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Thursday, June 20, 2013

Contractor responsibility: appropriate financial resources to indicate capability to perform

Under the ABA Model Procurement Code and Regulations, which form the principle part of Guam's procurement law, a prospective contractor must be responsible before being issued an award. One of the factors to be considered amongst the standards of responsibility is "appropriate financial ... resources ..., or the ability to obtain them, necessary to indicate its capability to meet all contractual requirements". Cash in the bank is a financial resource. Available credit or creditworthiness shows the ability to obtain a financial resource.

But what criteria is used to judge whether the resource is sufficient "to indicated capability to meet all contractual requirements"? This is not a one-size fits all test. It is relative to the needs of the contract, nothing more.

All of which is backdrop to the following story from the UK.

Builders blackballed by poor procurement practice
A report from the National Federation of Builders (NFB) suggests that local government’s use of credit reports could be excluding SMEs from public sector work worth as much as £2bn a year. With 40% of construction work traditionally coming from the public sector, fair access to contracts is crucial for the survival of SMEs, the NFB said.

The NFB report, The use of credit reference agency reports in local government procurement, found that the use of credit reports as part of financial assessments is widespread. Of the 288 local authorities that responded to its survey, 66% said that they use credit reports as part of the procurement process. Just over 13% of local authorities stated that they used credit reports to make pass or fail judgements. While this does not signify extensive use of CRA reports to make pass or fail judgements, the NFB is concerned that this may be a growing problem, particularly where the same company can get different scores from different credit reference agencies.

Chief executive Julia Evans said: “The use of credit reports as the sole or principal means of assessment can lead to SME contractors being discriminated against as this approach fails to take into account variations in smaller contractors’ accounts. The NFB wants to discourage the use of credit reports in this way. Such usage wields CRA reports as an unnecessarily blunt instrument for deciding who passes and who fails in the tendering process and does little to support the very good and supportive practices of many local authorities.” The NFB believes it is poor practice not rely on credit reports as the sole means of financial assessment.

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