Lowest Cost Criterion

The Lowest Cost Criterion is a cost-focused award approach that looks beyond the headline purchase price to capture the total economic burden of a contract on the contracting authority. It is particularly relevant for procurements where operating or maintenance costs over the contract life are significant relative to the initial acquisition cost.

What is the Lowest Cost Criterion?

Article 67(2) of Directive 2014/24/EU distinguishes between price-based and cost-based award approaches. The lowest cost criterion uses cost as the sole determinant of award, but cost is defined more broadly than price. It may incorporate life-cycle costing elements such as:

• Initial acquisition or installation cost
• Energy consumption and utility costs during operation
• Maintenance and repair costs over the contract term
• End-of-life disposal or decommissioning costs
• Environmental costs where they can be monetised (for example, a carbon price applied to fuel consumption)

The contracting authority must define the cost model in the procurement documents before tenders are submitted. Bidders then complete the cost model using their own figures, and the authority selects the tender that produces the lowest total cost across all modelled elements.

This approach differs from lowest price in that it can capture efficiency advantages that do not appear in the upfront price. A supplier offering energy-efficient equipment may quote a higher purchase price but deliver a lower total cost over five years of operation. Under a pure lowest-price evaluation, that supplier loses. Under a lowest cost evaluation using life-cycle data, it may win.

For utilities procurement, Article 82 of Directive 2014/25/EU provides the same framework. The approach is also used in defence procurement under Directive 2009/81/EC for platform acquisitions where through-life costs are a major planning consideration.

Why the Lowest Cost Criterion matters for bidders

If you compete in sectors where your product or service has an efficiency advantage that appears in operating costs rather than purchase price, the lowest cost criterion is your ally. Identifying procurements that use this approach and quantifying your through-life cost advantage clearly in your submission is essential.

The cost model format matters. Authorities who use lowest cost evaluation typically provide a structured template. Bidders must understand which cost elements are included, how the authority will verify or challenge figures, and whether any cost assumptions are authority-specified rather than bidder-defined. Errors in completing the cost model, or failure to follow the format precisely, can lead to your tender being treated as non-compliant.

Example

A Norwegian public transport authority procures electric buses. The procurement documents define a ten-year total cost model covering purchase price, expected battery replacement costs, energy consumption per kilometre at a specified tariff, and scheduled maintenance intervals from the manufacturer's data sheet. Three bus manufacturers submit compliant tenders. The one with the lowest ten-year modelled cost wins the contract, even though its purchase price is not the lowest.

Frequently Asked Questions

Can the authority set some cost inputs itself?

Yes. Authorities often fix certain inputs, such as the energy price, discount rate, or assumed utilisation level, to ensure all bidders are scored on the same basis. Bidders then supply only the variables within their control. This approach prevents gaming of the cost model.

How does lowest cost relate to life-cycle costing?

Life-cycle costing is the methodology used to calculate the cost. The lowest cost criterion is the award rule: whichever compliant tender produces the lowest figure from the life-cycle costing model wins. The two concepts work together rather than being alternatives.

Can an abnormally low cost submission be challenged?

Yes. The same abnormally low tender rules that apply to price-based evaluation apply when cost is the criterion. If a bidder's modelled costs appear implausibly low, the authority may request an explanation and may exclude the tender if no adequate justification is provided.