

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Scoring rules and tendering design

SRs cannot be designed indipendently from other aspects of the tender process such as:

• reserve price (participation vs. competition)• contract design (e.g., penalties, incentives schemes, etc.)

• criterion for abnormally low tenders • …

Main Reference:

“Scoring Rules” in Dimitri, Piga and Spagnolo (Eds.), Handbook of Procurement, Cambridge University Press, 2006.

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Dank u wel!