Supply Side
Suppliers Who Fail To Deliver – a Public Procurement Dilemma (part 2)

In part 1 of this short series we looked at the issue of public sector suppliers who, through lack of experience in the market in which they are bidding, win a tendering process then prove unable to deliver the contract satisfactorily. They may fail to deliver to the contracting authority’s satisfaction, or find that they cannot make the work financially sustainable. It then becomes very difficult for the buyer to resolve the situation without breaking the rules (by allowing the supplier to increase prices or reduce delivery, for instance).

How can contracting authorities avoid getting into this position in the first place? There are various steps that can be taken, but the difficult balancing act that must be undertaken is this. We do not want to discourage new, young and innovative suppliers, who may have different ways of carrying out the work to how it has been done in the past. We want to maximise effective competition, too. Yet we don’t want to give the contract to someone who then can’t deliver what is needed at the price that has been agreed.

The process of selecting suppliers starts in an indirect sense with the development of the specification. Be too prescriptive, and you may rule out many potentially interesting and interested suppliers. But be too vague or loose, and you may end up buying something that does not really meet your needs. This is another whole set of topics that we will return to, no doubt.

Then we come to the PQQ (pre-qualification) stage, if indeed such a stage is one included in the particular selection process. Here, again, it is a balance between being too “tight” and allowing only bidders with precisely matched experience to qualify, which restricts competition. On the other hand, being too flexible will allow potential suppliers through who may have little relevant experience.

There is a particular issue here if this is actually a new product or service that is being bought. Then, we have to look for experience that is relevant and associated in some way to what we now want, rather than precisely what we are looking for.

When we move onto the tendering stage, suppliers are proposing how they will meet the needs of the buyer. Here, it is vital to ask the right questions in order to gain a thorough understanding of how they are going to achieve that. If it is a complex services contract for instance, we need enough detail to be able to test thoroughly their understanding of what is needed. And the key word here is confidence. We need to have not just a credible description of what will be provided, and how, but the bidder needs to give us the confidence that they can deliver.

Including that point in the evaluation process and description is one small but useful step – “proposals will be scored on how well the proposal meets our needs and on the confidence that the bidder can deliver their proposal”.

Financial realism is another key issue. We have seen some recent examples (we will have more on this in part 3) where providers have found that delivering the contract is not financially sustainable. This is not necessarily a case of what EU regulations might call “abnormally low bids” but it may just be the bidder under-estimated some costs, or was too optimistic about income, and did not quite get their financial modelling right.

So again, getting a detailed understanding of how the costs are built up, and perhaps asking questions in the tender around the risk profile is sensible. “Show that your financial model is still sustainable if volumes declined by 20%” might be an appropriate question at times. The use of some sort of “open book” methodology so the buyer can have an ongoing view of the supplier’s cost structure throughout the contract period can also help here, although again that is another major topic in its own right.

To sum up, without closing off competition, we need to take steps to get as much confidence and assurance as possible though the bidding process that the potential provider really can achieve what is needed, and that they are not simply “good at writing bids”. There is no foolproof way of achieving this, but keeping that goal in mind through the development and execution of the buying and tendering process is a good start at least.

First Voice

  1. nothingbut says:

    Hi Peter, I would add that getting suppliers to understand the requirement and allowing unsuitable suppliers to deselect themselves is now an essential part of pre-procurement market enagagement in central government procurement.