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PROCUREMENT PERSPECTIVES: Tracking contractor performance is critical

Stephen Bauld
PROCUREMENT PERSPECTIVES: Tracking contractor performance is critical
Stephen Bauld

I have always believed that keeping track of contractor performance is a good idea, only if it is done properly.

More municipalities are attempting to monitor contractor performance and it is now emerging as one of the most critical aspects of the procurement process.

Measurement, of course, is only the first step. The results obtained must then be properly factored into procurement decisions. Here again, however, I can see certain risks in excessive reliance on a competitive process that focuses entirely on sticker price. History shows that one-off purchase orders, short-term contracts, and consistent emphasis on competitive bidding tend to foster an adversarial relationship between contractors and owners. Such relationships may jeopardize the highest levels of contractor performance.

Accordingly, a contractor performance monitoring program is most likely to be of more value where there is an enduring (i.e., medium or long-term) supply relationship in place. Profit maximizing suppliers will deliver above average performance when such performance influences the chance of contract renewal. In the case of a purchaser who places no or little value on past performance when deciding upon a choice of supplier, there is no incentive to invest time or resources in providing top level customer support. In times of product shortage, the indifferent customer is served last. It follows that in order to improve service levels, municipalities must signal to their suppliers and contractors that the quality of service matters.

This can only be done by making prior service quality a relevant factor in the award of a municipal contract. In broad terms, the process of supplier evaluation can be compared to the annual appraisal process for employees. Much as such appraisal is best when carried out in a fair and systematic manner, with clear direction being given to the employee, the same can be said for ongoing supplier and contractor appraisal.

The better the municipality monitors its supplier performance, and works with the suppliers and contractors to improve that performance, the better that the municipality will be able to serve resident needs.

As suppliers and contractors come to realize that the quality of their performance will influence the duration of their supply relationship with the municipality, they will place increasing emphasis on satisfying the municipality’s quality demands. Enhanced efficiency saves time and money, and the resources  saved can then be devoted away from procurement administration towards other municipal initiatives.

There are certainly models that may be referenced as to how to take the quality of supply and support into account in public contracting. The overall approach has been extensively developed in the private sector. Many private sector companies spend a great deal of time and money measuring different types of data to help evaluate the supply process.

Within the private sector environment, buyers are free to negotiate the best possible price. Negotiating enhanced levels of service is often one of the main aspects of those negotiations. Even where a contract is awarded purely on a competitive bid, where similar offers are made to a customer, often the tie-breaker will be the comparative performance of alternative suppliers. In addition, supplier performance is likely to be factored into a comparison of price offers.

While such negotiation freedom is limited in the municipal sector, municipal contracts should still be evaluated on an ongoing basis to ensure that suppliers and contractors are performing to a proper standard. Both the contractors and the suppliers should be advised as to the municipality’s performance expectations, and told when those expectations are not being met.

Initially, performance standards should be set out in the purchase order or contract. By so doing, future problems can be avoided. During the life of the contract, the purchasing department should systematically review and confirm that these specified standards are being met.

Stephen Bauld is a government procurement expert and can be reached at stephenbauld@bell.blackberry.net.

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