Preference points explained
The formula, and the number it produces that actually changes how you price.
6 min read
Preference points are the mechanism that lets a more expensive bid win. Understanding them changes how you price, because they tell you exactly how much more expensive you can afford to be.
This explains the split, the formula and the calculation almost nobody does.
The two splits
Points out of 100 are divided between price and specific goals. Under 80/20, price carries 80 and goals 20. Under 90/10, price carries 90 and goals 10. Which applies depends on the value of the contract, and the tender document states it on its face.
Read it off the document rather than assuming. The value threshold that decides the split has changed more than once, and the framework is changing again under the Public Procurement Act.
How price points are calculated
Price points are scored relative to the lowest acceptable bid. The lowest bid takes the full price allocation, and every other bid loses points in proportion to how far above it sits. A bid ten percent above the lowest loses roughly a tenth of the price allocation.
The calculation that matters
Set your total equal to a rival's and solve for price, and a clean rule falls out: your price can exceed the lowest bid by your goal-point advantage divided by the price allocation.
So on an 80/20 tender, a twenty point advantage over the cheapest bidder is worth exactly twenty-five percent on price. On 90/10, a ten point advantage is worth about eleven percent. That number tells you whether to sharpen your price or hold your margin, and it is the single most useful thing to know before pricing.
What counts as a specific goal
The goals themselves are defined by the tender, commonly covering B-BBEE status and sometimes local production, locality or designated group ownership. This area has genuinely changed: the 2017 regulations were set aside by the Constitutional Court and replacement regulations followed. Treat any article quoting a fixed table without a date with suspicion.
Common questions
- What is the difference between 80/20 and 90/10?
- The split of the 100 points between price and specific goals. 80/20 gives goals more weight and applies to lower value contracts; 90/10 weights price more heavily on larger ones. The tender document states which applies.
- How much more can I charge with better preference points?
- Your goal-point advantage over the cheapest bidder, divided by the price allocation. Twenty points of advantage on an 80/20 tender is twenty-five percent on price.