Tender evaluation judges the offer. It scores what a supplier says about its method, its people, its experience and its price. Once a preferred supplier emerges, attention often relaxes: the hard work of comparing bids is done, the project is waiting, and everyone wants to sign. That is precisely the moment when one more question deserves careful attention. Can this supplier actually do what it has described?
Tender documents are written to persuade. A supplier can present a strong methodology, experienced senior people and impressive past projects, all honestly, and still be unable to deliver this job. The project manager named in the bid may be committed elsewhere. The specialist subcontractor may not have agreed to take part. The business may be financially stretched, or already committed to more work than it can staff. None of this shows in a well-written tender.
Due diligence is the process of checking the supplier behind the offer before committing to it. This article explains what to check, how to scale the effort to the risk, how to distinguish capability from capacity, what to do when checks raise concerns, and how to keep the process fair. It is general information. Public sector buyers must also follow their procurement rules, and significant contracts deserve legal and financial advice.
Evaluation and due diligence answer different questions
| Tender evaluation | Due diligence | |
|---|---|---|
| Question | Which offer is best? | Can this supplier perform it? |
| Evidence | What the supplier submitted | Independent checks, records, references, visits |
| Focus | Method, price, experience as described | Entity, finances, people, systems, supply chain, capacity |
| Timing | Comparing all offers | Before award, on the preferred supplier or shortlist |
A high evaluation score does not prove delivery capacity. A useful framing question for due diligence is: what must be true inside this supplier for the tender promise to become reality?
Seven areas to check
1. Legal and organisational capacity
Is the entity that signs the contract the one that will perform it, and can it legally do so? Check the Australian Business Number on the ABN Lookup service, including the entity name, type and GST registration. For companies, search the ASIC registers for the company’s details and status, and ASIC’s published notices for any insolvency or administration notices. Check that any required licences are current on the relevant state or territory register. Confirm that the entity named in the tender is the one that holds the experience and staff, not a newly formed company or a related entity with no history.
2. Financial resilience
Can the supplier fund the work until it is paid, and absorb the normal ups and downs of a project? Useful evidence includes recent financial statements, a credit report from a commercial credit agency, and, for significant contracts, a conversation with the supplier’s accountant or a review by your own.
Indicators worth looking at:
- Working capital: whether current assets comfortably exceed current liabilities.
- Contract size relative to the supplier’s annual revenue: a contract that would be a large share of its turnover makes the supplier dependent on it and stretches its cash flow.
- Cash needs: how much the supplier must spend on materials, equipment and labour before your payments arrive.
- Payment behaviour: whether its own suppliers report being paid late, which often signals cash pressure.
- Security interests: a search of the Personal Property Securities Register shows whether lenders hold security over the supplier’s assets, which is normal but adds context.
The aim is not to demand perfect finances, which few small suppliers have, but to understand the risk and design the contract around it. The when a key contractor fails article covers matching security and payment terms to the exposure.
3. People
Are the key people named in the tender real, available and appropriately authorised? Ask for written confirmation that named key personnel will be assigned for the stated period, and check their other commitments. Interview the people who will actually lead the work, not only the business development team. Agree in the contract that key personnel cannot be replaced without your consent and a replacement of equivalent experience.
4. Relevant experience
Does past performance show comparable capability? Ask for projects similar in size, complexity and type, then speak to the referees yourself. Ask specific questions: What did the supplier do well? What went wrong, and how did they respond? Were the same key people involved? Was the work on time and on budget? Would you hire them again for this kind of work? Referees chosen by the supplier will usually be positive, so the detail of their answers matters more than the overall tone. Where possible, also speak to a client the supplier did not nominate.
5. Systems
Are the supplier’s quality, safety and project management systems real, or only documented? Certifications show that a system has been assessed; they do not show that it is working well on current jobs. Ask to see recent examples of inspection and test records, safety documentation, progress reports and non-conformance reports from a comparable project, with confidential details removed. For suppliers handling your data or connecting to your systems, ask about their information security practices.
6. Supply chain
Much of the work in many contracts is performed by subcontractors and suppliers to the prime supplier. Which parts of this job will be subcontracted, to whom, and have those subcontractors agreed to take part on the stated terms? Ask for letters of commitment from critical subcontractors, and apply proportionate checks to them too. A strong prime supplier with an unconfirmed specialist subcontractor is a weak link waiting to break.
7. Implementation and mobilisation
Is the plan for starting the work realistic? Check lead times for key equipment and materials, the mobilisation schedule, any approvals or permits needed and the supplier’s other work starting at the same time. A supplier that plans to begin in two weeks but still has to recruit its site team is signalling a risk.
Capability is not capacity
A supplier may have the capability, the knowledge and skills, to perform the work, yet lack the capacity, enough available people and equipment, to deliver your job on your timetable. The reverse also happens: a large supplier may have plenty of people but no specialist knowledge of your requirement.
Capacity problems are easy to miss because tender responses describe the business at its best. Ask directly what other work the supplier has won or expects to win over the contract period, and how it will staff all of it. If you are awarding several contracts to the same supplier, consider its total commitments to you, not each contract in isolation. A supplier adequately resourced for one project may be overextended across three.
Concentration: your exposure, not just their health
A financially healthy supplier can still create risk if too much of your critical work depends on it. If one supplier holds several of your important contracts, its failure, a key person’s departure or a dispute could affect all of them at once. Part of due diligence is looking at your own cumulative exposure and deciding whether to spread work, build contingency or accept the concentration deliberately. The not every supplier is a partner article covers segmenting suppliers by value and dependency.
Scale the effort to the risk
Due diligence should be proportionate. A routine purchase does not need the same checks as a critical contract.
| Risk level | Typical examples | Proportionate checks |
|---|---|---|
| Low | Standard goods, small one-off services | Entity check, insurance certificates, basic licence check |
| Medium | Recurring services, moderate contracts | Add references, a financial summary or credit report, key personnel confirmation |
| High | Critical services, large or long contracts, safety-critical work | Add full financial review, site visit, subcontractor commitments, system evidence, information security, capacity and concentration review |
Decide the level of checking, and the evidence required, before choosing the preferred supplier. Defining the checks afterwards invites the suspicion, and sometimes the reality, that they were designed to favour or disqualify someone.
Insurance and compliance basics
For most service and construction work, ask for certificates of currency for the insurances the contract requires, such as public liability, professional indemnity where advice or design is involved, and workers compensation. Check the insured entity, the cover amounts, the expiry dates and any significant exclusions. Ask about the supplier’s safety record and any recent regulator notices for work where safety matters. Diarise insurance expiry dates and ask for updated certificates during the contract.
Keep it fair and lawful
Due diligence should be consistent and transparent:
- Tell tenderers in advance that due diligence will be done and what it may involve, such as financial checks, reference checks and site visits.
- Obtain consent where required, for example for credit checks involving individuals such as sole traders.
- Apply the same checks to suppliers in the same position.
- Do not use due diligence to reopen the evaluation or to renegotiate price under the guise of checking.
- Record what was checked, what was found and how it affected the decision.
- Protect confidential information the supplier provides, and use it only for the evaluation.
For public sector procurement, the process and outcomes must comply with the stated rules, which may limit what can be done after evaluation.
When checks raise concerns
Due diligence findings do not always mean rejecting the supplier. Options include:
- Clarification: asking the supplier to explain or provide more evidence.
- Conditions of award: such as confirmation of key personnel, signed subcontractor commitments or updated insurance before the contract starts.
- Contract protections: milestone payments rather than large deposits, security such as a bank guarantee, key personnel clauses, step-in rights or closer reporting.
- Reconsideration: if the concerns go to the heart of the supplier’s ability to perform, moving to the next-ranked supplier in line with the procurement process.
The choice depends on how serious the concern is and whether it can be managed. The choosing between quotes and tenders article covers setting decision rules and recording reasons, which also help when due diligence changes the outcome.
Do not start from zero every time
For suppliers you use repeatedly, keep a record of past performance, checks completed, insurance expiry dates, key personnel and total commitments across your contracts. Each new tender can then build on what you already know, and recent experience of a supplier’s actual performance is worth more than anything in a tender.
A worked example
This is an illustration. A 60-person food manufacturer is buying a new packaging conveyor and control system, installed and commissioned, for about $450,000. Three tenders are received. The highest-scoring tender has the strongest commissioning method and names an experienced project manager.
Before award, the manufacturer runs the high-risk checks it described in the tender documents.
Entity and compliance. The ABN and company records are in order, the electrical contractor licence is current, and insurance certificates are provided. There are no insolvency notices.
Finances. Two years of financial statements show annual revenue of about $3 million. The contract would be about 15% of that. Working capital is thin, with current assets only slightly above current liabilities. The tender asks for a 30% deposit, about $135,000, to buy equipment.
People. When asked to confirm the named project manager’s availability, the supplier explains that this person is finishing another project and would join after about six weeks. Until then, a less experienced engineer would lead.
Supply chain. The control system programming is to be subcontracted to a specialist firm, which has quoted but not yet committed to the dates.
References. Two referees are positive about the quality of the finished work. One mentions that commissioning took three weeks longer than planned because the controls subcontractor was late.
The manufacturer decides the concerns are manageable rather than disqualifying, and sets conditions before award: written commitment from the controls subcontractor to the programme dates; the named project manager to lead the work from the start of installation, which is eight weeks away, with the design phase led by the engineer under the project manager’s review; and a key personnel clause. Instead of a 30% upfront deposit, payments are tied to milestones, including a payment on delivery of major equipment to site. The supplier accepts, and the contract is awarded. During delivery, the manufacturer holds fortnightly progress meetings with both the supplier and the controls subcontractor present.
How this applies to a small Australian business
- Separate evaluation from due diligence: one judges the offer, the other the supplier.
- Decide the checks in advance, scaled to the risk, and tell tenderers.
- Check the entity, licences and insurances on public registers and certificates.
- Understand the supplier’s finances relative to the contract.
- Confirm key people and subcontractors in writing.
- Speak to referees yourself and ask specific questions.
- Distinguish capability from capacity.
- Watch your own concentration on any one supplier.
- Use conditions and contract terms to manage concerns.
- Record what you checked and why you decided.
Common mistakes
- Treating a high score as proof of delivery capacity.
- Checking finances only after problems appear.
- Ignoring subcontractors who will do much of the work.
- Accepting named personnel without confirming availability.
- Treating certificates as evidence of actual performance.
- Inventing checks after choosing the preferred supplier.
- Paying large deposits to financially stretched suppliers without security.
Questions to ask
- What must be true inside this supplier for the tender to be delivered as described?
- Is the entity signing the contract the one with the experience and staff?
- How large is this contract relative to the supplier’s business?
- Are the named people available for the whole period?
- Have critical subcontractors committed?
- What else is the supplier delivering at the same time?
- How much of our critical work already depends on this supplier?
Bringing it together
A persuasive tender shows that a supplier can describe a good delivery model. Due diligence asks whether it can execute that model on your job. Check the legal entity, finances, key people, experience, systems, subcontractors and mobilisation plan, scaled to the risk and decided in advance. Distinguish capability from capacity, consider your own exposure to the supplier across all your work, and keep the process fair and recorded. When checks raise concerns, conditions and contract terms often manage them well. The time to find out is before award, while you still have choices.
Source: KEVOS notes on supplier due diligence before contract award. Examples and figures in this article are illustrations. This article is general information and does not constitute legal or financial advice.
