The importance of a robust process
When is single/sole source procurement used?
Single and sole source terminology is often confused.
Noting that references differ globally, in the UK sole sourcing occurs when there is only one supplier who can provide the required solution, whereas single sourcing is where a particular supplier is purposefully chosen by the buying organisation, even when other suppliers are available.
Whilst there is no competitive option with regard to sole sourcing, the decision to take a single source approach is usually made at strategic level, for varying reasons such as:
- The order is so small it is not worth dividing it; concentrating purchases leads to price/cost reductions
- An ongoing long-term relationship
- The supplier can offer unique or outstanding quality
- Meeting urgent requirements
- For reasons of national security or to develop, manufacture and support a sovereign capability.
Regulations governing Single/Sole Source procurements are largely comparable globally – they aim to strike a balance between achieving value for money on government expenditure and fair and reasonable prices for contractors, by subjecting qualifying contracts to price control and by requiring suppliers to provide an increased level of transparency.
What are the buyer’s considerations?
However, it seems that anticipated savings are often not realised and, in the absence of competition, value for money is being questioned as buyers may lack leverage at the point of purchase and when costs escalate or delays occur.
Constant price increases, a decreasing standard of quality or delivery, a slowdown in delivery and/or innovation and a generally weakened negotiation position are all downsides of dependence on a single supplier.
The reality is that the Authority doesn’t have much option for negotiation other than to beat the supplier up over their costings.
For the procurement to be effective, it’s critical that the Buying Authority has clearly defined requirements (whilst leaving room for innovation) and that the scope of the procurement/contract is very well-defined –more so than on a competitive procurement because the Value for Money pressure isn’t there.
The buyer must also understand how tradeable the requirements are and to have an idea what each should cost in order to track and measure the impacts of negotiation.
A position on risk must also be established early on (i.e. how much risk the Authority is willing to hold and how much they want to push back onto the supplier) – this impacts the level of profit the supplier is able to make, and agreeing this in principle early on will set the supplier’s parameters.
Essentially, in order to achieve the best possible value for money outcome from a single/sole source procurement, it’s imperative that a robust process is followed.
In short, the process that is followed by buyers for a competitive procurement, with a couple of added considerations to account for the single supplier.
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