Cost Criterion

The Cost Criterion is the evaluation element that assesses economic value through a broader lens than purchase price. By incorporating costs incurred throughout the contract life rather than just at the point of acquisition, it gives contracting authorities a more complete picture of which tender represents the best economic outcome.

What is the Cost Criterion?

Article 67(2) of Directive 2014/24/EU permits contracting authorities to base award on the best price-quality ratio, using either price or cost as the financial element. The cost criterion differs from the price criterion in that it extends the financial assessment beyond the quoted contract price to include costs that arise during or after contract performance.

Article 68 of Directive 2014/24/EU defines how life-cycle costing may be applied to calculate a cost criterion. Elements that may be included are:

• Costs related to acquisition (purchase, installation, commissioning)
• Costs of use (energy and resource consumption, maintenance, repairs)
• End-of-life costs (decommissioning, disposal, recycling)
• Environmental costs linked to greenhouse gas emissions or pollutant releases, expressed in monetary terms where an accepted methodology exists

The contracting authority defines the cost model in the procurement documents, specifying which cost elements are within scope, how they are to be calculated, which inputs are fixed by the authority, and which variables the bidder must supply. All bidders complete the same cost model template, enabling like-for-like comparison across submissions.

The cost criterion can function as the sole award criterion (the compliant tender with the lowest total modelled cost wins) or as the financial element of a best price-quality ratio evaluation (where the cost score is weighted alongside quality criteria scores to produce an overall evaluation score).

Why the Cost Criterion matters for bidders

The cost criterion rewards suppliers whose through-life cost profile is competitive even when purchase price is not the lowest. This is particularly relevant in capital equipment, infrastructure, fleet, and technology procurement where operational costs represent a material share of total expenditure.

To compete effectively under a cost criterion evaluation, bidders need accurate and auditable data for each modelled cost element. Energy consumption certifications, manufacturer maintenance schedules, historical service costs from comparable contracts, and disposal cost estimates from licensed facilities all strengthen a cost submission. Vague or unsupported cost inputs are vulnerable to challenge and may trigger an abnormally low tender investigation if they appear implausibly low.

The weighting of award criteria between cost and quality determines how much competitive advantage a strong cost submission can generate. A high cost weighting (for example, 70%) makes through-life cost efficiency the dominant success factor. A lower cost weighting (for example, 30%) means quality differentiation matters more.

Example

A Finnish state railway procures train maintenance services over ten years. The cost criterion covers annual scheduled maintenance costs per fleet unit, unscheduled repair cost estimates based on historical failure rates for the relevant rolling stock type, and spare parts supply cost per component category. Three bidders complete the authority's cost model template. The bidder with the lowest ten-year modelled cost but not the lowest annual maintenance rate wins, because their spare parts supply costs are significantly lower due to proprietary access to original equipment manufacturer components.

Frequently Asked Questions

Who verifies the cost data bidders submit?

Contracting authorities may check cost submissions against market benchmarks, manufacturer data sheets, or publicly available energy tariffs. They may also request supporting evidence during evaluation. Where a bidder's cost inputs appear inconsistent with market data, the authority may treat the submission as an abnormally low tender and request an explanation.

Can I include cost savings or efficiency gains as cost credits?

Only if the procurement documents explicitly allow this. Some authorities include a "savings" line in the cost model to capture innovation-based cost reductions. If not explicitly included, bidders should not invent additional cost model elements, as this may render the submission non-compliant.

How does the cost criterion interact with the price criterion in a combined evaluation?

In a best price-quality ratio evaluation, the authority uses either price or cost as the financial element, not both. If cost is used, the authority will score bids on their modelled total cost rather than their quoted price. The cost score is then weighted and combined with quality scores using the scoring methodology described in the procurement documents.