One of the most important parameters of any state or commercial tender is the expected cost – the maximum (starting) price that the Organizer of the auction is ready to pay for the goods or services it needs. To date, there is no approved uniform methodology for determining such a cost, but there are principles adopted at the level of individual institutions and enterprises.

Why Valuing Expectations is Important for a Successful Auction

Several important aspects of bidding depend on the size of the specified starting price:

The number of persons applying for participation. Everything is simple here – the higher the cost of work, the Organizer will expect from the auction, the more Participants will respond to the planned bidding.
Nominal cost savings. Starting trading with an overestimated starting mark, the Organizer will demonstrate a substantial amount of nominally saved money, even if the actual estimate turns out to be an order of magnitude higher than market rates.
The final cost of supplies on the tender. Contrary to popular belief, an increase in the expected price compared to the market price almost always means that the Participant will receive a large amount for the same goods and services.

Therefore, the specialists of the Prozoro system and public activists recommend that customers determine the initial cost of work, goods and services as accurately as possible.

Baseline Values

SmartTender.biz specialists recommend starting the definition of the expected cost by studying the following sources of information.

Analytical Tools

The main achievement of the ProZorro system is an increase in the level of openness in the bidding and availability of information for all interested parties. Data of analytical service "bi prozorro org" can be a good starting point when determining the Organizer’s financial expectations.

Similar Auctions

In public tenders, it is common practice to estimate the expected budget based on figures taken from similar auctions held in the recent past. Having studied several examples from different electronic trading platforms, the Organizer can at least approximately imagine the order of magnitudes.

It is worth considering only lots for auctions that have already taken place, in which the final unit prices are published. If there are examples of similar supplies in the system, it is possible to take the average value and only slightly to increase it to attract the Participants. The coefficient depends on the subject of the procurement and the volume of deliveries.

Alternative Products or Services

In some cases, an analysis of prices for alternative goods or services on the Ukrainian market will help to see how low or too high the expected cost is.

From Basic Values to the Individual Justification of Expectations

In public government and commercial procurement, the Organizer should coordinate the obtained average market values with the features of its activities. Odds are one of the most effective tools to help tender commissions make informed decisions:

Seasonality factor. For example, cereals are cheaper after the end of the harvesting campaign, and diesel fuel rises in price by the sowing season.
The cost of funds in time. The money received by the Participant as a result of the auction has a different value (with the same amount) depending on the date of payment. You should take into account lost financial opportunities, currency fluctuations, and other factors.
Inflation rate. This is the most insidious indicator, since a specific group of goods, even taking into account inflation, can change its value during the year for more important reasons (yield, number of suppliers and competition between them, changes in legislation).

If you derive the planned cost indicators for your tender based on all these ratios, the initial amount is more likely to correspond to the market value.