Analysis: The strange logic of procurement rules

Good, bad and ... ignored guidelines for government.

Why do so many agencies struggle to comply with Commonwealth Procurement Guidelines (CPGs) when striking IT deals?

The guidelines (pdf) theoretically bind most Budget-funded Commonwealth agencies and can be summarised as eight commandments:

1. Value for Money
2. Go to the open market for all tenders worth more than $80,000
3. Non-discrimination
4. Minimum of 25 days to respond (some exemptions apply)
5. No late tenders, unless the agency is at fault
6. Advertise all open tenders on AusTender
7. Contracts worth more than $10,000 must be advertised on AusTender
8. Use Whole of Government Contracts

The Federal Government plans to update its procurement rules next year, after uncovering errors in up to 28 percent of procurement decisions.

Similar requirements also regulate State and Territory deals. A few are clear. Some are strange. The majority are breached.

Let's see why:

Value for money and the open market

The “core” commandment of CPGs is to achieve value for money by conducting a comparative analysis of "all relevant" costs and benefits throughout the “whole procurement cycle”.

This requirement is satisfied by requiring prospective contractors to disclose all such costs and benefits in a competitive process.

The second commandment calls for open competition for deals worth more than $80,000 but in January, iTnews revealed that more than 40 percent of those deals were struck through direct sourcing between December 2007 and January 2011.

Direct sourcing involves negotiations with a limited number of providers. The direct approach is recommended for when there is no alternative available, or in an emergency.

But such reasons are often poorly or mistakenly documented in 63 percent of direct sourcing deals, the Australian National Audit Office found last September (pdf).

Discrimination and prospects for small-to-medium suppliers

Non-discrimination means that all potential suppliers should have the same opportunities to compete for government business. They must be treated equitably based on their legal, commercial, technical and financial abilities.

Purchasing plans must not discriminate against potential suppliers due to their degree of foreign affiliation or ownership, location or size. They must be considered on the basis of their suitability for their intended purpose - not on the basis of their origin.

The non-discrimination requirement can cause friction where there is strong industry push to buy local or perhaps demonstrate against certain foreign countries by boycotting their offerings.

It's also designed to guard against tenders for specific brands - but most astute tender specification writers can select their intended brand by gold-plating their requirements anyway.

The non-discrimination rule also offers little comfort for small-to-medium enterprises (SME) that have little hope of meeting requirements of large tenders put forth by agencies such as Defence, Human Services and Tax.

One local SME explained that the chief information officers of large agencies were seeking “one throat to choke” by appointing large prime contractors.

Some agencies issue separate participation plans for SME IT suppliers in an effort to reduce the trend toward all major IT deals going to major primes and their favoured SME sub-contractors.

Whether this prospect breaches the non-discrimination rule remains a tantalising issue.

Time to respond

The 25-calendar-day rule remains mainly as a legacy commandment, aimed at setting a reasonable minimum period for potential suppliers to lodge a submission in response to an approach to the market.

If the market entry was not issued via AusTender or email, Commonwealth Guidelines give potential suppliers a minimum of 30 days to respond.

On the other hand, this 25-day requirement can shrink to a mere ten if agencies foreshadowed sufficient details of the coming deal in their purchasing plans up to year ahead.

Also, it can be waived if it's for a deal that is a second approach to the market or there is a “genuine state of emergency”.

The “no late tenders” rule regulates the other end of the bidding period and is designed to ensure an equal opportunity for suppliers.

Bidding deadlines are generally not negotiable, unless the agency was at fault for delaying receipt of the potential supplier's bid.

A supplier that issues a late bid will know when it is unceremoniously posted back unopened or advised electronically.

AusTender advertising requirements

Agencies are required to be transparent and accountable for their purchasing deals by reporting tenders, contract winners, costs, and whether or not the deals were open, select or direct sourced within six weeks of the contract being signed.

This transparency can be hobbled by AusTender’s idiosyncratic operations - in particular, how tender specifications are taken offline 30 days after a contract is announced.

Whole-of-Government Contracts

The last commandment is the real game changer. It promotes coordinated procurement arrangements via mandatory or optional panel arrangements.

Like committing to a Costco outlet, suppliers theoretically achieve clarity and a fast-tracked way of doing business with Government agenies by joining the Government's limited list of vetted and aggressively priced suppliers.

Most “select” source deals are done through panels. Since Sir Peter Gershon recommended whole-of-government buying in his 2008 review, the Federal Government has moved to consolidate agency-based ad hoc panels into one for all agencies.

The use of most whole-of-government panels is theoretically, in most cases, mandatory, unless an exemption is applied for and granted.

Agencies are required to seek exemptions even when there is no product on a panel to suit their requirements - an issue that came up when Defence sought services in a remote location for its central processing project.

What do you think about the Commonwealth Procurement Guidelines? Are they fair, and how do they affect your procurement activities? We welcome your comments below.