The Process of Managing Qualification Systems in the Utilities: Why, When and How? By Colin Maund Managing Director Ach

1. Public Procurement Reform In West Balkan –Key ChallengesPristina 16-17 September 2008 The Process of Managing Qualification Systems in the Utilities:Why, When and How?By Colin MaundManagingDirectorAchilles Ltd, UK services for sustainable procurement global resources.local skills.

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

3. Our Background • Achilles operate in 24 countries with more than 400 staff. • We run 10 qualification systems for utilities in the EU • Over 35,000 suppliers and contractors qualify through our process every year • We support nearly 500 European buying organisations in their procurement activities • Our systems are mainly based on EU procurement law although we now supply outside Europe and the regulated sectors • We carry out more than 4,000 supplier audits a year in Europe • 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

4. Rationale For Qualification • 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 • 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. • 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.

5. Features of Supplier Qualification • Supplier qualification is not about the suppliers you accept – its about the suppliers you reject. • The process should be multi-stage to allow for a variety of levels of complexity • It is vital that supplier qualification is not confused with the selection of suppliers for a particular bid • Supplier qualification is: • Generic • Objective • Transparent • Time based • Supplier qualification should be categorised • Important to keep in mind the objectives of supplier qualification when setting up the process

6. Objectives What are you trying to achieve? • To find a range of suppliers who wish to provide a particular service • To reduce that number to a list of suppliers who wish and are capable of providing the service • 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. • 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.

7. Process • 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 • The qualification process then feeds into the normal regulated bidding processes which are also subject to EU rules.

8. Drivers and Restraints • 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 • 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

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

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