Value for money (VFM) is not about achieving the lowest price. It is about achieving the optimum combination of whole life costs and quality. Traditionally VfM was thought of as getting the right quality, in the right quantity, at the right time, from the right supplier at the right price. This concept has been updated to - obtaining better quality of goods and services in more suitable quantities, just in time when needed, from better suppliers at prices that continue to improve.
It is also often described in terms of the ‘three Es’ – economy, efficiency and effectiveness:
- economy – minimising the cost of resources for an activity (‘doing things at a low price’)
- efficiency – performing tasks with reasonable effort (‘doing things the right way’)
- effectiveness – the extent to which objectives are met (‘doing the right things’).
To help achieve VfM, goods and services should be acquired by competition unless there are convincing reasons not to do so. The form of competition should be appropriate to the complexity of the procurement and barriers to the participation of suppliers should be removed. In practice, the level of competition is indicated by the estimated value of the proposed procurement.