Prequalification – Malcolm’s last word

By Malcolm Abernethy, ex-CCNZ Executive Director.

PREQUALIFICATION HAS REMAINED a relatively hot topic over the many years I have worked with contractors.

I can recall as a contractor the huge amounts of paper we produced every time we submitted a tender. And before then when evaluating tenders the vast amounts of material from contractors and consultants that we had to wade through to determine scores.

That was back in the ’90s so we welcomed the initiative driven by contractors and supported by NZTA (then Transit NZ) to develop a prequalification system that was intended to reduce the amount of paperwork. A trial was rolled out in 2002 with a launch in Nelson for the new system to be used for all NZTA contracts in the South Island. Once any issues were addressed the intent was to roll prequalification out in the North Island.  All of that happened after two or three years.

Life was good with industry looking forward to reduced costs and time in tender preparation and evaluation.

But unfortunately clients and consultants did not fully trust prequalification and continued, in RFT documents, to ask for all non-price attributes.

As an industry we encouraged NZTA to accept prequalification status and to then only ask project specific questions and to evaluate tenders based on responses to those questions along with methodology and price to determine who the contract should be awarded to.

It should be noted that industry did not want to revert to Lowest Price Conforming as realistically that is simply a race to the bottom of the bucket and does nothing to ensure sustainability for contractors.

So what really went wrong?

I believe trust was a big issue even though there was no issue apparent to me about how prequalification was evaluated – it was simply pass/fail – there were no scores associated with prequalification.

It seems that clients and consultants wanted some scores so they could determine the winner by weighted attributes (later developed into the Price Quality Method).

It really begged the question – why don’t we score the non-price attributes so we can use them for tender evaluation purposes?  We could also do that collaboratively so contractors have the ability to discuss the scores with clients before they are used for that purpose!  What a great idea!

It was not just NZTA that considered prequalification – many Local Authorities developed what they called prequalification systems that unfortunately were only a simple evaluation of a contractor’s health and safety system. These systems did not take into account the non-price attributes suggested by the NZTA Procurement Manual and so required contractors to submit information about relevant experience, relevant skills, track record, resources and occasionally financial viability. Note that methodology is, or should be, project specific!

Indeed Capacity (now Wellington Water) developed a prequalification system that did provide scores that were developed collaboratively and updated collaboratively as contractors completed projects.  It works – albeit they have not really nailed the ongoing evaluation part feeding back into the scores.

In many respects what Wellington Water had was a system that I believe is exactly what prequalification is all about as it incorporated robust initial evaluations that are updated in a similar way as PACE was meant to do for NZTA’s prequalification system.

Then we had the Health and Safety at Work Act introduced that required employing organisations to prove that they had done ‘due diligence’ on their suppliers or contractors – that contractors have up-to-date and workable health and safety management systems that are continually updated.

As a result, we have seen the introduction of ISNet, PREQUAL, SHE and SiteWise to undertake essentially desk-top audits of a contractor’s H&S system including up to date reviews and incident and accident reporting.

When these were introduced industry was told that it was a review of prequalification systems but in my view they are not!  What they really are, are supplier or contractor management systems – they manage in the main just one aspect that should be included in a valid robust prequalification system – health and safety!

What about the other things that contractors develop, build and nurture to ensure a viable and sustainable business?  Relevant experience, relevant skills, track record, resources and financial viability. None of these systems with the exception of ISNet consider these things and even ISNet is modified only within limits of what it can add on to its standard system.

The proliferation of these systems comes at a cost to contractors with some contractors needing to maintain ‘all’ of these systems along with some individual systems – one contractor reported that he was prequalified with 18 different systems.  At the very least we need to ensure that employing organisations are aware of a contractor’s status in any of these systems then add a factor for their local conditions or requirements. For example Rotorua District Council has specific H&S requirements for working in geothermal areas.

It is interesting to note that many of the systems come at great cost to contractors and to clients.  But for contractors that external cost is only a small part as a contracting company needs to provide considerable staff time to enter the information on a continuous basis – both time consuming and costly!

It is interesting to note that MBIE’s New Zealand Government and Property recommends that the cost of tendering (cost of being at the table for the game) must be free of charge. “Procurement opportunities are openly advertised online and accessible for all businesses free of charge.” (My italics). These systems are I believe contrary to that simple stated best practice guide!

Furthermore, the same NZ Government Procurement paper for Best practice for facilitating SME participation in government procurement states: “Simple, plain English tender documents are used that are easy to navigate, highlight the evaluation criteria and only request information that is needed for the tender.” (My italics). I reiterate – RFT documents should only ask project specific questions and use these to evaluate tenders along with methodology and price.

As stated before, let’s evaluate those non-price attributes and give them scores as part of prequalification – we may need to develop a centralised team of very senior and experienced evaluators complemented by local or regional evaluators to draw on local knowledge and experience.  Or we may need to incorporate a local knowledge factor.

So, let us call these commercially available systems what they really are – Contractor Management Systems – and recognise they are just one relatively small part of the prequalification matrix. Furthermore, as an industry let us develop a prequalification system that all clients can use whether they are NZTA or any Local Authority or Council Controlled Organisation.

And finally provide knowledge to clients so that we don’t have to have a plethora of contractor management systems that duplicate each other at extreme cost to the contracting industry for both clients and contractors.

This article first appeared in Contractor June 2017.

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