Is your supplier selection process a source of competitive disadvantage? A SpendMatters/Achilles White Paper - P.Smith June 2012 For further information contact Dan.Quinn@achilles.com

1. Is your supplier selection
process a source of
competitive disadvantage?
Peter Smith
Managing Editor Spend Matters UK/Europe
June 2012
services for professional procurement
www.achilles.com

2. Best practice in pre-qualification processes
A Spend Matters White Paper sponsored by Achilles
Executive summary
Pre-qualification. Not the most exciting topic in We describe here how pre-qualification can help
the world is it? And yet consider those firms who – or hinder – your efforts to improve procurement
end up as our suppliers who generate reputational process and performance as an important part of
or operational risk; firms who get into financial the overall procurement or sourcing process.
trouble; who aren’t actually capable of doing what It does not always get the attention it deserves, yet
they claimed they could. Firms who maybe aren’t carrying out pre-qualification processes effectively
even allowed (in a legal or regulatory sense) to do and efficiently is vital:
the work we’ve employed them to do. Those firms
■■ To ensuring that the organisation ends up with
we should have weeded out from the selection
appropriate suppliers to deliver the goods and
process long before we even got close to awarding
services required.
them the contract.
■■ As a key element of supplier and supply chain
Then, there are those potential suppliers who
risk management; identifying those potential
never made it. Those suppliers we rejected on
suppliers who may generate inappropriate risk
the grounds their turnover wasn’t large enough
for the buying organisation, and eliminating
to get over our pre-qualification hurdle, or who
them from the procurement process, is clearly
struggled answering our trick questions about
of value to buyers and buying organisations.
quality certifications for instance. Perhaps in the
process overlooking a supplier who actually could ■■ As an important element of the selection
have come up with a stunning, innovative idea that process; determining a sensible number of
would have provided real competitive advantage? the best suppliers to take through to the final
We’ll never know. tendering stage of the procurement process.
As well as the sheer cost of the In this paper, we will explain the different
pre‑qualification process, and the time purposes of the pre-qualification process, why
required, it can be either a positive part of it is important and how it can add value. We will
the procurement process or a source of look at how to construct and manage an effective
competitive disadvantage. pre‑qualification programme, and the different
stages involved in the process. We will also
comment on the cost of the process, and the
options, benefits and issues around using third
parties to assist in the process, which can save
significant time and money.
Spend Matters is a leading procurement advisory, analyst and publishing firm, commenting on issues
of importance to procurement and supply chain practitioners and solutions providers. Although we are
sponsored by a number of organisations who operate in our field, we write independently based on our many
years of experience as senior procurement executives, analysts and writers.
2

3. This Spend Matters research paper considers the
pre‑qualification process as a key element within the
procurement cycle. The paper is sponsored by Achilles, one
of the world’s leading managers of supplier information, and
draws on research work previously carried out by Achilles, but
it is written from a wholly independent perspective.
Background and context to the pre-qualification process
What is pre-qualification?
The pre-qualification process is an important key tool for pre-qualification, and PQQ is often
element in what is, in many cases, the standard discussed, although a pre-qualification process
procurement / tendering process, shown in does not always necessarily make use of a
Figure 1. PQQ. So we will use the term pre-qualification
Most similar process maps will show the process through this paper unless we are
pre‑qualification process as the first significant talking about the specific PQQ document. We
part of our engagement with suppliers who should also note that there are differences
are interested in winning our business. The between the usual processes in the public and
“pre-qualification questionnaire” or PQQ is a private sector; but the principles are consistent.
Identify Receive &
Plan the potential Issue evaluate PQQ
process suppliers PQQ’s responses
Choose
shortlist &
issue tender
Final Choose Receive &
AWARD
negotiations/ prefered evaluate tender
CONTRACT
contracting supplier(s) responses
Fig.1 – A typical procurement process
3

4. Best practice in pre-qualification processes
A Spend Matters White Paper sponsored by Achilles
What exactly do we mean by the pre- It is clear that many of those failings could be
qualification process? driven by a poor pre-qualification process.
By the “wrong” supplier, we mean one who does
Firstly, why is this process “pre”? not offer the best value for money, or has a shortfall
in their capability to actually carry out the required
That suggests it must come before something,
work, or (potentially even more seriously) one who
which indeed it does. It is “pre” the final stage
creates supplier risk such as reputational damage.
of selecting the supplier, whether that selection
Such suppliers should, we would argue, be
is made via a formal tendering process, a less
identified and eliminated at pre-qualification stage.
formal request for proposal, an electronic auction,
or whatever route chosen to ultimately select the Recent independent research conducted by IFF
successful supplier(s). Research on behalf of Achilles found that CPOs
at 71% of businesses, rising to 80% in larger
What about the “qualification”?
businesses, considered pre-qualification very
That means ensuring that whichever supplier
important. But there were large variations in the
is ultimately selected at the end of the sourcing
time taken to pre-qualify suppliers and the number
process is actually an appropriate organisation,
of sourcing events each procurement was required
capable of delivering the goods, services or works
to undertake. And in our experience, the cost of
that we require. In other words, they are qualified to
pre-qualification is not always well understood or
win our business.
analysed – that’s a subject we’ll return to later.
So the pre-qualification process is the means by
The tender stage is often perceived as the most
which we establish that it is reasonable to allow a
important within the overall sourcing process, but
supplier to tender, safe in the knowledge that, it
if the wrong suppliers are included on the shortlist;
they do happen to win the tender, they should be
or if the risk profile of the shortlisted suppliers is
capable of carrying out the work, In addition, we
not appropriate; or if they don’t have the required
check that they are firms with whom we’d be happy
experience, accreditation or capability, then the
to work – some may be capable, but inappropriate
final tender might look competitive and successful,
in other ways.
but the chances are that contract delivery will
Why bother with pre-qualification? bring problems because the wrong suppliers were
Within the whole sourcing process, pre-qualification included in that final stage.
is often seen as the ugly sister to the exciting, Why should pre-qualification be “pre”?
glamorous tendering phase. That final element of
Even if we accept the value of these activities, why
choosing the supplier, negotiating the contract, or
would we carry out process before the final stage
running a dramatic auction or sourcing event – that
(which we’ll call the tender stage for simplicity)?
all seems a lot more exciting than the process of
Can’t we just qualify those suppliers we invite to
gathering information and assessing your initial
tender at the same time we execute that stage?
range of potential suppliers in order to select a
Well, we could. But the likelihood is that, for many
short-list list for the final stages.
contracts, we will end up with large numbers of
But of course a tender, and the final contract, is suppliers bidding if we don’t use pre-qualification
only as good as the suppliers who are competing to reduce the numbers. Then many of these
for it. And if the pre- qualification process is not tendering suppliers may turn out to be unsuitable
effective, the major risk is that you end up with a to deliver the work – they may not be qualified in
shortlist – or even a final supplier – that does not some way to do our work. If we only discover that
meet your needs. The wrong supplier wins the at tender stage, we run the risk of wasting their
contract, because their failings were not identified time and ours, when a pre-qualification would have
through the process, or because a better supplier quickly ruled them out of the running.
was eliminated or did not win the final competition.
4

5. Interestingly, the UK government has been Directors turned out to be serial bankrupts; or they
encouraging a one-stage process for lower value don’t have the right quality accreditations that you
contracts. They talk about eliminating the PQQ – would have expected.
but in practice, that new process combines what If the answer to that type of question is “that
we might see as the regular pre-qualification wouldn’t worry me too much”, then there may
element – registration and qualification questions be a case for ignoring pre-qualification as an
– alongside the tender element of the process. So issue. Move straight to a simple tender and
we would argue that the pre- qualification process accept the risk.
has not disappeared – only the PQQ document.
But that simple approach is usually restricted to
And often, the supplier’s tender or proposal is
very low value, relatively simple or commodity
only considered if they “pass” the pre-qualification
based procurement exercises. In the case of
element contained within the single document. So
most procurement activities, for most major
arguably, this is increasing the workload for many
organisations, the risk element means that we do
suppliers whose full tender will not even be read.
want to know, in advance of them tendering for
We could even wait until we’ve chosen our work, that our potential suppliers are appropriate
preferred supplier before carrying out the pre- and can meet our needs.
qualification activities. But the obvious risk then is
that they then fail the qualification process – and
we potentially have to start the entire process again
to find an alternative supplier who is qualified!
When is pre-qualification NOT appropriate?
However, there are certainly times when it is not
appropriate to use pre-qualification processes.
If you can define very clearly what it is you want,
and there is limited risk in terms of supplier failure
or reputational risk issues, then a simple one-stage
process can be enough. So let’s say you were
buying 100 cases of Campbell’s Tomato Soup.
You might, through an auction or similar, allow any
supplier to simply submit their best prices. The
specification and requirements are very clear, so
price might be the only factor to consider.
There may still be some risk involved – what if
they don’t actually deliver once you’ve ordered
the soup? But the consequences of that might be
limited. After all, there are plenty of other suppliers
around who can quickly step in if your first choice
lets you down. So you may take the risk of omitting
a pre-qualification in return for the benefit of a
simple tendering process.
The key factor to consider here is risk. Think about
the consequences if the supplier turned out not to
have the capability they claim; or if they went out
of business half way through the contract; or their
5 2. Horses for Sources. The undisputed facts about outsourcing.
May 2011

6. Best practice in pre-qualification processes
A Spend Matters White Paper sponsored by Achilles
The purpose of the pre-qualification process
We outlined in the last section the context to the pre-qualification process and why it is important in
general terms. In this section we will look in more detail at the objectives that we seek to achieve through
pre-qualification, so we can design the process better for our specific requirement. The four purposes of
pre-qualification are as follows.
1 2
Identifying potential suppliers Gathering supplier information
(search) (registration)
The first element of the pre‑qualification process is Buyers need to have administrative, factual
what we might call supplier search or discovery; it information in place about their suppliers. This
is not always seen as part of the process but there is to cover the basic need to engage with them,
are reasons for considering it under this heading. pay them, and satisfy any regulatory demands.
Its importance and complexity depends heavily Increasingly though, buyers want to know more than
on the nature of the purchase: identifying potential the basic data; they’re interested in certifications
suppliers for some rare or novel component or raw or accreditations that the supplier holds; what sort
material might take a lot of time and effort, and may of business they are (an SME, minority / woman /
well be considered as a totally separate element of veteran owned) and so on. As we said above, it is
the overall procurement process. In other cases, it possible to delay collecting this information until the
is much more part of the pre‑qualification process. tender stage, but that can make the tender stage
For instance, if an existing database of already unwieldy and time-consuming. Or you can wait
pre‑qualified suppliers is used as the population until a contract has been awarded before collecting
from which to select the tender list, then the the full set of necessary information. While that
pre‑qualification process has in effect also defined has some advantages, it does require a further
the process for supplier search. set of questions and responses to and from the
supplier, so there is much to be said for collecting
the key information once at the same time and at
a stage when the supplier is keen to conform and
co‑operate (i.e. during the selection process).
Of course, circumstances change, and collecting
information at this stage is not the end of things.
It is also important to have processes in place to
update information, and reflect new initiatives or
requirements. But that takes us onto a different set
of processes and issues.
Clearly, collection of information is also linked to
the next purpose – qualification. It is pretty much
impossible to qualify a supplier without gathering
information about them! And as we explained earlier,
the risk of not carrying out these activities early in
the overall procurement process is that suppliers
who are not capable end up tendering or even
winning the contract before we realise they are not
equipped to carry out the work.
6

7. 3 4
Supplier capability and risk assessment Choosing suppliers to tender
(qualification) (selection)
This is the core of the pre-qualification process – The final purpose of the pre-qualification process is
determining whether the suppliers are appropriate, one that often causes confusion or anger amongst
capable and qualified to carry out the work for which the supplier community. They often assume that
they are competing. Do they pass the ‘threshold’ every supplier who is “qualified” (as in point 3
of competence to carry out the work? As a above) should, and will, go through to compete at
fundamental principle, suppliers who are not able to the tender stage. And often that is true. If only a
carry out the work to your desired standard, or have small number of suppliers are qualified; or if there is
other attributes which mean they are not firms with going to be a tender that is relatively simple and low-
whom you wish to work, should be eliminated before effort, then it may well be possible to take through all
tender stage (as we explained above). the qualified suppliers.
This should be a key element of any organisation’s But if you are a major organisation looking for a
wider procurement and supply chain risk supplier of printed brochures, or office furniture,
management approach. Ensuring that firms with or scaffolding services, there may be dozens or
whom you do business are capable, qualified, are even hundreds of potential suppliers who could
not breaking laws or regulation - these are basic and meet your needs and are “qualified” in that sense
vital considerations for an effective risk strategy. to compete and win your business. It is simply not
feasible or cost effective for buyers or suppliers to
It is sometimes tempting to take a supplier through run anything other than very basic tender processes
to the tender stage, even though they may not involving large numbers of bidders. So numbers
meet your qualification threshold, because you need to be reduced at the pre‑qualification stage
think they may be able to put in an “interesting” or through a selection process.
perhaps low price bid. But if they are basically not
qualified to meet your required standards, then this Even if the number of qualified bidders is not that
is rarely advisable. Whilst the public sector under large, it may still need to be reduced further. If you
EU Regulations perhaps over-complicates these are running a complex outsourcing project, there
issues, the basic principle that they apply is sound may only be ten potential qualified suppliers; but
– the pre-qualification stage establishes whether the complexity of the final selection process could
a supplier is capable of doing the work; then the suggest that even that number is unmanageably
tender stage establishes which supplier has the best large to handle through the tender stage. So that ten
solution or proposal to meet your particular needs. may need to be cut to four or five.
So generally the principle should be that only truly In these cases, the pre-qualification process also
capable suppliers make it through to tender stage, needs to contain an effective element of selection
and suppliers who represent a risk – whether that is – whittling down the number of suppliers and
financial, operational, reputational, or policy related identifying, as far possible, those who are likely to
– should be eliminated from the process. be the serious competitors at tender stage, and
ultimately, the best suppliers.
7

8. Best practice in pre-qualification processes
A Spend Matters White Paper sponsored by Achilles
Running a pre-qualification process
Planning the process
Once we have a good understanding of what we At this point, another key decision presents itself.
are trying to achieve – for instance, do we need to Should the buyer start the process with a blank
include an element of “selection” in the process sheet of paper; or make use of an existing internal
– we can move on to the actual execution of the pre-qualified list or database; or use an external
pre-qualification process. provider who can offer a similar service? We will
Aside from the technical aspects of pre-qualification, look at the external option in the next section,
the project management requirements must not although we will touch on some of the issues as
be under-estimated. We’ve seen a pre-qualification we describe the core process here. But our basic
process fail because suppliers who expressed assumption in this section will be that the buyer is
interest in a tender didn’t receive a PQQ as they running a pre-qualification process from scratch.
should have because of simple administrative How then can we design the pre-qualification
error. The process then had to be aborted and process to meet our objectives in an efficient and
re-started later. So like all parts of the procurement effective manner? Here is the process flow that we
process, this needs to be run in an organised and would typically recommend.
professional manner, using project management
disciplines.
Identify Issue PQQ
potential Gather
to interested
suppliers information
supliers
Verify
information
Communicate Selection of Qualification
to suppliers tender list and Risk
Analysis
Fig. 2 Running the pre-qualification process
8

9. Identifying potential providers
As we explained earlier, this stage may or may A small contract for a repetitive low risk service
not be considered as part of the pre-qualification may not require any new search at all – the
process. If a third party is used, then they may well buyer may feel that a tender between “the usual
have a large number of suppliers and the buyer suspects” is good enough to get a reasonable
may feel this is enough of a population to work competition and a decent result. But a high value,
with. Some private sector firms may hold lists of high risk contract deserves some effort to be put
suitable potential suppliers, or carry out research to into identifying a range of potential suppliers who
identify them. In the public sector, there will often can then go through the pre-qualification process.
be a need for some sort of open advertising or Once the potential suppliers have been identified –
publication of opportunities. often through those firms submitting an expression
There are numerous other ways in which potential of interest – then a pre-qualification questionnaire
suppliers can be sought. Advertising through is generally issued to them for completion. Their
old or new media routes; using organisations responses will form the basis of our supplier
own websites; trade bodies or other business information gathering, qualification and selection
associations; all of these and more can be used. for tendering.
The scale of the search should be proportionate
to the size, risk and criticality of the contract
opportunity.
9

10. Best practice in pre-qualification processes
A Spend Matters White Paper sponsored by Achilles
Gathering information taken on trust; for a multi-million value contract
Most pre-qualification processes will require more checking and verification is likely and is
potential suppliers to provide information about recommended. Self-verification is almost always
themselves, usually by responding – electronically part of the package; it is rare for the buyer to
or in hard copy – to a pre-qualification check every detailed provided as part of the
questionnaire. That information may cover pre-qualification. But there are obvious risks, so
administrative, technical, regulatory, capacity or for higher value contracts and critical areas of
capability details. questioning, some independence in the process is
The information should be relevant and in most advisable.
cases will support the qualification and selection That verification may be carried out through
processes, so the requests made of the supplier paper based means – for instance, checking a
should relate clearly to how you intend to qualify firm’s financial position through use of Dun &
and select suppliers. Bradstreet or similar services. But it may involve
actual inspections, visits, or testing of samples.
Key pointers:
For instance, a major food company may inspect,
■■ Avoid double-entry of data where possible –
assess and accredit the facilities of key raw
if the supplier can submit information directly
material suppliers (dairies or processing plants)
and electronically into your systems, or in a
before that supplier is even allowed to tender for
manner that it can be imported easily, then
actual business. Or specialist firms (including
that improves efficiency
Achilles) can carry out tasks such as professional
■■ That is especially useful if the information on-site validation, auditing of management
can be easily updated, and even more so if it systems, and legislative compliance.
can be re-used across a wider user base
Key pointers:
■■ Make sure the information you ask for is
■■ Verification should be proportionate to
relevant to your needs, particularly your
the overall risk in the contract and the
qualification and selection process
significance of the area being verified
■■ Be clear and unambiguous in your requests,
■■ Think about the balance between self-
particularly where you ask for capability or
verification and buyer or third party checks
capacity related information
■■ Verification can take place at a later stage
Verification (post PQQ) – or can be outsourced either
Verification of PQQ information (checking that directly to external service providers or
what the supplier declares and describes on their through the use of third party platforms and
PQQ is accurate) can be considered as a separate databases.
process to the basic collection of the required
Verification may also be carried out by a third
information. It is critical to the achievement of
party accreditor (TPA) or similar organisation.
the pre-qualification objectives; if we cannot be
Registration and usually qualification type data
sure that the information provided by a supplier
is in such cases collected by the TPA and may
is accurate or truthful, then how can we make
be verified in some manner. Where a portal or
an appropriate supplier qualification or selection
platform is used, verification may take place when
decision?
a supplier first registers, when they specifically
Verification is in most cases carried out by express interest in a contract, or not at all.
the buying organisation, although it can be
It can also be delayed until later in the process –
outsourced, and a risk and cost based approach
you may choose to carry out a supplier visit only
is advisable. PQQ information provided by a
once they have reached the final tender shortlist
bidder for a low value, low risk contract may be
for instance. That can reduce the workload at PQQ
10

11. stage but of course runs the risk that they then that potentially very strong suppliers have been
prove to be unsuitable, which may cause other eliminated before they get a chance to bid for the
issues to your process if it is only discovered at work.
that late stage.
Key pointers:
Qualification and risk analysis ■■ When using a “yes / no” process, don’t
Qualification is essentially a “yes / no” decision, exclude suppliers too readily
or (for most pre-qualifications), a series of yes / no ■■ Make sure you are using appropriate criteria
decisions. For example: based on the specific contract - excluding a
■■ Does the bidder have enough capacity to do bidder on your legal services tender because
our work? they don’t have the best health and safety
■■ Do they know how to do our work – can they certification is probably not sensible or
provide their capability? appropriate. But excluding them for lack of
professional insurance would be justified
■■ Are they honest people to deal with – what is the
track record of their management / owners? ■■ Take a risk-based approach to the
qualification process and focus on those
■■ Do they have the correct regulatory or
areas that are critical to delivery of the
professional approvals and qualifications?
contract
■■ Are their finances sound, both historically and
looking into the future? Selection
While responses can be marked (as in the In many cases, the buyer will find that more
“selection” section below), it is often more relevant potential suppliers pass the threshold and qualify
to take a simple binary decision in terms of the than they wish to tender for the contract. (Our
supplier’s answer to that type of question. We advice in most cases is that, for a single contract,
qualify them or disqualify them directly based on no more than 6-8 bidders should be asked to
their answers. If the answer to any of the above tender.) This leads to a manageable tender
example questions is “no” for instance, we may process for the buyer and avoids excessive and
decide that is enough to disqualify the supplier unreasonable effort from the supply market.
from any further consideration. Indeed, if you ask a large number of firms to
tender, some will refuse based on their assessment
A common criticism of buyers is that they exclude
of their likely chance of winning set against the
bidders too readily on factors such as the turnover
workload. The buyer may well therefore need to
of the bidding firm. There is a point of course
apply selection processes at this stage.
at which an organisation is just “too small” to
carry out a particular contract, but often the Selection can be made based on the suppliers’
limits used are arbitrary and unnecessary and responses to two types of question. There
reduce the potential pool of capable suppliers. are those where the answer can lead to the
For instance, a capacity issue based on the size disqualification of the supplier, along the lines
of a manufacturing facility, which is costly and previously described. That is obviously a simple
time-consuming to overcome, is very different to form of assessment and selection (or de-selection
capacity in the professional services field, where to be accurate). Then there are questions which
more consultants or software developers can be can be marked with some degree of differentiation
added easily to a firm’s capacity if they win a large rather than simply on a yes / no basis. These
contract. Again, considering risk is the key factor are often key to effective selection. Often, many
here. suppliers will “pass” based on the basic yes / no
questions, which leave these scored questions
There are parallels in most of the other yes / no
as the key to choosing your shortlist for tender
qualification areas. Caution, common sense, and
purposes. It is therefore important to select
proportionality must be applied or you will find
11

12. Best practice in pre-qualification processes
A Spend Matters White Paper sponsored by Achilles
these questions carefully. The focus should be Finally, it is good practice to communicate the
on elements of the contract that are the most results of the pre-qualification process, not only
important or differentiate clearly between suppliers. (obviously) to those suppliers who have been
There are many different marking schemes. A successful, but also to those who have not. That
simple one uses a 0-5 scale. A response that “fully will help them understand better why they weren’t
meets all our requirements in this area” scores successful, which will either make them better
five, a “no response” scores zero. Marks can then bidders next time, or indeed help them understand
be summed across the questions to arrive at the why perhaps they should not have bid at all, which
ranked list of potential suppliers. The top 3, 6, 8, or saves all parties time and money in the long term.
whatever number required, are then taken through
to tender stage.
Costs of pre-qualification and using
One common mistake here is to simply use size third parties
and experience as the selection factors. If the
The cost of pre-qualification
selection consists solely of questions such as
It is unusual for buyers to identify clearly the cost
“how many consultants do you have”? Or “what
of different elements of the procurement process,
is your total annual manufacturing capacity”, you
including any pre-qualification stage. That cost will
will simply end up selecting the largest players
largely involve internal time and resources; and of
amongst the bidding population. So look for
course there is a cost for the market or supply side
questions that get at the real capability you are
as well.
seeking. Asking for examples, or case studies is
often a good way of achieving this. But in our experience, procurement professionals
and others involved with the process often under-
In the public sector in many countries, there are
estimate the complexity, the importance and the
particular regulations around how pre-qualification
cost of the pre-qualification process. The recent
and indeed procurement processes in general
research undertaken by Achilles highlighted
should be handled. That also includes issues such
that 71% of businesses rated the pre‑qualifying
as how much information you should provide to
of suppliers as “very important”, and for larger
bidders in terms of your evaluation process. We
businesses, with turnovers above £1 billion, that
don’t have space here to feature that level of detail,
figure grows to 88%. Yet in our experience,
but do ensure that your pre-qualification process
very few would be able to tell you the cost of
is in line with any regulations or guidance under
running pre-qualification, how much resource
which you are operating, and of course your own
goes into it, and what the implications are of
internal procurement policies and process.
the time required to run such processes.
Key pointers: So the costs, resource and time implications can
■■ Use a small number of well-thought out be significant. Designing the pre-qualification
questions for selection purposes process; then getting approval or buy-in from the
■■ Ensure the questions really address the key internal stakeholders; the process of inviting
most important issues and capabilities that or selecting the potential bidders; communication
will determine the ultimate success of the with the market; all these take time and effort.
supplier and contract Then once pre-qualification responses are
■■ Don’t ask questions that simply reward size received back from potential bidders, the process
or current market share of assessing, verifying and marking can be
■■ Be fair and transparent in how you assess extremely time-consuming. It is not unusual for
and mark the responses, and retain an audit a major procurement to receive several hundred
trail of that process responses, and each might be dozens of pages
in length. A recent UK public sector tender has
12

13. seen its process slip by several months from the multiple users. A buyer may then directly access,
published timetable – over 800 PQQ responses for instance, a pre-qualified list of potential
were received, and the procurement team was not suppliers for a particular industry who have a
geared up to handle such a number in the time defined capability, with appropriate certification
originally allowed. if required, a healthy financial situation, no nasty
Given this, it is important to ensure your pre- surprises in terms of legal or regulatory issues, and
qualification process is appropriate to the listed by country or region. And that can be done
size and risk for the contract in question. We very quickly.
mentioned earlier that there may be some Please find three firms (to whom I can then
occasions where it is not necessary at all, but issue a tender), fully qualified and certified
even if you decide it will add value, that doesn’t to carry out underwater oil-rig maintenance
mean the pre-qualification process should be work off the coast of the Philippines, with at
the same no matter what you are buying and for least three years’ experience, a stable financial
every procurement exercise. If the contract is low position and strong environmental awareness
risk, a few basic questions for qualification may and policies in place
be enough, with a handful of selection questions
requiring a short response from the supplier to It’s easy to see how much time and effort a
enable a tender list to be selected. buyer might have to exert in order to answer that
question. But if it came from an internal senior
At the other extreme, selecting a contractor to
stakeholder, who is in a situation of some urgency,
carry out critical and high risk work – perhaps a
the buyer may not have the luxury of time.
sensitive construction or maintenance project of
an intrinsically high risk nature - requires a detailed However, an existing database, with verified and
approach to pre-qualification, with carefully thought accurate information, provided by a third party
out questions, potentially some independent who specialises in this sort of work, could provide
verification and a strong selection element, in order an answer instantly. And that can be achieved
to ensure you choose a supplier who really can without any compromise on the risk element of the
carry out the work properly and offer goods value process. Indeed, a reputable third party is likely to
for money. put more effort into the verification element of the
process than individual buyers generally have the
There is often a balance with time here. Urgent
time or resource to do.
procurement requirements, almost by definition,
are often high risk. In an emergency situation, it Some organisations operate what we might call a
is quite likely that a supplier will be carrying out “hybrid” model for pre-qualification. That means
sensitive or high risk work for you. So there may be they use third parties for some categories of
a temptation to cut corners – but that of course can spend, but not for others, where they may run their
lead to even bigger problems if the supplier turns own processes. Or the buyer may use an external
out to be inappropriate or incapable of meeting database to arrive at a long-list of suppliers, but
your needs! then issue some selection type questions (as we
described earlier) to these firms in order to reduce
Third-party providers – an option worth
the field further to a suitable number for the tender.
considering?
So in the case above, if the database turned up
The cost of the process, and the time required
twelve firms who met the requirement in terms of
to run proper pre-qualification is one reason for
oil-rig work, rather than three, a short questionnaire
the growth of third party services in this field.
with three or four questions, perhaps looking
There are obvious economies of scale in a single
in more detail at some specific aspects of their
organisation carrying out some combination of
experience, might enable the buyer to quickly
registration, verification, qualification and selection,
choose three or four to take part in the final tender.
then making the results of that work available to
13

14. Best practice in pre-qualification processes
A Spend Matters White Paper sponsored by Achilles
Third-party providers can therefore offer a way procurement or pre-qualification exercise that is
of reducing cost, shortening timescales and necessary; but in the appropriate circumstances,
increasing the efficiency of the pre-qualification they are an option worth serious consideration.
process, in some cases by working across industry Here is a decision chart that can help determine
sectors and collaborative user groups. They the appropriate route to take if you are considering
can also offer a strong risk management focus. using a third party database, platform or similar
They are unlikely to meet your needs for every pre-qualified supplier population.
Does
third-party
database cover
my needs?
Yes No
Does Advertise for
qualified list potential
of suppliers suppliers
need further
selection?
Yes No
Run simflified
PQQ / Run pre-qual
selection process
process
Choose ISSUE Choose
tender list TENDER tender list
Fig.3 – Using a third-party pre-qualification database
14

15. Critical success factors for the PQ process Conclusions
In this section, we will briefly discuss some of So, finally, let’s sum up what we’ve described in
the over-arching success factors for an effective this paper.
pre‑qualification, including issues that don’t fit We have explained why the pre-qualification
neatly into our previous headings. process is important, and why it is likely to be an
■■ Appropriate processes and minimising the burden important element of the procurement process
on suppliers – we touched on this issue earlier, for most – but not all – of our procurement
but it is important to consider suppliers and their requirements. Pre-qualification has four key
view of the pre-qualification process. If suppliers purposes, identifying suppliers, registration,
perceive the process is onerous relative to their qualification and selection – and it is
likely outcome, then they may choose to withdraw, important to understand these, and which you
weakening the market. This can be another benefit want to focus on, when you’re designing your
of the outsourced or collaborative pan-sector model. pre-qualification process.
While in some cases there may be a cost to the The various steps in the process can then be
supplier, they will save through not having to submit structured to meet those needs. At all times, bear
information, often duplicated, time after time, for in mind the risk element of the process; when it
multiple tenders and buyers. comes to issues such as how much verification
■■ The importance of ensuring a competitive market you want to carry out, that should be directly
– of course, much of the benefit of a well-run and proportionate to the inherent risk in the contract in
sensible pre-qualification process will be wasted question.
if you don’t start with a strong range of potential The cost of the process, including the time
suppliers. Going back to the same group of regular taken and resource required, should also be
suppliers, tender after tender, may bring some considered and again should be proportionate
benefits of familiarity, but may mean you miss to the risk. Third party providers, who can take
interesting new market entrants. So whether you run advantage of economies of scale and expertise
the process internally or use a third party, make sure to offer a collaborative service to multiple buying
you start with a competitive field of potential bidders, organisations, are increasingly important in this
and consider wider advertising if you are worried this field. They can help accelerate the process, lower
is not the case. the cost and potentially even reduce supplier risk.
■■ Ensuring fairness and transparency – there are two It may not be a suitable option for every spend
key reasons why pre-qualification processes should category, and buyers may still need to run some
be fair and as transparent as possible. Firstly, in order selection elements of the process, but it is an
to avoid any hint of fraud or corruption, whether that option worth considering, particularly for unique or
is driven by internal or external forces. An open and sector specific supply needs.
transparent process, with objective selection criteria, Finally, remember the supplier’s viewpoint in this.
is a strong bulwark against biased or fraudulent Processes that are proportionate, well-structured,
supplier selection. Secondly, if we expect suppliers fair and transparent help them, and that will, in the
to compete actively to help us achieve competitive long run, lead to stronger supplier relationships,
markets, they need to see that they have a genuine more dynamic supply markets and better suppliers
chance of winning business; a fair process is part willing to bid for your work.
of that. Making the methodology by which you will
Peter Smith
qualify, verify and select suppliers as transparent and
efficient as possible therefore encourages suppliers. June 2012
Buyers will often now publish in some detail those
processes, so suppliers can see exactly how they will
be judged. That is, in our view, to be recommended.
15

16. About Achilles About the Author - Peter Smith
Achilles offers a pre-qualification and supplier Managing Director, Spend Matters UK/Europe
information management solution to provide Peter has 25 years’ experience in procurement
businesses with one source of accurate, up- and supply chain as a manager, procurement
to-date and validated supplier information. The director, consultant, analyst and writer. He edits
solution encompasses everything from finding Spend Matters UK/Europe, and with Jason Busch,
and selecting potential suppliers, through to pre- the founder of Spend Matters in the US, has
qualifying, evaluating and monitoring performance. developed it into a leading web-based resource
Each of these is an important step towards the for procurement and industry professionals.
continuous management of risk throughout the Peter is also Managing Director of Procurement
supply chain. Excellence Ltd, a leading specialist consulting
Thousands of buyers use Achilles every day to gain firm, and is recognised as one of the UK’s leading
visibility of their suppliers, and with operations in 26 experts in public and private sector procurement
countries and 20 years’ experience, they can do so performance improvement. Peter has an MA in
with confidence whilst unlocking tangible benefits Mathematics from Cambridge University, is a
of cost reduction, increased process efficiency and Fellow and was 2003 President of the Chartered
risk reduction. Institute of Purchasing and Supply, and his
first (co-authored) book, “Buying Professional
Services”, was published by the Economist Books
in June 2010*. Before moving into consultancy, he
was Procurement Director for the NatWest Group,
the Department of Social Security (the DSS), and
the Dun & Bradstreet Corporation, and held senior
positions in the Mars Group.
Spend Matters is thankful for the support of
Achilles, our sponsor for this paper. Spend Matters
sponsors have no additional opportunity to
influence the content or research of Spend Matters
material or products relative to other software or
services providers.
Further information on this topic and others can be
found at the website www.spendmatters.co.uk, or
we can be contacted at psmith@spendmatters.
com. Reproduction of this publication in any form
without prior written permission is forbidden.
*Buying Professional Services (Czerniawska and
Smith, Economist Books, 2010).
Achilles Group Limited
30 Park Gate, Milton Park, Abingdon, Oxon, OX14 4SH, UK
T: +44 (0)1235 820813 F: +44 (0)1235 821093 E: marketing@achilles.com W: www.achilles.com
001-07/2012