Division 1: Procurement Principles
Applies to all procurement
- Value for Money
- Encouraging Competition
- Efficient, Effective and Ethical Use of Resources
- Accountability and Transparency
4. Value for Money
4.1 Value for money is the core principle underpinning Australian Government procurement. In a procurement process this principle requires a comparative analysis of all relevant costs and benefits of each proposal throughout the whole procurement cycle (whole-of-life costing).
4.2 Value for money is enhanced in government procurement by:
- encouraging competition by ensuring non-discrimination in procurement and using competitive procurement processes;
- promoting the use of resources in an efficient, effective and ethical manner 6; and
- making decisions in an accountable and transparent manner.
4.3 In order to be in the best position to determine value for money when conducting a procurement process, request documentation needs to specify logical, clearly articulated, comprehensive and relevant conditions for participation and evaluation criteria which will enable the proper identification, assessment and comparison of the costs and benefits of all submissions on a fair and common basis over the whole procurement cycle.
4.4 Cost is not the only determining factor in assessing value for money. Rather, a whole-of-life value for money assessment would include consideration of factors such as:
- 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 property or service;
- financial considerations including all relevant direct and indirect benefits and costs over the whole procurement cycle; and
- the evaluation of contract options (for example, contract extension options).
FOOTNOTES:
- This requirement is consistent with section 44 of the FMA Act for FMA agencies, sections 22 and 23 of the CAC Act for Commonwealth authorities and relevant provisions of the Corporations Act 2001 for Commonwealth companies.
5. Encouraging Competition
5.1 Competition is a key element of the Australian Government’s procurement policy framework. Effective competition requires non-discrimination in procurement and the use of competitive procurement processes.
Non-discrimination
5.2 The Australian Government procurement policy framework is non-discriminatory. All potential suppliers should have the same opportunities to compete for government business and must, subject to these CPGs, be treated equitably based on their legal, commercial, technical and financial abilities. Procurement methods must not discriminate against potential suppliers due to their degree of foreign affiliation or ownership, location or size. The property or services on offer must be considered on the basis of their suitability for their intended purpose and not on the basis of their origin.
Small and Medium Enterprises (SMEs)
5.3 To ensure that SMEs 7 are able to engage in fair competition for government business, officials undertaking procurement should ensure that procurement methods do not unfairly discriminate against SMEs.
5.4 Agencies should seek to ensure that procurement processes are readily communicated and accessible to SMEs and should not take action to deliberately exclude SMEs from participating.
5.5 Agencies need to ensure that SMEs have appropriate opportunities to compete for business, considering as appropriate in the context of value for money:
- the benefits of doing business with competitive Australian or New Zealand SMEs when specifying requirements and evaluating value for money;
- the capability and commitment to regional markets of SMEs in their local regions; and
- supplier-base and competitive benefits of access for new market entrants.
5.6 The Government is committed to FMA agencies sourcing at least 10 per cent of their purchases by value from SMEs.
Competitive Procurement Processes
5.7 The procurement process itself is an important consideration in achieving value for money. Participation in a procurement process imposes costs on agencies and potential suppliers and these costs should be considered when determining a process commensurate with the scale, scope and relative risk of the proposed procurement.
5.8 Specific procedures must be followed for covered procurements. These procedures, which further encourage competition and in many circumstances require an open approach to the market, are outlined in Division 2.
FOOTNOTES:
- An SME is an Australian or New Zealand firm with fewer than 200 full time equivalent employees.
6. Efficient, Effective and Ethical Use of Resources
6.1 Section 44 of the FMA Act requires Chief Executives to promote the efficient, effective and ethical use of the Commonwealth resources for which they are responsible. Chief Executives mainly discharge this responsibility for procurement by ensuring that their agencies have appropriate policies, procedures and guidelines in place to achieve value for money in procurement processes.
6.2 The devolved environments under the FMA Act and CAC Act give agencies considerable scope to determine specific practices and procedures in order to achieve value for money in procurement. However, many procurement processes will be consistent with Figure 2 below.
Figure 2 An efficient and effective procurement process incorporates rigorous risk management, enabling issues to be identified early in the process.
Text description of Figure 2 - Procurement Process
Efficiency and Effectiveness
6.3 Efficiency relates to the productivity of the resources used to conduct an activity in order to achieve the maximum value for the resources used. In relation to procurement, it includes the selection of a procurement process that is consistent with government policy and is the most appropriate to the procurement objective under the prevailing circumstances.
6.4 Efficiency in procurement is enhanced by conducting transparent, fair and appropriately competitive processes of a scale commensurate with the size and risk profile of each particular project.
6.5 Effectiveness relates to how well outcomes meet objectives. It concerns the immediate characteristics of an agency’s outputs, especially in terms of price, quality and quantity, and the degree to which outputs contribute to specified outcomes.
6.6 Effectiveness can be achieved by ensuring that the property or service being sought will make the maximum possible contribution to the relevant outcome. This entails correctly identifying the need, accurately drafting functional specifications, rigorously assessing responses and negotiating the final contract, and then diligently managing the contract. Comprehensive monitoring and assessment at all stages of the procurement process further contributes to effectiveness.
Risk Management
Principles
6.7 Risk is part of the environment within which agencies operate. Risk management involves the systematic identification, analysis, treatment and allocation of risks.
6.8 Risk management should be built into an agency’s procurement processes. The extent of risk management required will vary from following routine procurement processes, to a significant undertaking involving the highest level of planning, analysis and documentation. A variety of risks may arise during each stage of a procurement. Agencies should ensure that appropriate procedures are in place to identify and consider all relevant risks throughout the procurement cycle.
6.9 As a general principle, risks should be borne by the party best placed to manage them – that is, agencies should generally not accept risks which another party is better placed to manage. Similarly, where an agency is best-placed to manage a particular risk, it should not seek to inappropriately transfer that risk to a supplier.
6.10 Agencies need to carefully monitor the terms and conditions, including pricing, on which risk allocations are determined, to ensure that they reflect value for money.
Limiting a Contractor’s Liability to the Commonwealth
6.11 The Commonwealth’s policy on contingent liabilities is to only accept risk where the expected benefits outweigh the costs. This policy is set out in Finance Circular 2003/02 Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort.
6.12 Agencies must undertake a risk assessment to inform any decision about whether limiting a contractor’s liability through a liability cap or indemnity would be appropriate, and if so, what limits may be suitable. This approach is consistent with the broader financial management framework that provides for agencies to consider all contingent liability matters in the context of sound risk and contract management practices.
6.13 An indemnity or a limitation on a contractor’s liability transfers risk to the Commonwealth. As part of considering a limit on liability, FMA Act agencies need to comply with the requirements of the FMA Act and Regulations. As part of considering an indemnity, FMA Act agencies need to comply with the requirements of the FMA Act and Regulations and the guidance set out in Finance Circular 2003/02 Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort.
6.14 In addition, when considering a limit on a supplier's liability, agencies should note that arrangements to limit liability can carry direct or indirect costs which must be considered within the determination of value for money. Similarly, if a risk assessment determines it would be appropriate to require a supplier to accept unlimited liability, value for money impacts need to be considered.
6.15 If an agency decides to limit a contractor’s liability, through a liability cap or indemnity, based on an assessment of the risks and value for money considerations, it should develop and implement a risk management plan.
6.16 For more complex procurements, request documentation should include a draft contract with clear liability provisions. Potential suppliers should be required to indicate compliance with the entire contract, including liability provisions, and separately identify any clauses of non-compliance or partial compliance, clearly providing details and costs for any alternative clauses. Request documentation may allow for any additional direct or indirect costs borne by the Commonwealth to be reflected in a commensurate adjustment to the terms of the contract where negotiations to limit a supplier’s liability occur after the nomination of a preferred supplier.
Ethics
6.17 Ethics are the moral boundaries or values within which officials work. Ethical behaviour encompasses the concepts of honesty, integrity, probity, diligence, fairness, trust, respect and consistency. Ethical behaviour identifies and avoids conflicts of interests, and does not make improper use of an individual’s position.
6.18 A procurement conducted in an ethical manner will enable purchasers and potential suppliers to deal with each other with mutual trust and respect. Adopting an ethical, transparent approach enables business to be conducted fairly, reasonably and with integrity. A specific aspect of ethical behaviour relevant to procurement is an overarching obligation to treat potential suppliers as equitably as possible.
6.19 Agencies need to ensure that officials involved in procurement, particularly those dealing directly with suppliers and potential suppliers:
- recognise and deal with any conflicts of interest, including perceived conflicts of interest;
- deal with suppliers and potential suppliers even-handedly;
- consider seeking advice where probity issues arise;
- do not compromise the Australian Government's standing by accepting inappropriate gifts or hospitality;
- are scrupulous in their use of public property; and
- comply with all duties and obligations including the agency’s CEIs in relation to gifts or hospitality, the information privacy principles of the Privacy Act 1988, the security provisions of the Crimes Act 1914 and, where applicable, the Australian Public Service’s Code of Conduct as set out in the Public Service Act 1999.
6.20 Agencies should include contract provisions requiring contractors to comply with materially relevant laws and should, as far as practicable, require suppliers to apply such a requirement to sub-contractors. Contractors must also be able to make available details of all sub-contractors engaged in respect of the procurement contract.
6.21 Agencies must not enter into contracts with suppliers who have had a judicial decision against them (not including decisions under appeal) relating to employee entitlements and have not paid the claim. Agencies should seek to confirm a tenderer has no such unsettled judgements by seeking a declaration on the matter from all tenderers.
6.22 Agencies must not seek to benefit from supplier practices that may be dishonest, unethical or unsafe.
7. Accountability and Transparency
7.1 Accountability and transparency are primary considerations throughout the procurement process.
7.2 Accountability and transparency encourage the efficient, effective and ethical use of Commonwealth resources. An agency and its officials have the responsibility of ensuring that any procurement process is open and transparent and that decisions are justified. Agencies need to have procedures in place to ensure that procurement processes are conducted soundly and that procurement related actions are documented, defensible and substantiated in accordance with legislation and government policy.
7.3 A well planned, conducted and documented procurement, which accords with government policy, is well placed to withstand external scrutiny. Adherence to the CPGs and full documentation of the process can be relied upon to provide substantiation of decisions.
7.4 Accountability means that officials are responsible for the actions and decisions that they take in relation to procurement and for the resulting outcomes. Officials are answerable for such activity through established lines of accountability including the agency’s Chief Executive and senior management, the Government and the Parliament, as shown in Figure 3.
Text description of Figure 3 - Lines of Accountability
7.5 Transparency provides assurance that procurement processes undertaken by agencies are appropriate and that policy and legislative obligations are being met. Transparency involves agencies taking steps to support appropriate scrutiny of their procurement activity.
7.6 The fundamental elements of accountability and transparency are policy and legislative obligations, documentation and disclosure. These are outlined below.
Policy and Legislative Obligations
7.7 Officials undertaking procurement are accountable for complying with relevant general government policies and legislative requirements. This includes the procurement-specific policies and legislative requirements set out in the CPGs, the FMA Act and FMA Regulations, and other policies and legislation that interact with procurement.
Documentation
7.8 Documentation is critical to accountability and transparency. It provides a record of procurement activities and how they have been conducted, and facilitates scrutiny of these activities.
7.9 Agencies must maintain appropriate documentation for each procurement. The appropriate mix and level of documentation depends on the nature and risk profile of the procurement being undertaken. Agencies need to ensure there is sufficient documentation to provide an understanding of the reasons for the procurement, the process that was followed and all relevant decisions, including approvals and authorisations, and the basis of those decisions.
7.10 Documentation relating to a procurement must be retained for a period of three years or for a longer period if required by legislation or other reason for a specific procurement. In addition, the Archives Act 1983 sets out requirements in relation to Commonwealth records, including dealings with, and access to, such records.
7.11 The FMA Regulations set out specific requirements for the preparation of documentation when making commitments to spend public money.
7.12 Agencies should ensure there is a written contract with the supplier in a procurement process. Where a written contract does not exist, agencies should ensure that sufficient written documentation or a written contract is formulated as soon as practicable. For low value, routine purchases a purchase order would be considered sufficient documentation.
7.13 Documentation requirements vary throughout the procurement cycle. Documentation that may be appropriate for each stage includes, but is not limited to, that shown in Table 1. It is an agency’s responsibility to ensure that adequate and appropriate documentation is kept for each stage of a procurement.
Stage |
Example of Documentation Requirements |
|---|---|
Identify Need |
|
Determine Suitable Process |
|
Conduct Procurement Process |
|
Manage Contract/Relationship |
|
Table 1 Examples of documentation requirements at different stages of the procurement process.
Disclosure
Definition
7.14 Disclosure is the mechanism by which agencies make their procurement activities visible and transparent. The broad aim of disclosure is to provide confidence in the processes that an agency intends to undertake, or has undertaken, and reassurance that the Chief Executive is promoting the efficient, effective and ethical use of resources. For further guidance on procurement disclosure requirements, agencies should refer to Guidance on Procurement Publishing Obligations.
Annual Procurement Plans
7.15 Agencies must publish on AusTender, by 1 July each year, an Annual Procurement Plan (APP) to draw suppliers’ early attention to potential procurement opportunities.
7.16 The APP is to contain a short strategic procurement outlook for the agency supported by details of any planned procurement. The detail should include the subject matter of any planned procurement and the estimated date of the publication of the approach to the market.
Notification
7.17 Agencies must publish all open approaches to the market on AusTender. 8 Relevant documentation providing information on the approach to market must also be available, to the extent practicable, for download from AusTender.
7.18 If an agency advertises an open approach to the market through other avenues, such as print media, the details selected for inclusion in the notification must be the same as those contained in AusTender. Advertising an open approach to the market through other avenues does not diminish the requirement to publish the approach on AusTender.
7.19 Where an agency is required to publish any other notification, request documentation, or any other document on AusTender, the information in any other form (for example, a printed version) of the document must be the same as that published on AusTender.
7.20 For select tenders, agencies must issue all invitations to tender electronically and, to the extent practicable, make tender documentation available electronically to all potential suppliers that are invited. Electronic invitations may also be supplemented by other documented forms of invitation.
Process
7.21 Agencies need to promptly provide, on request, to any potential supplier, documentation that includes all information necessary to permit potential suppliers to prepare and lodge submissions. Agencies must, to the extent practicable, use AusTender to make request documents available.
7.22 Where an agency rejects a potential supplier’s submission, the agency must promptly advise them, and on request provide a written explanation for that rejection.
7.23 Following the award of a contract, agencies must promptly inform all tenderers of the tender decision and on request provide an unsuccessful tenderer with the reasons its submission was not successful. On request, debriefings should also be provided to successful tenderers.
Reporting
7.24 Agencies must report on AusTender all Commonwealth contracts 10 and agency agreements 11, including standing offer arrangements and amendments to these arrangements, which meet the contract reporting criteria in Guidance on Procurement Publishing Obligations. 12
7.25 The contract reporting criteria have reporting thresholds of:
- $10,000 for FMA agencies; and
- for relevant CAC Act bodies, above:
- $400,000 for procurements other than procurement of construction services; or
- $9 million for procurements of construction services.
Other Obligations
7.26 To enhance transparency, agencies must make available on request, the names of any sub-contractor engaged by a contractor in respect of a Commonwealth contract for procurement.
- Agencies must require contractors to agree to the public disclosure of the names of any sub-contractors engaged to perform services in relation to a Commonwealth contract for procurement.
- Contractors must be required to inform relevant sub-contractors that the sub-contractor’s participation in fulfilling a Commonwealth contract for procurement may be publicly disclosed.
7.27 Various other reporting and disclosure obligations apply, including:
- disclosure of procurement information for agency annual reporting purposes;
- disclosure to the Parliament and its committees, as appropriate, in line with the Government Guidelines for Official Witnesses before Parliamentary Committees and Related Matters;
- disclosure of information consistent with the Freedom of Information Act 1982; and
- disclosure of discoverable information that is relevant to a case before a court.
Treatment of Confidential Information
7.28 When conducting a procurement and awarding a contract, agencies should take appropriate steps to protect the Commonwealth's confidential information. This includes observing legal obligations such as under the Privacy Act 1988 and statutory secrecy provisions.
7.29 Agencies should therefore ensure that where it is necessary for potential suppliers to have access to confidential information for the purpose of preparing a submission that appropriate steps are taken to ensure that potential suppliers maintain the confidentiality of that information.
7.30 Agencies should ensure that potential suppliers' submissions are treated as confidential prior to the award of a contract and that unsuccessful submissions are kept confidential after the award of the contract to a supplier. Once a contract has been awarded the terms of the contract and successful supplier's submission are not confidential unless the agency has determined that specific information is to be kept confidential in accordance with the Guidance on Confidentiality in Procurement.
7.31 The need to maintain the confidentiality of information should always be balanced against the public accountability requirements of the Australian Government. It is therefore important for officials to plan for and facilitate appropriate disclosure of procurement information. In particular, officials should:
- include provisions in request documentation and contracts that alert prospective suppliers to the public accountability requirements of the Australian Government, including disclosure to the Parliament and its committees;
- where relevant, include a provision in contracts to enable the Australian National Audit Office to access contractors' records and premises to carry out appropriate audits (model access clauses have been developed for agencies to tailor and, where appropriate, incorporate into relevant contracts) 13;
- consider, on a case by case basis, any request by a potential supplier for material to be treated confidentially after the award of a contract, only entering into commitments to maintain confidentiality where these are appropriate; and
- be aware of the requirement for the disclosure of information consistent with the Freedom of Information Act 1982.
7.32 Where confidential information is required to be disclosed, for example following a request from a Parliamentary committee, reasonable notice in writing must be given to the party from whom the information originated.
Dealing with Complaints
7.33 Procurement processes need to be based on clearly articulated and defensible evaluation criteria consistent with the procurement policy framework. Agencies’ actions in undertaking procurement processes must be robust and defensible.
7.34 In the event that a complaint is received agencies should aim to manage this process internally, where possible, through communication and conciliation with the tenderer or supplier. Agencies must apply fair, equitable and non-discriminatory complaint handling procedures. The procedures should take account of the following:
- the process needs to be systematic and well understood by the parties involved;
- senior management and officials independent of the process should be involved as appropriate;
- complaints should be dealt with in writing;
- each party must have sufficient time to appropriately respond to developments (no less than 10 days, unless urgent);
- if a matter has been referred to an external body for review, agencies may be required to provide all relevant documents to that body as required by law; and
- agencies must ensure that the initiation of a complaint process does not prejudice a supplier’s or a potential supplier’s participation in future procurement processes.
7.35 External options are available if independent review of a complaint is necessary. The primary external complaint mechanism is the civil legal system, which can be used to settle matters through a judicial process. The Commonwealth Ombudsman also has powers to investigate procurement complaints. The Ombudsman cannot override agency decisions, but aims to resolve matters by negotiation and persuasion and, if necessary, by making formal recommendations to senior levels of government.
FOOTNOTES:
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www.tenders.gov.au.
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Electronic for the purposes of these CPGs means any information provided on AusTender, and includes documentation provided to a supplier or potential supplier by email, facsimile or otherwise transmitted to the recipient by another electronic means.
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FMA Regulations define a Commonwealth contract as ‘an agreement for the procurement of goods and services under which the Commonwealth is obliged, or may become obliged, to make a payment of public money’.
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FMA Regulations define an agency agreement as ‘an agreement for the procurement of goods and services under which an Agency is obliged, or may become obliged, to make a payment of public money to another Agency’. This will often take the form of a memorandum of understanding.
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See Guidance on Procurement Publishing Obligations available from www.finance.gov.au.
- See Procurement Guidance – Standard Contract Clauses to Provide ANAO Access to Contractors’ Information available from www.finance.gov.au.
Contact for information on this page: Procurement Agency Advice