Best Value or Lowest Bid? A Quantitative Perspective

Abstract

In contrast to traditional price-dominated lowest bid (LB) procurements, best value (BV) procurements select contractors most advantageous to the clients, taking into consideration not only prices but also other factors. Decisions on whether LB or BV approach should be adopted are difficult ones. There is yet to be any objective model developed to back up such decisions. This paper proposes an index named price elasticity of performance (PEP) that may serve as a quantitative measure to reach an objective decision. The theoretical model construction of PEP is also described. Two measures in the individual and market levels of PEP are defined. A design/build construction project is selected as a working example to demonstrate the applicability of the proposed method. Potential applications and limitations of the proposed method are also addressed. It is concluded that the proposed PEP method has the potential to resolve the dilemma of pursuing efficiency and avoiding violation of regulations in traditional procurements.