Using Should Cost Models to Challenge Bids Without Creating a Low-Cost Bias

Purpose: How to use an internal cost model to ask better questions about supplier proposals while maintaining a whole-life value-for-money approach.

How to use an internal cost model to ask better questions about supplier proposals while maintaining a whole-life value-for-money approach. This matters because public procurement decisions are rarely isolated events. A choice made during planning can affect competition, affordability, service quality, supplier behaviour and the ability to manage the contract later. The strongest approach is therefore to use the source guidance as part of an end-to-end commercial process, with clear ownership and evidence rather than as a document that is completed after the key decisions have already been taken.

Quick summary

• The SCM guidance says models can help assess the deliverability of bids and can, where appropriately designed, form part of a procurement evaluation approach.
• Where the SCM is used formally in evaluation, the methodology needs to be designed and disclosed appropriately.
• The Sourcing Playbook emphasises whole-life cost rather than lowest purchase price.
• Cost models can identify where a tender differs materially from expected cost drivers.
• A difference can reflect genuine efficiency, different scope assumptions, risk pricing or unrealistic delivery assumptions.

What the guidance means in practice

The source material gives several anchors for that process. The SCM guidance says models can help assess the deliverability of bids and can, where appropriately designed, form part of a procurement evaluation approach. Where the SCM is used formally in evaluation, the methodology needs to be designed and disclosed appropriately. The Sourcing Playbook emphasises whole-life cost rather than lowest purchase price. These are not interchangeable statements: some describe statutory or policy requirements and others describe recommended commercial practice. Teams should identify which category each requirement falls into, apply it to the organisation and procurement in scope, and keep a record of the judgement. Where guidance from 2021 or 2023 predates the Procurement Act 2023, its commercial principles can remain useful, but current legislation, regulations and current statutory guidance take precedence on legal process.

The practical value becomes clearer when the remaining guidance is read alongside the project lifecycle. Cost models can identify where a tender differs materially from expected cost drivers. A difference can reflect genuine efficiency, different scope assumptions, risk pricing or unrealistic delivery assumptions. The quality of challenge depends on the quality assurance and relevance of the internal model. In day-to-day terms, this means the buyer should be able to answer three questions at any approval point: what outcome are we trying to achieve, what evidence supports the proposed commercial approach, and what will need to be managed after the decision is made? If those answers are weak, more analysis is normally more useful than adding another layer of narrative to an approval paper.

A practical process to follow

A proportionate process can be built into existing governance. The steps below are deliberately practical. They are not a substitute for the detailed source guidance, legal advice or local standing orders, but they provide a useful structure for a procurement or commercial team.

1. Step 1. Design evaluation around the outcomes and quality required as well as cost. Record any assumption that could change the conclusion and when it will be reviewed.
2. Step 2. Use the SCM to identify cost drivers and assumptions that need clarification. Keep the analysis proportionate to the value, risk, novelty and criticality of the requirement.
3. Step 3. Check that the bid and the model cover the same scope. Capture the source evidence and name the person accountable for the next decision.
4. Step 4. Investigate unusual positions rather than automatically rewarding or rejecting them. Record any assumption that could change the conclusion and when it will be reviewed.
5. Step 5. Record the evidence behind any conclusion on affordability and deliverability. Keep the analysis proportionate to the value, risk, novelty and criticality of the requirement.
6. Step 6. Carry the agreed cost baseline into contract management in a controlled way. Capture the source evidence and name the person accountable for the next decision.

What good looks like

Good practice is visible in the decision trail, not only in the final document. A reviewer should be able to follow the line from the service need, through market and cost evidence, to the route, evaluation, contract terms and management arrangements. Where several functions contribute, the file should show who owns each decision and where challenge occurred. The same principle applies to handover: useful assumptions, models, KPI definitions, risks, supplier information and approval conditions should move into mobilisation and contract management instead of being left in the sourcing archive. This continuity is particularly important for long-running public services, where staff can change but the organisation remains accountable for the outcome.

Recommendations for procurement teams

The following recommendations are suitable for teams that want to embed the topic into normal ways of working rather than create a parallel compliance process:

• Do not score bidders against undisclosed internal assumptions.
• Use ranges and sensitivities where uncertainty is material.
• Bring operational experts into challenge of productivity and service assumptions.
• Look at cost-quality trade-offs rather than totals alone.
• Preserve an audit trail of clarifications and conclusions.
• Check current law and policy before relying on historic Playbook low-cost-bid processes.

Common pitfalls to avoid

The most common problems are usually process failures rather than a lack of templates. Watch particularly for the following:

• Treating the SCM as a target price suppliers must match.
• Assuming a low tender is proof of efficiency.
• Assuming a higher tender is poor value without examining risk and quality.
• Using an important model that has not been independently reviewed.

Easy-to-read takeaway

For using should cost models to challenge bids without creating a low-cost bias, the core discipline is to start early, connect the analysis to a real decision and preserve enough evidence for the next stage of the lifecycle. The source material should help teams make better decisions, not merely produce more paperwork. Before acting on a live procurement, confirm the current version of the Procurement Act 2023, regulations, Procurement Policy Notes and any organisation-specific approvals or delegations. This is especially important for thresholds, notice duties, exemptions and policy requirements that can change over time.

Source basis

Primary source used: Should Cost Modelling Guidance Note, May 2021. Related articles in this collection also draw on the other supplied Cabinet Office, HM Treasury and Procurement Act materials where the topics overlap.

This article is general procurement support content. It should be read alongside current legislation, statutory guidance and your organisation’s own governance and legal advice.