A 4 Step Minimum Risk Procurement Strategy
Byon March 5, 2013
When it comes to the world of procurement, the old phrase “prevention is the best cure” comes to mind frequently. The fact is that most faulty or failing supplier relationships are the result of a poorly executed pre-contract process. With the best will in the world, a poorly-constructed contract is going to lead to miscommunication between both the client and the vendor which is likely to result in dissatisfaction down the line.
Having recently worked with a County Council on the successful procurement of a complex Revenues and Benefits system, the subject of effective procurement is at the front of my mind. The agreed contract benefits both client and vendor, leaves no room for confusion and cost less than traditional procurement methods. Equally as importantly, the system was implemented on time and on budget. If you would like to know more about our work with the County Council, download our case study.
In this post I want to outline the broad approach we took in order to achieve those outcomes, which can in fact be applied to both public and private sector contracts.
Step 1: Know and Define Your Requirements
The very first thing you must do (before you even think about approaching a supplier) is to create your requirements documentation. This should be done in such a way that the document is heavily orientated towards business and operational outcomes and outputs and in a way which does not prescribe how the supplier is to fabricate or deliver the solution.
This process should be entered into by all stakeholders and relevant team members and should include, not only a description of the key ‘as-is’ business elements, but also any factors or changing parameters that influence relevant operations. Once you have this information to hand it must be translated into an output-based specification.
This approach is analogous to contracting for a house builder to hand over turnkey living accommodation, as opposed to ordering all the labour and materials and expecting the house to somehow build itself without strict instructions. I hope that the analogy suitably demonstrates the importance of this first step!
Step 2: Provide a Template for Tenders
When it comes to comparing tenders, it is absolutely vital that you are able to make a like-for-like comparison. This is only possible if you provide a fixed template as to how the tenders should be laid out from one contractor to the next.
Not only that, but you should not be shy to stipulate in express terms how you intend the entire procurement process (through to contract execution) to run. Your documentation should clearly set out the overall procurement process and each vendor must sign off that same written process in order to confirm their agreement to it. This is the first step you should take in protecting your interests against potential future challenges or claims. It is often a good idea (but not essential) for your full proposal template to reflect the layout of the contract, given that one will invariably lead into the other, and clarity of layout and navigation will make managing the contract that much easier in the future.
Step 3: Create and Execute an Evaluation Framework
Before issuing your requirements documentation you will need to formulate a process for evaluating tenders in a manner that is as objective and auditable as possible. To do this you must agree two things:
- What your evaluation criteria are
- How each criterion will be weighted
On a broad scale this might be 40% for price/value and 60% for quality/delivery of the solution or service, but you will want your scoring to be more in-depth than that. Examples of items you might consider are:
- The thoroughness of the implementation plan
- The fitness for purpose of the implementation plan
- The quality of any interface designs
- The risk factors attached to the proposed service/solution.
There are various criteria that might be relevant to any given solution — you need to boil them down into an appropriate evaluation matrix. It is fundamentally important that the method for carrying out the evaluation is transparent, auditable and absolutely clear to all parties (both in the present and in the future). The evaluation framework you design should (must if in the public sector) be included when you issue your procurement documentation.
Step 4: Provide for Pre-Contractual Due Diligence
This may be the last major step, but it is by no means one to be neglected. It is in fact the lynchpin to the successful implementation of a contract and forms the cornerstone of our approach to procurement.
The concept is simple — you must elevate your vendor as an “expert supplier” and contract with them for expert advice in the pre-contract stage (if, in the public sector, your procurement process allows this). If this is not possible then you must make the execution of the contract contingent upon successful expert due diligence. The thinking behind this is threefold:
- By contracting with your provider as an expert you are far better protected from any future contractual issues
- Going through this process ensures that there is a deep dialogue between client and vendor before the client has to commit
- By expressly binding the vendor’s expert advice into the contract of supply, you gain enormous protection in the event that the vendor fails to perform the contract properly.
Hard Work Up Front Reaps Benefits Down the Line
The above proposed procurement process is intended to be read as a broad indication of our recommended approach, rather than an in-depth guide. For instance, on large contracts you might split this process up into iterative stages in order to avoid the process becoming too overwhelming. This is something we do frequently, such as with the contract for the County Council — if you’d like to read more about it then download our case study. In future posts we plan to go into further depth on each individual element of the process.
We are not going to skirt around the fact that all of the above adds up to a great deal of work. However, we wouldn’t recommend it if we didn’t feel it was absolutely worthwhile. The fact of the matter is that time invested in the pre-contract stage will result in a smoother and more effective contract management process and a far better chance of the contract achieving all of your required outcomes. Not only that, but the above process effectively builds in a contractual ‘insurance policy’ should you need to rely upon it in the future.
The overriding principles here are ones of absolute clarity and expressness — both vendor and client should be in absolutely no doubt of what is expected from them and the contract. The best case scenario under such circumstances is that the contract runs smoothly, but if the worst should happen, the client is well protected by an ironclad agreement that was preceded by a similarly solid procurement process.