The 80/20 Preference Point System Explained

Why Government Tenders Are Not Awarded on Price Alone

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) and its regulations. The most common system used for tenders below the higher-value threshold is the 80/20 system, while a 90/10 variant applies above it. Understanding how the 80/20 system works is critical to pricing your bid competitively, because a small pricing decision can swing your score by several points before B-BBEE is even factored in.

How It Works

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

• 80 Points for Price: The lower your price, the more points you get, on a sliding scale relative to the lowest acceptable bid.
• 20 Points for Specific Goals (usually B-BBEE): Based on your B-BBEE level or other specific goals set by the organ of state for that particular tender.

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)

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

Example Calculation

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

Ps = 80 × (1 − (1,100,000 − 1,000,000) / 1,000,000)
Ps = 80 × (1 − 100,000 / 1,000,000)
Ps = 80 × (1 − 0.1)
Ps = 80 × 0.9
Ps = 72 Points

So, by being 10% more expensive than the lowest bidder, you lost 8 of the 80 available price 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 B-BBEE levels, but current regulations allow organs of state to define specific goals for a particular tender, such as ownership by women, youth, or people with disabilities. However, B-BBEE level remains the most common metric used across most tenders.

Standard B-BBEE Points Table

Strategic Implications

Understanding the math reveals a crucial strategic insight: price is king, but B-BBEE is the kingmaker. Neither component can be ignored, and the two interact in ways that catch inexperienced bidders off guard.

Scenario A: The Power of Price

Company A (Level 1 B-BBEE) bids R1,200,000. Company B (Level 4 B-BBEE) bids R1,000,000.

• Company B (Lowest Price): Price Points: 80. B-BBEE Points: 12. Total: 92
• Company A: Price Points: 80 × (1 − 0.2) = 64. B-BBEE Points: 20. Total: 84

Winner: Company B. Even with a lower B-BBEE level, their significantly lower price, 20% cheaper than Company A, secured the win.

Scenario B: The Power of B-BBEE

Company A (Level 1 B-BBEE) bids R1,020,000. Company B (Level 4 B-BBEE) bids R1,000,000.

• Company B (Lowest Price): Price Points: 80. B-BBEE Points: 12. Total: 92
• Company A: Price Points: 80 × (1 − 0.02) = 78.4. B-BBEE Points: 20. Total: 98.4

Winner: Company A. Their price was slightly higher, by only 2%, but their superior B-BBEE status, Level 1 versus Level 4, gave them an 8-point advantage that comfortably overcame the small price difference.

What This Means for Your Pricing Strategy

The two scenarios above show why bidders cannot treat B-BBEE level and price as separate decisions. If your B-BBEE level is weaker than a likely competitor's, work out roughly how many percentage points cheaper you need to be to close the gap before you finalise your price, rather than pricing on cost-plus margin alone and hoping for the best. Conversely, if you hold a strong B-BBEE level, resist the temptation to price too aggressively purely because you believe your preference points will carry you; a rival with a similar level and a sharper price will still beat you. The 80/20 formula rewards bidders who model both variables together rather than optimising one in isolation.

How This Differs from the New Set-Aside Model

It is worth noting that the 80/20 and 90/10 points formulas described here operate under the current Preferential Procurement Policy Framework Act regime. The Public Procurement Act 28 of 2024 is expected to eventually replace this points-based approach with a threshold model of set-asides, pre-qualification, and subcontracting conditions tied to contract value bands, once its regulations are finalised and the relevant sections commence. Until that happens, live tenders continue to be scored using the 80/20 or 90/10 formulas explained in this article, so the calculations above remain directly applicable to any tender you are pricing today.

Common Mistakes Bidders Make with the 80/20 Formula

One of the most common mistakes is assuming that the lowest-priced bid automatically wins, without running the actual points calculation. As Scenario B above shows, a bidder with a strong B-BBEE level can beat a cheaper competitor by a wide margin once both components are combined, so treating price as the only variable that matters is a costly oversight. A second mistake is submitting a B-BBEE certificate or sworn affidavit that has expired or does not match the entity named on the bid documents, which typically results in zero points being awarded for that component regardless of your actual B-BBEE status.

A third mistake is failing to check which preference point system applies to a specific tender before pricing. Because the threshold between the 80/20 and 90/10 systems is set out in the tender's own supply chain management policy and can be adjusted from time to time, always confirm which system is stated in the tender document itself rather than assuming based on the value you expect the contract to be worth. Bidders who prepare their pricing model around the wrong system risk misjudging exactly how much room they have to price above the lowest bidder and still remain competitive.

Frequently Asked Questions

When is the 90/10 system used?

The 90/10 system is used for higher-value tenders. In this system, price counts for 90 points and specific goals for 10 points, making price even more dominant than under the 80/20 formula.

Can I win with a Level 8 B-BBEE?

Yes, but your price needs to be extremely competitive. You are starting with a handicap of 18 points compared to a Level 1 competitor, which is a large gap to close on price alone.

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, usually B-BBEE. If those are also equal, the bidder with the highest points for price wins. If still equal, the award is decided by the drawing of lots.

Are functionality points included in the final score?

No. Functionality, meaning quality or technical capability, is a pre-qualification stage. You must meet a minimum threshold set out in the tender document to proceed to the pricing stage. Once you pass, your functionality score is discarded, and only price plus specific goals points are calculated for the final ranking.

Conclusion

The 80/20 system is a balancing act. You cannot rely on B-BBEE alone to save an uncompetitive price, nor can you rely on a low price to ignore transformation goals entirely. To win consistently, you need to optimise both: strive for the strongest B-BBEE status your ownership structure genuinely supports, while sharpening your pricing strategy to be as lean as your margins will allow.