Value for Money (VFM)
Definition: The core principle of Australian government procurement requiring agencies to consider the overall benefits of a purchase relative to its total cost, not just the lowest price.
What is Value for Money (VFM)?
Value for Money (VFM) is the overarching principle guiding all Australian government procurement. It requires agencies to consider the whole-of-life costs and benefits of a procurement, rather than simply selecting the cheapest option. VFM is the foundation of the Commonwealth Procurement Rules and equivalent state and territory frameworks.
What Does Value for Money Consider?
VFM assessment goes beyond the purchase price to consider:
- Quality and fitness for purpose — does the solution meet the agency’s actual needs?
- Whole-of-life costs — including implementation, maintenance, training, support, and disposal
- Risk — the likelihood and consequences of delivery failure
- Flexibility — the ability to adapt to changing requirements
- Supplier capability — the supplier’s track record, financial viability, and capacity
- Local content — in many jurisdictions, the economic benefit to the local community is a VFM consideration
- Environmental sustainability — increasingly included in VFM assessments
VFM vs Lowest Price
A critical distinction: VFM does not mean lowest price. An agency may legitimately select a more expensive option if it offers superior quality, lower risk, better support, or other benefits that justify the additional cost. The agency must be able to demonstrate that its decision represents the best overall outcome.
How is VFM Assessed?
Agencies assess VFM through the Evaluation Criteria published in the tender documents. Price is always a factor, but it is weighed alongside non-price criteria. The evaluation panel produces a recommendation based on the overall assessment.
Tips for Tenderers
- Do not just compete on price — demonstrate the broader value your solution delivers.
- Quantify benefits where possible — savings, efficiency gains, risk reduction, and measurable outcomes strengthen your case.
- Address total cost of ownership — agencies are increasingly sophisticated about looking beyond upfront price.
- Highlight risk mitigation — showing you understand and manage delivery risks adds significant value.
Related Terms
Aboriginal and Torres Strait Islander Procurement Policy IPP
An Australian Government policy that sets mandatory targets for Commonwealth agencies to contract with Indigenous businesses, supporting economic development in Aboriginal and Torres Strait Islander communities.
Best and Final Offer BAFO
A stage in a multi-phase procurement process where shortlisted tenderers are invited to submit their most competitive revised offer, typically after clarification discussions with the procuring agency.
Commonwealth Procurement Rules CPRs
The mandatory rules governing how Australian Commonwealth Government entities must conduct procurement, establishing principles of value for money, competition, transparency, and accountability.
Contract Variation
A formal amendment to an existing government contract that changes one or more of its terms, such as scope, price, timeframe, or deliverables, agreed by both the agency and the supplier.
Evaluation Criteria
The specific factors, weightings, and standards that a government agency uses to assess and compare tender responses in order to determine which supplier offers the best value for money.
Goods and Services Tax (GST) in Procurement GST
The 10% consumption tax applied to most goods and services in Australia, which tenderers must correctly account for in their pricing and which agencies must manage in accordance with tax law.
Local Content Requirements
Government procurement policies that encourage or require tenderers to use local suppliers, workers, materials, or services, supporting Australian industry and regional economic development.
Open Tender
A procurement method where the opportunity is publicly advertised and any interested supplier can submit a response, ensuring maximum competition and transparency.
Probity
The ethical standards, fairness, and transparency requirements that government agencies must uphold throughout the procurement process to ensure all suppliers are treated equally and decisions are defensible.
Weighted Criteria Assessment
An evaluation methodology used in government procurement where each assessment criterion is assigned a percentage weighting reflecting its relative importance, and tender responses are scored against each weighted criterion to determine the best overall submission.
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