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Good Practice Model – Procurements under $80,000

Good Practice Model – Procurements under $80,000. About this document. What is the intent of the good practice model?

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Good Practice Model – Procurements under $80,000

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  1. Good Practice Model – Procurements under $80,000

  2. About this document • What is the intent of the good practice model? • The good practice model is a framework for streamlining and simplifying procurement processes. The model seeks to address inefficiencies in procurement practices, while maximising the likelihood of agencies achieving the principles set out in the Commonwealth Procurement Guidelines (CPGs) – value for money, efficiency, effectiveness, economical, ethical processes, accountability and transparency, and encouraging competition. • The intent of the model is provide further guidance and clarity in the application of CPG principles (Division 1) by way of case studies. The case studies are provided to guide decision making rather than prescribe actions. • Who is it for? • The good practice model has been designed primarily for Finance to influence agencies in how to run efficient and effective procurement processes. The framework aims to meet the needs of Procurement Officer and Delegates when considering the level of oversight and rigour required for a procurement process. • Contents • Rationale for change 3 • Shift required to streamline processes for procurements under $80,000 4 • How to determine the risk profile of a procurement under $80,000 5 • Procurement pathways 6 • Procurements under $80,000 - Case study one – Low risk procurement via credit card transaction 7 • Procurements under $80,000 - Case study two – Low risk procurement 8 • Procurements under $80,000 - Case study three – Medium risk procurement 9 • Procurements under $80,000 - Case study four – High risk procurement (and beyond current financial year) 10

  3. Rationale for change • Main observations about agency processes • Based on review of agency CEIs and case studies • Unanimously, agencies reported that the CPGs lack specificity, and while it is principles based, further guidance by way of case studies, needs to be provided to agencies to help them conform with CPG requirements, address inconsistencies and ambiguity. • As evident in CEIs, cost is the determining factor for agency procurement processes and requirements • There is a tension between business requirements (getting the procurement done) and following the process • Value for money considerations factor in the cost of the good/ service being procured and not the cost effectiveness of the procurement process • The concept of procurement risk is not well understood or applied • Some agency CEIs and guidance materials advise that risk should be assessed and managed, but risk is not defined and risk assessment tools are typically generic checklists • Routine and straightforward procurements are onerous and over-engineered – a lot of time can be spent producing a range of documents in an attempt to demonstrate accountability and defensibility • Procurement effort (time and other resources) is not commensurate with the scale (cost, complexity) and impact (risk) of the procurement • Documentation requirements are not clearly stated, well understood or standardised across agencies • Documentation can vary depending on the needs and experience of a particular delegate • People are unsure of evidentiary requirements so multiple documents can be created to ensure “the right thing is done”. • Approval requirements are not clearly stated, well understood or standardised across agencies • Multiple approvals are sought over and above pre-approvals and Reg 9 approvals

  4. Shift required to streamline processes for procurements under $80,000 • Hypothesis • A risk-based approach to procurement would mean processes and standards (i.e. documentation and approvals) are scalable, and the effort (time and other resources spent) in the procurement process is proportionate to the scale (cost and complexity) and procurement risk (impact of procurement on reputation and capability) • For low risk procurements (e.g. travel, stationery), minimal effort in developing documentation, getting quotations and approvals would be required. • For higher risk procurements (e.g. consultancies), more effort is required in developing comprehensive documentation, testing market value and getting approvals. Current situation Proposed Model Efficient Ethical Effective Economical Efficient Ethical Effective Economical Value for money Transparent and Accountable Value for money Encourage Competition Transparent and Accountable Low cost Encourage Competition Low risk Efficient Ethical Effective Economical Efficient Ethical Effective Economical Transparent and Accountable Proper use of Commonwealth resources Transparent and Accountable Proper use of Commonwealth resources Medium cost Value for money Encourage Competition Value for money Encourage Competition Medium risk Efficient Ethical Effective Economical Efficient Ethical Effective Economical Transparent and Accountable High cost High risk Value for money Encourage Competition Transparent and Accountable Value for money Encourage Competition • Procurement processes and effort determined solely on process cost • The level of expertise, experience and risk appetite of those involved in the procurement influences the effort placed on each activity • There is little differentiation in process between low cost and high cost procurements – in practice, the same level of documentation and approvals for low cost procurements as for high cost procurements • The effort and attention on transparency and accountability is disproportionate with the procurement – the behaviour is “I’ll make sure I do everything to demonstrate I’m doing the right thing” • The Process cost can outweigh cost of what is being procured • Procurement processes are clearly directed at delivering policy and legislative intent – proper use of Commonwealth resources • Procurement effort is proportionate to the risk** profile of a procurement • As the scale and risk profile of the procurement increases, greater attention is paid to the ‘defensibility’ of the procurement activities (able to withstand public scrutiny) • **Risk comprises impact, overall cost, and complexity of the procurement SIZE The size of each activity represents the amount of oversight and rigour

  5. How to determine the risk profile of a procurement under $80,000 Procurement risk comprises the following elements – impact, overall cost and complexity. An individual’s and/or organisation’s perception of risk is subjective and influenced by factors such as technical skills and knowledge, past experiences, and personal/organisational characteristics and culture. In order to capture the uniqueness of each different agency , the risk elements are explored as focussing questions. The questions should be considered when determining the risk profile of a procurement. The risk assessment will help in determining a procurement process that is proportionate to the scale (cost and complexity) and impact on reputation and capability. Procurement Officer undertaking low risk procurement via credit card – with Reg 9 delegation • Impact • Identify and assess what risks need to be managed throughout the procurement • Does this procurement impact on the reputation of the organisation and/or government (political)? • Does this procurement impact on the capability of the organisation? • Is this a supplier who is known for successful delivery? • Is the good/service readily available? Procurement Officer undertaking low risk procurement • Overall Cost* • Assess whether to apply agency credit card policies or Mandatory Procurement Policies (Div 2) • Is the procurement below $80,000 in value? • Is it suitable to apply agency credit card policies for the good(s)/service(s) being purchased? Risk Profile Determines how much rigour and oversight you will need to employ for the procurement Procurement Officer undertaking medium risk procurement • Complexity • Assess whether or not your procurement demands close attention • Is a good or service being procured? • Is this a routine or one-off procurement? • Will procurement of the good(s)/service(s) impact on business-as-usual? • Is an existing arrangement being used? Procurement Officer undertakinghigh risk procurement * OVERALL COST includes all procurement process costs as well as the cost of the good/service being procured

  6. Case study examples are illustrative and provided to demonstrate a risk based approach to procurement under $80,000. Commonwealth policies such as lowest possible fare and agency-specific operational requirements are not taken into account. Any activities concerning contract management are out of scope. Procurement pathways 1 2 3 4 5 The flatter the pathway, the less onerous the procurement requirements. IDENTIFY BUSINESS NEED PLAN PROCUREMENT APPROACH MARKET NEGOTIATE AND FINALISE CONTRACT RECEIVE GOODS / SERVICES Procurement Officer undertaking low risk procurement via credit card – with Reg 9 delegation  “I need to purchase the monthly stationery order for my business area.” “I know that there is an existing arrangement already in place with a supplier.” “I check with the supplier to see the cost of the monthly order.” “I decide to get the monthly order from the supplier through the existing arrangement.” “I pay for the stationery with my corporate credit card and provide the details to my Director. “I print a receipt and I file it.” Procurement Officer undertaking low risk procurement “I quickly compare the packages for value for money – a particular supplier will provide everything we need for a successful planning day. I document my proposal and email it to my delegate for approval” “My Branch Head has asked me to arrange a venue for our Branch Planning Day” “I discuss our venue requirements and budget more fully with my Branch Head” “I know of a few suppliers our agency uses often and so I phone them to discuss their facilities and packages” “The delegate approves the payment of monies (Reg 9) so I prepare a purchase order and send it to the supplier” “We report the contract to AusTender” Reg 9 Approval Reg 10A Approval (if req.) Procurement Officer undertaking medium risk procurement “I need to find a publisher to create and deliver a series of public and industry information booklets. The production standards are high” “I check our existing supplier arrangements for suitability. I identify three suppliers from the panel” “I develop a short procurement plan (approx. 2 pages) which includes a brief business case and method for evaluating supplier quotes” “I provide my delegate with a draft procurement plan and seek approval to approach potential suppliers” “Once my delegate approves, I send our requirements to potential suppliers” “I compare quotes in line with the agreed evaluation plan. The quotes are evaluated and a brief evaluation report is documented” “I negotiate the terms of the contract and obtain Reg 9 approval from the delegate” “The delegate approves the payment of monies (Reg 9)” “I prepare a purchase order and send it to the supplier” “We report the contract to AusTender” Pre-approval Reg 9 Approval Procurement Officer undertakinghigh risk procurement The evaluation panel compare quotes in line with the agreed evaluation plan. The quotes are evaluated and an evaluation report is documented. I send the evaluation report to the delegate, making a recommendation and requesting Reg 9 approval The delegate approves the payment of monies (Reg 9). A contract is prepared with the advice of our legal area and provided to the supplier to start negotiations of the terms “I receive goods and services and provide relevant payment info for processing” “We report the contract to AusTender” “I develop a comprehensive procurement plan and detail business case and evaluation panel “I check our existing supplier arrangements for suitability. I identify three suppliers from the panel. “I set up an evaluation panel who will be responsible for evaluating supplier quotes and making a recommendation to the delegate” Prior to going to market, I discuss the procurement plan and the evaluation plan with the delegate and seek a commitment to spend monies from the delegate. I also request Reg 10 approval because the work is likely to involve expenditure beyond the current financial year Once my delegate approves, I send our requirements to potential suppliers “I need to organise the maintenance of the air conditioning in the IT data centre” Delegate grantingReg 9 Approval Pre-approval Reg 9 approval Reg 10 approval

  7. Case study one Low risk procurement via credit card transaction The flatter the pathway, the less onerous the procurement requirements. Musts stated in the Commonwealth Procurement Guidelines Scenario – Stationery Order I need to purchase the monthly stationery order (pens, pencils, paper, etc.) for my business area. 1 2 3 4 5 IDENTIFY BUSINESS NEED PLAN PROCUREMENT APPROACH MARKET NEGOTIATE AND FINALISE CONTRACT RECEIVE GOODS / SERVICES Experience Procurement Officer undertaking low risk procurement via credit card – with Reg 9 delegation  “I need to purchase the monthly stationery order for my business area.” “I know that there is an existing arrangement already in place with a supplier.” “I check with the supplier to see the cost of the monthly order.” “I decide to get the monthly order from the supplier through the existing arrangement.” “I pay for the stationery with my corporate credit card and provide the details to my Director. “I print a receipt and I file it.” Simplified view of process Identify potential suppliers Assess market Select preferred supplier Document process and decisions Identify procurement need CPG Requirements • Compare all costs, benefits and risks to determine value for money • A delegate must be satisfied that the procurement is a proper use of Commonwealth resources and the decision is defensible (able to withstand public scrutiny) • Records are retained for a period of 3 years

  8. Case study two Low risk procurement The flatter the pathway, the less onerous the procurement requirements. Musts stated in the Commonwealth Procurement Guidelines Scenario – venue hire Our Branch needs a venue to hold a Branch planning day. 1 2 3 4 5 IDENTIFY BUSINESS NEED PLAN PROCUREMENT APPROACH MARKET NEGOTIATE AND FINALISE CONTRACT RECEIVE GOODS / SERVICES Experience Procurement Officer undertaking low risk procurement “I quickly compare the packages for value for money – a particular supplier will provide everything we need for a successful planning day. I document my proposal and email it to my delegate for approval” “My Branch Head has asked me to arrange a venue for our Branch Planning Day.” “I discuss our venue requirements and budget more fully with my Branch Head” “I know of a few suppliers our agency uses often and so I phone them to discuss their facilities and packages” “The delegate approves the payment of monies (Reg 9) so I prepare a purchase order and send it to the supplier” “We report the contract to AusTender” Delegate grantingReg 9 Approval Reg 9 Approval Reg 10A Approval (if req.) Simplified view of process Create purchase order Pay the account Document process and decisions Identify procurement need Understand procurement need Identify potential suppliers Call suppliers for quotes Assess quotes Select preferred supplier Recommend supplier to delegate • Compare all costs, benefits and risks to determine value for money • Before entering into a contractual arrangement, spending proposal approved by delegate (Reg. 9 approval) – in writing • A delegate must be satisfied that the procurement is a proper use of Commonwealth resources and the decision is defensible (can withstand public scrutiny) CPG Requirements • Ethical and non-discriminatory approach to suppliers, including small to medium enteprises (SMEs) • Use simple contractual arrangements, such as purchase orders or the standard suite of contracts (if applicable to agency) instead of a long written contract • Decisions are documented and retained for a period of 3 years • Report to AusTender contracts > $10,000

  9. Case study three Medium risk procurement The flatter the pathway, the less onerous the procurement requirements. Musts stated in the Commonwealth Procurement Guidelines Scenario – graphic design consultancy Our agency needs publisher to create and deliver a short series of public and industry information booklets. These will be high quality publications. 1 2 3 4 5 IDENTIFY BUSINESS NEED PLAN PROCUREMENT APPROACH MARKET NEGOTIATE AND FINALISE CONTRACT RECEIVE GOODS / SERVICES Experience Procurement Officer undertaking medium risk procurement “I need to find a publisher to create and deliver a series of public and industry information booklets. The production standards are high” “I check our existing supplier arrangements for suitability. I identify three suppliers from the panel” “I develop a short procurement plan (approx. 2 pages) which includes a brief business case and method for evaluating supplier quotes” “I provide my delegate with a draft procurement plan and seek approval to approach potential suppliers” “Once my delegate approves, I send our requirements to potential suppliers and request a proposal” “I compare quotes in line with the agreed evaluation plan. The quotes are evaluated and a brief evaluation report is documented” “I negotiate the terms of the contract and obtain Reg 9 approval from the delegate” “The delegate approves the payment of monies (Reg 9)” “I prepare a purchase order and send it to the supplier” “We report the contract to AusTender” Delegate grantingReg 9 Approval Pre-approval Reg 9 Approval Simplified view of process Check existing arrangements Identify procurement need Understand procurement need I determine the risk profile of a procurement Develop brief procurement plan Prepare statement of work Identify potential suppliers Issue RFQ Receive quotes Assess submissions and write brief evaluation report Select preferred supplier and recommend to Delegate Negotiate and finalise contract Create purchase order Document process and decisions • Before approaching potential suppliers get pre-approval from a delegate – commitment to spend public monies • Ethical and non-discriminatory approach to suppliers, including small to medium enterprises • Compare all costs, benefits and risks to determine value for money • Before entering into a contractual arrangement, spending proposal approved by delegate (Reg. 9 approval) – in writing • A delegate must be satisfied that the procurement is a proper use of Commonwealth resources and the decision is defensible (can withstand public scrutiny) • Unsuccessful suppliers are notified and offered a debrief • Use simple contractual arrangements, such as purchase orders, the standard suite of contracts (if applicable to agency) or agency-specific templates instead of a long written contract • Decisions are documented and retained for a period of 3 years • Report to AusTender contracts > $10,000 CPG Requirements

  10. Case study four High risk procurement (and beyond current financial year) Scenario – unscheduled maintenance of air-conditioning service in data centre Our agency requires unscheduled air conditioning maintenance in the data centre. IT systems will need to be shut down for a defined period of time. The risk of the maintenance not being done properly or within the allocated timeframe could result in IT service disruption or unavailability. Further difficulties in restarting IT services after the maintenance may also result in services difficulties. This work is likely to involve expenditure beyond the current financial year. The flatter the pathway, the less onerous the procurement requirements. Musts stated in the Commonwealth Procurement Guidelines 1 2 3 4 5 IDENTIFY BUSINESS NEED PLAN PROCUREMENT APPROACH MARKET NEGOTIATE AND FINALISE CONTRACT RECEIVE GOODS / SERVICES Experience “The evaluation panel compare quotes in line with the agreed evaluation plan and evaluation report is documented. I send the evaluation report to the delegate, making a recommendation and requesting Reg 9 approval and Reg 10 approval because the work is likely to involve expenditure beyond the current financial year” “The delegate approves the payment of monies (Reg 9). A contract is prepared with the advice of our legal area and provided to the supplier to start negotiations of the terms” Procurement Officer undertakinghigh risk procurement “I receive goods and services and provide relevant payment info for processing” “We report the contract to AusTender” “I develop a comprehensive procurement plan, incl. a detailed business case and evaluation process” “I check our existing supplier arrangements for suitability. I identify three suppliers from the panel.” “I set up an evaluation panel who will be responsible for evaluating supplier quotes and making a recommendation to the delegate” “Prior to going to market, I discuss the procurement plan and the evaluation plan with the delegate and seek a commitment to spend monies from the delegate” “Once my delegate approves, I send our requirements to potential suppliers and request a proposal” “I need to organise the maintenance of the air conditioning in the IT data centre” Delegate grantingReg 9 Approval Pre-approval Reg 9 and 10 Approval Simplified view of process Check existing arrangements Identify procurement need Understand procurement need I determine the risk profile of a procurement Develop comprehensive procurement plan Prepare statement of work Identify potential suppliers Issue RFQ Receive quotes Assess submissions and write comprehensive evaluation report Select preferred supplier and recommend to Delegate Negotiate and finalise contract Create purchase order Document process and decisions CPG Requirements • Before approaching potential suppliers get pre-approval from a delegate – commitment to spend public monies • Use simple contractual arrangements, such as purchase orders, the standard suite of contracts (if applicable to agency) or agency-specific templates instead of a long written contract • Decisions are documented and retained for a period of 3 years • Report to AusTender contracts > $10,000 • Ethical and non-discriminatory approach to suppliers, including SMEs • Compare all costs, benefits and risks to determine value for money • Before entering into a contractual arrangement, spending proposal approved by delegate (Reg. 9 approval) – in writing • Reg 10 approval obtained –in writing • A delegate must be satisfied that the procurement is a proper use of Commonwealth resources and the decision is defensible • Unsuccessful suppliers are notified and offered a debrief

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