Why Lowest Price Doesn’t Always Win Tenders — Value & Risk

When a tendering process closes and the bids are opened, it's tempting to assume the lowest price will take the contract. But in real-world procurement that approach often backfires. The lowest monetary offer may come with hidden costs, greater risk, or unacceptable compromises in quality and compliance. This post explains why “cheapest price” rarely tells the whole story and how both buyers and bidders can approach tenders more strategically.

Why lowest price is a poor sole criterion

Using price as the only decision factor ignores several dimensions vital to successful delivery. Tender outcomes depend on factors that affect performance over time, not just immediate spend.

Total Cost of Ownership (TCO)

Lowest purchase price doesn’t account for operating costs, maintenance, downtime, training, disposal, or warranty. A supplier with a higher initial bid can deliver a lower TCO due to better reliability, energy efficiency, or longer useful life.

Quality and Specification Compliance

Cheap bids can cut corners on materials, workmanship, or scope. Non-compliant goods or services cause rework, delays and can invalidate warranties or regulatory approvals.

Supplier Capability and Capacity

Price alone doesn't reveal if a supplier has the technical skills, financial stability, production capacity or project management capability to deliver on time and at scale.

Risk and Performance Guarantees

Lower-priced bids often transfer risk to the buyer through poor contractual terms, short warranties, or lack of performance bonds. Higher-priced bidders may offer guarantees, SLAs and risk-sharing that materially reduce project risk.

Innovation and Long-Term Value

Some suppliers propose innovative approaches or improvements that carry higher upfront costs but unlock long-term savings, future-proofing or competitive advantages. A purely price-based selection misses this value.

How modern evaluation frameworks work

Most mature procurement processes use multi-criteria evaluation to balance price against non-price factors. Typical approaches include:

• Weighted scoring: Assign weights to price, technical compliance, delivery, support, sustainability, and more. Score bidders on each criterion and compute a weighted total.
• Two-stage evaluation: Assess technical compliance first, then open commercial offers only for technically acceptable bids.
• Life-cycle costing: Quantify TCO over a relevant period and use that figure in the commercial score.
• Best value procurement: Consider qualitative benefits, such as experience, innovation and social value, alongside price.

Concrete examples

Example 1 — IT system procurement

Supplier A bids $100k but uses an unsupported framework that will require frequent patches and in-house fixes. Supplier B bids $140k and supplies a supported, documented system with a 3-year maintenance package. After factoring expected downtime and internal support costs, B’s total cost and lower risk often make it the better choice.

Example 2 — Building maintenance contract

A contractor bids 20% lower but subcontracts critical work, lacks insurance coverage for certain risks, and offers minimal guarantees. A higher-priced contractor provides direct labor, certified tradespeople, and a solid indemnity — reducing the risk of liability and defects.

Practical tips for buyers

• Define clear evaluation criteria and publish their weights in the tender documents so bidders know how price is balanced with other factors.
• Use life-cycle or whole-of-contract costing where appropriate, and require bidders to provide data to support TCO calculations.
• Pre-qualify suppliers for capability, financial stability and past performance to avoid entertaining unrealistic low bids.
• Include compliance checks for licenses, certifications, insurance, and legal requirements before awarding contracts.
• Set minimum acceptable standards for quality and delivery; disqualify bids that don't meet them regardless of price.
• Use performance bonds, warranties and milestone-linked payments to protect against underperformance.

Practical tips for bidders

• Avoid bidding to win on price alone; explain life-cycle advantages, service levels and evidence of past performance.
• Be transparent about assumptions behind your price — delivery schedule, exclusions, and scope changes reduce disputes later on.
• Offer options: a base price for minimum compliance plus priced alternatives that add value (extended warranty, faster delivery, sustainability features).
• Demonstrate risk management capability and provide references or case studies showing consistent delivery.

A sample scoring checklist (for buyers)

• Technical compliance: 30%
• Quality and warranty: 15%
• Delivery time and schedule: 15%
• Supplier experience/capability: 15%
• Price (including TCO): 20%
• Social/sustainability value: 5%

Adjust weights to fit project priorities. The key is transparency and consistency in how scores are applied.

Summary and final thought

Lowest price is an attractive short-hand for value, but it is seldom sufficient on its own. Tenders are about transferring and managing risk, ensuring compliance, and securing outcomes over time. Adopting multi-criteria evaluation, life-cycle costing and clear procurement rules helps buyers award contracts that deliver true value — and helps bidders frame offers that win for reasons beyond just being cheapest.

If you’d like, I can provide a downloadable evaluation template or a sample tender scoring spreadsheet tailored to your sector (construction, IT, facilities, etc.).