The objective of the audit was to assess the extent to which agencies have arrangements to establish and use multi-use lists to support value for money, efficiency and effectiveness in procurement.

Summary

Introduction

1. Procurement is an integral part of the way the Australian Government conducts business. In 2012–13, Australian Government agencies published some 67 000 contracts for goods and services valued at in excess of $39.2 billion.1 Given the large number of procurements undertaken and the centrality of this activity to the operation of government and program delivery, agencies’ procurement practices are expected to be efficient, effective, economical and ethical, consistent with the policies of the Commonwealth and suited to the size, nature and complexity of the goods or services sought.

2. In undertaking procurement, agencies are required to adhere to the Commonwealth Procurement Rules (CPRs). The CPRs underpin Australia’s international obligations in accordance with free trade agreements, and promote sound and transparent procurement practices that seek to achieve value for money2 and encourage competition in government procurement. The CPRs describe three methods that agencies can use when conducting procurements: open tender, limited tender and prequalified tender. This audit focuses on one form of prequalified tender—the use of multi‑use lists (MULs), which allow agencies to prequalify suppliers for subsequent procurement opportunities.

Prequalified procurement – from a multi‑use list

3. A MUL is a list of suppliers who have applied for inclusion on the list and satisfied a set of conditions for participation.3 The process of establishing a MUL is not a procurement itself and it does not involve the assessment of value for money; rather it is an activity that qualifies suppliers who may wish to participate in future procurement processes, and as such represents a support process. A MUL can be quick and relatively inexpensive for an Australian Government agency to establish as the comparative assessment of suppliers to determine value for money is undertaken later, at the time that the goods and/or services are procured from a supplier on a MUL.

4. A MUL would typically only be used by an agency where it:

  • frequently procures particular goods or services;
  • requires flexibility in its approaches to the market; or
  • requires a list of suppliers that meet specific conditions for participation (such as having specific expertise).4

5. Analysis of AusTender data indicates that in 2013, approximately 35 per cent of contracts let by agencies were open tender, 57 per cent limited tender, and the remaining eight per cent all types of prequalified tender. Prequalified tender procurements represented approximately $6.5 billion of expenditure and 5000 contracts. AusTender data does not identify the proportion of the prequalified tender contracts that specifically relate to procurement from a MUL.

6. Australian Government agencies have established MULs for a variety of purposes. As at October 2013 the Bureau of Meteorology (BoM) had 11 MULs covering a broad variety of goods and services ranging from printing, shipping and freight, to more technical services such as support for a tsunami warning system. The Department of Industry (Industry) had four MULs relating to the recruitment of temporary personnel, outreach tour transport, exhibition transportation services and interactive exhibition development services. The Attorney‑General’s Department (AGD) had one MUL, the Legal Services Multi-Use List (LSMUL) which was introduced in June 2012 as part of ongoing reforms to the provision of legal services for Australian Government agencies. The Legal Services Directions 20055 require all Australian Government agencies subject to the Financial Management and Accountability Act 1997 and certain entities subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act)to use the LSMUL when purchasing external legal services.

Previous ANAO audits

7. The ANAO has conducted four audits since 2007 that have focussed on aspects of procurement across Australian Government agencies.6 Each of these audits has identified some shortcomings with respect to agencies’ application of the Commonwealth Procurement Guidelines7 for a significant proportion of procurements examined. In particular, agencies needed to employ more competitive procurement processes, better document value for money assessments and obtain appropriate approvals.

Audit approach

8. The objective of the audit was to assess the extent to which agencies have arrangements to establish and use multi‑use lists (MULs) to support value for money, efficiency and effectiveness in procurement.

9. To conclude on this objective, the ANAO’s broad criteria included whether agencies had adhered to the requirements of the Commonwealth Procurement Rules and applied sound practices when establishing and using MULs.

10. The scope of the audit included the examination of both the policies and practices supporting the establishment and use of 16 MULs across three agencies and procurements from these MULs where the procurement had a value greater than $80 000.8

11. The three agencies included in this part of the audit were the:

  • Bureau of Meteorology (BoM);
  • Department of Industry (Industry); and
  • Attorney‑General’s Department (AGD).

12. The ANAO also examined the approaches adopted by three additional agencies to procuring legal services using the Legal Services Multi‑Use List (LSMUL) established by AGD. These three agencies were the:

  • Australian Crime Commission (ACC);
  • Department of Defence (Defence); and
  • Department of Human Services (DHS).

13. To obtain feedback on the operation of the LSMUL, the ANAO also consulted representatives of legal service providers. Where appropriate, feedback from the providers consulted is included in the report.

Overall conclusion

14. Procurement of goods and services is a key activity for Australian Government agencies and, in undertaking procurement, agencies are required to adhere to the Commonwealth Procurement Rules (CPRs). In order to achieve efficient procurement arrangements which still meet the requirements of the CPRs, a range of approaches have been developed to streamline procurement practices for frequently purchased goods or services. These include the use of multi‑use lists (MULs) and procurement panels:

  • MULs allow agencies to prequalify suppliers for later use in a procurement. They provide flexibility and enable agencies to easily identify suppliers that meet certain conditions or that have specific expertise. All suppliers who meet the conditions must be included on the list. Inclusion of a supplier on a MUL does not involve a value for money assessment of suppliers and does not usually create a contractual relationship. Suppliers can be added to a MUL enabling agencies to include new market entrants over time.
  • Procurement panels are established following a competitive value for money assessment process and involve a contractual relationship for a set period of time. Once established, panels generally provide ready access to goods and services, particularly for high value procurements as the additional rules in the CPRs for such procurements do not apply. Generally, panels do not allow for new suppliers to be added to the panel once established.

Of these two approaches, the arrangements applying to MULs are not so well understood and, in most cases, greater consideration needs to be given to whether a MUL is most suited to an agency’s particular procurement objectives. Where procurement processes are not well understood and objectives not well‑defined, there is a clear risk of agencies undertaking procurements which are not consistent with the requirements of the CPRs.

15. This audit, which focussed on the arrangements to establish and use MULs in the Bureau of Meteorology (BoM), the Department of Industry (Industry) and the Attorney‑General’s Department (AGD), highlights these risks to varying degrees. Common areas where agencies did not adhere to requirements of the CPRs included; approaching too few suppliers, providing insufficient time for suppliers to respond to requests for work and not treating suppliers consistently. Consequently agencies’ approaches, to varying degrees, were not fully effective in satisfying the procurement principles, which among other things encourage fair and open competition.

16. In addition, there were questions about whether value for money was being achieved in the subsequent procurement action given the approaches being adopted by agencies. By way of background, once a decision is taken to establish a MUL, agencies need to be mindful that the process of its establishment was not a procurement, so when selecting suppliers, an assessment of value for money still needs to be undertaken. Agencies ought to approach a sufficient number of suppliers to allow a reasonable assessment, commensurate with the scale and scope of the procurement. The ANAO observed instances in most agencies where a competitive assessment of suppliers was either not undertaken at all, or not done well. The CPRs establish several requirements for undertaking a prequalified tender.9 Based on the sample examined, all of the procurements at BoM and Industry, and the majority of procurements at AGD, fell short of certain CPR requirements relating to prequalified tender. In particular, for higher value procurements the CPRs impose strict timeframes designed to allow suppliers reasonable time to respond to requests for work. Generally, MULs do not lend themselves to services required at short notice and the ANAO found these timeframes were often not met. As a result, it was more difficult for audited agencies to demonstrate that competition was genuine and value for money was achieved.

17. Further, in seeking to obtain efficiencies, agencies need to be aware of the costs of their approaches on providers. MULs provide for streamlined procurement approaches, but these benefits are limited where agencies do not make full use of information obtained as part of the initial application process. During the course of this audit, a number of service providers on the LSMUL indicated frustration at having to provide the same or similar information at the establishment stage and subsequently when responding to agency requests for quotes.

18. Efficiencies in the use of MULs can also be fostered by agencies increasing their knowledge of the supplier market. This was an important aspect of the design of the arrangements for the LSMUL. More generally, enhancing measures to support the sharing of information within and across agencies (including information on performance, expertise and experience of providers) could assist agencies in becoming more informed purchasers; and, in turn, this could limit the demands on suppliers. Centralising procurement advice within agencies may also allow better coordination of effort and, as a consequence, achieve greater efficiencies and better results.

19. At an appropriate time during the lifecycle of a MUL, agencies should assess whether the arrangement has achieved the anticipated benefits and whether it has been an efficient and effective approach to support business requirements. Such assessment can help shape the design of any future MUL or alternative procurement arrangements. Of the audited agencies only AGD had reviewed the effectiveness of its MUL in meeting procurement requirements and used this information to assist in the design of prospective procurement arrangements.

20. The ANAO has made two recommendations aimed at improving agency procurement practices in relation to MULs. More broadly, the audit draws attention to the complexities of the CPRs, appreciating they are designed to promote sound and transparent procurement practices that encourage competition and achieve value for money in government procurements. Other ANAO audits of procurement have also identified the importance of placing greater emphasis on the procurement principles in Australian Government procurement activities.10 Such an emphasis provides a stronger focus for those involved in procurement decisions to achieve positive outcomes that are supported by competitive processes and provide value for money. A key step in achieving this is adequate planning, including consideration of the extent to which the procurement method meets the identified need.

21. When seeking to achieve efficiencies, prequalified and limited tender methods provide a streamlined process. However, an efficient process is only valuable if it also supports the achievement of the procurement principles. Agency central procurement units (CPUs) are generally well placed to identify and pursue more efficient purchasing arrangements, provide advice and support practices that encourage competition and enhance value for money. Therefore there would be merit in agencies involving CPUs more in the selection of procurement methods, and in establishing processes to be adopted within agencies particularly in a devolved procurement environment. Measures of this kind would assist agency staff to better navigate the CPRs.

Key findings by chapter

Establishment of multi‑use lists (Chapter 2)

22. Effective procurement is supported by agencies clearly defining the objectives for the procurement and taking a considered approach to determining the procurement processes best suited to achieving their objectives. Typically a MUL is most effective where an agency: frequently procures particular goods or services; requires market flexibility (including in the frequency of purchases, and the amounts of goods or services); or requires a list of suppliers that meet specific conditions (such as having specific expertise).

23. The ANAO identified that agencies need to give greater consideration to whether a MUL is most suited to meeting their procurement objectives or whether alternative procurement arrangements would be more appropriate. In the case of BoM, specific procurement objectives for its MULs had not been defined and, in some cases MULs were subsequently used very infrequently or not at all. In Industry, to varying degrees, some MULs had defined objectives. However, in regard to Industry’s temporary personnel MUL, where services may have been required at short notice, an alternative procurement method such as a panel would have enabled Industry to better meet its procurement objective and demonstrate the achievement of value for money.

24. In contrast, AGD, having had the benefit of two prior reviews, had clearly defined the objectives for the LSMUL. Agencies and legal service providers interviewed by the ANAO generally agreed the LSMUL had met a key objective of opening up the market to competition. Both groups however, were less certain of whether or not the LSMUL had achieved its other objectives including whether the current processes for the purchase of legal services were more efficient, effective, or achieved greater value for money than previous approaches. There were also mixed views on whether agencies were becoming more informed purchasers of legal services.

25. Agencies are required to treat suppliers equitably when being assessed for inclusion on a MUL. Accordingly, appropriate records of supplier assessment and notification of outcomes should be maintained to provide transparency of the process. Both BoM and Industry included suppliers in their MUL registers that had not met some of the requirements contained in the application for inclusion. Further there was no evidence of screening or verification of claims made by potential suppliers.

Procurements from multi‑use lists (Chapter 3)

26. When procuring goods and services, the Australian Government’s procurement framework has a principal objective of achieving value for money. Value for money is enhanced by encouraging open competition, using resources in an efficient, effective, economical and ethical way, and making decisions in an accountable and transparent manner. When using streamlined approaches such as MULs, agencies must undertake procurements in a manner that is consistent with the procurement framework as set out in the CPRs. The CPRs impose requirements for higher value procurements and where agencies require services at short notice they still need to consider the minimum timeframes established in the CPRs.11 Agencies can draw on the exemptions in the CPRs if they qualify however, if the goods or services are needed frequently at short notice, a better approach would be to put in place alternative procurement arrangements.

27. The ANAO reviewed procurements at BoM, Industry and AGD which had been undertaken from MULs. When considered against the CPRs, these procurements largely did not meet relevant requirements of prequalified tender. In BoM, the majority of procurements examined involved direct approaches to suppliers who were not on a MUL and therefore were not prequalified. All of Industry’s procurements and most of AGD’s did not involve an appropriately competitive process, or provide sufficient time for supplier responses. Under the CPRs where a procurement is not undertaken as an open or prequalified tender, it can only be classed as a limited tender by default.12 However, in several respects the majority of procurements examined by the ANAO also failed to meet conditions established in the CPRs for limited tender.

28. In relation to the LSMUL, audited agencies and legal service providers reported that the arrangements did not lend themselves to services required at short notice: two audited agencies (ACC and DHS) have introduced parcelling arrangements13 to accommodate this. While parcelling can overcome CPR timing issues the approach, which can be similar to limited tender, can reduce competition and new and small providers may face difficulties entering such an arrangement.14 Agencies need to be mindful that the field of suppliers invited to apply for a parcel should not be too narrow. Given the purpose of the LSMUL is to promote competition and reduce costs, there is merit in AGD and Finance working together to reinforce the obligation to achieve value for money and share agency experiences with using the LSMUL.

Procurement support and review (Chapter 4)

29. Agencies determine their own procurement practices, consistent with the CPRs, through Chief Executive’s Instructions (CEIs) and, if appropriate, supporting operational guidelines. Agency central procurement units (CPUs) are internal units containing procurement specialists used by agencies to advise staff and delegates in undertaking appropriate procurement processes. Procurement monitoring and review is also an important activity for agencies to determine the performance of their procurement activities and to inform future procurement planning and management.

30. Agencies generally had procurement policies, guidance and training in place. However, the use of MULs was often not well understood and associated procurements were not well conducted. To better assist staff and delegates to conduct procurements from MULs in accordance with the CPRs, agency CEIs and relevant operational guidelines, there would be benefit in agencies actively drawing on the expertise available in central procurement units and reinforcing to staff and delegates their responsibilities in relation to procurement.

31. Assessing procurement activity at an appropriate time during the lifecycle of a MUL enables agencies to understand the extent to which the initial business rationale for establishing the MUL is being met. Such assessment can also help shape the design of any future MUL or alternative procurement arrangement. Both BoM and Industry would benefit from reviewing the efficiency, effectiveness and value for money provided by their MULs.

32. There is merit in AGD continuing to review options going forward in relation to the operation of the LSMUL that are consistent with the CPRs. A more effective solution may need to be developed to better balance agencies’ business needs and the formal requirements of the CPRs. Opportunities for improving the LSMUL identified during the course of the audit include:

  • allowing faster access to legal services;
  • enhancing arrangements to share information including on service providers skills, experience and performance;
  • strengthening education on the use of the LSMUL to ensure agency procurements are consistent with the CPRs; and
  • building more transparency into parcelling arrangements.

In addition, agencies need to take steps to become more informed purchasers of legal services. This includes making better use of information already available to them on the LSMUL, sharing agency experience and drawing on expertise within CPUs to ensure procurement processes are efficient and adhere to the CPRs.

Summary of agencies’ responses

33. The audited agencies’ summary responses to the audit report are provided below. Appendix 1 contains the agencies’ full response to the audit report.

Attorney‑General’s Department

AGD welcomes the ANAO’s report. AGD acknowledges that agency practices in using the LSMUL could be improved and that AGD can play a greater leadership role across government in this regard. AGD is of the strong view that legal services procurement from the LSMUL need not be onerous or overly administratively burdensome. Agencies should adopt a procurement process that is commensurate with the scale of the procurement, recognising the nature of legal services. In particular, informed purchasing is vital to efficient and effective legal services procurement.

Bureau of Meteorology

The Bureau of Meteorology welcomes this report and found the process undertaken by the ANAO valuable. The Bureau agrees with the recommendations of the report and is taking action to implement them. As noted in the report, the Bureau is currently updating its procurement processes and the ANAO’s findings fully support the current investment being made in improvements, including new gazettal processes and the establishment and use of multi‑use lists.

Department of Industry

The Department of Industry acknowledges the findings of the ANAO audit on the Establishment and Use of Multi‑Use Lists and supports the recommendations proposed in the report. The Department found the audit process to be a valuable exercise and appreciates the positive feedback on the Department’s procurement policy and guidance material.

Australian Crime Commission

The Australian Crime Commission (ACC) agrees with the findings of the audit and will undertake the appropriate action to implement the relevant recommendations.

Department of Defence

The Department of Defence agrees with the ANAO report and its recommendations that agencies are to provide efficient and effective procurement and the achievement of value for money. The establishment of the Legal Services Multi‑Use List has enabled Defence to use and meet a wide range of external services providers, including small to medium enterprises that would not have had an opportunity to bid successfully for services under a panel or parcel arrangement.

Defence agrees it is important to have a greater accountability and transparency in documenting our procurements, while being able to maintain a level of flexibility in procuring legal services given the nature of legal work required by an agency and the need to ensure competitiveness while achieving value for money for the Commonwealth.

Department of Human Services

The Department of Human Services (the Department) welcomes the findings of the audit report and considers that the implementation of its recommendations will further enhance the use of multi‑use lists by the Department.

Recommendations

The recommendations are based on findings from fieldwork at the audited agencies. The recommendations are likely to be relevant to other Australian Government agencies. Therefore, all Australian Government agencies are encouraged to assess the benefits of implementing these recommendations in light of their own circumstances, including the extent to which each recommendation, or part thereof, is addressed by practices already in place.

Recommendation No.1

Paragraph 2.37

To provide for efficient and effective procurement processes and the achievement of value for money the ANAO recommends agencies:

(a) clearly define objectives in order to determine the most appropriate procurement method; and

(b) where a multi‑use list is chosen, strengthen processes to promote competition and equitable treatment of suppliers.

Response from relevant agencies: Agreed.

Recommendation No.2

Paragraph 3.34

To provide for greater accountability and transparency when using a multi‑use list, the ANAO recommends agencies concisely document the basis for short listing potential suppliers and the basis for selecting a particular supplier to evidence value for money.

Response from relevant agencies: Agreed.

Footnotes

[1] Department of Finance, Statistics on Australian Government Procurement Contracts 2012–2013 [Internet], Finance, available from <http://www.finance.gov.au/procurement/statistics‑ on‑commonwealth‑purchasingcontracts> [accessed June 2014].

[2] Determining value for money involves a range of considerations including: fitness for purpose; the performance history of each prospective supplier; the relative risk of each proposal; the flexibility to adapt to possible change over the lifecycle of the goods or service; financial considerations; and the evaluation of contract options. Finance, Commonwealth Procurement Rules (CPRs), July 2012, section 4.5.

[3] Multi‑use lists are provided for under international trade agreements.

[4] Finance, Buying for the Australian Government, Procurement Practice, Panel Arrangements and Multi‑Use Lists, paragraph 24 [Internet], available from <http://www.finance.gov.au/procurement /procurement‑policy‑and‑guidance/buying/procurement‑practice/panel‑and‑mul/practice.html> [accessed June 2014].

[5] The Legal Services Directions 2005 are a set of binding rules for the performance of Commonwealth legal work. The Directions set out requirements for sound practice in the provision of legal services to the Australian Government. [Internet], Comlaw, available from <http://www.comlaw.gov.au/Details /F2012C00691/Download> [accessed June 2014].

[6] ANAO, Audit Reports: No.31 2011–12 Establishment and Use of Procurement Panels; No.11 2010–11 Direct Source Procurement; No.14 2009–10, Agencies’ Contract Management; and No.21 2006–07 Implementation of the Revised Commonwealth Procurement Guidelines.

[7] At the time these audits were undertaken, agencies were subject to the Commonwealth Procurement Guidelines (CPGs). The CPGs were superseded by the CPRs in July 2012.

[8] The main purpose of establishing a MUL is to allow for future prequalified tendering for higher value procurements (referred to as Division 2 procurements under the CPRs). Procurements under $80 000 were therefore excluded from the audit.

[9] In relation to MULs, prequalified tender includes publishing an approach to market inviting submissions from all potential suppliers on a list of potential suppliers selected from a multi‑use list established through an open approach to market.

[10] ANAO Audit Reports: No.31 2011–12 Establishment and Use of Procurement Panels and No.11 2010–11, Direct Source Procurement, 2010 [Internet], available from <http://www.anao.gov .au/Publications> [accessed June 2014].

[11] The time limit for potential suppliers to lodge a submission must be at least 25 days from the date and time that an agency publishes an approach to market for an open tender or a prequalified tender, except under certain circumstances where it is allowed to be no less than 10 days. Finance, Commonwealth Procurement Rules, 2012, section 10.19.

[12] Limited tender allows a direct approach to one provider. However, under the CPRs, an agency must only conduct a procurement at or above the relevant procurement thresholds through limited tender if certain conditions are met. Refer to Appendix 3 of this report for the list of conditions.

[13] Parcelling means that an agency can approach service providers from the LSMUL to submit detailed quotes for parcels of legal services that, individually, may be valued at or above the relevant procurement thresholds amount. The LSMUL guidance allows parcels to be established for any value through inviting a minimum of two service providers to apply.

[14] New and small suppliers may be disadvantaged by overstatement of procurement needs or onerous selection processes when agencies form parcels. These suppliers can also be perceived as higher risk than larger suppliers who could for example provide a broader range of services.