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Competition should be encouraged as far as is
practical in the procurement of armaments. This should
include the invitation of foreign tenders, according to
the Defence Policy of January 1996. And tenders shall
not necessarily be granted on the basis of lowest price,
but in terms of value for money and industrial
development goals.
Fair, equitable, transparent, competitive and
cost-effective are some of the words used when talking
about procurement. The MODAC document on Defence Policy
states that 'as part of the tender evaluation process,
the concept of cost evaluation based on life cycle
costing (cost of ownership) shall be employed'. It
further states that the 'adjudication of tenders shall
be based on value for money and industrial development
goals'.
As the issues surrounding adjudication are complex, a
revised procedure and a supplementary handbook were
published, which will be updated as ARMSCOR's experience
in adjudication of multi-source tenders grows and
matures. The revised procedure introduces three primary
concepts: Value for money, the categorization of
decision criteria, and risk management in
adjudication.
Value for money
In order to establish a
suitable definition for the phrase 'value for money',
it is necessary to examine the issues of 'value' and
'money' (or cost) as well as another important
intangible, namely 'risk'. Value for money in
acquisition programme management terms is defined as
follows:
VALUE FOR MONEY = PERFORMANCE taking RISK into
account.
COST
This model is practical, since the
aspects of cost, performance and risk can be evaluated
separately through a careful choice of questions.
Categorisation of decision
criteria
Experience has shown that, in any
acquisition starting from a zero baseline, there are
three distinct phases of selection:
- short-listing
the potential suppliers who can offer solutions based on
broad product specifications
- selecting those
candidates who comply with crucial specifications
-
identifying candidates from the final short-list who
offer the best value for money.
To facilitate
formalising these phases, three categories of criteria
have been defined; namely qualification, critical and
discriminating criteria.
Risk management in adjudication
It is
generally acknowledged that there is always risk or
uncertainty surrounding the outcome and decision, in
terms of the performance of an acquisition or
contractor. Many variables play a part in this. There is
also often significant uncertainty regarding the final
cost that will be paid for the goods or services.
Clearly, risk cannot be regarded as a decision
criterion. Instead, it reflects uncertainty regarding
outcomes, and must be handled
accordingly.
Essentially, the revised procedures are
designed to ensure that those in the industry are
treated fairly using rigorous decision-making
techniques. | 
