Price and nonprice criteria for contractor selection

Although the public sector has a long tradition of using the lowest bid as the award criterion for contracts, reliance on nonprice criteria is increasing. The purpose of this paper is to describe and explain how public owners use multiple criteria for the award of construction contracts. It is likely that nonprice criteria support the alignment of owner and contractor interests, and that bidder behavior should be affected by the likelihood of repeated contracts, and by the transparency of owners' evaluation procedures. Data from 386 bidding documents reflecting practice in Swedish municipalities in 2003 are analyzed. A typical pattern is a 70% price weight combined with three nonprice criteria. Price formulas, translating bid prices into scale values, were found to be based on the lowest bid, bid spread, or average bid. Nonprice criteria were evaluated on either relative or absolute merits. Owners should be aware of the incentives that their selection practices create and view this in a policy perspective, whereas contractors should be ready to assess the short and long term values of nonprice features.