Giving our customers confidence: How we carry out our financial risk assessments
Ensuring stability in our supply base is vital for a fully-functioning health service. When our customers use our agreements, they need an assurance that the providers they are considering can deliver their goods and services without hitting any financial difficulties.
Our Finance and Business Services team play a key role in this; carrying out their own financial viability risk assessments (FVRA) on suppliers, both prior to award and throughout the life of the framework.
Rob Watson, our Finance, Contract & Business Services Manager, explains why this process is so important, and outlines exactly how it works.
“We have for some time now worked directly with suppliers to assess their financial viability, creating risk assessments based on a series of metrics.
“Contracting Authorities are responsible for assessing and ensuring that bidders can demonstrate Economic and Financial Standing (EFS) under public contract regulations, to ensure that they have financial capacity to perform on a given contract, and capacity to guard against any further risks.
“Over recent years, the Government has introduced a complex, recommended financial risk assessment tool. After years of assessing our Suppliers financial standing, we knew suppliers would find it to be too burdensome and complicated, but we acknowledged that our own tool needed a refresh, to make it simpler for suppliers to use. So, we have developed and rolled out a new cleaner version, designed to be easier to fill in by those working both within and outside of the finance function, without losing any vital information which would allow us to fully assess suppliers’ financial viability.
“Our Financial Viability Risk Assessment (FVRA) tool is based on a set of key metrics and ratios, which can be adapted to fit specific contracts if necessary. Suppliers are asked to fill in key data such as pre-tax profit and turnover, directly from their own financial accounts. We then verify this against available data, and turn it into a series of financial risk scores.
“By carrying out our own assessments via this tool, my team of finance experts are able to monitor suppliers before they are accepted onto a framework as well as regularly during the life of the framework, to guard against any nasty financial surprises, or infringements. It’s important for us to do this, to give our customers confidence that the organisations supplying their products and services are safe.
“We also monitor the financial performance of our suppliers through credit assessment tools like Creditsafe and Experian, giving you extra assurance. It is essential to have access to a number of assessment tools to help reduce anomalies and inconsistencies that can occur. Our solution is set up with “early warning” alerts and flags, that will prompt the team and allow them to look into issues immediately and will also alert our category teams, keeping them updated.
“These tools also enable us to provide financial analysis packs for suppliers that contain a credit reference score, how they have recently performed, and an assessment of where they sit within the industry.
“They also show us the suppliers payment performance data and how they compare to other suppliers within their industry/sector. We have access to financial performance over previous years including turnover, pre-tax profit, shareholder funds and number of employees, allowing us to spot trends. All of which are used to prepare a financial risk viability assessment score.
“Our colleagues in the procurement and supplier relationship management teams will meet regularly with our suppliers and discuss these reports with them, including any concerns, risks or issues.
“Longer term, we will be looking at creating even more detailed financial reports on framework suppliers, which we are hoping to be able to make available to our member organisations, too.
“This is just one of the many checks our wider team carries out to make sure a supplier can be awarded to, and remain on, our frameworks. But from a financial perspective, we aim to provide assurance that a supplier is financially sound.”
Did you know, you can search our framework portfolio for specific suppliers — safe in the knowledge that they have all been financially assessed? Head to our Contracts and Frameworks page to start your search.