Developing a tendering strategy in two-envelope fee tendering based on technical score-fee variability

Abstract

Consultants, in competing for work through two-envelope fee tendering, have been urged to consider variability differences between fees and technical scores, since the criterion with the greatest variability will influence which consultant is awarded the contract. Fee and technical score variability arising from different client fee tendering competitions is analysed in this paper, and a method proposed for determining whether a particular client's two-envelope fee tendering competition is likely to be dominated in terms of technical score or fee. Such information should be useful to consultants, as part of their bidding strategy, in deciding whether to aim for a higher technical score or submit a lower fee. Standard deviation is used to measure fee and technical score variability. Fee and technical score standard deviations are determined for each tendering competition, expressed as a ratio and aggregated over a series of competitions. A technical score-fee standard deviation ratio approximately equal to unity indicates that for future competitions consultants should adopt a balanced bidding strategy in putting equal emphasis on fee and technical score. A smaller ratio indicates that consultants should adopt a ‘low fee’ strategy whereas a larger ratio shows that consultants should adopt a ‘high technical score’ strategy. Fee tendering data from two large Hong Kong public sector clients were analysed. Fees were found to dominate the vast majority of tendering competitions, thereby indicating that consultants would be wise to adopt a low fee strategy in future competitions.