Procurement Plans in the public sector seem to come in all shapes and sizes. From 200-page Procurement Strategy documents, to one-page executive summaries or hastily thrown together rush jobs, it’s hard to navigate the areas that most need your focus when planning a procurement process.
Too often, the Procurement Plan does not lead directly to design of the tools that will enable selection of the best quality supplier.
A disjoint between the Procurement Plan and the supplier selection tools inevitably leads to decisions that don’t align with or accurately represent the factors that will drive value for money.
What’s to be done?
In this article, we introduce a blueprint for procurement planning that is hugely adaptable. It outlines the concepts and thought processes that should be applied to any planning and procurement design process – that will ensure that the analysis underpinning the procurement plan feeds directly into design of efficient, targeted supplier selection tools.
To help people remember this model, we call it Clever Buying’s 3-2-1 – A,B,C,E, D Procurement model. It rolls off the tongue and should be easy to remember and explain!
Here’s how it works:
In any procurement, we say there are
3 kinds of Supplier
2 kinds of information – to drive
1 winner (or 1 result – e.g. supplier panel selection).
What are the Three Kinds of Supplier?
The first kind of supplier we identify is the unsuitable supplier. This is the supplier that simply does not have the capability to provide the product, service or project we are looking to buy. They don’t have the experience, or the certifications needed. They have a terrible track record; can’t meet our timeframes; or are financially risky to take on.
We call them the Awful supplier (don’t laugh! We had to think of a word beginning with A that wasn’t too insulting!) In a perfect world, we would find ways to give a clear message to that supplier not to waste their time (and ours) in responding to our procurement opportunity. [Park that thought – we’ll return to it shortly when we talk about the two kinds of information].
The second kind of supplier is the kind that can deliver our requirements – but only just. They may have the basic experience needed; a product that will meet the specifications (but nothing additional); or their performance on past projects is adequate (but no more). If we engage this kind of supplier, it’s likely that they will need more support from us, and potentially cost us more in the long run. There may be re-work needed, extra supervision; or their product or services may only just last past the warranty period. We name this kind of supplier with the ‘B’ word – Borderline.
Getting a Borderline supplier on board may be valid if, for example, their offer is very cheap so we have some additional available funds to cover any shortfalls. It may also be a reasonable decision if we are trying to build capability in our market by providing opportunities to suppliers who traditionally have struggled to meet our requirements. Proceed with caution!
The third kind of supplier is the one that not only delivers to our requirements, but adds value to what we’re looking for. Perhaps they have innovative practices that will save time, reduce ongoing costs, increase safety outcomes, or provide a more resilient long-term solution. Maybe they will deliver significant social, environmental, cultural or economic outcomes which are valued by or community, through their work on the project. Perhaps they have a more experienced team, specialized plant, or have completed similar projects that will enable us to get the benefit of their prior knowledge.
Whatever advantages they bring, those benefits are worth paying for, since they have the potential to save money, either in the short term or over the life of our asset or services. We call these suppliers our Champions. That ‘C’ word!
So, here are our three types of suppliers:
So, you’ll have noticed there are two gaps between our three types of suppliers – one gap between the ‘Awful’ and the ‘Borderline’ supplier; and another between the ‘Borderline’ supplier and the ‘Champion’ supplier. These two gaps are where our two kinds of information sit.
What are the Two kinds of Information?
The first kind of information sits between the Awful and the Borderline supplier. Its sole purpose is to exclude the unsuitable suppliers from engaging in the procurement process, with minimum possible effort from both the client agency, and the supplier. If done right, this kind of information will hugely reduce the time and effort needed for your procurement process, and should eliminate the need for an agency to ‘fail’ a supplier on the basis of information received.
Traditional procurement methods have used an Expression of Interest or Registration of Interest for this part of the procurement process – involving detailed responses, scoring and exclusion of the worst ranked suppliers. All of that activity takes time – and of course, leads to major disappointment and annoyance from those excluded that they wasted time responding.
There are far more transparent and efficient ways to handle this process of excluding unsuitable suppliers, reducing time and costs within a tendering process. With well-designed, transparent, fact-based pre-conditions, we can provide the market with clear criteria so they can determine if they are eligible to respond to our opportunity.
We call this kind of information the ‘E’ word – Eliminators. The important thing is that they are entirely unambiguous and clearly articulated as Pre-Conditions in our procurement process. Of course, getting these right means we have to understand our market well, so we know the appropriate point to draw the line between those (hopefully manageable few) suppliers that can deliver our contract, and those that it makes sense to exclude.
We also need to work out the right basis on which to exclude them. Usually, the factors that we use to exclude unsuitable suppliers relate to the risks that are under suppliers control. Typical Eliminators would be things like:
- Must have current health and safety certification.
- Must have completed two projects involving works of this nature in the past five years.
- Must provide a Project Manager with a relevant industry qualification, dedicated at least 60% of their time.
- Referees for two most recent contracts must confirm their satisfaction with adherence to timelines, budgets and quality standards.
Eliminators or Preconditions should never be based on a scoring system. This is for two reasons – because the suppliers don’t have clarity on whether they’ll make the grade or not; and because that implies detailed information for scoring (which takes time and effort for suppliers to provide, without any guarantee they’ll make the grade); and because it takes time and effort for the evaluation team to score the information (=more cost and delay to the process).
Eliminators or Pre-Conditions should be cut-and-dried, with total clarity so suppliers can see at a glance if they’ll pass or fail the basic entry criteria (and most likely not bother trying. Just as important, for the protection against any probity challenges, these fact-based, transparent Eliminators mean that any exclusions of unsuitable suppliers can be clearly and factually justified by the evaluation team.
With unsuitable suppliers excluded from the process, our procurement process now includes the two remaining types of suppliers – Borderline, and Champions. In real life, the majority of suppliers that sit in between those extremes).
Put simply, once the unsuitable suppliers are excluded, all the remaining suppliers are capable of meeting our requirements, but some will do this better than others. It’s now our job to figure out how to sort the better quality suppliers from the lesser quality suppliers.
That is the job of the second kind of information that we need in our procurement process. This information must effectively differentiate between those suppliers best equipped to deliver value for money on our contract, and those that will deliver to lower standards.
We use the ‘D’ word to describe this kind of information – i.e. the Differentiators. This information is fundamentally different from our first kind described above, because it’s not based on cut-and dried pass/fail criteria.
Instead, it takes the form of a sliding scale which usually brings in factors relating to quality as well as price.
Because it’s a sliding scale, this information gets scored. The scoring enables the evaluation team to identify the supplier with the optimal quality/price balance for our project.
A Revelation – Differentiators rely on two basic factors – Risks and Opportunities.
There is no point in trying to differentiate the quality of suppliers based on qualities where there is little difference between them. For example, if all the supplier have access to the basic plant and equipment needed for the project; or there are no material variations in the basic procedures that they need to follow, it would be a waste of time and effort for them to describe and for an agency to score those factors. There is no material risk in that case, that any prequalified supplier won’t be able to provide those qualities.
The place where the real areas to add value lie, is in the ability of suppliers to recognise and manage any project-specific risks that are under their control. For example, their ability to mobilise their team and resources to deliver the project on time (or ahead of the deadline where possible).
A differentiator may be the level of experience that a company has in delivering projects of this nature – naturally, in most cases an agency would be happy to pay more for a company that has delivered ten projects like this recently, as opposed to another company who has only completed one similar project, some years ago.
A company that provides a very comprehensive and bespoke method statement that covers off uncertainties that could jeopardise success, would be scored higher than one that appears to have no awareness or contingency plans for handling those risks.
Differentiators can also be about the flip side of risks – opportunities. Suppliers that deliver opportunities to add value to your project are worth scoring higher, and (therefore) paying more for. Perhaps they can deliver a solution that’s longer-lasting; takes less time to implement; or makes use of their prior knowledge to come up with a smarter solution. Or perhaps there are other benefits such as delivering Broader Outcomes (social, environmental, cultural or economic benefits) through their work.
Either way, these Differentiators are based wholly (and exclusively) on the risks and opportunities that are specific to your project.
This is why the analysis of risks and opportunities that are under your suppliers’ control is the fundamental lynch-pin of any effective procurement process.
How does this impact on the Procurement Planning Process?
There are four main steps in an effective Procurement Planning Process. Without covering these, it is doubtful that your planning process will align to the tools you use for supplier selection. So what are these steps?
1. Understand the Project
Unsurprisingly, the first task of your procurement planning process should center on what you are buying, and why. Knowing the scope of your procurement – what is included and what is outside requirements of suppliers is essential so you can define your requirements clearly to your supplier pool.
2. Analyse your Market
Once you have defined your scope, you’ll need to consider what suppliers are capable of delivering it. Are there 100 suppliers, 10 or just one? What qualities would we look for in an ideal supplier? What would make a supplier unsuitable for this work? Are you looking to build market capability through this project?
3. Risk Analysis
This part of your analysis is about supplier-controlled risks. That’s not to say that client-side procurement risks are not important, however those are areas for you to manage internally, and do not/ should not have a great influence on your supplier selection process.
Your risk analysis should cover:
- An initial brain-storm of the major project-specific risks and opportunities that are under your suppliers’ control.
- Identifying which risks could be covered off through a simple pass-fail Eliminator or Pre-condition (e.g. Health and Safety certification; a basic level of company and/ or individual experience; accessibility of basic plant and equipment needed, etc.).
- Identifying which key risks will differentiate your pool of eligible suppliers (those that meet the pre-conditions above). One of those risks may well be their pricing. But others could be things like innovations evident in their methodologies; highly qualified or experienced staff; extensive company experience that’s additional to the baseline required in the Pre-Conditions..
4. Opportunity Analysis
It’s not surprising that the final stage in your procurement planning process deals with on the flip side of risks -the opportunities. Once again, you need to focus fully on those opportunities that suppliers could have an influence over. These could be – for example – clever methods that result in time or cost savings in project delivery; a more resilient long-term or environmentally-friendly solution; innovations in that reduce future maintenance costs; or opportunities for apprenticeships and skills training through their work on your contract.
The acid test is that these are all factors that your agency values and would be prepared to pay more for, so your scoring will enable suppliers who offer added value have a better chance of winning the contract.
How does this lead to your Procurement Process and Selection Tools Design?
Articulating those risk and opportunity factors will lead directly and seamlessly into both your Pre-Conditions, and your evaluation criteria.
Your Eliminators or Pre-conditions will help to ‘weed out’ unsuitable suppliers with minimum effort (and disappointment!) for both suppliers and agencies.
–Your Differentiators or Evaluation Criteria – based on the risks and opportunity analysis – will enable you to give your tenderers clear guidance on what you will score highly. Based on that information, you’ll then easily develop the questions in your scored evaluation criteria that will give you the evidence you need for scoring.
It will also help prevent you asking generic questions – which most often attract generic answers which do not give you powerful tools to differentiate your tenderers on the value they will offer.
Your assessment of the relative importance of those factors to the success of your project, will also help you to work out how you might weight these factors in your evaluation.
Procurement Planning Blueprint: A Visual Summary
So, here’s our visual summary and ‘cheat sheet’ to remind you of the basic building blocks of a procurement process:
… and here’s how we summarise the four key steps to be undertaken, and how they lead perfectly into the procurement tools you’ll use to select the best suppliers to deliver value for money on your project.