Civil Engineering Reference
In-Depth Information
A utilisation model uses the ratio of the budgeted annual cost of
projects or packages of work that a supplier has been awarded, or for
which they are currently tendering, over the supplier's latest published
or average annual turnover. Turnover is used as a historical indicator of
a supplier's capacity. It is a factual source of the past amount of work
completed and delivered in the previous year, and demonstrates that the
supplier had at least suffi cient resources to complete a certain level of
output. While turnover in the past does not guarantee future output, it
does give a good indication of the level of output suppliers are capable
of delivering.
There are three ratios, and which one is used depends on the question
posed, the timing and the circumstances. The ratios are:
Actual Contracts won
Turnover
Utilisation
=
1
Tendered Contracts
Turnover
Utilisation
=
2
Actual Contracts won Tendered Contracts
Turnover
+
Utilisation
=
3
While PSE aims to ensure that appetite is increased during procurement
across the programme for all projects and packages, this has to be bal-
anced against the potential for overexposure of any one supplier to the
programme and to any one supplier by the programme. If a client's
values are to be delivered, then it is argued that they need to maintain
a dominant position in relation to their suppliers. The interdependence
of the client and supplier requires an equitable transfer of risk. Exposure
or dependence becomes an important part of the risk equation. The aim
is to achieve a balanced and mutually healthy interdependence.
According to the OGC (2008), a safe annual contract limit should be
no more than 25 per cent of a fi rm's turnover; otherwise the fi rm could
become 'over-dependent' on the contract or the client. The OGC added
that this fi nancial criterion should be considered alongside other ques-
tions, including whether or not the fi rm had the fi nancial strength to
carry out its obligations under the contract and whether or not the fi rm
had the capacity to carry out the work.
This guidance reinforces the parameters used by PSE when modelling
utilisation, as PSE uses the 25 per cent level of exposure for any one
