Establishing a pool of preferred or pre-qualified suppliers is a great idea as long as you are actively managing your supplier pool. Here’s how it’s done…
Last year Government Technology published an article describing how the state of Colorado has turned to a process they call “mini-RFP’s” to streamline and expedite procurement in their IT category.
The author Jessica Mulholland reports the state performed a prequalification of vendors and awarded multiple contracts to address a “specific set of issues and implementations”.
This select group of vendors operating under pre-negotiated legal terms are solicited when new work comes up. The lowest bidder is awarded leveraging their prenegotiated terms and conditions.
This is a concept that I have seen quite a few times before. Many private organisations operate in this manner. Essentially awarding MSA’s that include no rates or commercial terms, just legal terms.
It should be noted that the reason this is more expeditious is because it streamlines the contracting portion of the procurement process. This isn’t a shortcut to procurement, you still need a scope of work, you still need a bid period, and you still need analysis. The time saved is the time with legal.
Prequalification of suppliers isn’t anything new, but it is a unique approach in public procurement. I’m no expert on the legality of this as a government practice, but I will address this from a private business perspective.
1.Agreements without Commercial Rates
Perhaps this is a nuance of the public sector and possibly the reason why the state of Colorado can have a closed bid, but in private business there is simply no good reason to have an MSA without pre-negotiated rates. Nonetheless, I have seen this quite a few times. If you are going to go so far as to negotiate legal terms, locking in rates and commercial terms should be a no-brainer.
2. Obstacles to inclusion
If you plan to add a pre-qualification process to your organisation, consider keeping the process simple and straight-forward. It should not take more than a couple of weeks to complete the process. Anything more than that and you may find that your process becomes an obstacle for inclusion.
3. Scale the Pool
Be sure to have a large enough pool to allow for multiple projects to occur at the same time without depleting your bench. There is nothing worse than having an emergency project when all of your pre-qualified vendors are at capacity and you have no one left to award.
4. Diversify your Pool
Your pool of pre-qualified suppliers should be as diverse as the projects you contract. When I talk of diversity here, I’m not speaking of minority owned businesses. That is important too, but more than that you need to make sure your pool of vendors has large firms for the big projects as well as small firms for the small projects. Don’t just include all the big guys or you may find you have no one at all.
5. Score Performance
If you are going to establish a pool of pre-qualified suppliers it’s important to score each performance. Develop Key Performance Indicators (KPI) to evaluate how the suppliers performed and make sure to collect a report for each engagement. This will give you actionable data to evaluate the performance of each supplier.
6. Aggregate and Report KPI’s
Grading the suppliers on each project is essential, but when you collect and aggregate that data across a year, now you have powerful data. Anyone can have a bad project, but with a consolidated view of a vendors performance over a year, you can address specific problems, identify weaknesses, and generally grade each supplier objectively. With this data, you can elevate suppliers that perform well and downgrade those who perform poorly.
7. Evaluate your Pool at Least Once per Year
With your performance data in hand, you should meet with your suppliers annually and share the results of your scoring. This may be a difficult conversation, but if you are basing your comments on facts, it will be easier. In addition to reviewing existing suppliers, this is the time to look outside of your pool to identify new or up-and-coming suppliers to add. You should also evaluate the state of your organisation to right-size your pool.
8. Update your Agreements
Above all else, don’t let agreement expire. Track the end of all agreements and create reminders on your calendar to ensure you are proactively renewing, terminating, or renegotiating agreements before they expire.
Establishing a pool of preferred or pre-qualified suppliers is a great idea as long as you are actively managing your supplier pool. Keep on top of your contracts and you will soon see the fruits of your labor.
Do you have prenegotiated or prequalified Suppliers in your organisation? If so, do you follow these recommendations? Are there any best practices you recommend? Tell me your stories.
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