How expensive is value for money anyway?
Updated: Nov 27, 2020
When any business identifies a problem to solve, it sets on a path to achieve a value for money solution. This starts with a very early decision on whether it is better to make or buy the solution. From a resourcing point of view, this is often a self-perform or outsource decision. Either way, it often involves spending funds to fill a capability gap. Essentially a procurement function.
Value for money consideration often begins by trying to clearly understand and express the goals and purpose of the procurement. When considering procurement, some foundation research can be useful. The Commonwealth Procurement Rules (CPRs) provides a guide to the inputs that should be sought.
Importantly, the CPRs then go on to suggest that "When a relevant entity determines that procurement represents the best value for money, these considerations will inform the development and implementation of the procurement." Meaning the method of procurement should be tailored to reflect consideration of a number of inputs.
So what about Value for Money?
Achieving value for money is the core rule of the CPRs. Officials responsible for procurement must be satisfied, after reasonable enquiries, that the procurement achieves a value for money outcome.
It is clear, and indeed specifically mentioned in the CPR, that "price is not the sole factor when assessing value for money". When conducting a procurement, an official must consider the relevant financial and non-financial costs and benefits of each submission.
We think the CPRs represent best practice in terms of providing guidance to all stakeholders in the procurement chain of responsibility. From initial business decisions through to procurement design, execution and management, the CPR encourage stakeholders to consider the impact of the procurement. The benefits and risks realised by stakeholders within the system affected.
Can the solution, at the price you are demanding, deliver the value you are expecting?
We recommend all businesses in our network, and relevant Commonwealth branches administering procurements to reflect on the processes in place to see if there are tweaks that could be made to make sure that value for money, not just price and efficiency is honestly considered in procurement decisions.
We celebrate recent moves to define impact and moves toward more social procurement considerations. Our stakeholders routinely include our community, and the environment, as well as underrepresented populations in our network.
After all, when considering the premium to pay (above the cheapest compliant bidder or most efficient solution) it is well worth considering the true cost of not choosing the right value for money solution.