Civil Engineering Reference
In-Depth Information
During the procurement process, only the utilisation of tier 1 suppliers
can be accurately modelled. In themselves construction fi rms are very
rarely vertically integrated, with wholly owned or internal supply chains,
and so the capacity demonstrated by a previous year's turnover is in fact
actually delivered by many diverse subcontractors and suppliers. Gaining
visibility of these subcontracted parts of the delivery team is the next
phase of PSE and the programme supply chain team's work. Because
there are far more tier 2 and tier 3 fi rms in the supply chain than tier 1
contractors, the supplier utilisation model can be expanded exponen-
tially, depending on how far down the supply chain the programme
supply chain management needs to investigate and have the ability to
infl uence. The actual process of mapping tier 2 and tier 3 fi rms follows
the same procedure as with the tier 1 contractors, although a map is not
drawn as it would be of little use. Instead, the utilisation of the tier 2
and 3 supply chain is measured in terms of their utilisation against each
project and cumulatively across the programme.
Monitoring the fi nancial strength of suppliers
Monitoring the capacity of a contractor allows problems to be antici-
pated and action to be taken in good time. The capacity of a fi rm changes
over time and may very well be infl uenced by factors outside the pro-
gramme's control. However, an even more volatile measure of a tier 1
supplier's ability to deliver a contract is their fi nancial strength. This
aspect of an organisation represents as much risk to the programme as
the fi rm's physical capacity, especially in periods of economic change
and uncertainty.
Financial checks of tenderers need to be completed during procure-
ment by the programme procurement function before large and complex
contracts can be awarded. The information available to carry them
out is usually the last three years of published annual accounts. Third-
party credit ratings agencies also use these and other data elements
when calculating their ratings. The tests of fi nancial strength and
solvency involve calculating a number of conventional accounting
ratios, including gearing, solvency, and the acid test, many of which are
recommended by government good-practice guides, such as the Offi ce
of Government Commerce's
Supplier Financial Appraisal Guidance
(2008).
