Value for money (VFM) can be defined as the most advantageous combination of price and quality that makes a product or service fit for purpose. Department for Transport, UK has proposed an interesting definition of value for money for the public sector organizations. VFM for public organizations is using public resources in a way that creates and maximises public value. Public value simply means better quality of life of common people. So the public sector should take decisions to improve quality of life of the citizens.
DRIVERS OF VALUE FOR MONEY:
Economy, efficiency and effectiveness are popularly known as 3 E's of VFM:
Economy means minimising the cost of resources used for an activity.
Efficiency means how well the inputs are converted into outputs.
Effectiveness means achieving predetermined objectives.
WHY VFM?
The commercial organizations make decisions to satisfy their profit motive. Public sector enterprises don't have profit motive. So what should be the basis for decision making for the public institutions? Here comes the concept of VFM. The public sector organizations make decisions based on VFM principle.
The rule no. 45(2)(b) of Public Procurement Rules (PPR) 2008 of Bangladesh mentions to achieve VFM in public procurement.
VFM IN CONTRACT MANAGEMENT
• During procurement process
• During contract implementation
• Post contract implementation phase
VFM DURING PROCUREMENT PROCESS
• Use of Standard tender documents saves time and cost
• Different procedures based on contract value - simple procedure for low value contracts, robust procedure for high value procurement
• Competition to achieve economy
• Negotiation in service procurement to ensure effectiveness of service
• Enlistment save time and cost of both the procurement entity and the contractors
• Specifications ensure effectiveness
• Technically responsive lowest bid - evaluation for Technically responsiveness first to ensure effectiveness and then choosing the Technically responsive lowest bid to ensure economy
VFM DURING CONTRACT IMPLEMENTATION
• Use of standard contract terms reduces contract management time
• Contract terms proportionate to contract value (e.g. PW1 vs PW2 vs PW3)
• Different levels of dispute settlement
• Progress review meeting
• Contract amendment
• Testing and site visit
• Reporting and monitoring
• Liquidated damage
VFM FOR POST CONTRACT IMPLEMENTATION PHASE
• Retention money in works contracts
• Warranty in goods procurement
• After sales service for plants, vehicles, machinery etc.
Value for money concept is also applicable for commercial enterprises. But VFM is more important for the public sector and third sector organisations.
Many different concepts are available to increase value for money in public procurement. Following are few contemporary concepts:
- Ensuring five rights of procurement
- Using whole life concepts in project preparation
- Using weighted scoring combining both technical and financial criteria for tender evaluation. This is known as Most Economically Advantageous Tender (MEAT) concept.
So value for money (VFM) is a very important consideration for public procurement in Bangladesh. The authorities and officials involved in decision making regarding public sector should always consider VFM as the basis for their decisions.
