How do you assess the financial standing of a company fairly given that annual accounts are historic in nature? In the wake of a devastating recession, this is a major concern for suppliers and buyers alike. Many experienced, reliable and sound suppliers are failing to make the tender list because their turnover in the last two years falls short of required thresholds. For buyers too, their choice is being restricted and inhibited by this situation which is stifling innovation and increasing costs.

Exacerbating the problem, insecurity over the financial stability of suppliers has created a situation where a great many suppliers are unable to obtain references and loans from banks, further impacting their ability to tender for new business. This problem is not going away. In fact, the scale of the problem has quadrupled over the past year.

If we are to bridge this impasse, and prevent a vicious circle of negativity from constricting growth and narrowing the choice for buyers, we have to consider a more tiered approach to assessment, scaleable to the risks associated with those contracts.

Greater flexibility is needed in the way we look at the common requirement for three years of audited accounts that display turnover as three to five times the value of the contract. In the current climate, we should be more realistic and perhaps, a little more sensitive to the position of suppliers. For established companies tendering for a contract worth, say, one million, a turnover of three million for one of the last three years and 2.5 million for the other two years might be considered a reasonable level of risk. For newer companies it would be appropriate to look at pro-rata turnover. However, it’s clear that rigid thresholds are no longer practical.

With smaller value contracts the risks are far less and therefore, we should question whether financial checks on turnover are necessary at all. Perhaps, experience is more important. In particular, in a situation where the supplier is only going to get paid when they deliver, the risks are minimal. So different approaches need to be taken, proportionate to the risks involved in the nature of the contract. Generally, in the public sector a standard approach is adopted across all procurement, regardless of value, risk or nature of the contract. Such a rigid structure serves no real purpose. The solution is to categorise contracts for different types and levels of risk.

Suppliers should also be more resourceful by looking to go into tenders in partnership with others. A joint venture with a financially strong partner may be more complex to establish, but if the rewards are good, this option should be encouraged.

Buyers can help suppliers too by offering stronger commitments on contracts which in turn may assist suppliers in securing guarantees and loans from the banks.

There are a large number of good companies that are being denied access to contracts. We need to be far more flexible in the way we assess risk and in the way suppliers and buyers work together in appealing to the banks for support. Only then will we have a process that works best for both suppliers and buyers alike.