Tendering for Procurement Contracts in Case of Uncertainty about a Bidimensional Bid Valuation Metric: A Decision Analytic Methodology

Introduction: In some instances, when tendering for supplying goods to a purchaser, the bidders know that bid evaluation is done in a multicriteria way but ignore the precise metric used. This is the case, for example, of acquisitions by small and medium-sized businesses carried out by inviting a handful of potential suppliers to advance a proposal for fulfilling some need and informing them of criteria hurdle levels and worded statements of criteria preferred directions. Method: The uncertainty about bid assessment is compounded with that about competing bids, making bid design increasingly difficult. This work presents a Decision Analysis-based methodology for developing a model for bid preparation useful under said circumstances, aiming to take advantage of the available knowledge of competitors’ capabilities and client’s preferences through subjective probabilities. Result: A key feature of the methodology is the idea that the model of the bidder’s knowledge of the client’s preferences for different criterion levels should separately consider the criterion type and the likely size of its variation among bids. This allows basing the model on the assumption that, to the client’s decision, a criterion becomes more important if the size of its variation among bids grows, while it is rendered unimportant if it does not vary a lot among bids. After outlining the general steps of the methodology, a simple, hypothetical case study is numerically worked out, illustrating how the methodology is operationalized for a problem with two criteria and two levels. Conclusion: Finally, closing remarks on the potential practical usefulness of the presented framework are provided.