2021-04-06 Services and Organisation Committee Meeting Agenda

SERVICES & ORGANISATION COMMITTEE MEETING AGENDA                                            6 APRIL 2021


2     TENDERER FINANCIAL CAPACITY ASSESSMENT POLICY AND GUIDELINE

Author             Director Corporate Services, Michael Shave
                   Corporate Services Department

Index              ECM/ 69.05 - Corporate Services

Attachments        1.    Financial Capacity Assessment Process Policy
                   2.    Financial Capacity Assessment Process Policy Guideline

EXECUTIVE SUMMARY
Not applicable.

RECOMMENDATION
That Council note the report by the Director Corporate Services to the Services & Organisation
Committee Meeting dated 6 April 2021 and:
A.    Adopt the Tenderer Financial Capacity Assessment Process Policy provided as Attachment 1
      to the report;
B.    Adopt the Tenderer Financial Capacity Assessment Process Policy Guideline provided as
      Attachment 2 to the report; and
C.    Note that where the policy and guideline is applied to specific future tenders, the potential
      impacts on the number of tender submissions received will be monitored over the next 12-24
      months to determine any compliance challenges particularly for small local contractors.

REPORT
Examples of recent insolvencies involving companies engaged by local governments to deliver
infrastructure projects has highlighted the need for the establishment of, and compliance with, a
process within Council to ensure appropriate financial capacity assessments and other relevant
checks occur as part of tender evaluations.

The policy and its associated guideline provided as attachments to this report outlines the process
by which financial capacity assessments are triggered, including the methodology to be employed
as part of the tender evaluation stage (including quantitative and qualitative information
requirements), as well as due diligence checks throughout the delivery stage of a project.

The policy outlines a number of guiding principles to inform the tenderer financial capacity
assessment process which have been summarised below:
1.   Financial capacity assessments are only one measure used to mitigate contractor insolvency
     risk.
2.   The level of financial capacity assessment should be proportionate to the project risk.
3.   Financial capacity assessments are based on historical financial performance, Council must
     also be satisfied that the tenderer is likely to remain financially viable for the life of the proposed
     contract.
4.   A point in time assessment of viability can only screen out identified high risk tenderers, and is
     not a substitute for sound project planning and contract management.
5.   Tender documents should specify the required documentation from tenderers to enable
     Council to undertake the financial capacity assessment.
6.   Financial ratios can be calculated to assess a tenderer's profitability, liquidity and financial
     stability. Other qualitative information can also be sourced and analysed to determine going
     concern risk.

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