[an error occurred while processing this directive]
Go to previous section of document Link to chapter contents   Go to next section of document

Conduct Supplier Capability (Technical and Financial) Analysis

Selection of the right suppliers is critical to the Postal Service's success. The right suppliers augment the Postal Service's ability to deliver high-quality and innovative service to its customers and to reduce operational risks. Analysis of supplier capability is conducted before contract award to determine the supplier's performance ability throughout the life of the contract. Financial capability analysis aids in determining the supplier's ability to remain financially solvent, and technical capability analysis helps determine whether the supplier has the technical ability and capacity to perform the work.

Financial capability is essential for suppliers to assure continuity of supply and reliability of product quality. It is difficult for a:

Financially weak supplier to maintain quality

Supplier who does not have sufficient working capital to settle an expensive claim

Financially unsound supplier to work overtime to meet a promised delivery date

Technical analysis confirms the reasonableness of the type and amount of resources proposed by the supplier. This analysis covers the proposed types and quantities of materials, labor, processes, special tooling, facilities, the reasonableness of scrap and spoilage, and other factors set forth in the proposal.

Supplier Capability

Supplier capability is evaluated to determine a supplier's ability to perform upon award of a contract. It should be used as a snapshot of the quality and reliability of that performance. Certain key areas must be considered when determining a supplier's capability. To be deemed capable, the supplier must:

Have, or have the ability to obtain, as needed, adequate resources to perform the work (e.g., technical, financial)

Be able to meet the required or proposed delivery schedule, considering all existing commitments, including awards pending

Have a sound record of integrity and business ethics

Have a good quality control program that complies with RFP requirements

Have the necessary organization, experience, accounting and operational controls, technical skills, and production and property controls

Have, or have the ability to obtain, the necessary production, construction, and technical equipment and facilities

Be otherwise qualified and eligible to receive an award under applicable laws and regulations

Return to top of page

Technical Capabilities

Technical analysis is performed on the following relevant areas:

Business process changes

Application development

Software and systems engineering

Development and maintenance

Information technology (IT) service management

Infrastructure design and planning

Infrastructure and technology deployment

Infrastructure management

Operations management

Technical support

Return to top of page

Financial Capabilities

Analysis can be performed on the following information and items so that an estimate of present supplier capacity can be known:

A review of financial statements and credit ratings

Copies of balance sheets and income statements

Levels of turnover

Liquidity measures, ratios

Profitability measures, ratios

Measures of long-term financial strength

Leverage ratio

Certain business information must be obtained to determine that a potential supplier is capable. Sources of such information include:

The Postal Service list of debarred and suspended suppliers and the General Services Administration's (GSA's) consolidated list of suppliers debarred, suspended, or declared ineligible (additional instruction can be found in Title 39 Code of Federal Regulations (CFR) 601.106.D)

Records and experience data, including the knowledge of other Contracting Officers, purchasing specialists, and audit personnel

The supplier's proposal information, business profile, financial data, information on production equipment, production data, questionnaire replies, and personnel information

Subcontractors, customers, financial institutions, and government agencies that have done business with the supplier

Business and trade associations

Return to top of page

Review Core Processes

For high dollar, highly complex, or sensitive purchases, a review of the supplier core process may be required. The review of core processes entails the thorough evaluation of a potential supplier's customer service infrastructure, transportation operations, logistics network, and inventory planning capabilities. A positive evaluation of these core processes will help to increase the overall evaluation of a proposal and make the potential supplier's offer more competitive. The Contracting Officer and/or Client will conduct the evaluation of core process descriptions and will determine how compatible the supplier's are with those of the Postal Service. In doing so, high-quality customer satisfaction, shorter lead times, and the use of more effective technological aids are all promoted. Market research and benchmarking analysis are used when evaluating core processes because they provide successful performance models for comparison. Additional information can be found in the Conduct Market Research and Benchmarking Analysis topic of the Decide on Make vs. Buy task of Process Step 1: Identify Needs.

For projects that are complex, high in dollar value, critical, or have high switching costs, site visits may be conducted to validate and supplement information provided by potential suppliers in proposals in response to RFPs. These visits enable face-to-face interaction and:

Validate information already acquired

Offer a first-hand view of the supplier's facilities, operations, and personnel

Clarify points in supplier's offers or proposals

Provide a better insight into the supplier's proposals and its capacity and capability to deliver (can include an in-depth demonstration of the supplier's proposed solution and presentations by the supplier's project team)

Advance negotiations with supplier

Ensure that both sides of the supply relationship have the same understanding and definition of various performance metrics, such as "on-time delivery" and "quality."

Provide a great forum to discuss product specifications in depth

Allow the Postal Service to assess supplier's dependability and total health

It is imperative that individuals involved in these visits do not divulge any supplier's proprietary business or trade secrets.

Return to top of page

Reference Checks

The Contracting Officer will perform reference checks on supplier qualifications cited in a proposal submission when it is determined necessary by the Contracting Officer to validate supplier past performance. Also, the Contracting Officer may choose to perform reference checks on specific resumes submitted for a role or a responsibility outlined in the proposal when that role, and the relevant skills and experience needed for that role, is considered key to the successful performance of the contract. However, for other non-key personnel resumes, it is expected that the supplier will have conducted the appropriate reference checks.

RFP language will include instructions for the provision of the supplier's previous project experience qualification, which should include the name and contact information of the associated contract holder. Reference checks should be conducted for those proposals being considered if the Postal Service does not have previous experience with the particular supplier or if additional information regarding the success and/or details of the project are of interest.

Similarly, the RFP will instruct the potential supplier to include resumes of those employees it plans to staff on the project, if awarded. Additional information may be requested from the supplier if resumes do not include sufficient information. If there is not language in the RFP enforcing the guarantee of participation of all candidates proposed for a project, then resumes may also be solicited upon contract award if a candidate is replaced or added.

Reference checks performed during the Perform Preaward Activities task of Process Step 2: Evaluate Sources will provide additional familiarity with the supplier's work history. Additional clearances/background checks may be required for some product or service providers. See the Supply Chain Security general practice for more information.

Performing a reference check involves:

Reviewing supplier performance with other/previous partners

Control of internal and external supplier audit history

Return to top of page

Performance with Previous Partners

The first step of a reference check for a selected supplier is for the Contracting Officer to contact parties who hold/have held contracts with the supplier. Information generated from these parties will allow the Postal Service to better determine the performance to be expected from selected suppliers and thus judge the overall merit of a selected supplier. It is also important that the Postal Service learn about a supplier's organizational culture so that the two will be compatible. Strategic alliances can be formed only when the Postal Service and a selected supplier complement each other, not just by deciding to do business together.

Supplier Audit History

The last step in checking a supplier's references is to examine the supplier's internal and external audits. Internal audits provide essential information regarding supplier methodology, which allows the Contracting Officer, guided by the financial expertise provided by the Pricing Analyst, to determine the financial stability of the supplier and to ensure that the supplier can fulfill the Postal Service's requirements in the case of an awarded contract. External audits provide essential objective information regarding the legal and strategic legitimacy of supplier processes, staff, technology, facilities, and finances. A supplier must be free of "going concern" problems to be considered for a contract award.

Preaward Survey

A preaward survey provides sufficient knowledge of the supplier to make a decision to include or exclude the supplier from further consideration. If the required information and discussions do not provide an adequate basis for determining capability, the Proposal Evaluation Team may conduct a preaward survey with the suppliers. The extent of the survey must be consistent with the dollar value, complexity, or sensitivity of the purchase and may include any of the following:

Data on hand or from other government or commercial sources

Examination of financial statements and records

On-site assessment of plant, facilities, workforce, subcontractors, and other resources to be used in contract performance

The scoring of the survey can range from adjective ratings to numerical systems and will depend on the situation. Results of the preaward survey must be in writing and included with the capability determination.

Return to top of page


The supplier capability analysis will typically consist of investigating the supplier's proposal. The Proposal Evaluation Team members will perform the analysis in their respective areas. Facility visits may also need to be conducted to analyze the supplier. In performing the analysis, each evaluation factor and associated weighting factor will receive a score, which is how the most suitable supplier will be chosen.

Assessing Subcontractors

Subcontracting takes place when a supplier contracts out the performance of a part of its business to another, referred to as a "subcontractor." The subcontractor then uses its own employees and/or resources to undertake that portion of the business or project that the Supplier has contracted to it. As such, the subcontractor is a person or company that does part of a job that another supplier is responsible for.

The Purchase/SCM Team may require the Supplier to notify the Postal Service of its intent to subcontract. The notification should be in writing and provide the Purchase/SCM Team reasons for subcontracting, the desired effective date, and the identity and qualifications of the proposed subcontractor(s). The Purchase/SCM Team will review the notification and determine whether further examination of the subcontractor(s) is required.

Generally, suppliers are responsible for determining the capability of their subcontractors and are required to provide evidence of a subcontractor's capability. In some cases however, the Purchase/SCM Team may decide to assess subcontractors for acceptability. In such cases, the subcontractor capability may be determined using the same criteria used to determine primary supplier capability. Subcontractors must meet the same responsibility and qualification requirements as the Supplier.

Return to top of page

Other Topics Considered

Conduct Market Research and Benchmarking Analysis topic, Decide on Make vs. Buy task, Process Step 1: Identify Needs

Perform Switching-Cost Analysis topic, Develop Sourcing Strategy task, Process Step 2: Evaluate Sources

Go to previous section of document Link to chapter contents   Go to next section of document