By Paul Emanuelli

This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.

In its 2009–2010 report entitled Study on a Management Approach to Vendor Performance, the Office of the Procurement Ombudsman of Canada recommended that public institutions establish clear vendor management strategies to better ensure value-for-money for the taxpayer. As the report stated, proper vendor management strategies are “of interest to our stakeholders due to the significant amount of money that is spent by the federal government on procuring goods, services and construction to deliver programs to taxpayers.” The report also noted that holding “vendors accountable for their performance is an important tool for making sure the government receives good value from its contracts. This also fosters better communication and results in improved relationships between the government and its vendors.” In fact, the report observed that leading institutions have implemented clear vendor performance strategies within their organizations:

Eight Canadian government organizations responsible for the procurement of goods, services and construction at the federal, provincial, and municipal levels participated in the Study. It is important to note that five of these organizations, which are not covered by our mandate, contributed on a voluntary basis.
We carried out research that included a review of academic and government literature related to vendor performance. We also interviewed officials responsible for procurement, contract management and project management at participating organizations.
We found that vendor performance management is best supported by a vendor performance program with an established framework and policy. The elements of the framework need to be aligned with corporate strategic goals and objectives, as well as risk mitigation strategies.
All organizations we interviewed have best practices that address elements of a framework for a vendor performance program. For example, they have established processes; use performance clauses in contracts; use tools and automated systems to monitor, evaluate and report performance results; follow contract file close out procedures; and can apply corrective measures on vendors for poor performance.
A good vendor performance program helps to protect Crown interests and provides transparency on what the government’s expectations are. Vendors are also entitled to know the rules of engagement. If government organizations apply corrective measures by clearly communicating, in advance, evaluation criteria coupled with due process, it is more likely to be defensible in a legal action.

As the report stated, the federal government’s Supply Manual also recognizes the importance of establishing and maintaining a vendor performance monitoring system:

Public Works and Government Services Canada, as the government’s common service provider for procurement, states the following in its Supply Manual:
  • Contract management is the process of systematically and efficiently managing contract development, implementation, and administration for maximizing financial and operational performance and managing inherent risk. Contract management encompasses the life cycle of a contract and involves many stakeholders including, but not limited to the contracting officer, the client department and the supplier.
  • Contract administration is an important part of contract management, which includes those activities performed after a contract award, to ensure files are properly maintained and that the contractor meets the requirements of the contract.
  • Contract management is an essential element of the procurement process that protects the interests of Canada while ensuring that suppliers are being treated fairly.
  • Whenever the satisfactory fulfillment of a contract is jeopardized, contracting officers should take the necessary steps to serve and protect the interests of Canada. Contract disputes should be dealt with fairly, and as promptly as possible. Contracting officers should keep procurement files complete and up to date, to provide a record of actions taken.
  • Contracting officers should also keep themselves informed about such things as the proposed contractor’s performance history, financial situation and practices, before recommending a contract award. It also means keeping up to date with a contractor during the performance of a contract.
These policies highlight the importance of good contract management and the need to ensure the monitoring and evaluation of the performance of the vendor during and at the conclusion of the contract. It also provides the basis for establishing the rules for due process and the authority to apply corrective measures.

In this report, the Procurement Ombudsman made the following recommendations with respect to the creation and content of an institution’s vendor management policy:

A vendor performance policy formalizes the framework for managing vendor performance. It increases fairness by ensuring that all vendors are treated in an equal and consistent manner. It also enhances transparency of the procurement process by providing information to vendors on what an organization’s expectations are, and on what basis decisions will be made and actions undertaken.
Based on our literature research, a good vendor performance policy should:
  • be linked to corporate objectives and risk management strategies;
  • have full support from senior management;
  • support fairness, openness and transparency;
  • identify roles and responsibilities;
  • establish performance measures and evaluation criteria;
  • provide vendors with an opportunity to review and comment on evaluations;
  • provide for an independent dispute resolution mechanism;
  • establish corrective measures;
  • use evaluation results for the validation of procurement strategies, evaluation criteria and contractor selection methodology to support continuous improvement of the procurement process;
  • identify reporting requirements;
  • provide for a system to capture vendor performance information; and
  • indicate the requirement to share vendor performance information with procurement review committees to assist them in future contract award decisions.

As the report maintained, taking a co-ordinated and strategic approach to vendor performance “holds vendors accountable for their contribution to satisfying operational requirements of the Government and helps achieve best value for the Canadian taxpayer.” To better serve the public interest, institutions would be well served to use the recommendations contained in the Procurement Ombudsman’s report as a roadmap to bolstering their contract management practices and achieving value-for-money for the taxpayer.