EXPENDITURE PLANNING AND CONTROL

Expenditure Planning and Control



Expenditure Planning and Control

Introduction

Two envelope fee bidding is often used by procurers for selecting architects, engineers and surveyors to undertake construction related commissions (Hoxley, 1998). Competing consultants are required to submit one envelope containing the technical proposal and a second envelope containing the fee. Each competing consultant's technical proposal and fee is then converted to a score. These scores are usually multiplied by predetermined weightings and aggregated. The consultant with the best overall score is then awarded the commission. Most procurers want to select the consultant who is able to provide the best quality service (represented by technical score) for the lowest possible fee. This is not an easy task given that fee and quality of service is, to some extent, positively correlated (Drew et al., 2002a). In many cases the procurer needs to make a decision on whether to award the commission on the basis of lower fee-lower technical score or higher fee-higher technical score.

Expenditure Planning and Control

In an attempt to make the consultant selection process more objective and transparent, the procurer combines fees and technical score according to a particular pre-designated formulation. The technical score-fee predetermined weightings within the formulation affect the differences in the competition's fee and technical score variability. A larger weighting increases the parameter's variability (and vice versa) with the parameter with the greatest variability ultimately influences which consultant is awarded the commission (Connaughton, 1994). The CIC (1998) comment that once price is introduced, consultant selection becomes biased in favour of the lowest fee rather than the quality of service. Drew et al. (2002a) found empirical evidence to support this. Based on a sample of Hong Kong public sector two envelope fee bidding data, they were able to show that fees dominate technical scores in the vast majority of competitions (even though the technical score/fee predetermined weightings were set at 70/30, respectively). Drew et al. (2002b) pointed out that important influences that contribute to a fee-technical score variability imbalance include suicidal fees and non-serious fees (which increases fee variability) and similar size consultant firms with similar experience and workload levels offering similar, if not identical, services (which reduces technical score variability). They also proposed two new formulations to correct the fee-technical score variability imbalance.

In fee or technical score dominated competitions, the procurer's goal of selecting the consultant with the best quality service for the lowest possible fee becomes biased toward the dominant parameter. Moreover, if fee score and technical scores are not balanced then, in the long run, consultants and clients will be adversely affected since fee dominant competitions will eventually lead to fee and quality of service erosion, while technical score dominant competitions are likely to result in higher fees. It is therefore, in the interest of procurers and consultants that the fee and technical score variability are balanced prior to aggregation. The primary aim of this paper is to demonstrate to procurers that, through the use of real fee bidding data, fees and technical score can ...