Agency A case studies of procurements under $80,000
Project
Analysis and Review of Commonwealth
Procurement Processes for procurements
under $80,000
Client
Department of Finance and Deregulation
Date
Version
24 May 2011
FINAL 1.0
ThinkPlace
Team
Linda Dewey,
Behzad Emami
AUSTRALIA  NEW ZEALAND
LEVEL 1 UNIT 3 GREEN SQUARE KINGSTON 2604 P +61 6282 8852 F +61 2 6282 8832 WWW.THINKPLACE.COM.AU
About this document
Methodology
This document contains an analysis of three procurement case
studies provided by Agency A. Each case study was analysed
against a high level process model to understand actual
procurement processes employed and to identify areas of good
practice, unnecessary and / or duplicated processes, and
convoluted processes (inefficient / ineffective).
1. Agency A provided three procurement case studies that
describe actual procurement processes
ThinkPlace has worked with a small group of people in Agency
A to develop this document.
3. ThinkPlace worked with Agency A staff who are directly
involved in the case study to identify areas of good
practice, unnecessary and/or duplicated processes, or
convoluted processes.
2. ThinkPlace reviewed the case studies validating them
against processes mandated by the agency CEIs and
relevant policies.
Contents
Procurement case studies
Procurement narrative - case study 1
Procurement narrative - case study 2
Procurement narrative - case study 3
3
4
5
6
High Level Analysis of Case Studies
7
Summary of process issues and insights
Good practice, unnecessary and convoluted processes
Opportunities for improvement
13
14
15
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 2
Procurement case studies
In this section, three procurements under $80,000 that best represent typical procurements, examples of good practice and examples of
convoluted processes are explored.
These case studies describe the facts, processes and experiences of the procurement.
AUSTRALIA  NEW ZEALAND
LEVEL 1 UNIT 3 GREEN SQUARE KINGSTON 2604 P +61 6282 8852 F +61 2 6282 8832 WWW.THINKPLACE.COM.AU
Case Study 1
Maintenance and support of web-hosting services
Questions
Comments
What was procured?
Maintenance and support of web-hosting services
What was the value of the procurement?
Year 1 = $28,655
Year 2 = $34,675
Total = $63,330 (incl. GST)
How was the procurement valued?
Extensive market research was undertaken to compare relevant providers. An existing contract provided market
rates and estimate of future development
Was documentation developed (e.g. file notes,
risk assessment, statement of work)?
If so, what type and why?
•
•
•
•
•
•
•
•
•
How was the market approached (e.g. direct,
select)?
Direct sourcing – market research identified appropriate provider for specialised procurement, only one quotation
sought based on this research
How long did the process take, from beginning
to end?
12 months (as highlighted by document trail above)
Who was involved in the process (e.g. central
procurement area, delegate, line area, etc.)?
What was their role?
Client
Central Procurement Area
Budget Holder
Delegate
What did the approval process involve?
Office Minute contains FMA Act s.44 approvals
Was there a reporting process?
Verbally advised was reported on AusTender – no documentation provided to support
Questions referred to the procurement area (if
any).
Issues were raised regarding the priority of the procurement (part of IT critical plan) sole sourcing and contract
duration
Original Agency A Concept Brief (22 May 2009)
Original contractor proposal for initial contract (8 June 2009)
Market research and comparative documents for providers (24 June 2009)
Business Case (undated)
Pricing comparisons (19 June 2010)
Office Minute (approval to enter into Contract – includes Reg 8,9, budget and delegate approval) (24 June 2010)
Contract with provider (original) (25 June 2010)
Office Minute (approval for contract extension) (29 March 2011)
Contract with provider (for extension) (13 April 2011)
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 4
Case Study 2
Training provider for delivery of Cert IV Procurement
Questions
Comments
What was procured?
Training provider for delivery of Cert IV Procurement
What was the value of the procurement?
$79, 312.74
How was the procurement valued?
Preliminary market research resulted in quotes from two different training providers
Was documentation developed (e.g. file notes,
risk assessment, statement of work)?
If so, what type and why?
Business case
Correspondence (emails)
Contract
How was the market approached (e.g. direct,
select)?
Existing arrangements considered but deemed to be unsatisfactory
Select approach used to solicit quotes from 2 suppliers
How long did the process take, from beginning
to end?
Procurement process took approx. 1 week
Substantial amounts of market and organisational research was completed beforehand
Who was involved in the process (e.g. central
procurement area, delegate, line area, etc.)?
What was their role?
Client
Supplier
Delegate
Procurement officer (no apparent major contribution due to short length of process)
What did the approval process involve?
•
•
•
•
•
•
Was there a reporting process?
Correspondence states that once approved by the delegate, supporting documentation will be recorded
Questions referred to the procurement area (if
any).
No questions, simply a notification
Determined it could not be done in house (6 Aug)
Received budget holder approval (6 Aug)
Procurement services advised of procurement (11 Aug)
Contract approved and finalised (13 Aug)
Signed by delegate and supplier (23 Aug)
Assumed services delivered (Q4 2010)
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 5
Case Study 3
Credit default swap price data
Questions
Comments
What was procured?
Credit default swap price data
What was the value of the procurement?
$50,000
How was the procurement valued?
USD $5,000 / X names (only provider)
Agency A needed X by 10 for valid comparison
Therefore USD $50,000
Was documentation developed (e.g. file notes,
risk assessment, statement of work)?
If so, what type and why?
Business case
Risk assessment
Office minute
Specialist advice x3
Reg 10 consent request form
Contract
How was the market approached (e.g. direct,
select)?
Direct source (sole provider of services)
How long did the process take, from beginning
to end?
•
•
•
Who was involved in the process (e.g. central
procurement area, delegate, line area, etc.)?
What was their role?
Budget approver
Delegate
Specialist advisor x3
Client
Corporate procurement x2
What did the approval process involve?
•
•
•
Was there a reporting process?
No evidence provided
Questions referred to the procurement area (if
any)
Contractual (overseas purchase)
GST (overseas purchase)
Commenced 28 Jan 2009 (initial request)
Approved 6 Jul 2009 (Reg 8, 9, 10 & 13)
Contract signed 14 Jul 2009
Business case (approved 22 Feb 2009)
Reg 10 (approval of future expenditure 11 Jun 2009)
Office minute (approval of Reg 8, 9, 10 & 13 6 Jul 2009)
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 6
High level analysis of case studies
In this section, case studies are validated against processes mandated by the agency CEIs and relevant policies
AUSTRALIA  NEW ZEALAND
LEVEL 1 UNIT 3 GREEN SQUARE KINGSTON 2604 P +61 6282 8852 F +61 2 6282 8832 WWW.THINKPLACE.COM.AU
Agency A Procurement Processes
Good practice, unnecessary and convoluted processes
Issues
Good practice
Case Study 1 - Maintenance and support of web-hosting services
•
•
•
•
Business requirement identified in the IT Strategic Plan. Duplication of documents were needed to
satisfy procurement requirements
As several similar IT procurement activities were being undertaken at the same time, it was
possible to use the market research for more than one procurement
The client’s level of experience with IT procurement meant he knew what questions to ask
Procurement to ensure the process moved as quickly as possible
A change was made to the specifications at this time to include a clause in the contract for
extensions if required (on recommendation of Procurement) to help facilitate the process in 12
months time
Identify need
Case Study 2 - Training provider
for delivery of Cert IV
Procurement
•
The procurement process involved
experienced clients. This meant
that they:
− Spoke to relevant
stakeholders and specialist
prior to commencing the
procurement process
− Knew the intricacies of the
process required to obtain
final approval
− Knew how to prepare
procurement documentation
for approval
Plan
procurement
 Undertake
approach
Evaluate
responses
and
 Develop
finalise
arrangement
Case Study 3 - Credit default swap
price data
•
The procurement phase did not
deviate from the outlined Agency A
procurement process
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 8
Agency A Procurement Processes
Good practice, unnecessary and convoluted processes
Issues
Good practice
Case Study 1- Maintenance and support of web-hosting services
•
•
•
•
Identify need
Several iterations of procurement documentation to meet FMA Act requirements, but also to
satisfy presentation styles.
The pre-approval step involved hundreds of emails – the procurement area sought clarification
from the business line several times about why, what and who.
The business area was requested to complete several templates – the business area stated
“we need to be careful not to manage the process with templates, rather to support the process”
Not all of the documents outlined as requirements for this phase of the process (Agency A
business process map) are required for all procurements
Plan
procurement
Case Study 2 - Training provider for delivery of Cert IV
Procurement
•
•
•
Existing arrangements were identified (an existing panel and
training contracts within other agencies). However, existing
arrangements did not meet the specific needs of the business.
Short form contract documentation was used and refined to
ensure the requirements of the Delegate and other stakeholders
were met.
Quotes were requested in the planning phase (prior to the
commencing the procurement process). These were used to
refine business requirements, resulting in procurement being
valued within a threshold that would allow for the needs and
timeframes imposed by the business area to be satisfied.
 Undertake
approach
Evaluate
responses
and
 Develop
finalise
arrangement
Case Study 3 - Credit default swap price
data
•
•
Direct sourcing was the most appropriate
means of meeting business requirements (a
RFQ / RFO was not sought)
In principle approval was sought.
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 9
Agency A Procurement Processes
Good practice, unnecessary and convoluted processes
Issues
Good practice
Case Study 1 - Maintenance and
support of web-hosting services
•
Identify need
Plan
procurement
Market research undertaken for the
multiple IT procurements being
undertaken at this time meant this was
a very straight forward part of the
process. Only one quote was sought
from a single provider who met Agency
A’s IT requirements.
 Undertake
approach
Case Study 2 - Training provider for delivery of Cert IV
Procurement
•
•
An initial market approach was conducted prior to commencing
the procurement process to ensure that the procurement cost did
not exceed the $80,000 threshold.
The existing quote (obtained prior to formal commencement)
was used for the procurement process, without approaching the
market again
Evaluate
responses
and
 Develop
finalise
arrangement
Case Study 3 - Credit default swap
price data
•
The procurement phase did not
deviate from the Agency A
procurement process
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 10
Agency A Procurement Processes
Good practice, unnecessary and convoluted processes
Issues
Good practice
Case Study 1 - Maintenance and support of web-hosting services
•
•
This case study did not require any contract negotiations or specialist advice
The approval step can involve many iterations of a document to meet the
standards of different signatories
Identify need
Plan
procurement
 Undertake
approach
Case Study 2 - Training provider for
delivery of Cert IV Procurement
•
The procurement phase did not
deviate from Agency A’s procurement
process
Evaluate
responses
and
 Develop
finalise
arrangement
Case Study 3 - Credit default swap price data
•
•
•
•
•
During negotiations the client, procurement officers, specialist and the supplier
were all involved
Specialist advice was required for negotiations, including
− Legal Services – Terms and conditions of the contract
− Management Accounting Branch (Reg 10 consent)
− Tax management unit (due to supplier being based in the UK)
− Comm cover – circumstances of risk assessment
Specialist advice process took approximately 3 months.
The advice was then combined in an office minute for Reg 8, 9, 10, 13 approval.
The approval process involved the client, procurement services, budget
holder and finally the delegate for sign off.
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 11
Agency A Procurement Processes
Good practice, unnecessary and convoluted processes
Issues
Good practice
Case Study 1 - Maintenance and
support of web-hosting services
•
Identify need
Plan
procurement
 Undertake
approach
Evaluate
responses
The project fulfilled it reporting
obligations
and
 Develop
finalise
arrangement
Case Study 2 - Training
provider for delivery of
Cert IV Procurement
•
•
The case study ended with
the signing of the contract.
The procurement phase
did not deviate from
Agency A’s procurement
process
Case Study 3 - Credit
default swap price data
•
•
The supplier’s contract
was amended using
advice from legal services,
adding further delays to
the process.
The case study was
stopped at the signing of
the contract
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 12
Summary of process issues and insights
In this section, a summary of process issues and improvements are presented
AUSTRALIA  NEW ZEALAND
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Agency A Procurement Process
Good practice, unnecessary and convoluted processes
GOOD PRACTICE
Proven techniques, methods and processes
UNNECESSARY PROCESSES
Repetitive and / or duplicate processes
CONVOLUTED PROCESSES
Inefficient and / or ineffective processes
•
Conducting market and organisational research
prior to formally commencing the procurement
process results in a greater understanding of the
requirements thereby reducing rework
•
•
•
A responsive, experienced and knowledgeable
client greatly increases the likelihood of
successfully completing a procurement by the
deadline. This is due to the fact that experienced
clients are:
The lack of standard documentation means that
different business areas have different document
requirements. This often results in many different
iterations of the same document being produced for
approval.
Risk assessment, which in turn influences the
procurement process required, is based on
procurement costs. This results in many routine,
“business as usual” procurements having to
complete an onerous process.
•
The Procurement area can duplicate the processes
performed by the business area. For example, when
the client wants to approach the market, the
procurement area asks the same questions and requires
the same document signoffs that were already
completed at an earlier in the process.
•
IT procurements are difficult to plan. The
environment is dynamic and it is often difficult to
capture the end to end process. Hence many
contracts do not have extensions built in thus
resulting in additional procurement process at the
contract renewal stage.
•
The activities between pre-approval and delegate
approval are often repeated due to the lack of
guidance and consistency of information and
documentation required. These iterations were due to
either FMA Act requirements, different business area
templates or preferences of presentation.
•
The focus is on getting the procurement
through and approved rather than ensuring that the
right goods or services were procured for the
business area.
•
Legal activities such as changes to liability and
indemnity clauses, and foreign country approvals
unduly delay and frustrate the procurement team as
often the procurement is perceived as very low risk
− Aware of the rigour and timeframes
associated with the different procurement
threshold; and
− Able to appropriately assess and manage
procurement risk
•
•
Simple documentation (e.g. Office Minute)
reduces the chances of delays in pre-approval and
approval
•
If a procurement process is underway and Agency A’s
procurement documentation requirements change, then
the already underway procurements are required to
resubmit updated documentation for approval.
•
Seeking specialist advice is a point of frustration.
For example, contract negotiation can involve rework. If
the supplier wants to change the indemnity clauses,
advice from legal services is required, causing delays in
the process.
Support from corporate procurement when
acting in a clearly defined advisory role or a
governance role was extremely helpful
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 14
Agency A Procurement Process
Opportunities for improvement
Standardised documentation
• A clear, standard set of documentation requirements with guidance for procurements under $80,000 would reduce instances of
rework between pre-approval and delegate approval. Standardised documentation would also reduce the need to have very
experienced procurement officers on all procurements thereby allowing them to focus on complex and high risk procurements
Pre-process activities
• A pre-procurement requirement such as market research, would result in better selections of market approaches and timely
input from specialist would reduce the risk of taking ‘shortcuts’ in order to meet client deadlines
Removal of liability and indemnity clauses
• Changes to liability and indemnity clauses delay and create repetition of activities while awaiting specialist advice. Liability and
indemnity clauses should be removed from short form contracts where the procurement risk is very low.
Standard and holistic risk assessment process
• Currently the $80,000 threshold is driving the procurement process rather than the overarching principle of achieving an
appropriate use of Commonwealth resources.
• Risk assessments should not be based solely on procurement costs. Risk to organisational capability and other factors pertinent
to Agency A should also be considered. For example the procurement of $10,000 of off the shelf stationary should be
considered as low risk compared to the procurement of $10,000 worth of consulting services from a sole trader. Procurement
processes ought to be commensurate with the level of risk.
ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT
PROCESESS UNDER $80,000 – AGENCY A CASE STUDIES
PAGE 15
AUSTRALIA  NEW ZEALAND
LEVEL 1 UNIT 3 GREEN SQUARE KINGSTON 2604 P +61 6282 8852 F +61 2 6282 8832 WWW.THINKPLACE.COM.AU