Simplifying Supplier Selection Sue Hurrell, Value Wales
What am I covering? • Background • “Supplier Selection” – what we set out to achieve • SQuID – what is it? • The risk-based approach • Summary of content • The project – where we are now • Questions
Bit of background • Perennial question – how can we reduce barriers to entry, especially for SMEs? • Barriers to procurement opportunities report - 2009 • Pre-qual always the main culprit • Seen as over-complex, bureaucratic, opaque etc – but buyers have to: – Manage risk and process costs – Be fair, transparent and operate within the law.
Other “Barriers” recommendations • Need for wider advertising, particularly of lower-value contracts. • Greater clarity around the assessment process. • Better feedback and communication generally.
Supplier Selection Selection – are they capable? Research, specification, Award – advert etc – what’s the what do we Shortlisting – can best offer? want? we narrow the field down a bit?
Selection rules • Treaty principles – all procurement • Regulations – application depends on contract value and market • No muddling or duplication of selection and award questions • Law is restrictive about what can be asked at each stage. • Transparency of requirements and assessment at all stages is essential.
The problem: • Common mistake – including requests for info “just in case” or “because we’ve used it before”, in the belief it “covers all the bases”. • But if you don’t know: – why you’re asking for the info; – what you will do with it; and – how you will assess or score it… • …you waste everyone’s time, and • …risk a legal challenge.
Costs of supplier selection • based on on-going survey of (~ 40) suppliers, Sell2Wales and Bravo data. (statistical significance?) • Average cost for completing a PQQ is approx £1600 for non-construction and £2700 construction (too conservative?) • An average of 16 PQQ responses are completed per procurement. • At least £20m is spent annually, in Wales by suppliers , on PQQs for OJEU procurements alone . • Approx 20% of this cost is incurred by suppliers simply trying to figure out whether or not to bid.
Key objectives • More standardisation AND more tailoring! • Efficiency for both public sector and bidders • Consistency of approach • Minimise legal risk of challenge • Better feedback leading to improved tenders • Increase competitiveness in all markets… • … and especially of Welsh SMEs – maximising economic benefit of procurement in Wales.
Some principles We wanted to encourage buyers to: • think about specific contract requirements and associated risks; • favour YES/NO (pass/fail) questions and thresholds that enable non-compliant suppliers to self-deselect ; • reduce use of open- ended “exam questions”; • reduce use of essay questions to back up a yes/no answer; • reduce focus on policies and statements of intent; and • increase focus on facts - past experience and performance.
What is SQuID ? • Supplier Qualification Information Database – although it’s not a database yet! • A common core set of questions • NOT a standard form/template • Risk-based tool for buyers
What is SQuID? (2) • Currently rather a lot of paper! – Part 1, introduction – Part 2, guidance for buyers – Part 3, the question set • Similar documents for construction-specific • Work underway on the on-line version on www.sell2wales.co.uk, which will – summarise Part 2 into a single “wizard” (to be used for every new project) – Store suppliers’ data in “answer pots” for re -use.
How was it developed? • Long-list of questions based on some standard PQQs in use • Groups of experts (public and private sector) looking at categories: – Finance – Capacity and capability – Management (quality, PM) – Equality – Sustainability – Health and Safety • Long-list down to shortlist • A year’s “active consultation” – feedback and 400 (mainly public sector) staff trained. • An identical parallel construction exercise
How is SQuID used by buyers? • Use the risk-based guidance (Part 2 of paper doc, or “wizard” on the on -line version): to – analyse requirement and the associated risks, and choose questions that address them – leave out questions that are not relevant • Add in any necessary project-specific questions • Include guidance for bidders • Issue your PQQ (using the system) and receive responses – assess off-line.
How is SQuID used by suppliers? • Paper version – read the guidance and answer the questions as usual. • Sell2Wales version (when we have it): – Log on and complete your full profile (your “Master answer pot”) at any time – Respond to an advertised opportunity and fill in the PQQ using your stored data – Store your new answers as an “answer pot” – Manage your answer pots to update your “Master answer pot”.
When can SQuID be used ? For any formal tendering: • Open procedure – as first part (selection) of invitation to tender • Restricted procedure – as PQQ at selection/qualification stage • Sub-threshold procurements 16
Risk-based approach • What are we doing at selection? – Minimising the risks associated with a supplier failing to deliver or causing some other cost or embarrassment. • Most organisational procedures based around value, not risk.
Assessment tool - risk of supplier failure Very High None = 0 Low = 1 Moderate = 2 High = 4 =8 Penalties or costs incurred Near to or Around Around Less than £5,000 Around £10,000 by the buyer if supplier over £25,000 £50,000 failed £100,00 Moderate High impact Some impact Very limited impact on on public; Goodwill / reputational on public; No external impact on public; public; significant impact on Buyer of small negative impact on failed public perception moderate negative supplier failing; impact on impact on contract. unlikely to be negative impact impact on public and consumers. public affected. on public public perception. perception. perception. Incremental cost of Near to or providing a temporary Around Around Less than £5,000 Around £10,000 over alternative £25,000 £50,000 £100,00 service/capability Procurement costs associated with buying a Near to or Around Around temporary and/or Less than £5,000 Around £10,000 over £25,000 £50,000 alternative service or £100,00 capability 0 - 3 points (up to approx £35k impact): no check of financial standing 4 – 7 points (approx £35-85k impact): light-touch check of financial standing 8 or more points (approx £100k impact and over): in-depth check of financial standing
• Scenario 1 – prescribing software – Software to support critical [Prescribing/Social Services] function. – Value £75k. – Mainly “off the shelf” product but some bespoking needed. – Term: 3 years with option to extend to 5. – Maintenance and support required over contract term. – Several suppliers in the market but business- critical and would take 5-6 months to replace. – Installation required (including some time working on purchasing body’s premises).
• Scenario 2 - Staff uniforms – Term: 3 years fixed. – Value £60k. Purchase only. – These are basic, widely available garments which only require finishing in the appropriate colours and the purchasing body’s logo and wording to be attached. – Relatively easy to re-procure and non-critical because of stock held. – However – garments manufactured in Far East (though finished in EU) and purchasing body’s policies require sustainability and labour policy / conditions to be scrutinised closely.
Low-risk financial appraisal • Light touch check: • Profitability over 2 years (opportunity for losses to be explained, or put into the context of available assets) • Acid-test ratio (short-term liabilities and assets) • Credit checks or D&B “risk of failure”? Possible concerns around transparency.
High-risk financial appraisal • Comprehensive analysis of accounts by experts – in-house or third party. – Balance sheet of bidding company (and parents) – Historical cash and profitability – Other structural issues, market context etc • Opportunity for mitigating steps (bonds, guarantees)
Capacity and capability • Experience (answers may not be “storeable”) • Record of successful delivery (deductions for damages, cancelled contracts) • Turnover (relevant) • Certification/qualifications/skills/capacity
The other sections • Management (quality), equality, sustainability, H&S • Treated similarly: – Do you have convictions? – What have you done to put things right since? – Do you check the credibility of sub-contractors? – Do you have a third-party accredited system (ISO9001, ISO14001 or equivalents etc)? – If not, do you have your own process? Does it include the elements we need? Can we see a copy please? – What’s your record (H&S)?
What’s next? • Finalising the question sets and guidance – summer • Getting them in use on current systems and built into our e-tendering system (Bravo) • Building the new functionality on Sell2Wales (end of the year?) • Data sharing with other systems • Include other supplementary question sets (social care, food, local transport?)
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