One of the most popular approaches is to seek tenders that satisfy listed performance or capability criteria and achieve the lowest price while demonstrating high performance. Quite a tension!
In the UK the desire is to fine the Most Economically Advantageous Tender ("MEAT") where price and performance criteria are melded in the hope of representing a meaningful measure of overall benefit to the principal.
As in other places, the performance criteria are usually given some type of qualitative or impressionistic but hardly objective, repeatable or reliably reproducible score. The various criteria are then 'weighted' by an equally subjective and probably unreliable method. The 'dartboard approach' to tender evaluation.
The prices are 'normalised', removing information, and the result is multiplied by the weighted performance score and it is imagined that knowledge is produced!
Patrice Fabien has written on this topic with some insight into its limitations.
I'd like to propose a better way than the hit or miss that is common.
The performance criteria need to be characterised by sub-criteria so that the evaluation can be objective, with scores given on the basis of countable items. For example, running from:
0 = meets no sub-criterion up to
5 = meets all major and minor sub-criteria.
The weighting is best achieved using a system such as pair-wise analysis, as explained in the MITRE STEP methodology, and precisely in the evaluation system.
In my view, this produces a reliable and reasonably objective performance or capability score for the project performance.
This score is then subjected to a threshold for progression to the price evaluation.
The threshold might be set as an absolute minimum acceptable score, or minima that must be achieved on a number of criteria. Thus a low score on identified criteria will eliminate the tender from further consideration. After all, there is no point considering an offer that fails to deliver, no matter what the cost!
The next step is the price comparison.
Only those scores that meet or exceed the threshold should be considered at this point. If there is a large field over the threshold, a 'countback' through the scores might be used on a criteria basis (tenders with lower scores on critical criteria eliminated or only the highest 'n' scores considered.
Rather than mathematically normalise the prices (which destroys important information) to produce a 'score' then multiply this and the performance score, it is preferable to proportion scores against the lowest 'above the threshold' price.
This proportions the price by performance, in effect, pricing the performance.
The result looks like this: