The 80/20 Preference Point System Explained

In South Africa, government tenders are not awarded solely on the lowest price. Instead, they are evaluated using a preference point system mandated by the Preferential Procurement Policy Framework Act (PPPFA). The most common system used for tenders between R30,000 and R50 million is the 80/20 system. Understanding how this works is critical to pricing your bid competitively.

How It Works

The total score (out of 100) is split into two components:

• <strong>80 Points for Price:</strong> The lower your price, the more points you get.
• <strong>20 Points for Specific Goals (usually BBBEE):</strong> Based on your BBBEE level or other specific goals set by the organ of state.

1. Calculating Price Points (80)

The lowest acceptable bid receives the full 80 points. All other bids receive fewer points based on how much more expensive they are than the lowest bid.

The Formula

Ps = 80 * (1 - (Pt - Pmin) / Pmin)

• <strong>Ps:</strong> Points scored for price
• <strong>Pt:</strong> Price of your tender
• <strong>Pmin:</strong> Price of the lowest acceptable tender

Example Calculation

Imagine the lowest bid (Pmin) is R1,000,000. Your bid (Pt) is R1,100,000.

Ps = 80 * (1 - (1,100,000 - 1,000,000) / 1,000,000)<br>Ps = 80 * (1 - 100,000 / 1,000,000)<br>Ps = 80 * (1 - 0.1)<br>Ps = 80 * 0.9<br><strong>Ps = 72 Points</strong>

So, by being 10% more expensive, you lost 8 points.

2. Calculating Preference Points (20)

These points are awarded based on the specific goals outlined in the tender document. Historically, this was strictly based on BBBEE levels, but the 2022 regulations allow organs of state to define specific goals (e.g., ownership by women, youth, or people with disabilities). However, BBBEE levels remain the most common metric.

Standard BBBEE Points Table

Strategic Implications

Understanding the math reveals a crucial strategic insight: <strong>Price is King, but BBBEE is the Kingmaker.</strong>

Scenario A: The Power of Price

Company A (Level 1 BBBEE) bids R1,200,000.<br>Company B (Level 4 BBBEE) bids R1,000,000.

• <strong>Company B (Lowest Price):</strong><br>Price Points: 80<br>BBBEE Points: 12<br><strong>Total: 92</strong>
• <strong>Company A:</strong><br>Price Points: 80 * (1 - 0.2) = 64<br>BBBEE Points: 20<br><strong>Total: 84</strong>

<strong>Winner: Company B.</strong> Even with a lower BBBEE level, their significantly lower price (20% cheaper) secured the win.

Scenario B: The Power of BBBEE

Company A (Level 1 BBBEE) bids R1,020,000.<br>Company B (Level 4 BBBEE) bids R1,000,000.

• <strong>Company B (Lowest Price):</strong><br>Price Points: 80<br>BBBEE Points: 12<br><strong>Total: 92</strong>
• <strong>Company A:</strong><br>Price Points: 80 * (1 - 0.02) = 78.4<br>BBBEE Points: 20<br><strong>Total: 98.4</strong>

<strong>Winner: Company A.</strong> Their price was slightly higher (2%), but their superior BBBEE status (Level 1 vs Level 4) gave them an 8-point advantage that overcame the price difference.

Frequently Asked Questions

When is the 90/10 system used?

The 90/10 system is used for tenders with a value above R50 million. In this system, price counts for 90 points and specific goals for 10 points, making price even more dominant.

Can I win with a Level 8 BBBEE?

Yes, but your price needs to be extremely competitive. You are starting with a handicap of 18 points compared to a Level 1 competitor.

What happens if two companies score the same total points?

If scores are tied, the tender must be awarded to the bidder with the highest points for specific goals (BBBEE). If those are also equal, the bidder with the highest points for price wins. If still equal, it is decided by the drawing of lots.

Are functionality points included in the final score?

No. Functionality (quality/technical capability) is a pre-qualification stage. You must meet a minimum threshold (e.g., 70%) to proceed to the pricing stage. Once you pass, your functionality score is discarded, and only Price + BBBEE are calculated.

Conclusion

The 80/20 system is a balancing act. You cannot rely on BBBEE alone to save an uncompetitive price, nor can you rely on a low price to ignore transformation. To win consistently, you need to optimize both: strive for Level 1 BBBEE status while sharpening your pricing strategy to be as lean as possible.