Sue Hurrell, Value Wales

Simplifying

Supplier Selection

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

Research,

specification,

advert etc –

what do we

want?

Selection –

are they

capable?

Award –

what’s the

best offer? Shortlisting – can

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

None = 0 Low = 1 Moderate = 2 High = 4

Very High

=8

Penalties or costs incurred

by the buyer if supplier

failed

Less than £5,000 Around £10,000 Around

£25,000

Around

£50,000

Near to or

over

£100,00

Goodwill / reputational

impact on Buyer of

supplier failing; impact on

public and consumers.

No external

impact on failed

contract.

Very limited

impact on public;

public perception

unlikely to be

affected.

Some impact

on public;

small negative

impact on

public

perception.

Moderate

impact on

public;

moderate

negative impact

on public

perception.

High impact

on public;

significant

negative

impact on

public

perception.

Incremental cost of

providing a temporary

alternative

service/capability

Less than £5,000 Around £10,000 Around

£25,000

Around

£50,000

Near to or

over

£100,00

Procurement costs

associated with buying a

temporary and/or

alternative service or

capability

Less than £5,000 Around £10,000 Around

£25,000

Around

£50,000

Near to or

over

£100,00

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?)

Is this another white elephant in the making? • Very widespread buy-in to the principles and current

question sets. WG support, manifesto commitments etc.

• Wide take-up already, and enthusiasm about the prototype of the on-line system.

• Sell-out courses

• Why? – We consulted widely – joint ownership of the outcome

– There is more risk of challenge out there

– It’s a completely flexible solution

– What’s not to like?!

• Challenges are getting the on-line system working and the links with 3rd party systems.

• Scotland and N Ireland developing their own systems based on ours.

So.. Hopefully not!