Exclusion Criteria

The exclusion process involves evaluating whether the bidder has committed any offences that would lead them to be excluded from the bidding process.

The exclusion questions you can ask are split into two types:

  • Mandatory exclusions: you must ask questions regarding these exclusions and the bidder may be excluded from the procurement process if specified offences have been committed and the self-cleansing measures taken are not sufficient to demonstrate reliability. For example corruption, bribery, money laundering or certain types of fraud.
  • Discretionary exclusions: you may ask questions concerning discretionary exclusions where they are relevant and proportionate to the contract. You should determine whether a bidder should be excluded based on the bidder's response and any evidence provided of self-cleansing measures (if required) which are sufficient to demonstrate reliability. These should be considered on a case by case basis by you and your organisation.

It is considered best practice to ask bidders both types of questions in Route 3 procurement exercises.

The table below provides an overview of both types of exclusion criteria. 

Exclusion Criteria in Route 3 Procurement Exercises

Must ask May ask

Self-Cleansing Applies

Criminal Convictions

Tax and Social Security Breach (Binding decision - judicial or administrative)




Tax and Social Security (Decision by any other means)  

Environmental, Social and Labour Law

Bankruptcy and Insolvency  
Grave Professional Misconduct  
Conflict of Interest  
Distortion of Competition  
Contract Deficiencies  
Unduly Influence  


In the case of tax and social security breaches, where self-cleansing does not apply, the bidder should not be excluded if they:

  • have met their obligations by paying or
  • entered into a binding agreement with the view to paying monies due or
  • the obligation to repay otherwise ceases. 

What is Self-Cleansing?

The bidder must be given the opportunity to provide evidence that they have taken sufficient and appropriate remedial action i.e. they have ‘self-cleansed’. If you are satisfied that the evidence they have given is sufficient to demonstrate reliability, you should not exclude the bidder from the procurement procedure on those grounds

The bidder must satisfy that it has 

  • paid, or undertaken to pay, compensation for any damage caused by the criminal offence or misconduct;
  • provided detailed facts and circumstances by collaborating with the investigating authorities; and
  • taken appropriate concrete technical, organisational and personnel measures to prevent further criminal offences or misconduct.

In the case of tax and social security breaches, the bidder should not be excluded if they have fulfilled their obligations by paying or entered into a binding agreement with the view to paying monies due or the obligation to repay otherwise ceases. 

When considering any self-cleansing measures, organisations must consider all relevant factors.  This includes the gravity and particular circumstances of the criminal offence or misconduct.

If you believe the bidder’s remedial action is not sufficient to demonstrate reliability, you must provide them with a statement outlining the reasons for the decision.  This must be provided in writing as soon as is reasonably practical to allow the bidder to understand why the self-cleansing measures they have taken are insufficient.

Exclusion Criteria and the SPD

Questions relating to exclusion grounds are contained in the SPD (Scotland).  You must use the SPD (Scotland) document for all Route 3 procurements.  More information on the SPD (Scotland) and the Standardised Statements is contained in the SPD (Scotland) station.

A document containing a set of "standardised statements" has been developed to support you in explaining the exclusion criteria to bidders.  Within the standardised statement document, is information that can be added to your contract notice in section II.2.14 (Additional Information) The Standardised Statements document can be found at the bottom of the page. 

Please note that if you use the online SPD module on PCS, there is no need to add information on the Exclusion Grounds to the Contract Notice as they are automatically added to the module.


Mandatory Exclusion Grounds

The buyer must ask the bidder questions relating to criminal convictions and blacklisting in all Route 3 procurement exercises. If the bidder confirms they have taken part in these activities, they must be excluded from the process if they have not taken sufficient self-cleansing actions. 

These are contained in regulation 58(1) and (3) of the Public Contracts (Scotland) Regulations 2015.

Criminal Offences

Buyers must ask if a bidder has been convicted by final judgement of one of the criminal offences contained in the relevant regulations.

This includes:

  • Participation in a criminal organisation
  • Corruption
  • Bribery and certain types of Fraud
  • Terrorist offences or offences linked to terrorist activities
  • Money laundering or terrorist financing
  • Child labour and other forms of trafficking in human beings


Buyers must ask if a bidder has taken part in Blacklisting activities. 

Blacklisting is the practice of systematically denying individuals employment  who would otherwise be able to be employed.  

Blacklisting is done on the basis of information, accurate or not, held in some type of database. The Scottish Government regards blacklisting or the compiling of a blacklist as totally unacceptable.

The Employment Relations Act 1999 (Blacklists) Regulations 2010 provide rights for individuals if blacklisting results in refusal of employment, detriment, dismissal or redundancy. 

Tax and Social Security Obligations - Binding Decision - Judicial or Administrative

The Scottish Government treats tax and social security obligations seriously.

Organisations must exclude bidders where they have been subject to a binding decision (judicial or administrative) which found a breach of legal obligations to pay tax or social security contributions.  A judicial decision is one which is made by a court or tribunal. An administrative decision is one which is made by the relevant tax authority in the UK or in country where the bidder is established.

Derogation from Mandatory Exclusion Considerations

In exceptional circumstances you may disregard the mandatory exclusion grounds when selecting a bidder.  This can only be done where there are overriding reasons relating to the public interest. This provision is known as derogation from the mandatory exclusion considerations.  This allows buying organisations to respond to unforeseen emergency circumstances.

There is no definitive list of situations in which this derogation can be used so any decision you make should be done carefully and on a case by case basis. Organisations should be able to demonstrate that the actual or potential harm is so great, that the public interest in using the derogation outweighs the public interest in excluding the bidder.

An example may be where urgently needed vaccines or emergency equipment can only be purchased from a bidder to whom one of the mandatory exclusion grounds otherwise applies.

Each situation must be judged individually, but the following situations are, on their own, unlikely to meet this test:

  • when a bidder which should be excluded is offering a substantially better quality / more economical product or service
  • when there would otherwise be a lack of competition

Discretionary Exclusion Grounds

While you should ask questions on the following areas within their procurement exercise, it is not mandatory to exclude the bidder if they have taken part in these activities.  Each of these grounds should be considered on a case by case basis by you and any self-cleansing activities taken by the bidder should be taken into consideration.
When reviewing the activity, you should be proportionate in your decision, taking into account:
  • the size of the contract,
  • the relevance of the breach, and
  • its impact on the operational and reputational risk to the contract delivery
The discretionary exclusion grounds are:

Tax and Social Security Obligations - Decision by other means

Organisations may exclude a bidder where the bidder has breached its tax or social security obligations and the decision has been reached by other means than a binding decision (judicial or administrative).

Buyers can request the following examples of evidence to understand a bidder’s breach in tax or social security obligations:

  • credit references, i.e. details of any outstanding tax debt;
  • company accounts, depending on the size of the tax debt the bidder may be obliged to include this in their accounts;
  • an admission by a bidder to an Occasion of Non-Compliance (OONC); or,
  • an admission by a bidder of the failure of an avoidance scheme which they were involved in and was, or should have been, notified under Disclosure of Tax Avoidance Scheme (DOTAS).

In the case of tax and social security breaches, the bidder should not be excluded if they have fulfilled their obligations by paying; entered into a binding agreement with the view to paying the money due or the requirement to repay no longer exists. 

Note – these examples relate to the UK tax regime, and there will be equivalents in other countries, which should be considered.

Social, Environmental and Labour Laws or Obligations

One of several discretionary grounds for exclusion relates to social, environmental and labour law obligations. These obligations include any relevant legislation, as well as relevant collective agreements and specific international agreements.

As these laws are wide ranging, you can focus on a specific area of law that bidders must take into account when making their self-declaration in respect of exclusion grounds. For example, breaches of employment and equalities legislation. For further examples of statements for Fair Work requirements, see Example - Statements for procurement documents.

Bidders may be excluded where your organisation can demonstrate that the bidder has breached any of these obligations. This exclusion ground is discretionary and it is therefore. For your organisation to decide if exclusion is appropriate.

When determining whether to exclude a bidder on this basis, you should be proportionate in your decision, taking into account the size of the contracts, the relevance of the breach, and its impact on the operational and reputational risk to the delivery of the contract.

Bankrupt or Insolvent Businesses

Where a bidder is bankrupt or subject to insolvency proceedings, you can choose whether to exclude them from the procurement exercise.

Potential evidence you could request to evaluate the situation include:

  • copies of accounts verifying they have sufficient liquidity to perform contract
  • the bidder's business plan outlining steps they will take to address concerns, or
  • references from other recent customers.

When considering whether to exclude such a bidder you should consider contract delivery potential risks, such as:

  • the impact this may have on the sub-contracting supply chain;
  • the scale of the contract;
  •  the potential consequences of the contract failing.

Additionally, you should take into account the potential benefits of awarding a contract to such a bidder. These can include:

  • providing opportunities to contribute to increased employment in communities;
  • the wellbeing of local and regional communities ;
  • helping unlock the innovation or economic potential with local businesses.

Grave Professional Misconduct

Bidders may be excluded if they are guilty of grave professional misconduct, which renders its integrity questionable.

Further information can be found in The Public Contracts (Scotland) Regulations 2015, 58 (8) (c)

When determining whether to exclude a bidder on this basis, your organisation should be proportionate in its decision, taking into account the size of the contract, the relevance of the breach, and its impact on the operational and reputational risk to the delivery of the contract.

Conflict of Interest

Bidders may be excluded if a conflict of interest exists which may impact the procurement process.

Further information can be found in The Public Contracts (Scotland) Regulations 2015, 58 (8) (e)

When determining whether to exclude a bidder on this basis, your organisation should be proportionate in its decision, taking into account the size of the contract, the relevance of the breach, and its impact on the operational and reputational risk to the delivery of the contract.

Distortion of competition and contract deficiencies

Bidders may be excluded if a distortion of competition may arise from the prior involvement of the bidder in the preparation of the tender.

Further information can be found in The Public Contracts (Scotland) Regulations 2015, 58 (8) (d) (g)

When determining whether to exclude a bidder on this basis, your organisation should be proportionate in its decision, taking into account the size of the contract, the relevance of the breach, and its impact on the operational and reputational risk to the delivery of the contract.

Misrepresentation or Undue Influence

Bidders may be excluded if they are found to have:

  • seriously misrepresented the supply of information or have withheld information (when this information would be used to confirm there are no grounds for their exclusion from the procurement exercise, and therefore the bidder meets the selection criteria) OR

the bidder has:

  • unduly influenced the decision making process
  • obtained confidential information which may give them undue advantages in the procurement procedure
  • negligently provided misleading information that may have a material influence on decisions

Further information can be found in The Public Contracts (Scotland) Regulations 2015, 58 (8) (h) (i) (j)

Deficiency in Performance

Bidders may be excluded if they have shown significant or persistent deficiencies in the performance of a substantive requirement under a prior public contractor or a prior concession contract which led to early termination of that prior contract, damages or other comparable sanctions;

Further information can be found in 9(5)(g) of The Procurement (Scotland) Regulations 2016.

When determining whether to exclude a bidder on this basis, a contracting authority should be proportionate in its decision, taking into account the size of the contract, the relevance of the breach, and its impact on the operational and reputational risk to the delivery of the contract.

Timescales for exclusions

Bidders must not be excluded indefinitely from participating in procurement activity. 

A bidder must only be excluded:

  • for a maximum of 5 years from the date of conviction by final judgment for one of the criminal offences listed in regulation 58(1) of the Public Contracts (Scotland) Regulations 2015;
  • until it has paid its outstanding tax or social security obligations.  This includes: any applicable interest or fines; entering into a binding agreement to pay; or the obligation to make repayment ceases; or
  • a maximum of 3 years from the date of the relevant event for all other grounds for exclusion.

Applying Exclusion Grounds to Sub-Contractors

Organisations must consider how, in conducting a procurement, they can facilitate the involvement of small and medium enterprises, third sector bodies and supported businesses in that process. This can include the use of sub-contractors to support the delivery of the contract.

Organisations can, at their discretion, require verification of whether there are any grounds for the exclusion of any sub-contractor involved in the delivery. Where this information is sought the SPD (Scotland) must be used.

Where this verification shows that there are mandatory grounds for the exclusion of a sub-contractor, the organisation must require that they are replaced. 

You should keep in mind that this only applies to sub-contractors upon who the main bidder is not relying on to meet the selection criteria of the contract.

Where there are discretionary grounds for the exclusion of a sub-contractor, the organisation can choose whether it should be substituted. Organisations must decide whether to apply discretionary exclusion grounds to sub-contractors involved in the contract delivery on a case by case basis, taking into account the various circumstances of the contract.

Who do Exclusion Grounds Apply to within the Company?

Exclusion grounds apply to a person who is:

  • a member of the administrative, management or supervisory body of the bidder or
  • has powers of representation, decision or control regarding such bidder

Exclusion Criteria Statement in the Contract Notice

In the Standardised Statement document, along with the selection statements, you can find two exclusion ground statements:

  • one for the Contract Notice for below threshold procurements and
  • one for the above threshold Contract Notice.

In the case of a Route 3 procurement, please make sure that you copy over the statement for an above threshold Contract Notice exclusion statement to the textbox in the Contract Notice under II.2.14 Additional Information. This will make sure that you have informed the bidders that you will apply mandatory and discretionary exclusion grounds in the procurement exercise.

Please note that if your are using the online SPD module in PCS, there is no need to include this in the contract notice.

Care and Support Services

The mandatory exclusion grounds (regulation 58(1) and (3) of the Public Contracts (Scotland) Regulations 2015) must be applied to all procurements, and you can also choose to apply the discretionary exclusion grounds.

Exclusion statements should be put under II.2.14 Additional Information of the Social and other Specific Services Contract Notice or detailed in the online SPD (Scotland) Module on PCS if it is being used.


(file type: )

Exit Strategy

An exit strategy is necessary to:

  • identify possible risks,
  • define potential losses,
  • ensure service continuity

It should be a ‘front end’ activity i.e. considered when developing your commodity/service strategy. 

Your exit strategy should be included in the Procurement Documents and contractual terms and conditions where possible. This may appear counterintuitive, but you need a strategy which is consistent with your overall sourcing strategy.  Otherwise you risk being locked into an unsatisfactory contract.  You may be forced to pay more to stop the contract and minimise operational impact.

If an exit strategy is in place at the start of a supplier relationship, your  needs will be included  in. the contract. This ensures minimum business and customer disruption if  the relationship were terminated.

Please note: you cannot terminate a contract with the aim of avoiding procurement rule obligations.

Exit strategies should be reviewed annually, or when significant change occurs.

There are several considerations to be made when developing an exit plan, including:

  1. Continuing Service Requirements
  2. Data Security and Privacy
  3. Knowledge and Documentation Transfer
  4. Costs
  5. Personnel

Below suggests some factors for consideration.  This is not conclusive: each contract / supplier relationship should be considered on its own merits.     

1. Continuing Service Requirements

An exit strategy should set  your service requirements when the parties are transitioning out of the relationship. These requirements may include:

2. Data Security and Privacy

Data privacy and security are critical.  The Exit Strategy should consider provision for:

3. Knowledge and Documentation Transfer

Strict documentation and knowledge transfer contract requirements  will be advantageous. Be sure to:

4. Costs

Transition, termination and timing are a key part of the financial aspects of an exit strategy. Be sure the contract:

5. Personnel

An exit strategy should cover personnel issues, such as:

Contract Termination

Your exist strategy must allow you  to terminate a contract during its term where the following occur:

  • the contract has changed substantially i.e. a new procurement exercise would have been required.  This applies to existing contracts and started after 18 April 2016.
  • it is found that the successful supplier should have been excluded from the procurement procedure at contract award.  This could be for either mandatory or optional exclusions For example as a result of convictions for fraud or corruption.
  • the contract should not have been awarded to the supplier where the Court of Justice of the EU has declared there has been a serious infringement of the organisation’s obligations.

Regulation 73 of the Public Contracts (Scotland) Regulations 2015 requires the above termination  grounds to be included as a contract term.  If they are not included, they are implied.

Administration and Tools



Contract Administration - Points to Consider

What you Need to Do

Points to Consider


Administration of the contract is important


Contract administration is concerned with the mechanics of the relationship between the customer and provider.


Its importance should not be underestimated. Clear administrative procedures ensure that all parties to the contract understand who does what, when and how.

The elements that need managing are likely to include:

  • Contract maintenance and change control
  • Notice periods, contract closure or termination
  • Charges and cost monitoring
  • Ordering procedures
  • Payment procedures
  • Budget procedures
  • Resource management and planning
  • Management reporting
  • Asset management


Maintain the contract documentation.

The contract will have to evolve to reflect changes in arrangements.

Contract maintenace means keeping the documentation up to date and relevant to what is happening on the ground.

Maintaining contract documentation is an important activity.

Establish proccedures to keep contract documentation up pto date (including how to store/archive documentation).

Ensure all contract documents are consistent, and that all parties have the correct version.


Changes must be controlled


Changes to services, procedures or contracts may have an effect on service delivery, performance, costs and on whether the contract represents value for money. The specification and administration of change control is an important area of contract administration.

Appropriate structures need to be in place with representatives of both customer and supplier management for reviewing and authorising change requests.


Be careful that changes do not fall outside the scope of the original FTS advertisement and conflict with procurement regulations – seek advice if you are unsure.


It is particularly important that additional demands on the supplier should be carefully controlled.


Formal authorisation procedures will be required to ensure only those new requirements (that can be justified in business terms) are added to the service.


Make sure management understands what is happening


Management reporting procedures ensure that information about contract problems reach those with power to act as soon as possible.

Requirements for service performance reports and management information should be built into the contract and confirmed at the tender stage.


Where possible, use should be made of your Organisation's own management information and performance measurement systems.


For many business managers a summary of the service they have received along with a note of exceptions is normally sufficient.


Information requirements may change over the life of a contract.








Blank rows are provided for your use e.g. to add additional checklist items.

Contract Variations

Allowing and regulating contract variations should be a standard feature of all contracts. Although a supplier may request a contract variation, the ability to vary the contract must be approved, managed and controlled by the customer.

You should provide a method for contract variations to be agreed between the customer and the supplier.  This should be in writing through a formal amendment of the contract. This practice is also known as a "change management process", "change control procedure" or something similar.

It is critical that no-one involved in managing and administering the contract  agrees to informal contract amendments on their own. All potential contract variations/changes must be fully explored with the appropriate contract managers/stakeholders. Any agreed variations should be undertaken in line with the change management process.

The reasons for the variation should be clearly documented. Variations should not be used to mask poor performance or serious underlying problems.  The variation impact  on original timeframes, deliverables and value for money should be assessed. If the effects are significant, senior management and other stakeholders must be consulted.

Variations should be planned accordingly. Customers should be aware of the risk multiple contract changes make to a contract over time i.e. this may shift the overall allocation of contract risk or transfer particular risks to your Organisation.

It is important to analyse all consequences of a proposed contract amendment.  Make sure there are no detrimental effects to the contract or service levels.

Contract managers must ensure  contract variations do not significantly change the contract requirement and/or substantial parts of the original transaction.  This is referred to as a ‘substantial modification’ under The Public Contracts (Scotland) Regulations 2015. If this is the case, you must undertake another procurement exercise.  This is  because the revised arrangements are substantially different from those selected through the original procurement.  If a new procurement if not undertaken your Organisation may be open to challenge from another supplier.

Quickfire Guide

Quickfire Guide

Contract Variations Do's and Don'ts




Assess value for money of the variation(s)


Change the original contract requirements i.e. there is no substantial modification.

Assess the effect of the variation on the original contract e.g. no detrimental effects on timeframes and deliverables.


Use variations to hide poor performance or serious underlying contract problems.

Consult senior management/stakeholders if variation(s) are significant.  Follow your organisations governance procedures.


Agree to contract variations on your own.


Clearly document the reason(s) for the variation and the amendment in writing.


Inform customer(s) of the contract change(s)




Contract Variations Checklist

Key issues to consider in managing contract variations include:


Key Areas


Are procedures required by the contract being followed?


Have the reasons for the proposed variation been assessed?  Does this indicate an emerging or actual problem?


Have the impact of the proposed variation on contract deliverables been assessed? Particularly whether the variation or the work it represents is actually required and is part of the original contract deliverables?


Have the effect on contract price of the proposed variation been determined?


Has authority been given for making the variation?


Has the variation and its impact been properly documented?


Have you undertaken all reporting requirements?






Blank rows are provided for your use e.g. to add additional checklist items.


For above threshold contracts, the starting position is that contract changes will require a new competition to be held.  This is unless one of six exceptions can be applied.   These exceptions are:

Quickfire Guide

Quickfire Guide

Exceptions from Holding a New Competition

  1. Where the change is provided for in a clear, precise and unequivocal review clause.  This clause must have been included in the initial procurement documents.
  2. For services or supplies where a change of supplier is not possible for economic or technical reasons.  Where such a change would result in significant inconvenience or substantial duplication of costs.  This is(provided that any price increase does not exceed 50% of the initial contract value).
  3. Where the need for change is brought about by circumstances which: an organisation could not reasonably have foreseen; do not alter the overall nature of the contract; and does not result in a price increase greater than 50% of the contract value.
  4. Replacement of the original supplier by another under a review clause; universal or partial succession, perhaps due to takeover, merger, acquisition or insolvency; or where the organisation steps in and assigns some or all of the goods, or services back to itself.
  5. Where changes, irrespective of their value, are not substantial.  This could include: a change in the nature of the contract; a change to the economic value of the contract in favour of the successful supplier.
  6. For minor changes.  These must not affect the nature of the contract, must be valued below the threshold and 10% of the initial contract value for supplies and services.

When making successive modifications you must take care that the cumulative value of these does not breach any of the previous requirements. This does not apply in the case of point 3, where the value limitation of successive modifications does not cumulate.

If planned modifications are determined not to meet these criteria, or have not been provided for in the original contract documentation, then a new procurement procedure must be undertaken.  Legal advice should be sought.

Change Management Process

There are a variety of issues that should be considered in any change management process to ensure that it is effective. Three key areas for consideration are:

  • the need for change impact reports;

  • any pricing principles that will apply to the change; and

  • the supplier's obligation to undertake the change.

Where the consequences of getting things wrong are significant and it is recognised that a change is required, it makes sense to run a formal pilot. If the pilot fails to meet expectations you can revisit and retest until you achieve the required results.  This cab be done before committing your resources and reputation on a wider scale.

For examples "Plan, Do, Check, Act" (PDCA) is a recognised continuous improvement (CIP) model.  It can be utilised to ensure your change will deliver the desired results.  As its name indicates, there are 4 steps to the model of which steps 2 and 3 can be repeated until the desired result is achieved.  The 4 steps can be summarised as:

Quickfire Guide

Quickfire Guide

Plan, Do, Check, Act (PDCA)

  1. Plan: Define the problem to be addressed.  Collect the relevant data.  Ascertain the problems’ root cause

  2. Do: Develop possible solutions. Select the most appropriate solutions(s).Implement a small scale pilot solution. Decide upon a measurement to gauge effectiveness

  3. Check: Check the problems you have encountered and identify the root causes. Measure how effective the solution has been by comparing pre-pilot and post-pilot data.  Depending on the success of the pilot, you have the option of repeating the “Do” and “Check” phases.  You can incorporate additional improvements until you get the desired result

  4. Act: You can implement your solution. However, if you are using the PDCA as part of a continuous improvement initiative, you need to loop back to the Plan Phase (Step 1), and seek out further areas for improvement.


Supplier's obligation to undertake the change

A detailed Change Management Process is of little value if the price to be paid has been determined, and the supplier  refuses to pay.  Accordingly, the Change Management Process may  the supplier cannot unreasonably refuse (either directly or indirectly) a change requested by the Organisation.

Unreasonable grounds for refusing a change might include:

  • demanding unreasonable charges for the change;

  • imposing unreasonable conditions for undertaking the change; or

  • refusing to include the change under the agreement.  This could be despite the subject matter being reasonably related to or connected with the services.

A carefully drafted Change Management Process can mean the difference between the customer requested system/services and what  they discover is needed during the term of the contract.

Change Impact Reports

Before any change request can be properly considered, the customer and the supplier must understand the implications of the proposed change. To support this you may require the service provider (who will) to prepare an impact report. (The service provider normally be in the best position to assess the likely impact of a change).   Ideally, the impact report will present a full description of the change, including how the change is to be implemented and, to where relevant, detail:

  • the feasibility of the change
  • the likely effect of the change on the ability of the supplier to meet its obligations under the contract
  • any cost implications of the change
  • any consequential impact of the change
  • where appropriate, acceptance testing procedures and acceptance criteria for the proposed change, and
  • any other information likely to be of relevance

Pricing Principles

You should  specify how any change associated costs will be allocated between your Organisation and the supplier.  This should be done as part of the Change Management Process.

Ordinarily, the Organisation should be required to pay for a change when the change cannot  be considered within scope of the existing contract.

Where a change falls outside the scope of the existing contract, the Change Management Process may detail the principles that will determine the price to be paid by the customer. For example, the Change Management Process may stipulate that the price for any change should be:

  • reasonable
  • competitive, and
  • no higher than the price a customer would be able to buy similar products or services from another supplier.

The Change Management Process may enable the Organisation to request the supplier to provide an auditor's certificate.  This could confirm that the pricing of any change complies with the pricing principles.

Contract Termination

The possibility now exists for an organisation to terminate a contract during its term.  These circumstances are covered in the Exit Strategy Station.

Please note: you cannot terminate a contract with the aim of avoiding procurement rule obligations.

Managing and Improving Performance

This section outlines a number of activities and tools necessary to manage and improve suppliers’ performance.

You must be careful not to substantially modify the contract when considering some of the following.  

Benchmarking (where appropriate)

Benchmarking costs against the suppliers’ competitors is a recognised method of avoiding cost ‘creep’ and ensuring best value.

Benchmarking should be undertaken throughout the life of the contract. It can be used for:

  • Ensuring incumbent suppliers remain competitive in the market
  • Keeping abreast of the market rates
  • A negotiation tool for cost reductions

Step One – What to benchmark

Decide which spend category(s) you wish to perform the benchmarking exercise for.  

  1. Complete a spend analysis on what you have purchased in that area for at least the last 12 months (by line item).
  2. Sort the data from the highest to lowest spend
  3. highlight the top 80 percent of the spend.

This 80 percent will normally be no more than 20 percent of the number of line items.. You now have a manageable amount of data to go out into the market place with.

This does not cover every aspect of the potential scope of supply.  In certain circumstances additional items may need to be added, such as bottle-neck and specialised items.  The aim is to gain an estimation of the market rates.

The incumbent supplier should be made aware that you are planning to perform a benchmarking exercise before you go out to the market place.

Step Two – Going to the market

Having selected the items you want to benchmark, you can now approach the market to understand the current prevailing costs.

Benchmarking is generally an informal process and the Management Information Hub is a good source of information, as is the internet. You can also contact a number of suppliers directly.  However it is important to ensure these recipients of requests understand this is a benchmarking exercise and not a business opportunity. The request should be simple enough for the suppliers to provide the information without having to spend a great deal of time doing so.

Step Three – Results analysis

You now compare the results of your benchmarking exercise.  For example, enter all  prices into a spreadsheet and determine the price difference between the incumbent supplier prices against the prevailing market rates. You can now determine where the incumbent supplier(s) sit against the best, worst and average market rates.

Step Four – What next?

If you are happy with where the incumbent supplier’s pricing sits then the supplier is competitive and no further action need be taken.

If you are not comfortable with where the incumbent supplier’s pricing fits, invite them to a meeting.   Give them the opportunity to explain why they are not competitive against the current market rates.  On no account should you divulge the competitors names or pricing information.

If the supplier is willing to accept their prices are not in line with the market rate, this will be a relatively pain free cost reduction for you. If the supplier is unwilling to negotiate a reduction, you should initiate the escalation process.  Include this as an agenda item at the next Review Meeting.

Measuring Supplier Performance - Understand Contract Terms & Conditions

The fundamental purpose of Contract and Supplier Management is to ensure that:

  • suppliers meet their contractual obligations for the duration of the contract and
  •  the contract requirements are successfully delivered. This includes any special contract performance conditions included in the competition documentation and related to the contract subject-matter.  This may cover economic, innovation-related, environmental, social or employment-related conditions.

Anyone engaged in managing suppliers must read and fully understand the contract terms and conditions. This will ensure they are not at a disadvantage should any issues arise.

It is essential that your Organisation’s Contract Manager/Contract Management Officer is engaged from the Develop Strategy stage early in the process and participates in the development of the terms & conditions.

Balanced Scorecards

The Full Balanced Scorecard is recognised for monitoring and managing contract and supplier performance.

Key Performance Indicators (KPIs)

KPIs provide a mechanism to measure the four quadrants of the balanced scorecard (Quality, Cost, Sustainability, and Service).  KPIs help organisations understand how well they and/or their suppliers are performing against their strategic goals and objectives.


Blacklisting refers to the practice of systematically denying individuals employment who would otherwise be able to be employed.  This can be on the basis of information, accurate or not, held in some type of database.

The Scottish Government regards blacklisting or the compiling of a blacklist as unacceptable. 

Effective contract management monitoring ensures  the practice of blacklisting does not occur in public contracts.

The Employment Relations Act 1999 (Blacklists) Regulations 2010 provide rights for individuals if blacklisting results in refusal of employment, detriment, dismissal or redundancy.  

Any bidder which has been found to have breached, or has admitted breaching, these Regulations must be excluded from the procurement process for a period of three years.  This is unless it can demonstrate to you that it has taken appropriate remedial steps.  The Scottish Government regards blacklisting or the compiling of a blacklist as totally unacceptable.  Blacklisting refers to the practice of systematically denying individuals employment, who would otherwise be able to be employed, on the basis of information, accurate or not, held in some type of database.

Management Information (MI)

MI is used to monitor the supplier or contract performance.  It ensures management have the information necessary to make effective strategic and operational decisions.

It is important that your MI requirements are clearly defined and communicated to the supplier.  Reporting arrangements must be fair and proportionate and not duplicate information already provided.

Your MI approach to should  minimise demands on suppliers for information about goods/service delivery. The frequency and level of reporting should be informed by a risk assessment.  Reporting may increase in certain circumstances, for example if a complaint is made about service/delivery.

For some specific services you should avoid duplicating information which is collected by and is available from regulatory bodies. This can be achieved through the development of Memoranda of Understanding and regular discussions between the organisation and the regulatory bodies.

Contract Managers/Contract Management Officers should present information gained through contract management in regular reports to senior managers. In order to fulfil their role, they should:

Further examples can be found in the Management Information document.

Approaches to Managing and Monitoring Sustainable Outcomes

Sustainability outcomes, for example Fair Work Practices, must be an integral element of the contract and supplier management process. They should be included as a standard agenda item at supplier review meetings and considered alongside all other contract management matters.

It is important to ensure monitoring includes the use of any agency or sub-contractor workers throughout the duration of the contract.  This will include any new members joining the workforce engaged on the contract delivery.

Evidence should be sought from suppliers to demonstrate compliance with agreed contract conditions, for example, reviewing recruitment information: pay policy; workers terms and conditions  involved in contract delivery.  This includes what the main contractor is doing to ensure commitments are being maintained by agency workers and down the sub-contractor supply chain.

Where there are material concerns regarding a supplier’s compliance with any sustainability commitments or the contractual obligations it has made, an organisation could consider whether to undertake general sustainability audit of the contract.


Contract management arrangements should identify what happens when the contract is not being delivered as agreed or, the agreed quality standards are not being met.

  • Performance issues should be addressed immediately, and escalated within the supplier organisation if not resolved promptly.
  • If you find that the supplier is not delivering the agreed level of service, you should raise this with them immediately. For quickness, this can be done by telephone but should be followed up in writing. The supplier should be asked for an action plan to ensure that the required levels of service re-commence in a short time frame. Depending on the severity of the issue, it may also be necessary to hold a face-to-face meeting with the supplier. All discussions/meetings, etc. should be minuted to ensure an audit trail exists. If resolution of the issue is not completed within the timescales agreed then the issue should be escalated (see below) and your Organisation’s procurement contact notified of the problem.
  • If the issues raised are not resolved to your satisfaction, they should be escalated within the supplier organisation.  An early face-to-face meeting should be arranged where actions and timescales to remedy the situation should be agreed and implemented. The recovery actions should be monitored on a regular basis to ensure that the agreed recovery / resolution dates do not slip. All discussions/agreements should be noted in writing.
  • Contract Managers/Contract Management Officers should ensure the escalation process is clearly defined, understood and communicated to all stakeholders and end users.

Incentives and Sanctions

Incentives and sanctions should be used appropriately to maintain/improve the contract/supplier performance.

There are specific contract terms and conditions that can be used to help drive contract compliance/performance.  These should be incorporated into the contract terms and conditions (T&Cs).

You should ensure that you understand the specific contract T&Cs. Any incentives and sanctions must be appropriate and legally enforceable. You should seek legal advice if in doubt as to the wording, appropriateness or legality of a proposed condition.

Examples of incentives and sanctions which could be considered are listed below.  These must not be applied autonomously. Appropriate internal approval must be sought and received prior to implementation.

Incentives could (subject to avoiding substantial modification) include:

  • Contract extension options
  • A longer contract opportunity could provide performance motivation
  • Payment by result, e.g. milestone payments (linked to defined deliverables)
  • Reduced payment terms

Conditions of Contract could include:

  • Retention e.g. legitimately withhold payment if deliverables are not completed (with genuine and notified reason, but compliant with previously agreed contract terms and conditions)
  • Legal action
  • Termination of the contract.  (Please note: you cannot terminate a contract with the aim of avoiding procurement rule obligations).
  • Liquidated Damages.  This is that damages whose amount the parties designate during the formation of a contract for the injured party to collect as compensation upon a specific breach)

For a sanction to be effectively enforced, sufficient evidence is required to justify the claim or action. It is therefore important to have clear records. for example of agreed service levels, notice periods, reminders, communications, agreements etc.

Any enforced incentive or sanction must comply with the agreed contract or agreement terms and conditions.

Feedback and Improved Communication

Improvement opportunities can be identified by anyone engaged with the Organisation, both internally and externally.

Many improvement ideas come not from management but from employees and suppliers operationally involved in service delivery.  They are regularly exposed to operational inefficiencies which may not be visible higher up in the Organisation.

Your organisation should seek feedback.  It should work to develop a culture where everyone in the Organisation is encouraged to look for and suggest operational improvements. All suggestions should be considered

Risk Management

A key element of Contract and Supplier Management is the proactive identification and management of risk. Guidance can be accessed on the Risk Management page.

Fraud Prevention, Detection, Monitoring and Handling

More guidance on fraud can be found in the Scottish Government website on Fraud.


Weak interactions between an organisation’s  finance, commercial, and contract management functions provide an opportunity for fraud and overbilling.  This could be as a result of error and inefficiency, or by deliberate intent.  

Without basic scrutiny of payments and performance an Organisation’s departments may rely on the supplier to interpret the contract correctly.  This may result in error. Better scrutiny of payments and improved contract knowledge will identify overbilling and fraudulent activity.  Appropriate action can then be taken

Supplier Health Check

Contracts are awarded following a thorough evaluation process which addresses some standard elements.

Throughout the life of the contract, your Organisation’s Contract Managers/Contract Management Officers should perform periodic supplier ‘health checks’.  This ensures the standards demonstrated during the initial evaluation are being  maintained. Health checks could include:

  • Financial Status,
  • Business Probity,
  • Conviction of Criminal Offences,
  • Compliance with Legislation and Regulatory Provisions (including Equality),
  • Corporate Social Responsibility:
  • Sustainable Procurement and Environmental practices,
  • Health & Safety and
  • Insurances.

The frequency of the checks should be in line with the type of contract.  For example strategic and bottleneck contracts will be checked more frequently than collaborative and routine contracts.

Data Protection

Contract management activities must include sufficient checks to ensure suppliers are meeting their Data Protection Legislation obligations as the Processor. These checks  may include audits undertaken by the controller or a third party auditor.

If obligations are not being met, organisations should take urgent remedial action with the supplier to address issues and risks.

More detailed information can be found in Additional Resources.

Innovation/Value Add

Good Contract and Supplier Management processes should encourage both supplier and organisational innovation. It should be recognised that suppliers often have innovative ideas to improve their own and their customer’s service.  However suppliers can be blocked in their attempts to put these ideas forward.

You should want to be a  customer of choice i.e. suppliers will invest and bring innovation to the contract.  You should adopt these behaviours and allow supplier innovation and added value activity to flourish:

Quickfire Guide

Quickfire Guide

How to Promote Innovation

You should promote supplier innovation and added-value activity to flourish:

  • Embrace your suppliers as an extension of your business. Learn from their ideas and build open and trusting relationships where innovation will thrive.

  • Establish a culture of trust and encourage ideas from suppliers, as they often know your business better than some of your own team.

  • Define and share your Organisation's definition of supplier innovation. This way suppliers can understand your internal process, where they fit in and your expectations of them.

  • Share as much information as you can with your top suppliers. The earlier suppliers can see your product / services roadmap, the sooner they can provide ideas to improve it.

  • Implement a consistent governance framework. If a supplier’s idea has potential, assign an internal owner to investigate and develop this ensuring there is accountability and development continuity.

  • Innovation does not have to be ‘ground breaking’. Even minor service or process adjustments can bring cost and/or efficiency gains.

  • Encourage collaboration within the teams, and let them know there will be some ideas will be more successful than others, but all ideas will be considered. Publicise and reward innovative contributors appropriately.

  • Publicise supplier innovation success stories. A brief email outlining real supplier initiated added-value and the mutual benefits will encourage others to do the same.

  • Consider innovation as a standard KPI and ensure innovation is on the agenda at performance reviews.

Innovation is a two way process.  Your organisation should be equally active in exploring innovative ideas which will help your suppliers improve their performance and service delivery.

What is Demand Management?

Demand Management can be defined as:

“the alignment of a business’ consumption with its business requirements”

It is applicable to all goods and services where internal demand and consumption can be influenced to reduce costs.

Demand Management is a key aspect of effectively aligning external resources to meet requirements. When demand management is considered, it is often seen as a simple matter of stopping people spending money. However there are ways to look at demand management without completely preventing spend.  These can provide notable savings and have a less drastic impact on the business.

Demand often results from internal practice and process rather than from addressing a real need of the organisation.  The approach is about addressing change ‘in’ an organisation.  Therefore the starting point will be the culture, policy and behaviours of your organisation.

Your organisation can also participate by the sharing of best practice, benchmark behaviour, policy guidance and peer review.

Demand management can come at different points in the procurement process. from the initial purchase point e.g. making sure that software licences are purchased for the correct number of users at a single point in time or where costs are recurring as an ongoing activity such as in a category where spend is ongoing and regular, such as stationery or postal services.

Principles of Demand Management

Demand Management, including behaviour change, represents a significant and untapped opportunity.

In the short term

changing expectations

in the medium term

changing participation

in the long term

reducing need

There are 3 main principles of demand management:

1. Each business unit should have exactly what it needs in order to deliver its business objectives

2. Any resources consumed above this level represents a waste to the organisation

3. There may be many and very different ways of meeting a user need.  Each way represents a different level of resource to achieve the same outcome

The three strategies listed below could be independently or jointly applied.


Is the requirement really needed? Can the consumption be stopped? e.g. cancel non-essential meetings, or stop the use of mobile phones for non-business calls. 


Can we use lower cost or more effective alternatives? e.g. use video-conferencing for meetings or ensure non-confidential papers are not treated as confidential waste


Can we use less of a product / service? e.g. don’t order a monitor with every PC purchase or, schedule meetings for the same day

With Demand Management you should consider:

  • A reduction in the demand for goods
  • If there is there an option to use recycled goods to avoid buying new? Could recycled goods be supplied under an existing contract?
  • Is there an opportunity to consolidate orders/services to reduce costs
  • Improving your purchase to pay system to reduce transactional costs
This is the alt text

Benefits of Demand Management

There are a number of benefits to an effective Demand Management strategy. Many benefits are driven by:

  • a change in the organisation culture and outlook and
  • how goods and services are specified and requested.

When robustly implemented across all goods and services Demand Management drives public sector organisations’ efficiency and effectiveness.  The organisation uses all  the external resources it procures to meet operational requirements.

The Demand Management process challenges the norms, standards, customs and practice of an organisation.  This is done to a degree not usually found in other processes.

Using Demand Management to prepare Strategic Sourcing, you can establish the organisation requirements to be sourced to a very specific level.  This can avoid the development of a sourcing strategy for  over-specified operational requirements.

Used routinely Demand Management can ensure the highest possible resource levels are directed at front line services.  This is especially important in the public sector.

Forecasting Demand

Consideration as to how the demand will be forecast and fluctuations managed should be initially undertaken at the Shaping the Requirement’ Stage.  This should  subsequently be monitored and managed throughout the lifetime of the contract. Failure to do so could result in:

  • excess material purchases and subsequent material write off/waste disposal costs
  • inadequate material availability resulting in additional recovery costs and/or service breakdown
  • excess, inadequate or inappropriately positioned resource
  • reputational damage as a result of service breakdown

effective demand management forecasts also give the supply base the opportunity to manage their costs.  This can be achieved by positioning resource and material in line with demand.

Demand forecasting should be based on considerations such as:

  • Historical consumption
  • Supplier lead times
  • Market forces
  • Service criticality
  • Key stakeholder input
  • Purchase cost
  • Information from other buying organisations, trade bodies and business support organisations e.g. Federation of Small Businesses and Chambers of Commerce, etc.

Where practical you should look to reduce future demand and costs by using strategies such as:

  • considering if there is an option to fully or partially transition to recycled goods, instead of buying new
  • reducing transactional cost by improving the purchase to pay system
  • innovating supplier(s) to reduce mutual cost which should have been previously written into the contract / agreement with the supplier

For any supplier to operate effectively, it must understand and manage its demand.  It must use this knowledge to tailor its resources and processes proportionately.  This will ensure they deliver their service in the most efficient and cost effective manner. By understanding historical demand, an organisation can work with its suppliers to realise mutual cost and efficiency gains.

The most effective way to forecast future demand is to consider a combination of:

  • historical demand,
  • market forces and
  • the Organisation’s business plan/strategic direction.

Forecasting is not an exact science and will never be 100% accurate.  However these elements should provide sufficient information to allow the Organisation to develop forecasts.  These forecasts should be accurate enough to accommodate demand fluctuations during the lifetime of the contract(s) with minimal cost.

The Organisation should ensure the supplier stays in regular contact with all key stakeholders (including suppliers).  This will ensure that all parties are aware of the supply/demand position, especially during periods of fluctuation.

Review Meetings

Performance Review Meetings provide your Organisation and the supplier with an opportunity to:

  • focus on end to end performance,
  • identify issues and opportunities and
  • put appropriate action plans in place.

The Performance Review Meeting standard agenda template can be completed by your Organisation and the supplier before the meeting.  This  will provide a structure to the meeting.

It is best practice to hold at least an annual review for suppliers identified (under the segmentation process) as requiring ‘medium level’ supplier management.  At least two review meeting per year should be held for ‘high level’ suppliers.

The  Review Meeting Template and a meeting agenda example are available below to assist you in doing this.


The Performance Review Agenda Example (agenda can be amended to suit your personal preferences):

Quickfire Guide

Quickfire Guide

Example Performance Review Meeting Agenda

This agenda can be amended to suit your personal preferences:

Agenda Item


Introduction and Opening Remarks

Introduce attendees.  Recognise special or new guests.  Provide any opening remarks that are pertinent to this meeting such as current events, organisational changes, etc.

Review of Action Items

Each Performance Management Review meeting will produce some follow up action items for your supplier, your Organisation or both.  These should be documented and followed up at the next Performance Management Review meeting.

Supplier Performance


Performance against SLA/KPIs/Scorecards should be reviewed and discussed, and any performance concerns raised.  This will be a quick review if all deliverables are being achieved.  Any "below plan" performance will demand more discussion and most likely recovery action plans.  These plans should be managed operationally and reviewed at the next Performance Review meeting.

Customer Performance


The supplier can raise any customer performance issues.  For example these may be impacting their ability to fulfill their contractual obligations.

Key Improvement Areas/Opportunities

All opportunities for improvement should be explored.  Once identified, action plans should be agreed.  Areas to be explored should include: current performance issues, cost, process, Sustainable Procurement, Corporate and Social Responsibility, innovation/value add.

Supplier Presentation

The supplier should provide a business overview, including example financial information, strategy, overarching objectives, etc.

Meeting Summary and Review of Action Items

Round up of meeting and confirm next meeting date.