Analysis - Vendor Performance: A Shared Responsibility

Ottawa
January 2014
Promoting Fairness, Openness and Transparency in Public Procurement

Introduction

1. In March 2013, the Office of the Procurement Ombudsman (OPO) analyzed some of the measures^{Footnote i} used by certain jurisdictions—Canadian and international—to manage the performance of suppliers. The analysis focused on certain measures implemented by the Government of the United Kingdom, the Government of the United States and the Government of Ontario.
2. The purpose of this analysis is to inform ourselves and share information on some of the different measures used to address vendor performance, as well as their areas of convergence.

Background

3. A number of OPO's stakeholders have raised concerns with the office about vendor performance. In his 2011–2012 Annual Report, the Procurement Ombudsman recognized the frustration of suppliers and public servants who saw firms obtain contracts "despite being known within the community for providing inferior goods and services."^{Footnote ii}
4. In 2010, OPO published a study on measures used to manage vendor performance. This study, conducted in fiscal year 2009–2010, examined programs set up by federal government organizations and other jurisdictions (e.g. the United States, Ontario, Newfoundland and Labrador); and identified best practices. The study noted the implementation of vendor performance programs is key to the proper management of the procurement process: these programs support the accountability of organizations by promoting an effective management of the contracting process and risks associated with contract administration.^{Footnote iii}
5. Since the study was published, OPO became aware of new initiatives for managing vendor performance. Specifically, in 2012 the Government of the United Kingdom began documenting the performance of certain suppliers and applying corrective measures on an as-needed basis. In Canada, similar activities have been carried out by Infrastructure Ontario since June 2010. These activities are in line with initiatives in the United States, which were highlighted in the 2010 OPO study. In addition, in January 2013 the Government of the United States published a series of standards and procedures for making "determinations of responsibility" which has an impact on the management of vendor performance.
6. It is in this context that OPO conducted this analysis. This report is intended to provide the opportunity to stay informed on how other jurisdictions manage vendor performance, a subject of interest to OPO and its stakeholders.

Methodology

7. OPO analyzed examples of measures put in place by the governments of the United States, the United Kingdom, and the Province of Ontario for managing vendor performance. For each measure analyzed, OPO sought to determine:
   1. What is the strategic objective behind the management of vendor performance (risk mitigation, accountability, etc.)?
   2. On what basis is the supplier's performance evaluated?
   3. How is a supplier's (un)satisfactory performance managed (sharing of information, corrective measures, feedback, etc.)?  

Limitation

8. The vendor performance management measures were analyzed using publicly available information,^{Footnote iv} and this information was sourced from public websites. The analysis does not include all vendor performance management measure of all jurisdictions nor does it contain a detailed description of each measures implemented by the governments in question. In addition, OPO did not look at best practices in vendor performance management, as this was done in the study published in 2010. 

Summary of Findings

9. The measures examined in the analysis differ in their scope and application. Nonetheless, the analysis revealed three areas of convergence that, when considered together, offer a potential lens through which to view various vendor performance management measures. Each area of convergence corresponds to one of the questions in the Methodology section.

Question 1: What is the strategic objective behind the management of vendor performance?

10. In the first area of convergence, all of the vendor performance management measures analyzed fall within a larger framework^{Footnote v} that seeks to:
    • Hold the participants (suppliers and public servants) in the procurement process accountable; and
    • Identify the minimum standards of reliability when choosing a supplier.
    Governments seem to have implemented these frameworks to mitigate certain risks associated with spending public funds through contracting.

Question 2: On what basis is the supplier's performance evaluated?

11. In the second area of convergence, the frameworks—which include vendor performance management measures—typically use two approaches to help determine a supplier's reliability:
    • Most governments take the supplier's integrity into consideration. This characteristic is usually evaluated against extra contractual factors, such as whether the supplier has a criminal record or a history of fraud; etc.
    • Governments consider contract performance history. With this approach, reliability is based on the likelihood of the supplier fulfilling its contractual obligations.
12. Although these two approaches are often used simultaneously (for example, before the awarding of a contract), it is contract performance history that relates directly to the management of vendor performance. This distinction illustrates the complexity of the frameworks aimed at mitigating some risks associated with management of government procurement.

Question 3: How is a supplier's (un)satisfactory performance managed?

13. Finally, in the third area of convergence, the analysis revealed three components that seemed representative of the measures analyzed:
    • In all cases, a record was created for the purpose of making supplier performance history available to procurement officials. In general, procurement officials must consult the record prior to awarding a contract.
    • In all cases, a history of unsatisfactory performance may result in corrective measures. Although there are a number of such measures, each government considered the temporary denial of contracts as a legitimate corrective measure.
    • The temporary denial of contacts was generally not considered the ultimate purpose of the vendor performance measures analyzed. Most of the documentary sources suggested the main goal was to improve the communication/relationship between purchaser (i.e. government organizations) and supplier. Accordingly, vendor performance management measures were used mainly to provide feedback, rather than simply to penalize underperforming suppliers.

Analysis

United Kingdom

14. On November 8, 2012, the Government of the United Kingdom published a Procurement Policy Note (PPN) entitled "Taking account of bidders' past performance."^{Footnote vi}
15. The scope of the PPN is limited to contracts for goods and services relating to 1) information and communications technology, 2) facilities management or 3) business processing outsourcing with a total value of ₤20 million or greater.^{Footnote vii}
16. The purpose of the PPN is to set out minimum standards for reliability when selecting a supplier.^{Footnote viii} Reliability is assessed in accordance with past performance. Once a contract is complete, bidders who have delivered satisfactory performance receive a certificate of performance. A copy of the certificate is sent to the Cabinet Office,^{Footnote 1} which has a central repository of certificates and information relating to suppliers. This repository is available to all government organizations in the United Kingdom and can be used to verify the information provided by bidders to show their reliability.^{Footnote ix} Agencies from the Government of the United Kingdom can ask suppliers for information on their performance in the previous three years.^{Footnote x}
17. The PPN states that the application of the minimum standards for reliability is only one aspect of the overall assessment of the suitability of bidders in any procurement. The PPN also recognizes the importance of considering the technical or professional ability of potential bidders.^{Footnote xi} Though the PPN states that identifying bidders' technical and professional abilities ensures programs are delivered cost-effectively,^{Footnote xii} it also notes that assessing the reliability of bidders would ensure better contract performance as well as increased protection for taxpayers and recipients of public services.^{Footnote xiii} In this context, the measures set out in the PPN appear to be an attempt to assign accountability not only to bidders, but also to government authorities.

United States

18. The measures taken by the United States to manage vendor performance appear to have been implemented primarily to hold public servants accountable for the spending of public funds. In March 2009, the President of the United States published a memorandum addressed to the heads of executive departments and agencies stating:
    • The Federal Government has an overriding obligation to American taxpayers. It should perform its functions efficiently and effectively while ensuring that its actions result in the best value for the taxpayers.^{Footnote xiv}
    The memorandum asked the heads of executive departments and agencies to identify public funds that were being wasted as a result of inefficient contracts, in order to improve overall procurement practices.
19. In July 2009, the United States Office of Federal Procurement Policy published a second memorandum in which it suggested that greater and more effective use of contractor performance evaluations is essential to meeting the goals set out in the March 2009 memorandum: "Holding contractors accountable for the past performance is an important tool, for making sure the Federal government [of the United States] receives good value from its contracts."^{Footnote xv} This second memorandum states that the management of vendor performance in the United States was fragmented into different measures specific to different government agencies.
20. A series of requirements was put in place to address this situation. Primarily, further to a change made to the Federal Acquisition Regulation (FAR) in July 2009, agencies are required to submit an electronic record of contractor performance in the Past Performance Information Retrieval System, a single government-wide repository for contractor performance information.^{Footnote xvi} The FAR also requires agencies to establish internal procedures for collecting and reporting past performance information and to provide reports on these procedures.^{Footnote 2}
21. Finally, under the FAR, no contract may be awarded before the contracting officer has made a "determination of responsibility".^{Footnote xvii} This determination is similar to the evaluation of supplier reliability that takes place under the PPN in the United Kingdom. In January 2013, the United States Government published a report^{Footnote 3} identifying the legal procedures and standards required to make a determination of responsibility.
22. A contractor's responsibility is determined by seven criteria, which must be applied even if they are not included in the solicitation.^{Footnote xvi} For example, this determination is used to evaluate the contractor's integrity and ethics (criterion 4) as well as certain collateral requirements (criterion 7). The collateral requirements ensure that the successful contractors meet certain socioeconomic targets provided for in legislation (e.g. employment equity).^{Footnote xix Footnote 4}
23. Performance history (criterion 3) is therefore only one of the components to be taken into account when selecting a contractor. Furthermore, "poor performance or default on one or several prior contracts is not, per se, sufficient ground for disqualification."^{Footnote xx} Therefore, in practice, a negative evaluation for one of the seven criteria, including past contractual performance, does not automatically disqualify a contractor.
24. Ultimately, authorities in the United States recognize that the application of these seven criteria—past contractor performance included—addresses only one of the parameters used to select a supplier: the determination of [the supplier's] responsibility. As stated in the July 2009 memorandum, adding this step to the bid evaluation phase was meant to increase the productivity of the United States government procurement. Therefore, the existence of a responsibility determination does not absolve United States agencies from considering the value of the bids:
    • As a general rule, government agencies contract with the lowest-priced (or best-value) qualified responsible bidder or offeror. Responsibility is an attribute of the contractor, while price and qualification are attributes of the bid or offer.^{Footnote xxi}

Date modified:

2018-11-01