10 Mar Procurement Tip: The Biggest Mistake Clients Make When Prequalifying Vendors
Today’s procurement tip is on the biggest mistake clients make when prequalifying vendors.
Prequalification is used in procurement and outsourcing to pre-screen vendors based on a set of criteria. The objective is to ensure the filtered list of vendors have the necessary capacity and capability to meet the buyer’s project requirement. Common reasons for prequalifying can be due to the cost of preparing and evaluating vendor bids, the pool of vendors may be too large, or the project is risky and requires a high level of expertise. Although prequalification is commonly used in traditional procurement processes, it creates high-risk and should be avoided at all costs. In this article we will cover why the decision to prequalify vendors is normally a big mistake and we will suggest a potential solution to avoid prequalification altogether.
Prequalifying Puts the Buyer as the Expert
The first thing to realize is that when you, as the buyer, are prequalifying, it means you are setting the criteria which will determine if a vendor is “qualified” for your project. This puts the buyer in the role of the expert since they now judge who is a “qualified” expert. As general rule, you do not want to be the expert, and contrary to what others think, you are not the expert. The whole reason you are procuring the service/project (instead of doing it yourself) is because you are looking for an expert. If buyers attempt to prequalify vendors, they run the risk of making mistakes and deterring or filtering out expert vendors.
Prequalification Leads to Other Risky Practices
The buyer’s decision to prequalify often indicates the mindset of the buyer and the approach they intend to take in procurement. This approach is that the buyer is the expert and will be leading the project. This is the exact opposite approach you want to take. It diminishes the vendors expertise and attracts non expert vendors who need to be micromanaged throughout the entire project. Not only will this increase the buyer’s effort throughout the project, but it will also result in the buyer taking on all the project risk. (See Procurement tip: The Pitfalls of Overprescribing your RFP)
Another dangerous side effect of prequalification is that it often gives buyers the false impression that prequalified vendors are all equally qualified for the project. Clients then make the false assumption that since the vendors are all the same, price is the only differentiating factor, leading them to select the lowest bidder. The client should not assume all vendors are equally qualified solely on general prequalifying criteria. This would be similar to assuming that all doctors with similar years of experience in the field are equal. Treating all vendors the same only further diminishes the value of the vendor’s expertise.
It’s important to point out that there are some prequalifying criteria that may be necessary for a project. For instance, criteria like bonding insurance for construction or city and state laws are all things that competing vendors must be able to meet. These types of criteria are more to ensure stability of a company rather than their expertise. Instead of running a prequalification phase for these types of criteria, buyers can include them as part of the project requirement. This will allow vendors who cannot meet such criteria to unofficially prequalify themselves by not competing.
How to Avoid Prequalifying Vendors
The ideal situation is for buyers to let in as many vendors as possible (all the vendors in most cases). By increasing the number of bidding vendors, the buyer will widen their net and find more ideas and expertise in the market as the will see all the vendors’ proposals. If done traditionally, this method would be too taxing, which is why prequalification was created in the first place. To be able to skip the prequalification phase, buyers must use a lean procurement process. A lean procurement process requires minimal effort for the vendor to create a bid and minimal effort for the buyer to rate that bid. For more details of lean procurement process techniques see Procurement Tip: How Clients Can Rate Million-Dollar Proposals in Less than 30 Minutes.
A Proven Lean Procurement Process
The Best Value Approach (BVA) is a proven procurement and project management process which identifies and utilizes experts. The BVA uses a structured method which quickly and efficiently identifies and utilizes experts without having to prequalify. The BVA RFP takes less than a week to complete, with vendor submittals being no more than six pages and taking less than 30 minutes to rate. The BVA has been proven on over 2,000 projects in multiple industries [both large and small] valuing at $6.6B over 30 years with 94% of project finishing on time and on budget. To learn more about the Best Value Approach to procurement and project management here are some additional resources:
- Free membership for latest tips and news: https://pbsrg.com/membership/
- For latest books, events, and licensed partners: https://pbsrg.com/resources/
- Latest BVA journal publications: www.cibw117.org/
- Annual Best Value Conference in January: https://bestvalueconference.ksm-inc.com/
- Latest presentations and videos: https://www.youtube.com/channel/UCxBi26nXLDTqG4ZRV6p0iiQ