Guide
How to price a public sector tender
Price is often the single biggest weighting in a tender, and the pricing schedule is where small firms lose marks for reasons that have nothing to do with value: a blank cell, a sum that does not add up, a caveat the buyer cannot score. This guide covers how price is usually scored, what the Procurement Act 2023 says about it, and the costs that catch people out.
Last checked: 2 November 2026
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How price is scored
Under the Procurement Act 2023 a contract is awarded to the “most advantageous tender”: the one that meets the buyer's requirements and best satisfies the award criteria (section 19). This replaced the “most economically advantageous tender” (MEAT) wording of the old Public Contracts Regulations 2015, and government guidance says the change of name is not a change in policy. The same guidance is clear that tenders do not have to be awarded on lowest price, and that price need not take precedence over quality.
The buyer must describe how tenders will be assessed and, where there is more than one criterion, show their relative importance by percentage weightings, ranking or another description (section 23). The criteria and methodology, or a summary of them, go in the tender notice, with detail in the tender documents (assessing competitive tenders guidance). So before you price anything, find the price weighting and the formula. They tell you how much a pound off is worth.
The common formula, worked through
The Act does not set a formula, and buyers use several. The one you will see most often is relative scoring: the lowest price gets full marks and everyone else is scored in proportion.
Common practice: lowest price ÷ your price × price weighting
Say price is weighted at 40%. Bid A is £100,000 and Bid B is 10% cheaper at £90,000. Bid B is lowest, so it scores the full 40. Bid A scores 90,000 ÷ 100,000 × 40 = 36.
Being 10% dearer cost Bid A four points out of 100. If quality is 60% and one quality question is worth 15%, moving that answer from 3 out of 5 to 4 out of 5 is worth 3 points. A small price gap can be closed by better answers; a big one usually cannot.
Notice that under this formula your score depends on everyone else's price. One very low bid pulls every other score down. Government guidance warns buyers about this effect of relative scoring and asks them to test their methodology first, so some use other methods: scoring against a budget, against the average price, or on whole-life cost rather than the price paid on day one. Read the method in the documents and model your own score before you decide your number.
Abnormally low prices
Pricing low to win is a risk in itself. A buyer may disregard a tender whose price it considers abnormally low, but before doing so it must tell you and give you a reasonable opportunity to show you can perform the contract for the price offered. If you show that to its satisfaction, it cannot disregard the tender on that ground (section 19(3) to (5)). Keep a costed build-up behind every rate so you can answer quickly if asked.
The costs that catch people out
VAT
When a buyer estimates a contract's value against the procurement thresholds, the estimate includes VAT (valuation of contracts guidance; see procurement thresholds). Pricing schedules, on the other hand, usually ask for prices excluding VAT, with VAT stated separately. That is common practice rather than a rule, so follow the schedule's instructions exactly and never mix the two.
Staff transferring under TUPE
If you are taking over a service from another contractor, the staff doing that work may transfer to you under TUPE, the “service provision change” rule in regulation 3 of the 2006 Regulations. You inherit their pay, terms and service, so price from their actual terms, not your own. The outgoing employer must give the incoming one employee liability information at least 28 days before the transfer (regulation 11), which is too late to price from, so buyers often include anonymised staff data in the tender pack. If it is missing, ask at clarification.
Pensions can be a large hidden cost. Under the government's Fair Deal guidance, staff compulsorily transferred out of central government, the NHS and other bodies under ministers' control keep access to their public service pension scheme. Local government has its own arrangements. Either way, get the employer contribution rate in writing before you price.
Wages
The National Living Wage is £12.71 an hour for workers aged 21 and over from 1 April 2026, and rises to £13.21 on 1 April 2027 (£11.27 for 18 to 20 year olds, £8.31 for under 18s and apprentices) (gov.uk). A contract that runs past March 2027 should be priced at the new rate from then. The real Living Wage is voluntary and higher: £14.10 across the UK and £15.45 in London for 2026 to 2027, up from £13.45 and £14.80. The new rates were announced on 15 October 2026, and accredited employers have until 1 May 2027 to pay them (Living Wage Foundation). If you commit to it in a social value answer (see social value), price every year of the contract at the rate you will actually pay, not today's.
Inflation and price review
Read the draft contract for a price review or indexation clause before you set multi-year prices. Some contracts allow an annual uplift linked to an index; many fix the price for the first year or two, or for the whole term. If there is no mechanism, your year-one price has to carry several years of wage and material increases. Where the schedule allows, show prices by year rather than a single flat rate.
Cash flow
Every public contract carries an implied term that valid, undisputed invoices are paid within 30 days of receipt (section 68), and the same term passes down to subcontracts (section 73). Thirty days is the latest a buyer may pay, it starts only when a valid invoice arrives, and you pay staff before then, so cost the gap.
Common errors in the pricing schedule
| Error | What to do instead |
|---|---|
| Blank cells | Enter a figure or a zero in every cell, with a note if an item is included elsewhere. A blank can be read as non-compliance. |
| Arithmetic that does not add up | Check every total by hand. If the schedule has formulas, test them; do not overwrite them. |
| Hidden assumptions | Put assumptions to the buyer as clarification questions before the deadline, not in the schedule. |
| Qualifying the price | Phrases such as “subject to survey” or “price valid for 30 days” can make a bid non-compliant. Price what was asked. |
| Prices that do not match the method | If your method statement promises four staff, the schedule must cost four staff. |
| Wrong VAT treatment | Use exactly the basis the schedule asks for, usually excluding VAT. |
Pricing a framework
On a framework agreement you often price twice. At the framework stage you usually submit rates that act as a ceiling for the term. At call-off, buyers may run a further competition where you can price below those rates. That is common practice; check the framework terms for the rules on your own. Call-offs are assessed only against the framework's award criteria, which may be refined but not replaced (section 46). Because framework rates can last several years, set them with inflation and wage rises in mind; a rate that looks sharp today may lose money in year three.
Before you commit time to the pricing at all, a bid or no-bid decision should tell you whether you can win at a price that makes money. For the written answers that sit alongside the price, see writing a tender response, and for unfamiliar terms the tender glossary.
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Common questions
Pricing a tender
Does the cheapest tender always win a public contract?
No. Under the Procurement Act 2023 the contract goes to the most advantageous tender, judged against the published award criteria and their relative importance. Government guidance is clear that tenders do not have to be awarded on lowest price, and price does not have to outweigh quality.
Should I include VAT in my tender price?
Follow the pricing schedule. Most schedules ask for prices excluding VAT, with VAT shown separately or stated as a note, because the buyer compares net prices. Contract values used for the procurement thresholds are different: they are estimated including VAT.
What happens if my price is too low?
A buyer may disregard a tender whose price it considers abnormally low, but first it must tell you and give you a reasonable opportunity to show you can perform the contract for that price. If you show that to its satisfaction, it cannot disregard your tender on that ground.
Do I have to pay the real Living Wage on a public contract?
The legal minimum is the National Living Wage, £12.71 an hour for workers aged 21 and over from 1 April 2026, rising to £13.21 on 1 April 2027. The real Living Wage is voluntary (£14.10 an hour, £15.45 in London, from 1 May 2027 at the latest), but some buyers ask about it or include it in their social value questions, so check the tender documents and price it in if you commit to it.
How quickly will a public buyer pay my invoices?
Every public contract has an implied term that valid, undisputed invoices are paid within 30 days of the buyer receiving them, and the same 30-day term passes down to subcontracts. It does not apply to an invoice the buyer considers invalid or disputes.