Cabinet Office issues procurement policy note on supplier financial risk issues

The Cabinet Office has published a procurement policy note on supplier financial risk issues raised through its ‘Mystery Shopper’ scheme.

The issues covered by the note are:

• Financial information required by authorities – “filed accounts are not the only information that can be used to assess potential providers’ financial standing”;
• The use of credit rating reports – “for above threshold contracts, these are useful as part of a broader financial assessment of potential providers but they should not be used on their own for selecting or excluding them”;
• Contract limits set by turnover – “a potential provider should not be deselected on the basis of turnover size alone”;
• Business insurance requirements – “should be proportionate to the size and nature of the contract and represent vfm” (value for money).

The note also looks at: deeds of guarantee; bonds; other methods to mitigate risk; and public service mutuals and the LGPS regulations.

In addition to suppliers’ comments as part of the Mystery Shopper scheme, the Mutuals Taskforce had also called on the Cabinet Office to issue guidance for commissioners “setting out clear expectations in respect of the assessment of financial standing, including on the use of any requirements for performance bonds”.

The Cabinet Office said all contracting authorities, including those in the wider public sector, were strongly encouraged to apply the advice.

The policy note said: “The financial assessment of potential providers should be undertaken in a manner that is proportionate, flexible and not overly-risk averse while ensuring taxpayer value and safety is protected and the relevant EU procurement law complied with.

“Furthermore, all potential providers, whatever their size or constitution, should be treated fairly and with equal diligence during the financial appraisal process. For example: no SMEs, public service mutuals or third sector organisations should be inadvertently disadvantaged by the financial assessment process.”

It added that financial standing should only be considered as part of the overall selection criteria. “It may not, on its own, reflect potential providers’ ability to deliver.”

The Cabinet Office said only experienced staff should conduct financial assessment, calling on specialist in-house or external expertise as necessary.

A copy of the policy note can be viewed here.