Blog

27thApril
How to evaluate economic bids

Technical evaluations are often linked to a checklist with all the requirements, and once this is approved, the economic comparison of the equipment offers are executed. But is this evaluation just a ranking of the best price?

The Incoterms

The Incoterms (International Commercial Terms) define the limits of the scope between the vendor and the customer. They usually are specified in the technical description of the quotation requirements, but when it is not, the vendors can play with the numbers in order to make the offers more attractive.  A very good price for an equipment can be accompanied by a short acronym saying EXW (Ex Works) while a more expensive offer can have a DDP (Delivered Duty Paid). Think about ordering a pizza, in the first case the pizza will be waiting for you to pick it up at the restaurant, while in the second one someone is going to ring the bell of your door. 

There are more than 13 possible combinations of this terms, and it is important to ask all the vendors a quotation under the same conditions, else the comparison will be between pears and apples.

One moment in line, please

Now that the equipment has been delivered under the same conditions, it is important to think about the maintenance, both preventive and corrective. 

Do the vendors have good response time? In case of an emergency, how long would it take for them to send a technician or a spare part?   Do they have joint ventures with locals close to your project location? Those questions should be answered, especially for main equipment without backup. 

A slightly higher capital investment at the beginning of the project, choosing a vendor that can offer a better post-sale service, can be a wiser alternative in order to mitigate possible breakdowns during emergencies. “Time is money” and one day without production can eventually pay the difference of the capital investment at the early stages of the project.

It is highly advised to include, among the cost of the equipment, an amount for the training of the personnel inside your own plant. The personnel can be trained in basic troubleshooting, and the manuals can be explained in a better way, together with some directions for good operational practices.  

Spare parts kit

If the spare parts kit is not mentioned within the specifications, it is necessary to clarify with all the vendors if it is included or not. For some small equipment with a short productive life, the spares can be a waste of money, while for the main equipment it can represent months of a production interruption. This should be specified and concerted with the technical department, and clearly defined to the vendor.

Delivery time

All the bids should be involved in a timeframe. The impact of one day, one month or one year depends on the project scope. Usually, a longer delivery time means a lower price, and before making a decision, you should evaluate this and quantify the impact. 

Listing the aspects mentioned above and documenting all the assumptions will help you deliver better evaluations, that fit more within the requirement.

 

If you'd like to talk to someone about our project cost management software, Cleopatra Enterprise or Cost Engineering services, please reach out to us at contact@costengineering.eu.