The Concept Of Value For Money Construction Essay

Tendering is one of the common technique for a authorities to do a transparence of public fund and do certain maximal return to the community Barnett, et al. , 2010. In other word, tendering represents the value for money construct. However, practically, tendering result does non ever give this end.

In this essay, It will discourse the value for money model, value for money in the tendering procedure and how this attack in the pattern. It besides discusses the advantages and disadvantage of utilizing the competitory tendering and give an account why competitory tendering non ever acquire the value for money consequence.

The value for money definition

Harmonizing to ITAD study ( 2010 ) , the term value for money imply to an purpose to acquire the maximal benefit that can be obtained from the monetary value that has been paid. Furthermore, the term “ value ” can be measured as a comparing between maps with the cost. ( The Institute of Value Management, 2001 ) . From these two beginnings, it can be seen that when something give us more benefit than what we pay, at that clip that thing has a value. The purpose to maximize the benefit in the construct of value for money might besides be interpreted to prosecute the best consequence that possibly can be. In this instance, it can be assumed that value for money and best value attack can be used frailty versa.

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Definition of Tendering

Tendering can be defined as “ the procedure of doing an offer, command or proposal, or showing involvement in response to an invitation or petition for stamp. ” ( New South Wales Government, n.d. ) . In competitory tendering, internal and external contractor is allowed to subject a proposal. ( Department of Local Government, 1997 ) . In every stamp, there are two parties that involved which is tenderer and client and it should be more that one tenderer that participate in the tendering procedure.

The model of value for money

Refer to ITAD study about value for money, there are 5 cardinal points in value for money model. These framework consist of cardinal constituent, step, modifier, subscriber portion, and assurance degree.

Key constituent

In value for money model, optimise the cardinal constituent of the procedure of transforming the cost into a benefit. There are 4 cardinal constituents that will be optimise such as, input, activities, end product, and result.


In this model, step usage 3Es to guarantee that the undertaking spend the right sum of money on the right topographic point. 3Es refers to effectiveness, efficiency, and economic system. Effectiveness measures the result from qualitative and quantitative position. Efficiency measures the productiveness of the undertaking. Economy refers to the cost of the unit. This point ciphering all the cost that will utilize.


There are some intangible cost and benefit which influence the concluding determination. Therefore it should hold a hazard direction about all facets including unplanned cost and benefit merely in instance the undertaking does non travel harmonizing to agenda.

Contributor portion

The subscribers portion divides the part of cost and benefit portions. There has been trouble to mensurate these two factors contribute in value for money opinion. Assuming both of this factor equal make the judgement prejudice and non stand for the existent value.

Confidence degree

In value for money appraisal, the informations which being used should hold credibleness. If the information does non hold a good quality so the concluding judgement would be compromised. This factor is really important because all the determination will be based on the information that has been received.

Competitive tendering.

In the UK, at the beginning, the local authorities used mandatory competitory tendering, nevertheless this ordinance was protested particularly by the Labor Party. Then, these regulations replaced by new policy which use best value attack. Nonetheless, With this new attack, there are still foregrounding the competition and fight. The best value attack is intended to originate betterment in public presentation and at the terminal lead to better results. The authorities besides mentions the importance of best value model because it supports the competition in local authorities ( Boyne, et al. , 1999b ) .

Boyne et Al. ( 1999a ) argue that the determination devising in competitory tendering should see these two variable which is degree of public presentation and cost of undertaking. When the degree of public presentation of the bidder is high, so the impact of the tendering will be non important. This besides happened when cost of catching is expensive, it is better to utilize on the internal supply instead than external. This factor needs to be considered in order to acquire the value for money benefit.

In the pattern as reference by Williamson cited by ( Boyne, et al. , 1999a ) , there are four variable that should be considered by the authorities in the tendering procedure. The first one is uncertainness. This point concludes that need flexibleness if the state of affairs is can non be expected. This point includes the possibility of renegotiation between each party may be necessary. The 2nd facet is complexness. Each contract has their ain complexness to be monitored. Not every undertaking has the same complexness hence need some excess attending to do certain the contract is suited. A complex undertaking needs a comprehensive contract to do certain that the undertaking can be monitored easy. The 3rd facet is plus specificity. If the provider has specific accomplishment or plus, they can bear down the client with high monetary value because there are the lone provider who has this resource. This facet should be considered and need to hold a solution how to forestall this facet into a throwing stick. One of the solution is they need to advert about the merchandise ownership in the contract. The last facet is little figure. This facet still related about the scarceness of the resources. When the resources is little, so there is a opportunity of a monopoly that will increase the cost. If we analyse more, the competitory tendering can be linked into dealing cost of a contract.

Advantages and disadvantage of competitory tendering

Harmonizing to Department of Local Government New South Wales ( 1997 ) , there are advantages and disadvantage of utilizing the competitory tendering.

Advantage of competitory tendering

The benefits of competition

With competitory tendering, it will make a competition from every bidder therefore it can bring forth a good quality contract and better efficiency. If the client gets a competitory offer, it can guarantee that the result will give a best value.

Bettering in-house public presentation

Another benefit of competitory tendering is increasing the in-house supplier capableness. This in-house provider can besides fall in in to give a command proposal and can be compared with others bidder straight. From there the council can mensurate whether their provider already been effectual or non.

Concentrating attending on strategic ends

This tendering gives more precedence to the undertaking result and other strategic aim which need to be satisfied. This attack makes the targeted result more expressed.

Achieving best value for money

As it already mentions before that the competitory ambiance in this procedure increase the efficiency of bidder to give the ideal command monetary value which give the client the best value for money. Harmonizing to this guideline, the salvaging from this procedure make 20 % norm. However this figure has varied from each industry and it depends on grade of efficiency, strength of competition and how the council manages the whole procedure.

Taking advantage of invention

Council could acquire an advanced solution and suggestion from the contractor. The contractor can do a proposal of the latest engineering or system to back up the client needs with the best monetary value and value from every rival.

Disadvantages of competitory tendering

Employment decrease

Harmonizing to the guideline research, the competitory tendering increases the figure the unemployment. This might go on because the increasing of efficiency causes the worker decrease and besides salary from the company. The competitory spirit was used to loosely hence lead to this consequence.

Duration can be time-consuming

Due to competitory behaviour and atmosphere, the client can non take the best contractor in short clip. It needs to acquire a complex consideration and concluding to take which bidder is the most suited. Although this ground is doing sense, there is a possible drawback that should be cognizant of.

Degree of competition can be excessively high

Everything that excessive is non really good. When the degree of competition is in utmost status, it can take to unbalance and unhealthy circumstance. At the terminal, the bidder can make whatever it takes to win the stamp. When that bidder wins, they will seek to renegociate ( DOMBERGER, et al. , 1986 ) . The bidder does n’t see many necessary things and inquire for rhenium dialogue which bring the undertaking is over budget. This status normally happens and because of this factor, the consequence does non give the best value for money.

Consumer issues

The consumer does non hold the same legal chance when the supplier is coming from the stamp. The council should look after this legal issue more careful to do certain there is no citizen ‘s right has been overridden. In that instance the end of making value for money is melting.

Capacity of council to supply a service

The council will lose the capableness of expertness in the proficient country, substructure and works which of import to run the services. When they do non hold that expertness, the council can non watch over the public presentation of the contractor and can non give an appraisal whether the result of the stamp is value for money or non.

The ground why the Competitive tendering non ever value for money

As it is already mentioned before some of the status in the competitory tendering status going throwing stick to the undertaking overall. The inquiry now is, how can be competitory tendering guarantee the result will stand for value for money.

In order to acquire value for money in competitory tendering procedure, the client should do good and proper standards and burdening so they can mensurate the importance of that standards and include that into the computation of value for money judgement ( Barnett, et al. , 2010 ) . This factor might be the ground why competitory tendering does non ever give the value for money benefit of the contract. Some company or authorities may misbehave the right weight or precedence in the evaluation system therefore the important standard is non acquiring a proper evaluation or undervalue. This action leads to misreckoning of the overall opinion and at the terminal conveying the concluding determination into the incorrect decision.

One of the cardinal points in value for money rule that have to be managed is uninterrupted betterment. This point refers to ( Boyne, et al. , 1999a ) who mentions that to make the maximal benefit from best value pattern, the index of the public presentation of a tendering procedure should be reviewed every 5 old ages. The local authorities should re-assess the procedure stamp and remeasure the standards to do certain is still suited at that period of clip. This action besides eliminates the potency of monopoly or collusion between provider or contractor which can take to non competitory tendering. As it was mentioned earlier, If there is no competition between each bidder, the opportunity to acquire a best value become low and increase the opportunity of failure. This factor might besides be the other ground why value for money does non ever come from competitory tendering procedure.

Value for money in pattern

In the building undertaking in UK ( WONG, et al. , 2000 ) , the most of client of this sort of undertaking from both public and private sector, non merely take the lowest monetary value as their chief standards to find the victor they already included the multi standards attack ( MCS ) as their opinion criterions. Although in the early probe shows that lowest monetary value is still ruling the opinion, this diary gives an early information about this new tendency. In the calculating expression, the per centum of importance of those two criterions is still non equal, nevertheless, the client whose from the populace or private sector is already get downing to integrate the MCS attack in their criterion to accomplish the specification quality. Wong et Al ( 2000 ) argues that the ground why the client is non seting the same degree of importance of last monetary value and MCS is because they need a back uping cogent evidence about answerability and public unfavorable judgment.

The study besides mentions that some client already uses stamp monetary value and MCS attack every bit. In this instance, client from private sector shows a higher per centum in comparing with a public sector. This information shows that private client wants to accomplish the highest possible value that the bidder could present without demand to sing excessively much about answerability and transparence of the undertaking. Wong ( 2000 ) concludes that the tendency is altering right now. Client already aware the benefit of non merely utilizing the lowest monetary value but besides other standards to keep the quality is greater than merely see the lowest monetary value. In other word, they already consider a value instead than monetary value. Harmonizing to ( Lowe & A ; Leiringer, 2006 ) the lowest monetary value does non gurantee the lowest cost. There is a hazard of fiscal job of the provider, failed to present the undertaking on clip, over budget and failed to carry through the demand.

The illustration of this fact has happened in T5 instance survey ( Lowe, In print ) . In T5 Heathrow airdrome, the BAA desires to hold a good quality and universe category airdrome. To make this end, BAA makes a high criterion standards about the specification. BAA cognizant that there are many constrain that might be happen during this building undertaking. To counter this possible job, BAA use different attack to keep the relationship between provider. Sing the bulk of the large building undertaking for illustration, Wembley or emirats bowl which is over budget and over-schedule, BAA took a dramatic attack. BAA will take the duty for undertaking hazard and the provider net income were already predetermined and fixed. BAA assigns the first grade provider to transport out non some particular but all the undertaking. In this manner, BAA can unite all the expert from different provider to work on the undertaking and do an incorporate squad.

With this attack, the competition is still maintained between provider but non for accomplishing higher net income but for put to deathing the undertaking in the right quality, clip and cost. With the incorporate squad of expertness, the whole undertaking efficiency will be increased and enable each provider to maximize their possible or value. If we look once more the T5 undertaking as whole, we can see that the undertaking is utilizing value for money and competitory tendering attack. BAA tries to maximize the benefit or value of this undertaking from the provider with the competitory fortunes while taking the possible failure cause which is trailing for more net income and avoiding of losingss that in the terminal lead to money. It is an dry fact that when we want to accomplish value for money, the root cause is back to the money itself.


In the terminal, value for money can be achieved in a competitory tendering state of affairs. However this attack should see many cardinal elements such as uninterrupted betterment, good standards and weighting of each standards, usage non merely the lowest monetary value as a base opinion, extenuating the possible hazard and incorporating each provider if it use more than one provider. Excluding one of this cardinal component may do non acquiring the value for money and many other drawbacks which non merely blowing more money but besides clip and quality. This might be the ground why many undertakings that use competitory tendering do non acquire the maximal possible benefit.