1. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU The Process of Managing Qualification Systems in the Utilities: Why, When and How? By Colin Maund Managing Director Achilles Ltd, UK services for sustainable procurement global resources. local skills. Public Procurement Reform In West Balkan – Key Challenges Pristina 16-17 September 2008

2. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Overview of Presentation l What is the rationale for Qualification Systems –Changes in Procurement Practice –Regulation and Efficiency – Getting the balance right l What are the features of a supplier/contractor qualification system? –What are you trying to achieve? –Process and certainty –The drivers and constraints l Efficient management of the process –Key requirements – how other countries are coping –Ensuring fair process and reduced bureaucracy l Summary and Conclusions 2

3. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Our Background l Achilles operate in 24 countries with more than 400 staff. l We run 10 qualification systems for utilities in the EU l Over 35,000 suppliers and contractors qualify through our process every year l We support nearly 500 European buying organisations in their procurement activities l Our systems are mainly based on EU procurement law although we now supply outside Europe and the regulated sectors l We carry out more than 4,000 supplier audits a year in Europe l Major drivers for our processes have been: –Increased focus on Health and Safety –Corporate Responsibility including Human Rights –Environmental care –Climate change –Regulation including Sarbanes-Oxley 3

4. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Rationale For Qualification l Commercial The two most important value determining factors in any competition is the quality of the specification and the bidders who are invited to participate l Risk Increasing scrutiny of procurement means organisations are putting a lot more emphasis on who is a supplier New issues have risen up the agenda: health and safety, environmental care, corporate responsibility, climate change Increased fear amongst buyers of the impact of using inappropriate suppliers: financial risks, publicity, reputational damage. l Time and Cost Allowing inappropriate suppliers to bid will have a negative effect on the competition, is wasteful to the buyer and the sellers and causes increased time delays. 4

5. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Features of Supplier Qualification 1. Supplier qualification is not about the suppliers you accept – its about the suppliers you reject. 2. The process should be multi-stage to allow for a variety of levels of complexity 3. It is vital that supplier qualification is not confused with the selection of suppliers for a particular bid 4. Supplier qualification is: 1.Generic 2.Objective 3.Transparent 4.Time based 5. Supplier qualification should be categorised 6. Important to keep in mind the objectives of supplier qualification when setting up the process 5

6. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Objectives What are you trying to achieve? 1. To find a range of suppliers who wish to provide a particular service 2. To reduce that number to a list of suppliers who wish and are capable of providing the service 3. To select people who wish to provide the service and are capable of doing so and can do so whist being ethical, credible and stable. 4. Finally to then choose (if the numbers justify) not only those who wish to provide, are capable and ethically suitable but who are the best suppliers available. 6

7. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Process l Qualification systems subject to EU procurement regulations System must be established based on objective and transparent rules Existence of the system must be notified in the OJEU System can be multi-stage System can be run by third party or utility may accept third party system Changes to the qualification system must be notified to all qualified suppliers System replaces the individual notice and allows faster bidding processes l The qualification process then feeds into the normal regulated bidding processes which are also subject to EU rules. 7

8. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Drivers and Restraints l Drivers Shorter periods of time to award contracts Greater time to assess potential suppliers Reduced risk from awarding to unqualified suppliers Reduced costs of bid evaluation, assessment and management Re-use of information Consistency of approach across an organisation l Restraints Costs of operating the system can be high Every supplier has to be assessed generically which can add a burden System requires considerable effort to maintain and keep data accurate System may run even if there are no actual demands leading to additional effort and cost 8

9. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Efficient Management of the Process l Many organisations are co-operating to accept a single qualification l Suppliers are joining processes where they only register once for multiple utility companies l There is a move to join together joint systems which have so far been based on individual national systems l Qualification is becoming more sophisticated as organisations re-assess risk and now includes on-site audit for high risk contracts 9

10. © OECD A joint initiative of the OECD and the European Union, principally financed by the EU Summary and Conclusions l Qualification has been a very successful tool for European utility organisations l Initial fears that the process would result in a lack of transparency and objectivity have been proved wrong l Qualification is in line with best practice procurement where attention is moving from focus on negotiation to looking at suppliers more objectively l As new areas develop there is a greater understanding that suppliers are major carriers of risk and this needs to be managed. 10