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Procurement and Contract Management
This edition of Audit Insights is targeted at Australian Government officials who have responsibility for overseeing or conducting procurements, including those who only do procurement occasionally. The aim is to communicate lessons from our audit work to make it easier for people working within the Australian public sector to apply those lessons. It is drawn from audit reports tabled in 2020–21, 2021–22 and 2022–23 into Australian Government procurements.
The purchase of goods and services through a procurement process, and the management of contracts to ensure that the purchased goods and services are delivered, is an important part of the way the Australian Government operates. As outlined in , there were 824,178 contracts with a start date between 1 July 2012 and 30 June 2022 (representing a total commitment of $565 billion) reported on AusTender.
Good procurement can deliver more effective public services, better value for money and savings to the taxpayer. A completed procurement results in a contract to be managed, and an expiring contract leads to further procurement if the goods or services are still required. The Commonwealth Procurement Framework is designed to ensure the proper use of public funds and the achievement of value for money. It also seeks to achieve other objectives such as providing equitable opportunities for business to secure government contracts and ensuring that public spending is ethical. The Commonwealth Procurement Rules (CPRs) are at the core of the Commonwealth Procurement Framework. The framework is largely principles-based, with prescriptive rules and mandatory requirements kept to a minimum.
Source: ANAO summary of CPRs (as at 11 January 2023)
ANAO audits in this space have identified cases where entities seek to comply with the small number of mandatory requirements without considering how this achieves the fundamental principles and expectations of the Commonwealth Procurement Framework. These audits have highlighted eight key lessons for effectively conducting Australian Government procurements.
- Use appropriate expertise
- Begin planning early
- Be transparent about decision-making
- Use competition to achieve value for money
- Assess the options and demonstrate value for money
- Act ethically
- Monitor contractor performance
- Keep good records and report accurately
1. Use appropriate expertise
Many procurements are complex, and even simple procurements must follow the rules and expectations of the procurement framework.
- Assess risk — Officials should consider the value and risk of the procurement, and make sure the people involved have the appropriate level of expertise.
- Know the relevant frameworks — It is important that officials have an understanding of the Commonwealth Procurement Framework and any specific requirements of their entity in relation to procurement and contract management. A lack of adequate knowledge and expertise in procurement and contract management may lead to non-compliance with, or breaches of, relevant rules and legislation and a failure to achieve value for money.
- Engage with the entity’s central procurement area — Officials should engage with their centralised procurement area, where it exists. Procurement areas need to be given appropriate authority.
- Engage with Australian Government procurement experts — The Department of Finance provides a range of resources for conducting effective procurements, including contact details for advice, on the . The Digital Transformation Agency (DTA) can provide advice on ICT procurement through the . There are also a number of communities of practice related to procurement.
- Understand the market and what is being procured — Officials need enough market knowledge and technical skill to be able to effectively negotiate and engage with private sector service providers, if they are to be well-informed purchasers and diligent contract managers. Officials should seek to learn from others (both from within and outside their own entity) who have undertaken similar procurements in the past to build on their market knowledge and skill base.
- Rely on and maintain corporate records — Contract management is better when contract managers can draw on their own experience dealing with the provider, or the experience of entity colleagues through the use of robust corporate records. Managers can also draw on the experience of the wider APS through the Department of Finance and relevant communities of practice.
Case study: Procedural, technical, and historical expertise
The Australian Maritime Safety Authority (AMSA) and the Department of Home Affairs (Home Affairs) have managed similar high-value contracts for maritime air surveillance services with the same contractor. AMSA’s contract managers had 20 years experience managing large scale services contracts, subject-matter experience with the aviation industry and aviation law, and good organisational knowledge of the contract due to low personnel turnover.
The Home Affairs contract had been managed by 19 different people between 2006 and 2020, with six having experience managing large-scale contracts or formal contract management training and qualifications. The contract managers were supported by people who had little to no experience or formal contract management training. None of the 19 people were involved in the tender and contract negotiation. Shortly after an ANAO audit into the procurement commenced, Home Affairs appointed a contract manager with 20 years’ experience managing high value and high risk government contracts, as well as previous experience managing aviation contracts. The contract manager was supported by a team of five staff, with formal qualifications in procurement and contract management.
2. Begin planning early
Procurements need to be well planned and with sufficient time to give decision-makers a genuine choice. Poor planning can lead to the use of CPR exemptions, which may otherwise have been avoided. Rolling contracts over as they expire may be the only option available to entities that fail to appropriately plan for contract succession and service continuity.
- Procurement value — Anticipating the value of the procurement early, including through proof of concept and market testing where warranted, will help decision-makers determine the appropriate form of procurement (for example, limited versus open tender).
- Annual procurement plans — Annual procurement plans should be published to give sufficient notice to providers (and especially non-incumbents) to prepare for potential opportunities.
- Out to market — Specifications need to be clear to tenderers. Proof of concept exercises and industry briefings will assist with this. The CPRs prescribe minimum time frames for approaches to market, with entities normally required to provide at least 25 days for tenderers to respond to an open tender.
- Succession planning — Recent ANAO audits have identified situations where poor planning led to contracts being rolled over and sub-optimal outcomes for the taxpayer. Transitional arrangements should be included in all contracts for outsourced services that are likely to be ongoing, including how the provider will maintain the quality of assets throughout the contract period. The contract could also stipulate how services will be transferred to a new provider at the end of the contract. This reduces risk to the continuity of government services and can help to avoid additional costs being incurred when negotiating transitional arrangements immediately before a change in service provider. Entities should begin planning at the start of a contract for the expiry of contracted services, to ensure service continuity. Contract succession planning identifies renewal options and sets timeframes for future procurement. Entities should evaluate the contract with enough time before expiry to inform market testing.
3. Be transparent about decision-making
Entities should establish evaluation criteria at the start of a procurement to guide a transparent and non-discriminatory procurement process.
- Research the criteria — Market research, comparable solutions and benchmarks can help entities decide which criteria are most appropriate, and to get an understanding of what the best outcome looks like.
- Focus the criteria on achieving value for money — There is no universal formula for measuring and assessing value for money. The CPRs provide a non-exhaustive list of factors other than price (including the achievement of broader policy outcomes) that must be considered when assessing value for money. These factors include fitness for purpose, a potential supplier’s experience and performance history, flexibility, environmental sustainability and whole-of-life costs.
- Document the criteria — Documenting the criteria (and the analysis and decisions based on them) encourages methodical decision-making and supports transparency. Transparency provides assurance to the entity, suppliers, government and the public that the procurement value has been non-discriminatory and value for money has been considered.
4. Use competition to achieve value for money
Procurements should incorporate competition to the maximum extent possible. Competition increases the effectiveness, efficiency and economy of the procurement.
- Competitive pressure helps achieve value for money in contractor pricing and service offers. The simple step of asking tenderers to reduce their price with a better or ‘best and final offer’ could result in greater value for money for the taxpayer. Approaching a single supplier is more likely to place the entity in the position of being a price-taker.
- Competition allows suppliers — including small to medium enterprises — to have a fairer and more equitable opportunity to secure government business.
- Competition may result in more innovative solutions.
- Australian Government entities can better demonstrate value for money when procurement is competitive.
The obvious means of promoting competition is to use open tender, or to approach multiple suppliers on a panel that was previously established through open tender. The number of suppliers approached should be appropriate to the scale, scope and risk of the procurement, and have proper regard to Australian Government procurement policies including the Indigenous Procurement Policy. Approaching fewer suppliers makes it harder to achieve and demonstrate value for money.
Recent ANAO audits have shown that the Australian public sector can make smarter use of competition through procurement, without imposing unreasonable cost on entities and suppliers. Strategies to maintain competitive pressure can, and should, be applied in tenders that are not open.
Evidence suggests that the decision to use non-competitive procurement methods, including approaching only one supplier on a panel, is often based on expediency and perceived efficiency to the procuring entity. This approach does not demonstrate an active focus on the core rule of the CPRs — to achieve value for money. In procurement, entities must set out to achieve value for money for the taxpayer, in the public interest.
Any authorised departures from the CPRs should be well substantiated and documented. If the CPRs are set aside by the accountable authority under paragraph 2.6, or there is an agreed exemption to Division 2 of the CPRs under paragraph 10.3, officials should ensure that appropriate advice is provided to the accountable authority. This advice will need to outline how the procurement will achieve the proper use of resources and/or value for money, in the absence of competition.
5. Assess the options and demonstrate value for money
Under the CPRs, officials are required to consider the relevant financial and non-financial benefits and costs of all tenders, and be satisfied that the chosen tender achieves value for money. This requires an accurate and transparent assessment process against agreed criteria for the procurement.
In recent ANAO audits, entities conducted procurements where they could not demonstrate that value for money had been considered or achieved.
Even where procurements involve a single tenderer under sole source arrangements, value for money needs to be demonstrated. Providing a strong rationale for sole sourcing, surveying the market, and using benchmarks to assess offerings and prices, are some of the ways to do this.
Entities that do not conduct an effective assessment process risk complaints and potential legal action.
6. Act ethically
Officials undertaking procurement must act ethically throughout the procurement. There are a number of key ethical considerations when conducting procurements.
- Probity — Entities should seek and document independent advice on probity issues, where warranted by the value and risk of the procurement. Officials should consider the advice thoughtfully and document how they have responded to the advice. Officials should also ensure that they receive all contracted services from their probity advisers before paying for these services.
- Interests — Identifying and dealing with real and perceived conflicts of interest is essential. Depending on the value and risk of the procurement, an activity-specific interest declaration and management process may be required. Policy and procedures for dealing with gifts, hospitality and conflicts of interest should also be established, and compliance should be monitored before procurement activity begins and throughout the procurement.
- Equity — Procurement teams need to deal with potential suppliers, tenderers and suppliers equitably, including through the chosen procurement method. This is assisted by transparent merit-based assessment criteria and non-preferential treatment throughout the procurement process.
- Compliance — Officials need to comply with all relevant requirements, including the Commonwealth Procurement Framework and accountable authority instructions for procurement.
The CPRs address ethical behaviour in procurement. The expected behaviours discussed in the CPRs are not exhaustive and other legal and ethical obligations continue to apply. These include the Australian Public Service values and code of conduct established under the Public Service Act 1999 and the general duties of officials established under the Public Governance, Performance and Accountability Act 2013. These frameworks set out clear legal expectations relating to: acting with care and diligence; the proper use of position; the proper use of information; the disclosure of interests; and the proper use and management of public resources.
Recent ANAO audits have identified examples where entities have conducted procurements for which specific probity issues were identified, or where ethical behaviour fell short of requirements. Some relevant examples from these audits include:
- flawed processes for appointing a probity adviser or using the probity adviser’s advice;
- failure to take action in response to identified probity risks or realised shortcomings;
- failure to adhere to policy requirements such as mandatory fraud training and information handling requirements;
- inappropriate use of panel arrangements; and
- decisions to extend or vary contracts where the decision was driven by convenience.
Case study: Ethical shortcomings in the Digital Transformation Agency
In 2020 and 2021 the Digital Transformation Agency (DTA) procured ICT services in a way that fell short of ethical standards. The DTA had a largely compliant procurement policy framework, but it was not followed. Probity advice was insufficiently sought despite the high value of some of the procurements. Potential conflicts were not effectively managed. Contracts were repeatedly ‘leveraged’. This included a contract that was varied ten times over two years, increasing from its original value of $121,000 to $4.9 million. The contract scope was also changed including, in one case, from providing advice on a business case to providing a range of services to four different teams. The contract variations were authorised by the delegate despite advice from a central procurement area, and others, that the variations were not an effective, efficient or ethical use of public resources, and risked breaching the DTA’s obligations under the PGPA Act and CPRs.
7. Monitor contractor performance
A procurement process does not achieve value for money if a contract is not negotiated or managed with a view to achieving performance, or if the contractor fails to perform in accordance with the terms of the contract.
- Develop performance measures — Ensuring that the contract contains key performance indicators that relate to the assessment criteria is a sensible starting point when establishing performance measures.
- Monitor performance — ANAO audits have found that supplier performance against contractual commitments is often not systematically monitored.
- Document the outcomes — Robust documentation of contract management activities assists officials to understand the history of contractor performance over the life of multi-year contracts. Records of contractor performance should be maintained to a standard that can support contract enforcement or litigation should a contractor fail to perform.
8. Keep good records and report accurately
The CPRs mandate that entities maintain appropriate documentation for each procurement in a way that reflects the scale, scope and risk of the procurement. This is a fundamental element of accountability and transparency in procurement. It ensures that officials are responsible for the actions and decisions they have taken, and for the resulting outcomes. It also facilitates scrutiny of procurement activity, including by the Parliament.
ANAO performance audits routinely find that entities have not complied with these requirements in some way.
- The procurement documentation should stand on its own as a record of a procurement process, from start to finish.
- There should be a fit-for-purpose contract management plan established before a contract is signed. A contract management plan can be drafted once the contract terms are largely settled. The contract management plan can then be considered by the delegate when deciding whether to sign the contract.
- A formal contract or work order should be in place before work commences.
- Records must be retained in accordance with the Archives Act 1983.
- Entities required to report on AusTender must publish parent contracts and amendments if they are valued at or above the relevant reporting threshold. AusTender reporting is essential to ensure that the APS gets the full benefit of the data available, including to measure procurement performance and establish benchmarks to inform improvements, incentivise suppliers to perform better and be able to hold vendors to account for poor performance.
Case study: Poor record-keeping
The National Capital Authority did not maintain records that were proportionate to the scale, scope and risk of its procurements in 2019–20 and 2020–21. There were gaps in the records of the planning and conduct of procurements. Services or works started before a contract was signed for one third of the contracts examined by an ANAO performance audit.
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- | National Indigenous Australians Agency
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