08.07 Financial evaluation

Financial evaluation of proposals involves comparing the eligible offers with the financial, commercial and resource requirements stipulated in the solicitation document. 

The financial evaluation must be conducted only on technically qualified bids. 

In the case of small-value procurement, RFQs or ITBs, technically qualified bids are those that match (or exceed) the requirements in the solicitation documents and comply with the formal criteria. In the case of RFPs, technically qualified bids are those whose technical evaluation score reaches the minimum threshold established in the solicitation documents. 

For bids determined to be unqualified, the corresponding financial offer is not eligible for further consideration. In the case of an RFP, the financial offer from an ineligible submission must remain sealed.

During the financial evaluation, prices should be reviewed against prior contracts with the supplier, prevailing market conditions, whether they are reasonable in view of the requirements, and whether they are within the available budget for the project. The supplier’s financial status and stability with regards to the requirements in the solicitation document also must be considered.

During the financial evaluation, communication with the bidders is allowed for the purpose of clarifying the financial offers. This communication must be in writing, and it must be made clear in the communication that no negotiation is taking place and that the purpose of the communication is to clarify specific items of the proposal.

The financial evaluation determines the final figure to be considered for purposes of the comparison with other offers. This determination must be documented.

When allocating points to the financial offer for an RFP, the maximum number of points assigned to the financial proposal is allocated to the proposal with the lowest price. All other price proposals receive points in inverse proportion, according to the following formula:

 p = y * μ/z  Where
   p = points for the financial proposal being evaluated 
   y = maximum number of points for the financial proposal
   μ = price of the proposal with the lowest price
   z = price of the proposal being evaluated 

The proposal obtaining the overall highest score after adding together the score of the technical and the financial proposals is the one that offers best value for money.

Instances of single valid bid

In cases with only one valid bid, it may be necessary to justify the reasonableness of the prices quoted. A financial evaluation shall be undertaken to ensure that the price is fair and reasonable. This can be done by performing a price-cost analysis.

Criteria used to determine that the price is fair and reasonable could include:
  • comparison with market price (i.e. prices offered by other suppliers for the same or similar product or service);
  • comparison with catalogue or list price;
  • comparison with valid LTA prices;
  • historical price (i.e. how the current price compares with a price paid with the past 12 months for the same or similar product);
  • similarity of offer made to a comparable customer; and
  • cost breakdown of the offer (if the offer has been put together specifically for the proposal) showing that the price is fair and reasonable.