Assessing the economic and financial standing of suppliers

To safeguard the delivery of public sector projects and programmes, it is critical that suppliers' economic and financial standing is considered during the selection process.

As well as informing the selection itself, financial assessments and ongoing monitoring should inform risk-management activity during the life of the project.

The government now expects these assessments to be carried out in all construction procurements, as for other services. The key is that they are tailored to individual projects, and are proportionate, fair and transparent. Guidance on how to do this is included in the Assessing and Monitoring the Economic and Financial Standing of Suppliers Guidance Note.

The key principles of appropriate financial testing are:

•  The objective is to determine bidders' financial capacity to perform the specific contract.

•  Economic and financial standing forms one part of the overall judgement of suitability during selection.

•  The methodology of assessing the ratios and the minimum requirements for procurements should be transparent, objective and non-discriminatory.

•  All bidders, whatever their size or constitution, should be treated fairly and not inadvertently disadvantaged by the tests employed.

•  Where bidders' scores against the financial assessment metrics result in anything other than a 'low risk' classification, bidders should be given the opportunity to provide additional acceptable evidence and explain why different risk classifications may be more appropriate.

•  Bidders with scores other than 'low risk' may be able to proceed subject to acceptable risk mitigations (see chapter 10).

The Contract Tiering Tool should be used to determine the stringency to which bidders are tested, with higher thresholds for more critical contracts. Assessment should be proportionate to the size, risk and complexity of the contract, flexible, not overly risk averse, and clearly outlined in the SQ.

It is important to recognise that measures for evaluating economic and financial standing are often backward-looking and contracting authorities should ensure that they develop robust market health assessments (see chapter 1) and have suitable systems in place for ongoing financial monitoring (see chapter 10).