This document will be updated periodically.
Current Version: 1, dated January 2014
Local Government Structural Reform
Reform Toolkit
Procurement Guide
Prepared by:
Andrew Blitz
Business Development Manager
ablitz@walga.asn.au
This resource integrates some content commissioned by WALGA from ArcBlue.
Contents:
Section
Intro
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Reform Toolkit – Procurement Guide
Name
Page
3
Levels of Procurement Maturity
5
Procurement structure
12
Purchasing policy
15
Procurement governance
19
Contract register
22
Tenders register
24
Resources and templates
27
Current activity
34
Due diligence
37
Insurances
40
Skills development
43
Compliance and probity
47
Property contracts and capital assets
50
ICT contracts
53
Service contracts
55
Goods Contracts
57
Summary and procurement Reform Support
Page 2 of 59
Introduction
Well organised procurement functions can deliver significant financial and non-financial benefits to a Local Government.
Procurement functions across Local Governments in WA play a critical role in ensuring that public money is spent through well controlled processes and
delivering good value for money.
Procurement functions that are well set up, resourced and organised can use this significant expenditure and focus it in the areas that the Local Government
and community requires it most. In this way, well organised Procurement functions can help deliver benefits in helping support local suppliers, support
suppliers with strong sustainability credentials, deliver savings through better contracts or any other objectives a Local Government may have.
There is often a mismatch between the Procurement function and the organization in defining the required role. Often Procurement’s own definition of the
role and the perceptions of the organisation differ markedly. Perceptions and expectations are drawn from experience, history, individual interactions, the
service provided from experience in previous organisations. Therefore the role needs to be defined and constantly reinforced across the organisation.
Levels of Procurement Maturity
Before Procurement organisations can start on their journey towards better practice, it is important to assess what the Local Government needs from
Procurement.
Not every Procurement function needs to be best practice. What is important is that Procurement is the right size, shape and has the right role for the Local
Government. A maturity assessment can help identify where Procurement currently is and will help identify where it needs to go to deliver against the
objectives and goals of the Local Government.
In the model on the right, we identify four levels of maturity.
Emergent
Procurement in an emergent function has largely uncoordinated procurement activities, with many stakeholders responsible for buying and the Local
Government is likely to have many gaps in compliance – either with its own procurement policy or with legislation.
Basic
In a basic function, the compliance issues have been addressed, and the Local Government has a focus on meeting legislative requirements.
Developing
Procurement in developing functions have started to think strategically and have some category strategies in place.
Advanced
In the highest level of maturity, Procurement is leading change across the Local Government and is recognised as a Centre of Excellence delivering year on
year benefits to the organisation.
Reform Toolkit – Procurement Guide
Page 3 of 59
In defining the required role of Procurement we need to understand:
1. How is Procurement perceived?



What is the role today and what does it need to be in the future?
Is the focus on process control, cost reduction, value improvement, revenue growth or some other driver?
What is the baseline in terms of cost, performance and orientation?
2. What are the priorities and objectives of the CEO and Senior Management Team?


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Procurement’s value is derived from its ability to meet the organisation’s needs and priorities
There is a need to set out a clear vision that meets these priorities
It is necessary to create passion and unify purpose which all stakeholders can buy into.
Vision for the role of procurement in Local Government
Every Local Government is different and therefore Procurement functions will have a different role in each organisation. However it is possible to describe a
high level vision for the role of Procurement in a Local Government, with the intention that each organisation takes those elements that are appropriate and
incorporates into their organisational model.
The Procurement team:
 Are responsible for the procurement processes that sit above all spend across the Local Government.
 Responsible for developing 3-5 year procurement strategy, with targets objectives and plans highlighted.
 Are driving procurement change across the organisation.
 Have a procurement leader who is highly visible across the organisation.
 Is involved and adding value to major projects on a regular basis.
 Articulate value that is very clear
 Are invited into projects at early stage to add value.
 Are experienced and have professional qualifications (MCIPS)
 Are responsible for providing systems and tools to users
 Provide meaningful reporting on procurement across the organisation.
 Manage compliance to policy framework and give regular reporting to key business areas.
 Follow up non-compliance with senior management.
 Train and develop all procurement related roles across the organisation
 Have developed consistent Contract Manager roles which are in place for all major contracts.
 Have an overview of all supplier performance and KPI's measurement methodologies are in place to benchmark suppliers.
 Have developed category strategies for all key categories.
 Are experts in analysing supply markets and supply chains
 Are responsible for savings programs are in place to proactively drive better value
Reform Toolkit – Procurement Guide
Page 4 of 59
1
Procurement Structure
The key drivers that determine the shape of the procurement team (organisational models) are determined by analysis of the following:
The Local Government
How well does the Local Government collaborate across Business Units?
To what extent is centralisation/decentralisation preferred for service functions?
What is the intended culture of the organisation?
Supply Market Shape and Action
Are the supply markets regional or local?
How are the suppliers organised in managing accounts – industry focus, geographic focus, product/service focus?
Suppliers
What is the level of supplier concentration?
Are there opportunities for consolidation of expenditure?
What is the complexity and risk of expenditure?
The core structure of a Procurement team is often defined as either “centralised” or “decentralised”.
Under a centralised structure a team of skilled and experienced professionals will oversee the procurement activities of the organisation.
Key features:






Strong governance
Robust compliance
Consolidation of spend prominent
Low awareness of Business Unit needs; often secondary to corporate or Procurement
objectives
Detached – can lead to poor stakeholder alignment
Can often be inflexible
Reform Toolkit – Procurement Guide
Page 5 of 59
Under a decentralised model a functional and integrated approach is taken towards procurement within respective technical areas. Decentralized organisations empower
business units and sites with autonomy and control over supply, process, and technology decisions, as well as sourcing and procurement execution. This structure improves
satisfaction at the site and business-unit level, but fails to leverage corporate spending; is costly to operate; and leads to inconsistent supply cost and performance across
the enterprise.
Key features:






Very low level of connectivity across the business
Little or no consolidation of expenditure
No overarching governance
Strong understanding of needs
Fully aligned to meeting the Business Unit strategy
Operational focus
It is most common for WA Local Government to centralise a team of Purchasing Officers who are responsible for running compliant procurement processes, and who then
deliver executed contracts back to business units for Contract Management.
A centralised system has the advantage of better control, greater expertise, and recognition of the procurement function. However workflow and resource pressures can
lead to bottlenecks and lack of technical input relating to business requirements. Conversely, decentralised procurement improves supplier relationship management,
however can also result in a lack of scale and experience in procurement competencies and risk breach of policy/compliance. There is also greater inconsistency within
approach, leading to different expectations in the marketplace.
WALGA advocates a hybrid procurement structure whereby there is centralised procurement control (policy and compliance) and devolved end user access. The eQuotes
system developed by WALGA supports this structural model, delivering process control such that the risk of procuring from unauthorised or uncontracted suppliers is
removed.
Reform Toolkit – Procurement Guide
Page 6 of 59
Some hybrid structural models are presented as follows:
Category Management
Category Management is an organisational structure based around individuals with responsibility for identified areas of expenditure. A category is a group of
products/services which can be treated as a single requirement from a sourcing perspective; the supply market largely determines how the category is defined and shape.
The focus is typically on non-transactional processes and supported with a structured sourcing methodology and tends to be more centralised.
Within Business Units, a category management structure can be applied to key strategic functions. For example centralising the energy contracts and spend within one
business team (e.g. sustainability services), centralising the fleet and fuel spend with depot administration, and facilities maintenance with an area such as asset
administration or parks and gardens can also be critical to delivering optimal contract management and supplier relationship management
One of the key benefits of such a structure is that in ensures a market-led focus and enables the organization to consolidate its spend and manage at an enterprise-wide
level. Category management has been popular in recent years as it enables alignment to supply markets, but has been challenging to implement in Local Government.
Reform Toolkit – Procurement Guide
Page 7 of 59
Centre Led Action Networks can work where procurement officers are co-located with business units to support business alignment:
Alternatively, the separation of duties can be asserted by an organisational split between sourcing and transactional purchasing:
Reform Toolkit – Procurement Guide
Page 8 of 59
The structure of the procurement team, its management, and reporting also requires strategic consideration. Currently it is common for the purchasing staff to report to
Finance and/or Corporate Services, and the functions of the team are predominantly transactional in nature. However strategic procurement is critically important to the
planning and effective operation of the organisation and procurement can also be structured into the organisation in areas such as governance, economic development,
and even technical services. By positioning procurement as more than an administrative function within the organisation structure, a statement is made about the value
and importance of procurement as an enabler and efficiency generator to the entity. Many corporate (private sector) organisations have a CPO (Chief Procurement
Officer) that directly represents spending efficiency and analytics to the Executive table. There are currently no CPO roles within Western Australian Local Government,
however there are several CPO’s within Local Government in the Eastern States, charged with oversight of expenditure into the hundreds of millions.
Summary:
The reform challenge for Local Government is to provide an organisational structure for the procurement team that is sufficient in size, commensurate with the
expenditure levels, supplier numbers, and workflow of the new Local Government. Process efficiencies can be identified through technology (electronic tendering, online
contract management, eQuotes, etc). The structure should take into account those elements of the procurement process that are to be centralised and which components
of activity will be driven by functional business units.
Reform Toolkit – Procurement Guide
Page 9 of 59
Checklist: Procurement Structure
Task
Review and explore current procurement structure,
numbers of staff, numbers of contracts and workflow
Determine initial procurement structure and the role
of the procurement team
Determine the management structure of procurement
Consider skills development for staff seeking roles in
the future organisation
Check for alignment between the draft Purchasing
Policy and the procurement structure deployed
Recruit staff for new purchasing team
Review structure, technology, and workflow
Set annual procurement plan
Reform Toolkit – Procurement Guide
Critical Considerations
 Are there similar or different structures within the
incumbent organisations?
 Do the systems and software used by each
organisation vary?
 Are the internal purchasing thresholds aligned?
 Will there be centralised or decentralised
procurement?
 What will the title of the Manager be (Purchasing
Manager, CPO etc)?
 Who will the manager of the procurement team
report to?
 What development opportunities will be
considered for the future procurement team?
 What structural enablers will be put in place to
position general administrative staff to grow into
purchasing based roles?
 Refer to Purchasing Policy section, and cross check
for structural alignment
 Are specialist procurement recruitment agencies
deployed?
 Are position descriptions inclusive of procurement
capabilities and competencies?
 Is the optimum structure working as intended
from the start date of the new entity? If not, are
the issues systemic and structural in nature, or
driven by operational circumstances?
 Has the procurement team been introduced and
have their roles been communicated through the
new organisation?
 Procurement planning by new procurement team
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Stage 4 – July 2015 onwards (implement)
Stage 4 – July 2015 onwards (implement)
Page 10 of 59
Further support resources specific to the procurement structure:
Resource Name
WALGA Procurement
Handbook
Description
Produced by WALGA’s Procurement Consultancy Service to support best
practice procurement.
Source
Laura Cull
Business and Procurement Manager
Ph 9213 2045
Email lcull@walga.asn.au
CIPSA Global Public
Sector Portal
Over 80 government agencies and professional associations across the globe
have already adopted the Values and Guiding Principles and the Partnership
continues to promote them globally as fundamental to good procurement
practice.
FLiP (Future Leaders in Procurement) Roundtable
http://www.globalpublicprocurement.org/
Local Government
Procurement
Training
Procurement training including Certificate IV in Government (Procurement and
Contracting) available through WALGA Training Solutions
http://walgatraining.com.au/mod/resource/view.php?id=527
CIPSA White Paper
Building the case for Centralisation in Public Procurement.
http://www.cips.org/Documents/CIPSAWhitePapers/2006/Buildi
ng%20the%20case%20for%20centralisation%20in%20public%20p
rocurement.pdf
Tenderlink/Financial
Review
Australian Procurement research report and survey results on procurement
structures.
http://www2.tenderlink.com/uploads/content/downloads/Austr
alasian%20Procurement%20-%20A%20Challenging%20Role.pdf
The Faculty
http://www.thefaculty.com.au/roundtables-forums/futureleaders-in-procurement
Jacqui Dodd
RTO Training Manager
9213 20
Email egillespie@walga.asn.au
Reform Toolkit – Procurement Guide
Page 11 of 59
2
Purchasing Policy
The Local Government (Functions and General) Regulations were amended on 2 February, 2007, to introduce a mandatory requirement to implement a Purchasing Policy
for the organisation. The regulatory requirements provide for the adoption of quotation thresholds for sub $100,000 purchasing values, form and retention of quotations,
and different classifications of purchasing. It is the intention of the regulations to provide an opportunity for all suppliers in the market to have the opportunity to bid for
Local Government business, and the resulting policy should both reflect and enable this.
WALGA has developed a Model Purchasing Policy that is included in the Procurement Handbook. The template covers off headings including:
 Objectives
 Ethics and Integrity
 Value for Money
 Sustainable Procurement
 Purchasing Thresholds
 Regulatory Requirements
 Records Management
 Regional Price Preference
Using the principles of the Integrated Planning Framework, Local Governments should ensure that the Purchasing policy aligns and converses with other policy documents
and corporate documentation. In particular the delegations register should be compatible with the purchasing policy so that an appropriate Head of Power is given
operational approval.
Elements of a purchasing policy that extend beyond the basic requirements include oversight of related functions, for example integration of internal audit of procurement,
spend analysis, contract review, ethics, and flags for issues such as long-term supplier relationships (review of contracts with no change of service provider over a decade).
The division of duties, for example supplier selection and supplier management can also be asserted at policy level if desired. There can be tension within areas of the
policy for example, balancing the principles of competitive neutrality against the administrative costs and commercial drivers of the organisation.
The reform challenge for Local Government is to determine optimum minor purchasing thresholds. They should be sufficiently high such that best value is derived through
the collection and qualitative evaluation of formal quotes, but not too high to the extent that there is an overinvestment of administrative time into the purchase decision
making. Checks and controls to minimise the propensity of fraud are also important considerations within the establishment of a minor purchasing threshold framework
and to this end the procedural requirements of each threshold tier should be considered as part of the policy development. Buy Local considerations should also be
represented at policy level.
Summary:
A well constructed purchasing policy can derive significant process benefits and also feed into a more meaningful annual budget process. It is a regulatory requirement to
have a policy, but good governance will move beyond the minimum requirements and utilise the policy as an effective way to derive value and best practice procurement.
Reform Toolkit – Procurement Guide
Page 12 of 59
Checklist: Procurement Policy
Task
Review current purchasing policy documents of the
current entities.
Scope future size of procurement operation and
determine suitable thresholds
Review procurement process controls, separation of
duties and fraud minimisation strategies.
Determine additional purchasing policy requirements
Merge the current purchasing policies in conjunction
with the model template and other discussions to draft
a new Purchasing Policy
Check policy for Procedural Fairness
Implement procurement governance compliance and
conditioning report
Establish regular policy review/check
Reform Toolkit – Procurement Guide
Critical Considerations
 Draft a schedule of differences
 Reconcile content
 Check all elements of the policy are included
 Determine if Regional Price Preference is
required and what Buy Local inclusions apply.
 Develop thresholds that are commensurate
with the number and value of envisaged
contracts.
 Relate back to organisational structure and
reporting lines, delegations register, and
internal audit
 Beyond the minimum consider audit,
analytics, regional economic development and
supplier review requirements that should be
elevated to policy level outside of operational
practice.
 Maintain a focus on the future, not the past.
The new entity has the opportunity to
improve and enhance its procurement
function, driven by the new policy.
 Test out procurement processes through
reviews and probity audits to ensure that the
process is procedurally fair and that
objectivity has been applied.
 Incorporate a methodology for Elected
Members to be able to assess compliance
with the policy and to have attention drawn
towards any policy departures relating to
unique circumstances
 Regularly assess the policy to ensure it is
meaningful, effective, and practical.
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Stage 4 – July 2015 onwards (implement)
Page 13 of 59
Further support resources specific to the Purchasing Policy:
Resource Name
Model Purchasing
Policy
Description
Included in the WALGA Procurement Handbook. Produced by WALGA’s
Procurement Consultancy Service to support best practice procurement.
CIPSA Code of
Conduct
The purpose of this code of conduct is to define behaviours and actions which
CIPS (Chartered Institute of Purchasing and Supply) members must commit to
maintain as long as they are members of CIPS.
A publication that introduces procurement professionals to the key concepts
behind ethical procurement and provides practical advice for getting started.
CIPSA Ethical and
Sustainable
Procurement Guide
State Supply
Commission WA
LGMA
Victorian
Government
Procurement Board
Global Procurement
Portal
Walk Free
Foundation
Western Australian
Disability Enterprises
The Australian
Procurement and
Construction Council
AAPCM
Public Service
Commission
Aus Tender
The former SSC is now merged into the Department of Finance. A range of
procurement policies and the State Buy Local policy is represented on the
website
The LGMA Code of Ethics provides members with an authoritative guide on
acceptable standards of professional conduct.
The Victorian Government Purchasing Board (VGPB) provides leadership in
government procurement of goods and services to deliver value-for-money
outcomes for Victoria.
Values and Guiding Principles of Public Procurement
Eradication of modern slavery through supply chain management
The WADE operates a project to increase Government procurement of their
goods and services which is often incorporated into policy development.
The APCC has developed a Government Framework for Sustainable
Procurement (Framework) to guide the implementation of sustainable
procurement.
The Australian Association of Procurement and Contract Management have
values and a Members’ Code of Conduct
The PSC has a code of ethics, promoted as minimum standards of conduct and
integrity to be complied with by all public sector bodies and employees.
The Federal Government procurement arrangements have policy documents,
guidelines and general information online that will assist as examples of
purchasing policies and rules.
Reform Toolkit – Procurement Guide
Source
Laura Cull, Business and Procurement Manager
Ph 9213 2045
Email lcull@walga.asn.au
http://www.cips.org/en-AU/Aboutus/CIPS-Code-of-Conduct/
http://www.cips.org/Documents/About%20CIPS/CIPS_Ethics_Gui
de_WEB.pdf
http://www.ssc.wa.gov.au/
http://www.lgmawa.org.au/about-us/our-governance/our-codeof-ethics
http://www.procurement.vic.gov.au/CA2575BA0001417C/pages/
home-policy-index
http://www.globalpublicprocurement.org/Documents/Resources
/VGPs/Values_Guiding_Principles.pdf
http://www.walkfreefoundation.org/
http://wade.org.au/
http://www.apcc.gov.au/ALLAPCC/APCC%20PUB_ANZ%20Gover
nment%20Framework%20for%20Sustainable%20Procurement%2
0-%20Sept%202007.pdf
http://www.aapcm.com.au/aboutassociation/values-code-ofconduct
http://www.publicsector.wa.gov.au/publicadministration/official-conduct-and-integrity/code-ethics
https://www.tenders.gov.au/?event=public.policydocs.list
Page 14 of 59
3
Procurement Governance
The role of the Elected Member with respect to procurement can often be defined ambiguously. On the one hand the Council is presiding over compliance with policy,
transparency and fairness of process. This is a function of promoting the integrity of the sector by ensuring that all suppliers in the market are extended an opportunity to
commercially bid for Local Government business. On the other hand, due to the structure of agendas, Council decisions are being made regarding the selection of suppliers
to the organisation, which is effectively considered (and perceived by the market) to be an operational function.
It needs to be stressed that when receiving a tender recommendation, the Council is considering the item in the context of ratifying the procurement process which has
preceded it. Council should be satisfied that the probity of the process was beyond reproach, that the procurement policy and procurement plan has been followed, that
the evaluation has been objective, and that the outcome will deliver the most advantageous supply outcome to the entity. However it is not the role of Council to reevaluate the tender or to feed into the operational assessment of submissions.
Similar to a Board of Directors, a Council can set principles for the way in which procurement based recommendations are presented and considered by Council. Critical
considerations are:






The extent to which delegation has been defined and extended.
The amount and format of information required to make an informed decision.
Controls and limitations to prevent operational level involvement in the process.
Sufficient information to follow the evaluation process and decision making process within the evaluation team assessment.
Guidance on the process to be undertaken in the instance that an agenda recommendation is not accepted by Council, and means of justification applied.
Governance risks relating to the “process contract” of a procurement process, including timeframes, confidentiality, probity and procedural fairness.
There is a potential conflict between protecting commercial in confidence information, and requiring transparency and disclosure. Best practice is for the full tender
process (evaluation report) to be provided to Council under confidential cover, and an executive summary that does not disclose detailed information to be placed as the
public agenda item. The overall cost of a winning bid is publically accessible information through the Tenders Register, however price information sitting behind this may
require protection from public disclosure.
The reform challenge for Procurement Governance is to skill Elected Members with the knowledge of Local Government procurement regulations, and the skills to balance
their role as a decision maker with their role in governing the decision making process. Elected Members should undertake training and build their knowledge in this area,
and also develop procurement guidance as a unified body.
The Council, as a body corporate, should also clearly articulate the capabilities and functional duties of the procurement team that operates under the purchasing policy
that they adopt. These can be broadly defined as follows:
Reform Toolkit – Procurement Guide
Page 15 of 59
Procurement Capabilities
Defintion
Supply Base Analysis
The ability to evaluate suppliers & supply markets to ensure appropriate alignment
between the supplier and Local Government.
Risk Management
Managing commercial, reputation, ethical and other risks associated with the
procurement process to ensure that undesirable consequences of the risks are
mitigated and that compliance is asserted.
Negotiation Skills
Plan and implement contracts, utilising leverage, identifying the risks, and
developing options to close a contract successfully whilst ensuring the most
advantageous outcome.
Stakeholder management
Determine & implement appropriate management of stakeholder relationships.
Contract Management
Provide review and feedback, assess contractual compliance by both parties,
establishing appropriate and effective key performance indicators, managing any
disputes in a timely, appropriate and effective manner.
Contract Selection and Legal
Drafting, negotiating, and agreeing clear, concise, and complete contractual
documentation
Procurement Process Management
Ensuring the effectiveness and continuing development of the procurement
process.
Value for Money Assessment
Undertaking a meaningful financial assessments and price analysis and utilising this
information in planning, control and decision making.
Reform Toolkit – Procurement Guide
Page 16 of 59
Summary:
Procurement Governance is a high risk to an organisation, and many contractual and legal disputes can be avoided when good governance is applied. The Council has a
collective voice only with respect to resolving supplier appointment recommendations through the Council agenda. Council needs to both govern the process, and receive
the outcomes of the process for consideration and deliberation. Council owns the process, but does not drive the procurement itself.
Checklist: Procurement Governance
Task
Administration to collect information relating to
current environment (procurement related directives
of the current Council)
Develop principles of procurement governance
Integrate Governance into corporate planning
documentation
Review
Prepare and present procurement governance
framework to the new Council
Critical Considerations
 Are there any policies or reporting
requirements?
 Is the Delegations register sufficiently detailed
to address procurement responsibilities?
 What values and definitions does the new
Council wish to consider to define their own
procurement role?
 Consideration of a Councillors Code of
Conduct?
 Consideration of a procurement compliance
policy?
 What regulatory or legislative changes will
impact future procurement processes in Local
Government?
 Potential for the new Council to workshop and
set modifications to proposed Procurement
Governance structure.
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Further support resources specific to the Procurement Governance:
Resource Name
Departmental
Operational
Guidelines 17 –
Delegations
Western Councillor
Description
Department of Local Government
Source
Available through the Local Government Advisory Hotline
http://www.dlg.wa.gov.au/Content/Publications/LGGuideline
s.aspx
Article about Elected Member Governance of Tender Recommendations
appears in the Nov/Dec 2013 edition.
http://www.walga.asn.au/NewsPublications/Publications/We
sternCouncillor.aspx
Reform Toolkit – Procurement Guide
Page 17 of 59
Elected Member
Training
Councillors Manual
section 8.10
Ombudsman
CCC
Local Government
(Functions and
General)
Regulations, 1996
Australian National
Audit Office (ANAO)
Local Government Procurement Training and Elected Member Training has
been developed including a Certificate IV in Government (Procurement and
Contracting).
Some brief commentary regarding the Elected Members procurement role is
included in the Councillors Manual
The Ombudsman serves Parliament and Western Australians by resolving
complaints about the decision making of public authorities and improving the
standard of public administration. In 2011/12 there were 285 complaints
received about the Local Government sector, many relating to contracts and
property management. The office has produced publications relating to this
activity.
The Corruption and Crime Commission (CCC) works to improve the integrity of
the Western Australian public sector and helps public sector agencies minimise
and manage misconduct. A number of Local Government investigations have
been undertaken specific to procurement.
http://walgatraining.com.au/
training@walga.asn.au
phone - (08) 9213 2098
James McGovern
Manager Governance
jmcgovern@walga.asn.au
Ph 9213 2093
http://www.ombudsman.wa.gov.au
http://www.ombudsman.wa.gov.au/Publications/Documents/
reports/OWA_200910_Complaint_Handling_Survey_Report_30610.pdf
http://www.ccc.wa.gov.au
http://www.ccc.wa.gov.au/Publications/Reports/Published%
20Reports%202013/Local%20Governments%20in%20the%
20Pilbara.pdf
Part 4 of the Regulations govern Local Government Procurement.
http://www.slp.wa.gov.au/legislation/statutes.nsf/main_mrtitl
e_1753_homepage.html
ANAO Fairness and Transparency in purchasing decisions; Probity in Australian
Government Procurement
http://www.anao.gov.au/~/media/Uploads/Documents/anao_pr
obity_bpg.pdf
Australian National
Audit Office (ANAO)
Institute of Company
Directors
Paper outlining ANAO Fraud Control in Australian Government Entities
http://www.anao.gov.au/html/Files/BPG%20HTML/Government
%20Fraud%20Control%20BPG/index.html
http://www.companydirectors.com.au/In-My-State/WA
WALGA Systemic
Sustainability Study
Appendix 3 of the SSS report advocates an increase in public tender
thresholds. The Collaborative Economic Development examples in the Best
Practice Management and Administration resources reference regional based
purchasing.
The ICAC are the NSW Regulatory body for Local Government and have dealt
with a number of Local Government enquiries that relate to procurement and
governance
Independent
Commission Against
Corruption (ICAC)
The AICD website contains governance information, analysis tools and a
wealth of information about Not For Profit sector Governance.
Reform Toolkit – Procurement Guide
http://www.walga.asn.au/LGReform/SystemicSustainabilityStudy
/SSSPanelReport.aspx
http://www.icac.nsw.gov.au/
Page 18 of 59
4
Contracts Register
Unlike the Tenders Register, which is a statutory document, a Contracts Register is not mandated or required. Many organisations choose different ways of managing their
Contracts activity, but all maintain a central database of information. A contracts register, particularly electronic, can deliver control of information for goods, services and
works contracts that they have with often hundreds of suppliers. Important details relating to the term of contract, compliance and due diligence, licenses and
registrations, insurances, accountabilities and responsible officers can be maintained as part of this.
Some public sector agencies make contracts registers public in the interests of transparency. This is not current practice for Local Government outside of placing the
minimum information required by statutory regulation into the public domain.
In a reform context consideration should be given to the methodology by which contract information will be stored, secured and accessed. Major Council business systems
have modules that accommodate this functionality, and there are a number of specific systems that are standalone applications. Choosing the right technology is
important, however having the resources to manage and maintain information within the system is more important. The currency of contract information, variations,
version control, contacts and up to date information relating to KPI’s and performance reviews need to be maintained in the system. Some input data can be automated,
however use and production of the system functionality and maintenance of supplier information is important intellectual property for the organisation that will assist with
deriving best outcomes through contract management.
Electronic contracts including electronic signature functionality is becoming mainstream for many procurement businesses and can be considered as part of contract
register development for easy development, storage, access and version control.
Summary:
The function of Contract Management is not necessarily an activity of the Procurement team, and is most often a business unit activity. However the ability to collate and
track all activity, maintain consistency and organisational control, and deliver procurement support for Contract Management is to utilise the Contracts Register, and its
associated contract management functionality to assist to bridge the gap between the procurement process and the contract deliverables. The Contracts Register ensures
full contract lifecycle activity by managing the contract through its term and through to the point of renewal. Triggers and key milestones can be recorded and proactively
activated through this medium.
Reform Toolkit – Procurement Guide
Page 19 of 59
Checklist: Contracts Register
Task
Assess current Contract Register
Assess future Contract Register
Organise legacy data from previous contracts and
determine archive format
Determine a contract category classification system
Implement Contract Management
Training and Development
Critical Considerations
 What is the format of the current registers
 Are the registers used to just record
information or to drive workflow?
 What training and support is currently
delivered?
 What systems and technology platform will be
deployed?
 What workflow efficiencies and process
controls can be delivered?
 How will old information be accessible yet
retained separate from current contract
information?
 Will transitioned and novated contracts be
specifically coded for identification as preexisting arrangements?
 What breaks can be made between old and
new classifications
 Has consideration been given to The United
Nations Standard Products and Services Codes
(UNSPSC)?
 Systems implementation and testing
 Input of data


Plan for Contract Management development
Reform Toolkit – Procurement Guide

Identification of training structure for contract
management
Inclusion of contracts register skills
development
Ongoing review and continual improvement
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Stage 4 – July 2015 onwards (implement)
Page 20 of 59
Further support resources specific to the Contracts Register:
Resource Name
Description
Source
WALGA Procurement
Handbook
Produced by WALGA’s Procurement Consultancy Service to support best
practice procurement.
Laura Cull
Business and Procurement Manager
Ph 9213 2045
Email lcull@walga.asn.au
UNSPSC Contract
Classifications
Harmonised codes to support the categorisation of supplies for management,
analysis and benchmarking
https://www.ungm.org/info/Unspsc.aspx and
https://www.ungm.org/Publications/UserManuals/Suppliers/UN
SPSC%20Codes%20Guide%20-%20Suppliers.pdf
Docusign
Electronic signature application
http://www.docusign.com/
Secured Signing
Electronic signature application
http://www.securedsigning.com.au/local-governmentsolutions.aspx
Reform Toolkit – Procurement Guide
Page 21 of 59
5
Tenders Register
The Tenders Register is a Statutory document that is accessible by members of the Public. The Tenders Register must be securely maintained by the administration (a
delegate of the CEO) and available for inspection on request.
The information stored in the Tenders Register (recorded at the Tender Opening) are the names and identification details of each Tenderer to the process. When the
Tender evaluation has been complete and the tender is awarded, the total consideration (overall project/procurement cost) should be recorded alongside identification of
the winning bidder. It is not advisable to record further information, inclusive of the details of each tenderers price as this should be regarded as commercial in confidence
information. Also, if the contract lapses and requires a tender recall, the market information of the previous process should not become accessible data for suppliers to
leverage into a subsequent process.
It is common for electronic tender systems to maintain an electronic Tenders Register.
The reform context is for Local Government to ensure compliance with the Regulations, which still require a public tender opening and minimal register content. Security
and controls should be in place, for example the use of electronic keys that require two officers to jointly access information when a member of the public inspects the
register if protected information sits within it. Policy and protocol that protects the information in the register from being lost or manipulated should be established. An
online presence of the Tender register could be considered in the context of transparency containing high level information only.
Summary:
No changes to regulations for the Tender Register are likely to be effected through reform, however the technology and methodology applied to guiding the process differs
from that which was common (a physical handwritten register) when the regulations were first implemented. The automated process has efficiency benefits but also
requires procedural and security controls.
Reform Toolkit – Procurement Guide
Page 22 of 59
Checklist: Tenders Register
Task
Assess current tender register format and procedural
controls
Determine future system
Skills Development and Operational guidelines
Implement new Tender Register
Internal Audit
Critical Considerations
 What level of compatibility exists between
amalgamating organisations?
 Schedule of differences in format and
approach
 Is the current information up to date
 Electronic format
 Security and process controls
 Develop guidelines, use and policy
 Adopt process map for tender opening
 Provide procedure and operating manual
 Training and information development for
future use
 Process and security controls
 Ensure technology is licensed and that IP is
protected
 Checks and balance to determine that
compliance is fully tested.
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Stage 4 – July 2015 onwards (implement)
Further support resources specific to the Tenders Register:
Resource Name
Description
Source
WALGA Procurement
Handbook
A Tender Register Template is included in the WALGA Procurement Handbook.
Produced by WALGA’s Procurement Consultancy Service to support best
practice procurement.
Laura Cull
Business and Procurement Manager
Ph 9213 2045
Email lcull@walga.asn.au
Tenderlink
Online tender box and portal for e-procurement.
http://www2.tenderlink.com/tendering-for-purchasers.php
APET
Online tender management software including online tender lodgement and
tenderbox
http://www.apetsoftware.com.au/
Reform Toolkit – Procurement Guide
Page 23 of 59
6
Resources and Templates
Using standardised pre-qualified documentation can assist to engender consistency and contractual protection to the organisation. At a sector level, WALGA has prepared
template documentation through its Procurement Consultancy Service, developed by legal advisors to assist Local Governments promote consistency to the market that
would otherwise encounter many various forms of contract and sets of conditions.
The templates can not only provide protection to the procurement process and contract structure, but also serve as a checklist to ensure each critical element of the
procurement process and contracting is addressed.
The Procurement Handbook resources contain templates including:




Procurement Plan
Service Level Agreement
RFx templates
Contract Management Plan
Whereas for each supply arrangement the contract specifics will vary (scope of works and specification) the terms and conditions of supply, in particular General Conditions
of Contract can be standardised to the organisation. This makes the procurement activity of the organisation easier to manage and minimises the incidence and potential
of dispute.
Local Government contracts are becoming increasingly more complex, particularly blending the supply of goods and services (maintenance and operation) into the scope.
Specific to reform, it is more likely in the future that contracts will become larger and that outsourced service provision, including critical activity areas, will become more
prevalent. Legal input into the adaptation of contract documentation, General Conditions and review of scope is often necessary to support well-constructed and
defensible contracts. In particular exit and termination provisions are critical to adapt to each contract situation.
In many cases model documentation should be adapted and utilised as a checklist or catalyst for consideration of an issue, and verbatim use may not be suitable.
Model documentation can be centrally maintained and accessed (intranet) and should be regularly reviewed for currency and suitability.
Reform Toolkit – Procurement Guide
Page 24 of 59
Checklist: Resources and Templates
Task
Assess current contract models within amalgamating
organisations
Assess future organisational needs in conjunction with
procurement structure and purchasing policy
Critical Considerations
 Is model documentation in place?
 What access and controls sit around use of
templates?
 What are the differences in General
Conditions applied to each organisation?
 How often does a review process take place?




Develop and prepare templates



Implementation



Review Process
Reform Toolkit – Procurement Guide

Stage
Stage 1 – to July 2014 (review)
Has feedback been obtained from suppliers
regarding contract structures?
Will the WALGA Procurement Handbook be
applied and if so, what specific variances will
be needed?
What naming conventions will be applied for
easy access to procurement records?
What process will be put in place to record
and manage departures from the
Organisations terms?
Stage 2 – Aug 2014 to March 2015 (plan)
Set new model documentation with access
and instructions for organisation
Set the KPI’s within contract templates to
ensure they are relevant with the new
organisation
If the WALGA templates are not utilised, has
the model RFX documentation been legally
checked?
Stage 3 – April 2015 to June 2015 (mobilise)
Run information sessions for suppliers and
potential suppliers
Provide training and support within the
organisation
Set triggers and regular process
Stage 4 – July 2015 onwards (implement)
Stage 4 – July 2015 onwards (implement)
Page 25 of 59
Further support resources specific to Resources and Templates:
Resource Name
Description
Source
WALGA Procurement
Handbook
Produced by WALGA’s Procurement Consultancy Service to support best
practice procurement.
Laura Cull
Business and Procurement Manager
Ph 9213 2045
Email lcull@walga.asn.au
Department of
Foreign Affairs and
Trade (DFAT)
CIPSA
Procurement and Contracts Operational Handbook
http://www.dfat.gov.au/publications/procurement-andcontracts/
The Chartered Institute of Purchasing and Supply have a range of online
templates in their knowledge database. Member access is required for this
area of the website.
The Victorian Government Purchasing Board (VGPB) provides leadership in
government procurement of goods and services to deliver value-for-money
outcomes for Victoria.
http://www.cips.org/enAU/Aboutus/mycips/?cipsReturnUrl=/Templates/Pages/Public/St
andardPage.aspx?id%3d5033%26epslanguage%3den-AU
http://www.procurement.vic.gov.au/CA2575BA0001417C/pages/
procurement-practitioners-stage-2---bid-process-and-contractaward-step-4---preparation-of-bid-documents-(rfqs--rfts)
The WA State Government have a range of templates on their website
http://www.finance.wa.gov.au/cms/content.aspx?id=12269&link
identifier=id&itemid=12269
Federal Government procurement templates
https://www.tenders.gov.au/?event=public.document.list
The Government Information Technology and Communications (GITC)
contractual framework, initially established in 1991, is a set of terms and
conditions that Australian Government agencies may use to create contracts
for ICT procurement.
http://agict.gov.au/policy-guides-procurement/contractualframework
ECO-Buy provides a number of resources for members and the general public
including guidance tools, sample specifications and templates (members only)
http://ecobuy.org.au/resources
Victorian
Government
Procurement Board
Policy
Office of
Government
Procurement
Aus Tender
Government
Information
Technology and
Communications
(GITC)
EcoBuy
Reform Toolkit – Procurement Guide
Page 26 of 59
7
Current Activity
The most common procurement question asked with respect to the reform process is what happens to current contracts through the amalgamation process. Each contract
will have specific contractual conditions, and a number of factors will impact the future of the contract. These include:









The terms of Amalgamation (whether one Council integrates another or whether a new entity is created).
The contractual terms and Head of Power within the contract to either terminate or transition.
The merging entities, service providers, and ease of ability to transition.
The strength of the supplier relationship and mutual willingness to transition, novate and renegotiate (where applicable).
The culture of the new organisation and procurement principles applied (desire to test the market).
The level of risk, critical nature of the supply, and strategic importance of the supply to the organisation.
Issues relating to the security of supply and business continuity (priority access to limited resources)
The amount of resource applied to contract management, account executives, service and support structures
The alignment of contract expiry dates, short-term rollover considerations and creation of a work-cycle and price-cycle for key strategic contracts.
Local Governments will be given legislative contiguity to effectively carry their historic business into the newly named entity, and as such, even contracts without reference
to reform or amalgamation will be able to transition to the new entity. Specifically, Regulation 6(4)(i) of the Local Government (Constitution) Regulations reads as follows:
6.
Abolishing a district: consequences
(1)
In this regulation —
commencement means the commencement of the order referred to in subregulation (2).
(2)
This regulation applies if an order is made under section 2.1 abolishing a district (“district A”).
(3)
On commencement —
(a) local government A is disestablished;
(b) all offices of members of the council of local government A cease to exist.
(4)
If on commencement the whole of the area of district A is included in the area of one other district (“district B”), whether by means of
a boundary change to an existing district or by means of a declaration of a new district, then on commencement —
(i)
a reference in any instrument, contract, written law, or proceedings made or commenced before commencement to local
government A shall be read and construed as a reference to local government B;
Reform Toolkit – Procurement Guide
Page 27 of 59
From a contract law perspective, if the ABN of the contract has not changed, then the
contract itself may not need to be terminated, rather varied to account for the change of
circumstance (e.g. volume and scope of supply). It is an easier scenario to effect transition
by way of variation of contract to incorporate new areas where only one common supplier
is available. Where the nature of the supply remains unchanged it is easier to justify
transition, however if there is a material difference in the contract scale and scope, it is best
to test the market as early as practicable.
Decisions will be required where a Local Government has two contracts for the same supply
of goods and/or services with different companies. The starting point for the Local
Government is to determine how easy (or difficult) it will be to terminate their current
contracts prior to the term of the contract, so that the opportunity is then available to
retender. Alternatively both contracts may be best left to run their course until expiry and
alignment can be achieved. The following process map may assist to work out the best
approach to be taken:
Will the Contract reach term
prior to Amalgamation?
Yes
Lapse
Contract at
Term
Yes
No
Does the Contract
have Terminate for
Cause rights?
No
Terminate
for Cause
Yes
Terminate
on the basis
of mutual
agreement
Yes
Negotiate
interim
transition
and
extension
Is the Supplier
mutually agreeable to
termination?
No
Do all amalgamating
Councils have the
same supplier?
No
Allow contracts to run
term, plan for
procurement process
that provides for
future alignment
Reform Toolkit – Procurement Guide
Page 28 of 59
Existing Contracts
The options for Local Government with respect to existing contracts are as follows:

Lapse – allow the existing contract to reach its term then lapse. This option is least desirable as it may come at an administrative cost, especially if there are
different services providers within the entities. However in the worst case scenario a newly amalgamated organisations may have to operate with multiple service
providers within previously defined borders until such time as their pre-contracted arrangements reach their contractual term.

Novate – take the terms of the existing contract and novate them to the new entity. Some variations may be negotiated as part of this process to account for
volumes and area of supply, and pricing schedules. However these variations should be minor in scope and not change the nature or intent of the supply. A
novation can provide for direct transition without the need for a separate procurement process to renew.

Transition – Terminate the current Contract. This provides a clean break and allows a new contract to be set. Once the transition has been made a procurement
process (Preferred Supplier quotation or tender) is required to establish a new arrangement. It is a governance risk (procedural fairness) not to test the market in
the event of termination, and the intention of Local Government regulations is to provide the marketplace to bid for the organisations business in the event that a
Contractual relationship has been ended.

Re-engineer – Re-establish the contract in a different format. The structure of the contract may change, the mix of goods and services and the medium of access
may also shift. Examples include services that were previously undertaken internally being outsourced, or being blended with other supplies (a standalone graffiti
removal contract may be integrated into a broader facilities management arrangement).
The following checklist of questions will also assist to determine what options and arrangements are most appropriate:







Does the Contract have Termination for Cause rights within it?
Is the supplier mutually agreeable to termination?
What happens if a newly amalgamated Local Government is dealing with the same service provider however the schedules of rates differ?
Are any contractual provisions of confidentiality breached or are any laws relating to privacy of information being compromised as a result of a newly
amalgamated entity receiving information from previous entities?
What happens if one of the local governments that is party to an amalgamation has a regional price preference, but when amalgamated this is no longer
applicable to the entity? How will this impact upon current and future tender evaluations?
What happens with risk profile assessments, due diligence, bonds, guarantees and insurances due to the changed circumstance of amalgamation?
Are KPI’s being monitored, performance being tracked and supplier relationships being measured in the lead up a contract term?
Reform Toolkit – Procurement Guide
Page 29 of 59
Long term strategic and high value supplies can take several months to establish through tender or quotation processes, inclusive of evaluation, negotiation (if appropriate)
and council resolution (if appropriate). The Local Government may undertake a categorisation process to determine which contracts will be accorded an extension or short
term rollover, and which contracts require priority placement to a procurement process. Risk and business continuity is paramount to this consideration and prioritisation,
with the practical reality that not every contract can be put to market at the same time.
Short term new Contracts
It is not recommended that Local Governments enter long-term contracts that will operate well into the term of the future entity.
WALGA has developed a specific clause that can be incorporated into contracts that are currently pending. If the procurement process is complete the clause can be put
forward as a minor variation. If the contracting process has yet to commence then the clauses can be incorporated into the General Conditions of Contract.
RESTRUCTURE OF THE PRINCIPAL
If the Principal is restructured by Law, then the rights and obligations of the Principal under the Contract are assigned to and assumed by the appropriate legal entity as
determined the Principal or the successors of the Principal under the restructure.
Reform Toolkit – Procurement Guide
Page 30 of 59
Future Contracts
Future contracts that are signed prior to the Amalgamation process should include clear indication and justification of termination and transition rights with respect to
structural reform. The above contract clauses, and additional protection through commentary and information provided through the procurement process will mitigate
contractual risk.
Summary
From a practical perspective, there will be too much administration involved in attempting to renew or refresh each contract arrangement from day one of an
amalgamation. Much of the work needs to be undertaken prior to amalgamation to determine which of the contracts will require immediate attention for the new
organisation.
In the lead up to reform Local Governments should avoid making long-term supply commitments that would bind the new entity into a contractual arrangement that is
medium to long-term without any exit or termination rights that are specifically invoked through the contracting process.
It is the intention of the Local Government (Functions and General) Regulations to provide all supplies in the market the opportunity to bid for business. Sometimes the
Local Government decision making process may be adversely influenced by the strength of existing relationships, the attractiveness of not having to transition (educate,
induct and manage a new service provider), and other factors. It is important that the market is tested by Local Government and that the entity is not abrogating its
responsibility to take the most advantageous offer. This means that incumbency should not be provided with an unfair advantage or inappropriate weighting through
supplier selection processes. Transition should therefore be focused as an interim and not long-term measure in the context of the reform process.
Finally, whilst much of the transition focus is on shifting arrangements to the newly amalgamated Council, focus also needs to be maintained on communicating and
managing the relationship with the unsuccessful companies that have their incumbent supply contracts terminated with no renewal or transition of business to the new
entity. These relationships can be difficult to maintain and manage, however a future competitive market is important to the sector, and it is vital that these companies
will have the confidence to bid into future tender and quotation processes for the new entity as the business comes up for periodic renewal.
Reform Toolkit – Procurement Guide
Page 31 of 59
Checklist: Current Activity
Task
Review and map out expiry date of contracts, suppliers
to those contracts, and nature/importance of contracts
Critical Considerations
 Which of the contracts are of most strategic
importance?
 Which of the contracts are of high value?
 Which of the contracts are most complex to
operate?
 Which of the contracts have limited service
providers in the market?
Stage
Stage 1 – to July 2014 (review)
Ensure entry to new contracts contains clauses specific
to termination and transition with respect to Local
Government reform
 Are the model clauses provided by WALGA
suitable?
 Has context been provided within the
procurement process?
Stage 1 – to July 2014 (review)
Review longer term contracts that will continue past
July 2015 and future contract extension options with
respect to reform
 Have discussions been held with suppliers?
 Is there a contractual head of power to terminate
for cause or to transition?
 Is it appropriate to test the market or to extend a
contract?
 Will the risk and value of the contract be
substantially impacted due to amalgamation?
 Will there be service providers who want to bid
for the new entities business?
 Propose transition using new terms effective from
date of new entity
 Ensure communication and written paper trail of
intentions with respect to interim and transitional
arrangements.
 Ensure further extension options are provisioned
in case they are required.
 Utilise legal services where appropriate (where
there is non acceptance by the supplier)
Stage 2 – Aug 2014 to March 2015 (plan)
Prepare and sign contract transition/extension
documents and negotiate revised terms of supply
Reform Toolkit – Procurement Guide
Stage 3 – April 2015 to June 2015 (mobilise)
Page 32 of 59
Implementation of transitional and extended
arrangements
Prepare procurement plan and run procurement
processes for new supply arrangements
 Ensure that contract management activity is
maintained and tracked from day one
 Maintain and audit compliance with contract and
pricing applied to services provided to the new
entity.
 Utilise and continuously review priorities set and
timetables applied.
Stage 4 – July 2015 onwards (implement)
Stage 4 – July 2015 onwards (implement)
Further support resources specific to Current Activity:
Resource Name
eQuotes
Description
WALGA online procurement facility for calling quotations under
Preferred Supply. Can meet interim and long-term purchase
needs irrespective of supply value or volume through the
Preferred Supplier Program
State Government CUA
Guide
WALGA Procurement
Handbook
Tender exemption applied to purchasing through Western
Australian Government.
Templates for RFx documents and model contract
documentation
Australian Centre of
Excellence for Local
Government
ECObuy
The ACELG have a range of publications and research papers
relating to financial reform and future development.
http://www.acelg.org.au/library.php?id=mostRecent
Sustainable Procurement Assessment Tool - online selfassessment
https://eco-buy.squarespace.com/assessment-tool
Reform Toolkit – Procurement Guide
Source
Emma Gillespie
Contracts Manager
Ph 9213 2016
Email egillespie@walga.asn.au
http://www.finance.wa.gov.au/cms/content.aspx?id=12609
Laura Cull
Business and Procurement Manager
Ph 9213 2045
Email lcull@walga.asn.au
Page 33 of 59
8
Due Diligence
Through the supplier selection process, and through the term of Contract, it is critical for Local Government to have awareness and confidence in the ongoing operating of
the contracted entity. If a supplier is unable to remain an ongoing concern, there is a business continuity risk to the Local Government. Some high profile and high impact
examples of service providers to Local Government being placed into administration in recent years include a managed facility provider for recreation centres, a bill
payment service provider for rates and accounts payments, and a financial advisor managing Local Government investment funds.
Local Governments through procurement processes (supplier selection), contract management processes, and contract review processes can be supported in their decision
making by external credit reference reports, business research facilities and similar analytical and predictive indicators to measure the financial strength and credit rating of
their supplier. This is particularly critical to construction and infrastructure based contracts.
The service providers in this market draw on a range of sources to provide products such as health checks, credit reference reports, and financial predictors. For example a
financial delinquency score or analysis of financial ratios can allow the assignment of a confidence rating to a particular supplier, and a recommendation to transact to
specified values or conditions (e.g. provision of a bond or bank guarantee).
Specific to the reform process, the risk profile of the service provider is enhanced by checks that are undertaken prior to offering a transition, or a third party assessment to
ensure that the capacity exists for the supplier to deal with enhanced volumes and values of supply in a post-reform environment.
Internal due diligence can also be undertaken. The following are sources of information that can contribute to an internal due diligence:













Performance ratings, KPI’s and Contract Management reports
Trade and other (employee and former employee) references
Review of Financial Statements and Audit Reports, including tracking of profitability over time
Licenses and registrations
Memberships to industry associations
Quality Assurance and Accreditation
Level of insurances
Court information
ASIC information
ASX profiles and releases
ATO private rulings
Personal Property Securities Register (PPSR)
Reports from regulatory bodies
Activity relating to existing contracts can also be proactively considered. Some agencies offer alert services where particular entities are monitored and should any media
reports, voluntary disclosures or regulatory activity occur attention is drawn towards this.
Reform Toolkit – Procurement Guide
Page 34 of 59
Ethical considerations can also be undertaken through due diligence, including an assessment of CSR (Corporate Social Responsibility). This could be internal initiatives to
support staff, including employment of people with disabilities, promotion of local and indigenous employment programs, graduate and traineeship programs and other
initiatives in place to recruit, develop and up-skill staff. CSR can also relate to external factors, including sponsorships, charitable, community and philanthropic
contributions, environmental and sustainability initiatives, and other participation in activities that deliver a public benefit. Other ethical considerations specific to
procurement include programs such as “Walk Free”, aimed at ensuring global production is done under fair conditions and that modern slavery is not present in
manufacturing and production supply chains. With all CSR and supply chain due diligence it is often important not to accept claims at face value, but to have in place the
ability to audit, test and verify the CSR that is represented through procurement and contract management processes.
Checklist: Due Diligence
Task
Assess current practices and levels of due diligence
within procurement processes
Establish operational guidelines for future activity
Meet with potential agency service providers and
assess products and services available
Undertake updated assessments of key suppliers
through consideration of transition and novation
Incorporate due diligence into procurement process
activity
Incorporate due diligence into regular procurement
activity
Reform Toolkit – Procurement Guide
Critical Considerations
 Is regular activity undertaken?
 Are external agencies utilised to obtain credit
ratings?
 What measures are in place to identify and
respond to suppliers encountering financial
distress?
 What processes will be implemented for supplier
selection, management and renewal?
 What triggers, thresholds and risk profiles will be
set for obtaining external information
 What internal processes, audit and review/check
activity will be put in place
 Which combination of products will be selected
 Will proactive alert services be engaged?
 Advise suppliers of due diligence
 Raise any issues with suppliers that are identified
through assessment activity
 Amend tender and quotation documentation
 When using Preferred Supply access to due
diligence can be facilitated through the WALGA
prequalification.
 Tender evaluation guidelines
 Contract Management activity
 Contract Review activity
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Page 35 of 59
Further support resources specific to Due Diligence:
Resource Name
D&B Reference Guide
Description
A summary of the risk management solutions and products
available from D&B, inclusive of sample reports
Source
Craig Brooks, State Manager WA, Dun & Bradstreet Australia
Phone: 9426 1851
Email: BrooksC@dnb.com.au
Web: www.dnb.com.au
Corporate Scorecard
Corporate Scorecard offers information and analytical services
including ASIC searches/data matching, Financial Viability
Assessments, Project Risk & Comprehensive Credit Rating
Reports.
John Rowell, Business Development Manager
Phone: (03) 9646-2331
Email: john.rowell@corporatescorecard.com.au
Web: www.corporatescorecard.com.au
WALGA eQuotes
Buyers Guide summaries for each panel will highlight any
departures from the panel compliance criteria
http://www.walga.asn.au
Reform Toolkit – Procurement Guide
Page 36 of 59
9
Insurances
The Local Government sector is self-insured and the liabilities and risks of the sector are protected through this medium. However in a procurement context it is not the
Local Government Authorities insurances, but those of the service suppliers and suppliers that need to be assessed and monitored to protect the business continuity and
civil infrastructure development of the sector.
Common Insurance types include:





Contract Works
Public and Product Liability
Insurance of Employees (Workers Compensation)
Motor Vehicles and Equipment
Professional Indemnity
Insurances are a complex area of procurement. Issues arise which can leave the Local Government buyer at risk as follows:







Suppliers with the incorrect classifications of insurance (e.g. not professional indemnity cover when advice is provided)
Suppliers with insufficient levels of cover (e.g. cap on aggregate activity) can leave inadequate recourse in a major disaster situation
Imposing onerous requirements on providers that are not commensurate with the level of supply. For example, a supplier may be obliged to spend thousands of
dollars on insurance cover, which are overheads passed back to the buyer, when this level of cover is beyond the adequate requirements for the supply.
Presentation of global policies and the reliance and limitation of these in the Australian market
Absence of cross liability clauses which preserve the right to sue the Contractor and subrogation (ability to be sued)
Non-prejudicial breach and status of when the Local Government is potentially deemed to be at fault in accordance with the terms of the policy.
Indemnities
WALGA has been advised by Herbert Smith Freehills of particular clauses and limitations that sit within the body of insurance policies. It is common practice for Local
Governments to receive and maintain Certificates of Currency, but not to check the specifics of an insurance policy itself. For high risk and strategically critical supplies, a
review of key clauses of the Insurance coverage, either directly undertaken or engaged through a third party may be appropriate.
Through its Preferred Supplier program WALGA maintains insurances for all its prequalified suppliers, and visibility of all certificates of currency through eQuotes.
Through an Amalgamation process the transition and renewal of contracts should include specific and particular review in the area of insurance coverage to ensure that
appropriate insurance types, levels of cover, and contents of policy protect the entity, especially in high risk areas such as outsourced service arrangements.
Reform Toolkit – Procurement Guide
Page 37 of 59
Checklist: Insurances
Task
Review all contracts to ensure the extent to which
suppliers are insured.
Develop a risk allocation framework to determine
appropriate insurance levels
Implement contracts (transition and new contract
development)
Review activity
Maintain register of insurance compliance
Reform Toolkit – Procurement Guide
Critical Considerations
 Review compliance (actual levels of insurance
against contractual requirement)
 Review insurance types and classifications by
contract
 Set desired insurance levels based on future
estimated contract spend value and risk
 Consult with suppliers and other stakeholders
where substantial change is proposed
 Represent new levels of insurance in documentation
 Ensure a process is available to maintain access to
certificates of currency
 Where appropriate assess the contents of the
insurance policy to ensure sufficient protection
 Review insurance coverage and risk allocation
framework
 Maintain register of supplier insurances
invoked/claims processed through contractor activity.
 Consideration of contract management KPI inclusion
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Stage 4 – July 2015 onwards (implement)
Page 38 of 59
Further support resources specific to Insurances:
Resource Name
LGIS
LGIS Online
Contractor
Induction
WALGA Business
Solutions
Australian
Prudential
Regulation
Authority (APRA)
Australian
Procurement and
Construction
Council (APCC)
Tasmanian Risk
Management
Fund
Chartered
Institute of
Purchasing and
Supply
Description
Through LGIS, Local Governments across WA are working
together to achieve the best insurance and risk
management solutions. This unique and exclusive
partnership brings the benefits of an industry-based selfinsurance Scheme, specialist risk management
programmes, and advice and solutions from a Client
Services Team focused on WA Local Government needs.
An online tool to support Local Government’s legal
obligation to ensure that contractors are aware of the
safety requirements of supplying to the sector.
WALGA’s Procurement Consultancy has developed a list of
common insurance types and clauses relating to
representation of insurances in contracts
Source
https://www.lgiswa.com.au/
The Australian Prudential Regulation Authority (APRA) is
the prudential regulator of the Australian financial services
industry. Their website contains General Insurance
information including a register of licensed insurers,
authorisation guidelines and reporting frameworks.
Professional Indemnity Insurance Guidelines in the Building
and Construction Industry.
http://www.apra.gov.au
Guidelines for Determining Appropriate Levels of Insurance
for Goods and Services Contracts
http://www.treasury.tas.gov.au/domino/dtf/dtf.nsf/LookupFiles/Guideline-InsuranceClauses-in-Contracts.pdf/$file/Guideline-Insurance-Clauses-in-Contracts.pdf
https://www.lgiswa.com.au/contractor-induction
Laura Cull
Business and Procurement Manager
Ph 9213 2045
Email lcull@walga.asn.au
http://www.apcc.gov.au/ALLAPCC/APCC%20PUB_Professional%20Indemnity%20Insura
nce%20Guidelines.pdf
CIPS / AIRMIC Insurance procurement guide
Reform Toolkit – Procurement Guide
http://cipsintelligence.cips.org/opencontent/cips-airmic-insurance-procurement-guide
Page 39 of 59
10
Skills Development
Professional procurement requires recognised skills development, professional training and competence. The evolution of professional procurement has led to
qualifications (academic and VET qualifications) and industry development in recent years, with further recent moves by the procurement industries peak professional
body, the Chartered Institute of Purchasing and Supply (CIPSA) to shift the global professional standard of MCIPS to a licensed based model for their affiliated practitioners.
Historically, Local Government has entrusted large and complex procurement projects to officers that have had little exposure and no skills development in the area of
managing tenders and procurement processes. This creates a process contract risk, in addition to resulting in outcomes that are not predicated on best value.
Procurement professionals trained in techniques to identify and assess Total Cost of Ownership (TCO) can deliver benefits such as value for money, security of supply,
strong supplier relationships, risk and compliance benefits, and also introduce innovation and entrepreneurship into an organisation. A strategic approach towards
building procurement capabilities into business processes elevates the purchasing role from an administrative and transactional function into one of business development,
delivering cost savings and an enhanced reputation to the Local Government.
When assessing the professional development needs of current and future officers in procurement related roles a range of development areas can be identified. These
commonly include:








Business research and analysis skills
Technical competence and process skills for tendering and contracting
Local Government knowledge in regulations and compliance
Commercial acumen, negotiation skills
Administrative skills relating to records and information management and time management
Service skills relating to Supplier Relationship Management (SRM)
Softskills relating to human relationships and emotional intelligence
ICT skills relating to systems and applications used to manage procurement and contracts activity
Local Government officers can also attend workshops and non-assessed training. This assists to supplement formalised education, and promotes cultural change,
awareness of issues, tools and techniques, and the identification of knowledge gaps
Local Government reform will bring unique challenges to the market, especially given the blend of skills and knowledge required for Local Government purchasing (a
combination of technical procurement and Local Government operational knowledge combined with sound business acumen). The ability of the Local Government sector
to compete with other industries for procurement staff is already limited and has created a capacity issue for Councils. Whilst procurement professionals often develop
most of their skills from within a procurement role, clear strategies for the growth and development of purchasing staff are required. Career path identification, skills
development matrices, and measureable performance targets will assist to enhance the professional standing of Local Government as a market place for procurement
aspirants.
Reform Toolkit – Procurement Guide
Page 40 of 59
WALGA is an accredited RTO and offers procurement training for Local Government. This includes Procurement Training for Local Government (a two day workshop
delivering skills development), Contract Management for Local Government, and the nationally recognised qualification Certificate IV in Government (Procurement and
Contracting).
The Chartered Institute of Purchasing and Supply offer MCIPS which is recognised worldwide as the global standard for top quality procurement professionals.
Curtin University Graduate School Of Management offers a specialised Master of Business Administration (MBA) major which has been designed for those currently
working in the field of strategic procurement, or those considering a career in this growing field. It is unique major combining strategic procurement knowledge, and supply
chain management with the core requirements of an MBA to ensure that graduates have a broad coverage of key functional disciplines of business management, as well as
specialised knowledge of strategic procurement. The MBA (Strategic Procurement) is accredited by the Chartered Institute of Purchasing and Supply - Australia (CIPSA).
Summary:
The service providers for Local Government who negotiate and arrange contractual relationships want to deal with professionally qualified procurement staff with astute
business and commercial awareness. By nature Local Government purchasing involves bureaucratic process requirements, but procurement practitioners that
demonstrate an understanding of their suppliers business drivers (incorporating sustainable service structures, commercial margins, innovation and development) assist to
position a Local Government as a customer of choice. Procurement training should extend beyond the basic administrative disciplines to focus on business disciplines that
improve their ability to add value both to their organisation and the supply chain that sits behind it.
Checklist:
Task
Review current staff qualifications
Develop professional development plans
Incorporate required and desired qualifications and
skills into procurement related position descriptions
Provide training and development to staff
Reform Toolkit – Procurement Guide
Critical Considerations
 Are current competencies and training
opportunities provided?
 What skills and qualifications are sought
 Which agencies and providers will be used
 Will MCIPS be referenced?
 What tertiary and post graduate qualifications will
form the standard for senior procurement roles?
 Consider in-house training
 Staff development plans
 External qualifications, events and activities
 Participation in WALGA Procurement Network
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Page 41 of 59
Further support resources specific to Skills Development:
Resource Name
Training Solutions
Description
WALGA offers procurement training to the sector including
CIPSA
CIPSA
White paper on the Business Case for Professional
Development
Information about the MCIPS global standard
Source
http://walgatraining.com.au/course/view.php?id=6
Jacquiline Dodd, Training Manager
9213 2098
training@walga.asn.au
http://cipsintelligence.cips.org/opencontent/the-business-case-for-professionaldevelopment
http://www.cips.org/en-AU/Qualifications/About-CIPS-qualifications/
Curtin University
310527 v.1 Strategic Procurement Major (MBA)
http://handbook.curtin.edu.au/courses/31/310527.html
The Faculty
The Faculty delivers specialised professional development
courses for procurement professionals and those new to
procurement.
The Australian Association of Procurement and Contract
Management supports and encourages the uptake of AQF
qualifications in procurement and offers a formal
certification framework
BTTB offer procurement events and publications, as well as
category management expertise in specific industries
Offers a Procurement Vocational Program
http://www.thefaculty.com.au
The Australian Procurement and Construction Council have
produced a framework called Building Government
Procurement Capabilities that incorporates an aspirational
capability matrix for procurement practitioners.
http://www.apcc.gov.au/SitePages/PCD%20Home%20Page.aspx
AAPCM
BTTB
Department of
Finance
APPC
SCMEA
Questamon
Supply Chain Management Education Australia has
provided extensive Local Government training specialising
in the facilitation of CIPS qualifications.
Questamon training services is a Perth based consultancy
specialising in procurement, contract administration and
management.
Reform Toolkit – Procurement Guide
http://www.aapcm.com.au/
www.procurementandsupply.com
http://www.finance.wa.gov.au/cms/content.aspx?id=12674
http://www.apcc.gov.au/ALLAPCC/APCC%20PUB_Building%20Government%20Procure
ment%20Capabilities%20Guide%20-%20May%202008.pdf
http://www.apcc.gov.au/ALLAPCC/Business%20Case%20Procurement%20training%20a
nd%20education%20is%20an%20investment.pdf
http://www.scmea.com.au
http://www.questamon.com.au
Page 42 of 59
11
Compliance and Probity
The integrity of Local Government and reputation of the sector stands on the basis of compliance. Best practice procurement can assist Local Government to move beyond
a minimalistic approach and to deliver greater value to the organisation, however underpinning this are basic regulatory requirements, and fundamental ethics and values
that govern and guide the procurement operation.
It is however possible and desirable for Local Government to take a proactive approach towards compliance and probity. Self-regulation can be delivered to the sector in
the form of review and checks, internal audit, and other forms of self-assessment. External checks and balances can also be facilitated.
WALGA provides a probity audit service that can deliver independent checks of particular procurement projects. WALGA has also conducted a large number of
procurement review services which provides Local Governments with an analysis of their procurement processes and practices to help Local Governments identify
potential problems and improve their procurement function with benchmark assessments. WALGA employs qualified probity auditors to undertake this activity.
Regulatory bodies have, and remain, active in both scrutinising the sector, and engaging Local Government to support process improvement. When breaches of
compliance are identified, voluntary disclosure and cooperation are common and appropriate forms of response from the Executive, however are also fraught with risk in
an environment of uncertain circumstances.
Common compliance, risk and probity issues for Local Government include;











Breach of regulations, particularly anti-avoidance provisions
Interpretive issues relating to application of the Tender Threshold
Processes that are weighted to support particular outcomes
Breach of purchasing policy and operational process guidelines
Poor structure of procurement plan, insufficient skill and technical balance within evaluation panels
Governance and external interference in process
Long-term established supplier relationships and incumbency
Poorly constructed specifications that lack detail and increase propensity for fraud
Lack of procedural fairness and breach of duty to be fair
Inappropriate relationships, gifts and inducements, and bribes.
Corruption and fraud through procurement processes and contract management
Procurement capability development will assist to avoid these problems, as will knowledge and awareness of the regulatory framework. The reform process provides a
unique opportunity for Local Government to review the procurement function and integrate best practice procurement structures and controls into the new organisation,
with heightened awareness of the consequences of non-compliance.
Reform Toolkit – Procurement Guide
Page 43 of 59
The procurement regulations and consumer and competition law provide clear minimum requirements, however the structuring of procurement activity is in accordance
with Local Government operations. Care is needed to ensure that procurement risks are identified and addressed, that core separation of duties alongside clear
communication of policy, values and operational guidelines support the compliance and probity objectives of the organisation.
Summary
Each year the Local Government sector will undertake thousands of tenders, Requests for Quotation and sourcing exercises, the majority of which are fair and transparent
processes which deliver the intended outcomes. However a small portion of poorly constructed procurement processes, and at worst corrupt and fraudulent processes,
can have a widespread and detrimental impact on the reputation of the Local Government and the sector as a whole. Each of the Commissions of Enquiry and suspended
Councils over the past decade in Western Australia has involved procurement related issues.
It is critical to address appropriate controls at the governance level, and to regularly test the impartiality of the organisations procurement. The ideal operating
environment is for the sector to stand proud and uphold the structure of its procurement activity, however a strong reputation and evidential support is required to
underpin this.
Checklist:
Task
Review current corporate documentation
Research and Development
Develop new organisational standards
Monitor compliance and probity
Reform Toolkit – Procurement Guide
Critical Considerations
 Code of conduct
 Procurement policy
 Procurement plan documentation
 Declaration of interest and other disclosures
 Delegations register and structure
 Current sector activity
 Best Practice procurement documentation
 Identify future requirements
 Policy development
 Procurement guidelines
 Code of conduct training (ethics and procurement)
 Corporate Governance standards
 Audit and forensic review guidelines
 Procurement review /probity audit
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Page 44 of 59
Further support resources specific to Compliance and Probity:
Resource Name
WALGA
Description
The Procurement Consultancy Service offer Procurement
Review and Probity Audit Services.
Department of
Local Government
and Communities
The Department supports Local Government guidelines, a
compliance framework, the Local Government Standards
Panel, and is the administrator of the Local Government
Act, 1995
The Corruption and Crime Commission works to improve
the integrity of the Western Australian public sector and
helps public sector agencies minimise and manage
misconduct.
The Ombudsman serves Parliament and Western
Australians by resolving complaints about the decision
making of public authorities and improving the standard of
public administration. In 2011/12 there were 285
complaints received about the Local Government sector,
many relating to contracts and property management. The
office has produced publications relating to this activity.
The Australian Competition and Consumer Commission
regulates and monitors industries where there is limited
competition and regulates Consumer and Competition law.
The Public Sector Commission brings leadership and
expertise to the public sector to enhance integrity,
effectiveness and efficiency. The PSC may take a greater
role in the oversight of Local Government conduct in the
future.
Formerly Chartered Secretaries Australia, this agency is the
peak body for over 7,000 governance and risk
professionals.
The Independent Commission Against Corruption is the
NSW public sector agency to investigate and expose
corrupt conduct and prevent corruption. There are
website resources specific to Local Government.
CCC
Ombudsman
ACCC
PSC
Governance
Institute of
Australia
ICAC
Reform Toolkit – Procurement Guide
Source
Laura Cull, Business and Procurement Manager
Ph 9213 2045
Email lcull@walga.asn.au
www.dlg.wa.gov.au
www.ccc.wa.gov.au
http://www.ombudsman.wa.gov.au
http://www.ombudsman.wa.gov.au/Publications/Documents/reports/OWA_200910_Complaint_Handling_Survey_Report_30610.pdf
www.accc.gov.au
www.publicsector.wa.gov.au
www.governanceinstitute.com.au
www.icac.nsw.gov.au
Page 45 of 59
State Supply
Commission
SAT
VAGO
OAG
AICD
AIM
SAI Global
SMRC
The SSC has merged with the Department of Finance
however online resources are retained including buyer
alerts, examples of aggressive marketing strategies and
publications.
The State Administrative Tribunal (SAT) in Western
Australia is the primary place for the review of decisions
made by Government agencies, public officials and local
governments.
Victoria Auditor General’s Report on Fraud Prevention
strategies in Local Government
www.ssc.wa.gov.au
Office of the Auditor General resource on Fraud Prevention
and Detection in the Public Sector
Australia's pre-eminent organisation for directors,
dedicated to making a difference in the quality of
governance and directorship.
The Australian Institute of Management advances
education and learning in the field of management and
leadership.
SAI Global provides information services and solutions for
managing risk, achieving compliance and driving business
improvement, and access to Australian Standards
Southern Metropolitan Regional Council Corporate Policy
on misconduct, fraud & corruption prevention.
https://audit.wa.gov.au/reports-and-publications/reports/fraud-prevention-anddetection-in-the-public-sector/
www.companydirectors.com.au
Reform Toolkit – Procurement Guide
www.sat.justice.wa.gov.au
http://www.audit.vic.gov.au/publications/20120606-Fraud-in-LG/20120606-Fraud-inLG.pdf
www.aim.com.au
www.saiglobal.com
http://www.smrc.com.au/files/4.3%20Misconduct%20Fraud%20and%20Corruption%20
Prevention%20Policy.pdf
Page 46 of 59
12
Property Contracts and Capital Assets
Procurement within Local Government has a strong interface with business units that oversee asset and facilities management, construction and works, technical services,
parks and gardens, leisure centres and other areas of operation that involve buildings and fixed infrastructure.
In 2009/10 the Australian Centre of Excellence for Local Government recorded the collective capital value of Local Government buildings in Western Australia at $2.7
billion1.
One of the most important aspects of Local Government reform relates to Local Government Asset Management, as articulated in the WALGA Systemic Sustainability Study
and associated economic research. There is a cost of ownership associated with assets, in particular buildings, which need to be conditioned, maintained, operated,
refreshed and renewed. This comes at a cost and the procurement team are integrally involved in sourcing both supplies and service providers (facilities managers and civil
contractors) to drive the building maintenance and construction activities of the organisation.
The reform experience of Local Government in other Australian States and globally has been that in a post reform environment, funding allocations and financial grants to
the sector are reduced. The sector response has been to divest assets such that the operational cost of owning and operating facilities is removed from the budget. The
sale of assets also reduces debt ratios.
It is common for buildings sold by Local Government to remain as community based infrastructure of Not For Profit and other agencies, however divestment of ownership
by Local Government means that the assets are not retained as an expenditure burden for the former Local Government owner. New Capex budgets are provisioned for
further infrastructure development as the capacity of the new entity is consolidated, however the short term impact of reform is likely to lead to a reduction of the
property portfolio. For example, former Local Government buildings which are no longer required as civic administration centres can be redeployed.
Astute Local Governments will be aware of the economic cycle associated with property ownership and management. By upgrading and refreshing facilities prior to the
reform process, the saleable value of the asset increases and can deliver a greater capital gain for the future entity. In the lead up to reform, identification of those assets
likely to be sold in a post-reform environment will allow for valuations, condition review, and upgrade to maximise the value of the asset. Examples of upgrade may
include an energy efficiency retrofit with LED and PV panel installation, improved access, external landscaping, and internal fitout.
Another aspect of property management within the sector relates to the role of Local Government as a landlord. Many facilities have tenants including coffee shops, and
small businesses predominantly in the leisure, health and education markets. Procurement can assist by facilitating contractual arrangements with Tenants and integrating
the management of these arrangements into the organisations contract management activity. For example, a contracts register can set triggers for contract review and
term, as well as track review requirements.
1
Source: Local Government Fact Sheet 3, Local Roads, Building and Land (complied January 2012), ACELG. www.acelg.org.au
Reform Toolkit – Procurement Guide
Page 47 of 59
Checklist:
Task
Update and maintain asset register
Future planning for Buildings
Review current arrangements
Preparation for post reform
New Building Management activity
Reform Toolkit – Procurement Guide
Critical Considerations
 Accuracy and completion of register
 Currency of valuations
 Condition assessment criteria
 Data and analysis from Asset Management system
 Define procurement relationship to Asset
Management
 Indicative profiling of future assets to be
retained/divested
 Maintenance and upgrade prioritisation
 Determine term and future status of property lease
contracts
 Determine term and future status of current service
provider and property management contracts
 Preparation of property and asset strategies,
systems, and processes
 Preparation for novation of property leases
 Upgrade of buildings
 Transition of leases
 New service provider contracts
 Ownership and divestment strategy adopted
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Page 48 of 59
Further support resources specific to Property Contracts:
Resource Name
ROMAN II
Description
Local Government Asset Management Software for all
asset classes
Source
Department of
Commerce
Commercial tenancy forms
http://www.commerce.wa.gov.au/consumerprotection/content/business/Com
mercial_tenancy/Forms_specified_by_regulations.html
APCC
The Australian Procurement and Construction Council
operate a Government Property Group that supports best
practice procurement in built asset management.
The Property Council of Australia is an advocate for the
property industry.
http://www.apcc.gov.au/SitePages/GPG%20Home.aspx
REIWA
The Real Estate Institute of WA website has resources
available such as a residential property lease template
http://reiwa.com.au/home/default.aspx
DLG
Department of Local Government and Communities
Integrated Planning Framework
http://integratedplanning.dlg.wa.gov.au/DeliverAssetManagement.aspx
IPWEA
IPWEA Asset Management Community
http://www.ipwea.org/assetmanagement/home/
NAMAF
The National Asset Management Assessment Framework
(NAMAF) is a methodology for assessing the maturity of a
Council's Asset Management practices and processes.
Urban Development Institute of Australia Sustainable
Urban Development Matrix.
http://www.lgam.info/national-asset-management-assessment-framework
BMW
Building Management and Work delivers the State
Government’s non residential building program.
http://www.finance.wa.gov.au/cms/section.aspx?id=2520
ANAO
The Australian National Audit office maintain an online
Managing the Contract Checklist amongst better practice
guides.
http://www.anao.gov.au/html/Files/BPG%20HTML/Developing%20and%20Ma
naging%20Contracts/managing_checklist.html
Property Council
UDIA
Reform Toolkit – Procurement Guide
http://www.roman2.com.au/
http://www.propertyoz.com.au/wa/Division/Default.aspx
http://www.udiawa.com.au/go/Sustainable-Urban-Development
Page 49 of 59
13
ICT Contracts
The ICT platforms that support Local Government business are critical to the efficiency and effectiveness of the organisation. There are currently a limited number of
specialised and integrated Council Business System providers in the market. The evolvement of cloud based technologies has already led to a functional diversification of
technology within the sector and is likely to continue to allow for independent and customised activity that is specific to a business area. The challenge then becomes to
integrate data and allow various applications to converse.
Procurement processes for ICT are complex due to the licensing structures applied and the various service structures associated with the supply. Core components of an
ICT contract include the license agreement, terms of use, a service level agreement, and a framework for support and maintenance, commonly charged as a percentage of
the license provision. However it is the deployment and configuration of the technology that becomes complex, and contractual protection is needed to ensure business
continuity. Economies of scale through compatible technologies such as virtualisation also require consideration.
The Government Information Technology and Communications (GITC) contractual framework comprises of standard legal documentation that has been developed in
cooperation with industry representatives and government for ICT contracts. GITC is designed to assist government buyers and industry suppliers to develop contracts for
the supply of information and communications technology (ICT) products and services in the most efficient and effective manner and is recommended for use by WALGA.
A number of Government procurement agencies have reviewed GITC (current version 4.1) in 2013, and whilst noting some limitations have concluded there is benefit in
retention of this model.
When procuring ICT products and services the following requirements should be carefully considered and tested through the procurement process:
 Functionality and fit for purpose design
 Legacy data integrity and transition
 Deployment and Configuration including warranty and testing process
 Service Level and Support
 Account Management
 User responsibilities and training
 Length of contract and renewal (perpetual licence) rights
 Type of licence (concurrent or named users)
 License structure including maintenance and renewal
 Research and Development
 Liability caps
 Ownership and security of intellectual property
 Hardware and peripheral requirements
 Termination and transition
 Data extraction time and format on termination
 Decommissioning and disposal
Reform Toolkit – Procurement Guide
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Reform provides an opportunity for Local Governments to approach ICT strategic development with new intent, and the ability to transform the operating environment of
the sector based on automated processes, e-service delivery, access to real time information through mobility, and the embrace of new and emerging technologies.
Checklist:
Task
Document current systems and technology platforms
Identify Day Zero requirements
Develop ICT Strategy
Preparation of ICT Procurement Plan
Selection, contracting and deployment of new systems
Reform Toolkit – Procurement Guide
Critical Considerations
 Type of system (hosted, local client)
 Integration of systems
 Number of suppliers
 Length and renewal options of current contracts
 Test and refine audit processes and integrity of data
 Identify procurement needs for goods and services
that will be necessary for first-day operations.
 Identify commonalities and differences within
systems use for amalgamating organisations
 Consider schedule of changeover to systems, in
particular the release of future ratings
 Create contingency strategies
 Archive and access for legacy data
 Telecommunications strategy for external hosting
 Consider ETI (early tender involvement) strategy
 Identification of timetable
 Development of specifications
 Establishment of contract model
 Implementation
 Testing and migration of data
 Redundancy and support
 Ongoing development
Stage
Stage 1 – to July 2014 (review)
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
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Further support resources specific to ICT Contracts:
Resource Name
Commonwealth
GITC v4
CIPSA
CIPSA
CIPSA
Department of
Finance
Australian
Computer Society
Description
Commonwealth Government Information Technology and
Communications (GITC) contractual framework home
page.
Chartered Institute of Purchasing and Supply, Model form
of contract for the servicing (maintenance) of computer
equipment
Model form of contract for the support and maintenance
of bespoke software
Model form of contract for software development
Source
http://www.gitc.finance.gov.au/
The model ICT contracts provide templates for Federal
Australian Government agencies to develop sound
commercial agreements efficiently and effectively.
The Australian Computer Society is the professional
association for Australia’s Information and Communication
Technology (ICT) sector.
http://agict.gov.au/policy-guides-procurement/sourceit-model-contracts
Reform Toolkit – Procurement Guide
http://www.cips.org/en-AU/bookshop/Books1/modelformofcontractfortheservicingmaintenanceofcomputerequipment/
http://www.cips.org/en-AU/bookshop/Books1/modelformofcontractforthesupportandmaintenanceofbespokesoftware/
http://www.cips.org/en-AU/bookshop/Books1/modelformofcontractforsoftwaredevelopment
https://www.acs.org.au/government
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14
Service Contracts
Service contracts are not a discreet purchase requirement, and therefore require strong contract management resources to track, maintain and evolve the contract. A key
feature of service contracts is that they contain measurable Key Performance Indicators (KPI’s), service level targets or similar mechanisms to assert compliance.
There are common service contracts for Local Government in technically complex areas that require additional security and resource for Contract Management. Some
examples include:




Cleaning contracts
Tree pruning contracts
Graffiti removal contracts
Electrical inspection and testing services
To assist with the management of service contracts, it is important to take a strategic and outcomes focused approach and to use tools such as a balanced scorecard,
service level agreements, and reporting to equip the Local Government Principal with information about delivery and performance. Disputes relating to service contracts
are also difficult to resolve due to the immediate need for service continuity. Being able to identify key conditions within a contract (and the contract law that underpins it)
is critical to managing service escalations and resolving issues prior to reaching a point of contractual dispute. Service providers must be clearly made aware of
circumstances where performance is not satisfactory or to expectation.
Specific to the reform process, Local Governments can work with service providers to develop and approve a Services Delivery Plan, or similar document that can span the
timetable of an amalgamation process. This can incorporate a standing agenda for regular contract meetings and provide a medium to identify unforseen issues,
management of communications, and track anticipated workflow and volume of activity. Some flexibility must be accorded to account for variances in an environment
where activity levels are only estimated and there is an unknown capacity due to reform based changes.
Summary:
The structure and level of value within a service based contract is determined by the ownership of risk within the contract structure. If a service provider is commissioned
on a fee for service basis, and is only charging for time and expertise allocated, then the Local Government bears the risk of cost, and needs to set in place budgetary
controls to contain expenditure blowout. If however the service provision is on the basis of a retainer, then the service provider maintains the cost risk, and is unlikely to
provision resources beyond the allocation of time and expertise that has been contracted. In this context the Local Government requires strong performance
measurement and control to ensure that the contracted services are delivered.
Reform Toolkit – Procurement Guide
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Checklist:
Task
Compile a list of current service arrangements and
incumbent contractors.
Merge service provision information across current
Local Government areas and map out future structures
for service provision.
Schedule interim and contract transition plan
Implementation
Critical Considerations
 How many suppliers are there?
 What systems and processes are in place to monitor
and report compliance against KPIs?
 Which suppliers are common to amalgamating
organisations, and which are different supply
arrangements?
 Benchmark pricing in key service areas from current
suppliers.
 Determine supply areas and capacity to supply on
an interim basis
 Which contracts will be retained and varied on an
interim basis
 Which contracts will be put to market (procurement
plan schedule development)
 Apply communications processes to advise supplies
of the intentions and processes of the organisation
 Incorporate service level and key performance
indicators into future contract templates
 Effect new arrangements for the entity
 Action procurement plan and regularly review
 Engage in contract management performance
review
Stage
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Further support resources specific to Reference Resources:
Resource Name
Consult Australia
BSCAA
Lawlive
Description
Consult Australia is the industry association for consulting
companies in the built environment sector
The Western Australian division of the Building Service
Contractors Association of Australia (BSCAA) has produced
tenders and contract templates recommended for use.
Online service conract templates
Reform Toolkit – Procurement Guide
Source
http://www.consultaustralia.com.au/Home/default.aspx
http://www.cleaningcouncilwa.com.au/
http://www.lawlive.com.au/service-agreement-templates/
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15
Goods Contracts
Contracts for the supply of goods are easier to manage due to their tangible nature and the quantifiable attributes associated with supply.
The security of supply of key strategic supplies is paramount, and to this extent Local Government should weigh the cost of ownership and storage against the need to
access and manage activity (e.g works, events etc) based on physical stocks.
Obtaining value through the supply of goods is predicated on the following:






The ability to aggregate volume (within regional areas and through WALGA’s Statewide and National contracts)
Management of delivery and haulage costs
Creative control of inventories that reduces the cost and risk of storage, especially for high risk supplies by using “Just In Time” supply chain management
Consumption measurement and benchmarking to assess commodity use over time, inclusive of seasonal fluctuations and forward estimates of predicted purchase
volumes
Checking of quality and management of return of goods policies, inclusive of access to guarantee and warranty information
Optimising the number of suppliers in key category areas and strengthening the account management structures applied
The reform process delivers an opportunity for Local Government to rethink traditional supply models and buying processes relating to the supply of goods. For some
decades Local Governments have been purchasing on the basis of public tender, and often tendering to establish annual or bi-annual supply contracts. When locking in
rates on an annual basis, suppliers need to predict future input costs and will pass the risk and contingency factors to the purchaser through their forward estimates. The
Local Government is therefore charged for this, irrespective of whether these costs eventuate for the supplier. WALGA has developed a compliant quotation based
ordering system that pre-qualifies the supplier, but provides for the quotation of supplies at the point of purchase. This allows Local Government to buy from within
market cycles and obtain pricing that is contemporary to the market. It also increases the competitive tension associated with the sourcing of supplies.
Even without a change of methodology, Local Governments can consider a change of order cycle. For example, instead of ordering twice a year for a product, the
feasibility of ordering more frequently for lower quantities could be costed. There is a cost and risk of holding stocks of inventory, and with the right framework, ordering
from the market at the time of need can derive better value. For example quarry supplies for road building vary according to input costs (fuel, labour) and seasonal
impacts. Buying from the market in accordance with a price cycle will deliver lower costs than having annual supply.
Summary
Local Governments have the opportunity to reform to revisit their buying methodology, and in particular to assess the inventories and contract structures under which the
supply of goods is provisioned. Supplier optimisation and strong Supplier Relationship Management are key elements of a successful inventory management program.
Reform Toolkit – Procurement Guide
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Checklist:
Compile a list of current goods contracts (contracts
register extract)
Determine future mechanisms for managing and
tracking supplies
Future operations
 How many suppliers are there?
 What tracking mechanisms are in place to monitor
inventories?
 Contracts Management system
 Ordering and tracking functionality within
purchasing system
 Effect new arrangements for the entity
 Action procurement plan and regularly review
 Engage in contract management performance
review
 Shift from annual and biannual supply contracts to
point of purchase buying structure
Stage 1 – to July 2014 (review)
Stage 2 – Aug 2014 to March 2015 (plan)
Stage 3 – April 2015 to June 2015 (mobilise)
Stage 4 – July 2015 onwards (implement)
Further support resources specific to Reference Resources:
The WALGA Procurement Handbook contains template documentation including General Terms and Conditions for the supply of goods.
WALGA eQuotes contains buyers guides and other contract information relating to supply contracts.
Reform Toolkit – Procurement Guide
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15
Summary and Procurement Reform Support
Structural reform delivers the opportunity for the procurement function to be elevated from its transactional focus to a key and integral strategic function. A well planned
amalgamation will ensure that the new procurement model takes advantage of the opportunity to become more strategic and deliver the benefits of scale and efficiency.
When planning for the Amalgamation, we need to clearly understand the present state. This will involve:
 mapping out the current procurement processes across the Local Governments
 identifying the legal and contractual issues
 Identify the spend and supplier profiles
 Understanding the systems across the entities
 Identify the people issues
Having a clear mandate for the Procurement function is essential to ensuring success. Procurement is sometimes a complex function involving many processes and
interactions with stakeholders and suppliers. In each of these interactions we expect the procurement team to do many things: manage stakeholders, challenge
stakeholders, influence suppliers, get the best deal, manage risk, manage probity. In any organisation, but especially in Local Government this is a challenge as often the
role for procurement is unclear and there is no mandate to take on a more strategic role. Some of the most successful procurement functions in local government ensure
that initially there is a clear mandate for how procurement should behave and work with its stakeholders and suppliers. This mandate needs to define clarity around
functional boundaries and level of influence, and active sponsorship and endorsement of the vision and mandate at the Executive level.
Broad objectives specific to Local Government procurement reform strategic development include:





Ease of doing business (procurement process efficiencies
Value for money determination (a greater focus on measured savings)
Local Government enablement of Small to Medium Enterprise (SME) and local business communities
Achieving sustainability objectives through green purchasing
Building Local Government capacity (through continuous improvement e.g. Kaizen)
The reputation of the sector not only relates to the procurement process itself, but also the contract management and fostering of Supplier Relationships, which will
become even more critical in the post-reform environment due to greater predicted levels of functional outsourcing. Better outcomes for staff and the community are
achieved through improved services from suppliers, increased transparency of the procurement function, and optimal application of the Total Cost of Ownership.
Practically speaking, engagement with suppliers assists them to understand our situation. Any issues or problems associated with the supplier can be jointly approached if
they have a different perspective on the same issue.
Academic models relating to procurement optimisation, such as the Kraljic matrix can have a practical impact on business outcomes. Specialist procurement consultants
can assist with modelling and adapting procurement theory and applying it to a procurement cultural transformation.
Reform Toolkit – Procurement Guide
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The future procurement capability of Local Government in Western Australia will blend the following values to deliver heightened awareness of good procurement practice
and an enhanced reputation of the sector from the marketplace of suppliers:





Procurement Governance – good policy, strategy and direction and a well- structured procurement function, delegations, and accountabilities.
People and Culture – a skilled and professional procurement team that engages across and beyond the organisation.
Contract Management – a category based, business unit approach to delivering well developed supplier relationship management and performance management
of suppliers.
Systems and Platforms – blending the right technology to deliver optimal performance, administrative efficiency and spend analytics.
Corporate Social Responsibility – Meeting social and sustainability objectives through procurement.
Reform Toolkit – Procurement Guide
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List of Professional Consultants that have capabilities specific to Procurement:
WALGA does not prequalify or endorse the services of the consultants below, but lists the links as specialist suppliers that have an active presence in the Western
Australian market. WALGA also notes that although external consultants may bring procurement competencies to an engagement, these cannot always be contextualised
to Local Government due to the regulatory framework that is mandated to the sector.
WALGA delivers specialist procurement consultancy services directly to Local Government through a specialised team of experienced and qualified practitioners that can
provide both strategic and operational services to the sector. The contact for WALGA’s Procurement Consultancy is:
Laura Cull
Business and Procurement Manager
Ph 9213 2045
Email lcull@walga.asn.au
Resource Name
Arcblue
Description
ArcBlue are a specialist procurement consultancy group
operating across all aspects of procurement.
Source
http://arcblue.com.au
The Faculty
The Faculty is a medium-sized management consulting
business, focused on delivering innovative and pragmatic
procurement and supply chain solutions
expertise in achieving material improvements in the
procurement and supply chain functions as well as in
optimising the operational performance of assets and
organisations.
The company has worked with indigenous enterprises to
support winning supply arrangements into the resources
sector. The company has developed procurement process
and supply chain capabilities.
A business advisory firm specialising in strategy, supply
chain and procurement optimisation.
www.thefaculty.com.au
The Portland
Group
Red Ochre
Consulting
The Lonsdale
Group
Reform Toolkit – Procurement Guide
www.PortlandGroup.com
http://www.redochreconsulting.com.au/services/procurement-supply-chainimprovement/
www.thelonsdalegroup.com.au
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