Although the financial standing of suppliers should be assessed during procurement, this can subsequently deteriorate, either suddenly or over time. Early recognition of the risk of supplier financial failure gives us more time to prepare for that failure 'should it occur' and mitigate the risk to continuity of critical projects. We should therefore monitor the financial standing of our key suppliers on an ongoing basis as a routine part of risk monitoring and reporting.
Monitoring should normally be performed in the first instance by a function or team that is independent of the day-to-day contract management role. Its frequency should reflect the criticality of the contract, as well as the perceived risk of failure but it should be carried out at least annually, linked to full year financial results. More regular reviews (e.g. every six months or less) are recommended for public sector dependent suppliers and suppliers that contracting authorities assess as critical for their services. Ongoing 'alert' systems should be established to monitor company announcements and other information sources.
The outcome of financial monitoring should be discussed with contract managers and, where appropriate, reassurance and additional information should be sought from the supplier. Where monitoring and follow-up suggest a raised level of concern, contract managers should ensure their contingency plans are up to date and consider what further action or monitoring is required.