foi 11/96 review of procurement processes for procurements under

Review of procurement processes for procurements under $80,000For Department of Finance and Deregulation (Finance)

Contact Rosemary Deininger, Assistant Secretary Procurement Policy Branch

Project Review and Analysis of Commonwealth Procurement under $80,000

ThinkPlace Team

Raffaella Recupero, Linda Dewey, Behzad Emami, Mark Thompson

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ContentsReview of procurement processes for procurements under $80,000..............................1

Contents...........................................................................................................................2

Executive Summary.........................................................................................................4

Section 1..........................................................................................................................6

Purpose of the review...................................................................................................7

Project approach..........................................................................................................8

Phase 1: Establishing project intent.........................................................................8

Phase 2: Research policy and legislative framework and map the overarching FMA Act procurement process.................................................................................8

Phase 3: Business process mapping – agency specific..........................................9

Phase 4: Procurement case studies – agency specific...........................................9

Phase 5: Identifying good practice...........................................................................9

Section 2........................................................................................................................11

The Conceptual Business Process............................................................................12

Procurement Framework – High Level View for FMA Act requirements....................13

Interpreting the CPG Principles..............................................................................15

Observations of Agency Business Processes as per CEIs........................................17

Process roles..........................................................................................................17

Approvals................................................................................................................19

Value thresholds.....................................................................................................20

Process mapping insights...........................................................................................20

Observations of actual agency case studies..............................................................21

Section 3........................................................................................................................22

Current State Assessment Key Insights.....................................................................23

Practical Implementation of the CPGs....................................................................23

Scale of Procurement Processes...........................................................................23

Procurement Thresholds.........................................................................................23

Over-engineered processes....................................................................................23

Agency documentation...........................................................................................23

Individual Expertise.................................................................................................24

Delegate Involvement and Experience...................................................................24

Procurement workflows...........................................................................................24

FINAL REPORT 3/5/23 WWW.THINKPLACE.COM.AU PAGE 2

General observations..............................................................................................24

Section 4........................................................................................................................25

Good Practice Model..................................................................................................26

The Shift Required to Streamline Processes.............................................................26

Determining the Risk Profile of a Procurement..........................................................28

Section 5........................................................................................................................32

Recommendation 1 – Take risk based approach to procurement activities under $80,000 to streamline processes by implementing the Good Practice Model........33

Recommendation 2 – Improve interpretation of CPGs and agency policies..........33

Recommendation 3 – Simplify and standardise documentation toolset.................33

Recommendation 4 – Clarify approval requirements..............................................33

Recommendation 5 – Enhance people capability...................................................34

Recommendation 6 – Automate workflow..............................................................34

Next steps...................................................................................................................35

Acknowledgements........................................................................................................36


Executive Summary The aim of this project has been to review the requirements of the procurement policy framework, specific policies and practices of three agencies participating in the Review, and to design a Good Practice Model for procurements of less than $80,000 which presents a framework for streamlining and simplifying procurement processes. The model seeks to address inefficiencies in procurement practices, while maximising the likelihood of agencies achieving the principles set out in the CPGs. The intent is to conduct high volume procurements at the lowest possible cost per ‘transaction’, consistent with the procurement risk profile, resulting in simple and sensible processes for people to follow and savings in overall costs of administration.

The project approach involved five broad phases. The initial phase established the project intent. The project team then researched the policy and legislative framework to map the requirements set out in the FMA Act and CPGs. The project team worked with three FMA Act agencies to map their current process for procurements of under $80,000 as per the CEIs and operational policies and to review their nominated case studies. The teams reflected on practical issues experienced by the agencies and explored elements of their processes that are convoluted and inefficient. The final phase of the project involved designing the Good Practice Model for procurements of less than $80,000 with the Department of Finance and Deregulation (Finance).

The following insights are key to all agencies:

While the intent of the CPGs it to provide a principles-based approach to procurement, participating agencies expressed concerns about the subjectiveness of terms and practical implementation of the CPGs;

FMA Act agencies do not scale the procurement effort to the impact, complexity and cost of the procurement (i.e. risk profile) and therefore time, resources, documentation and approvals can be very high for what is being procured;

FMA Act agencies have introduced thresholds to scale their processes, but these are based solely on the cost of what is being procured; the thresholds also differ across agencies;

There are instances of low value and low risk procurements that involve excessive documentation, market research and approval processes;

Agency CEIs and operational policies are lengthy, convoluted documents that are not user friendly;

The level of expertise of people involved in procurement is a key factor of how well procurement processes are executed and whether outcomes are achieved in an efficient and effective way;

Delegates typically have limited involvement / visibility of the procurement process yet are responsible for approvals; and

Procurement workflows are largely manual.

The Good Practice Model provides a framework for streamlining and simplifying the process for procurements under $80,000. The model recommends a risk-based approach to procurement that means processes and standards are scalable and the effort in the procurement processes is proportionate to the scale and procurement risk.


The risk profile is determined by asking a number of focusing questions about impact, overall cost and complexity. The risk profile then determines the procurement pathway.

The following recommendations are made within the report:

1. Take risk based approach to procurement, by implementing the Good Practice Model, to streamline agency processes

2. Improve the interpretation of CPGs and agency policies, addressing subjective terms and investigating a whole of government CEI

3. Simplify and standardise the documentation toolset, setting a minimum standard and that supports the procurement process be developed and provided to FMA Act agencies.

4. Clarify and reinforce approval requirements

5. Enhance people capability to raise general awareness and address education needs for the inexperienced procurers in particular

6. Investigate automating workflows at a whole of government level to improve efficiency, record keeping and auditability.

The following steps are recommended to introduce the Good Practice Model and other recommendations to FMA Act agencies.

Socialise the Good Practice Model with FMA agencies more broadly – this needs to involve the most senior levels of agencies, central procurement areas, and general procurement officers;

Design a suite of supporting templates (i.e. procurement plan, evaluation plan etc.) and other relevant support material for procurement officers. The supporting templates should be designed with procurement officers and should be tested for usability with both specialised and general procurement officers, and when fully completed, implemented with FMA Act agencies;

Present the Good Practice Model and the suite of supporting templates, simplified contracts and CPG principles definitions to the Senior Procurement Officers Reference Group and seek endorsement and commitment to implement within their agencies;

Work with central procurement areas in agencies to educate in how to apply Good Practice Model and to work through the implications for agency specific CEIs and operational policies to ensure agency process are aligned with the Good Practice Model;

Provide a channel for agencies to share experiences and provide feedback on how the Good Practice Model operates in practice;

In consultation with FMA Act agencies, prioritise the recommendations outlined in Section 5 and plan implementation across agencies; and

Review implementation of the Good Practice Model within 12 months to ensure agencies processes are aligned and as streamlined as possible and that supporting templates remain useful and useable.


Section 1

Background and Intent of the Review


The FMA Act sets out the financial management responsibilities of heads of agencies that are financially part of the Commonwealth. The Commonwealth Authorities and Companies Act 1997 (CAC Act) sets out the requirements for entities that are legally and financially separate from the Commonwealth.

The FMA Act provides a framework for the proper management of public money and public property by Chief Executives and officials of FMA Act agencies. Within the FMA Act framework agencies undertake procurement activities. The framework aims to ensure that agencies subject to the FMA Act achieve ethical, efficient, economical and effective outcomes. When undertaking procurement FMA Act agencies are required to follow the principles and requirements set out in the CPGs.

The CPGs are issued by the Minister for Finance and Deregulation to establish the procurement policy framework, and articulate the expectations of FMA Act agency officials (or their agents) when performing duties related to procurement. The CPGs set out the broad principles under which procurement is to be conducted.

However, responsibility for conducting procurement activities is devolved to enable each agency to decide how it will conduct its procurement within the framework provided by the FMA Act and the CPGs. The CEIs are the mechanism for specifying the procurement processes that will be followed in a Commonwealth agency. Agency specific policies, processes and procedures are tailored to reflect the uniqueness of the agency in terms of their organisational structure, delegations, approval processes, risk appetite, level of IT maturity, resourcing, and reporting processes.

Purpose of the review

The purpose of the project is to review and analyse the procurement rule set expressed in the FMA Act, the CPGs, and agency CEIs to develop a high level understanding of the theoretical procurement process used by FMA Act agencies for procurements of less than $80,000. The review analysed the actual processes used by FMA Act agencies in procurement to identify ways of streamlining the process to make it less onerous for FMA Act agencies while maintaining the integrity of the FMA Act.

The drivers for the project include:

Analysis of the AusTender data for 2008-09 indicates that 85,000 contracts with a value greater than $10,000 were awarded (contracts of less than $10,000 do not need to be reported to AusTender). Of these contracts, about 65,000 fall under the $80,000 threshold – approximately 80 per cent of the contracts awarded corresponds to about 4 per cent of the value of contracts awarded;

Agency procurement processes are complex, confusing and onerous for staff and when coupled with the volume of activity suggest that considerable effort is invested for very little value for the Commonwealth;

Requirements vary from agency to agency and are not standardised across FMA Act agencies;

Suppliers are frustrated with the time and effort that can be required to finalise low value procurement processes; and

An APS 5/6 can spend up to 80 per cent of their time undertaking procurement processes for low value contracts.


In summary, low value contracts are translating to a very high administrative burden.

Project approach

The approach to this project involved five broad phases:

1. Establishing a shared understanding of the project with Finance and key stakeholders;

2. Researching various materials which set the policy and legislative framework for procurements of less than $80,000 and developing an overarching map of the standard FMA Act procurement processes – this included the FMA Act and Regulations, CPGs, CEIs, and agency guidelines;

3. Working with three FMA Act agencies to map their business processes for procurement of less than $80,000. The maps were derived from design conversations with agency personnel and by using the agency CEIs, policy and practice statements, procedures, and other internal guidance material.

4. Working with the same agencies to analyse the actual procurement processes. Three case studies that reflect actual and recent procurement activities were formulated by each agency. The case studies ranged from good practice to problematic processes. The case studies were analysed in a collaborative environment to identify and explore strengths, weaknesses and opportunities for improving efficiency and effectiveness; and

5. Co-designing with participating agencies a good practice model for procurements of less than $80,000 that meets the FMA Act and CPG requirements, that is simple, streamlined and safe, and that can be adopted by FMA Act agencies.

Phase 1: Establishing project intent

The intent of the project agreed by Finance is “a streamlined, simple and safe process for all FMA agencies conducting procurements that fall under the $80,000 threshold”.

The detailed ThinkPlace Intent statement is in the Appendix Section 2, page 4.

Phase 2: Research policy and legislative framework and map the overarching FMA Act procurement process

A core component of the project was to develop a clear understanding of existing requirements set by the FMA Act and the CPGs.

ThinkPlace researched the FMA Act and CPGs to understand the procurement rule set and design an overarching business process model. The overarching business process model was developed and agreed with the Finance project team. Insights regarding the procurement rule set and overarching business process model are contained in Appendix Section 2.


Phase 3: Business process mapping – agency specific

ThinkPlace met with key representatives from the nominated agencies to develop a current state procurement business process map for each agency. The process maps were developed with a core team of people from each agency and reflected agency requirements as per their existing CEIs and operational guidelines.

The business process maps were developed at three levels:

Level 0 describes the process end-to-end at a high level, chunking the process into key phases and describing the purposes of these phases;

Level 1 drills into the high level phases in more detail, setting out workflows, activities and tasks and process connections; and

Level 2 is not mapped in detail, but rather references relevant prescribed rules in legislation or corporate policies and procedures, specific considerations and support tools (e.g. information systems, and administrative tools such as templates guidelines, forms etc.).

At each process mapping workshop, ThinkPlace elicited opinions and ideas from the agencies for improving the procurement policy framework and how agencies can implement the requirements at a practical level. After the process mapping workshops, the documented business process maps were returned to the relevant agency and distributed to the participants to review and validate to ensure the documentation accurately reflected the process requirements and current practice. Feedback was incorporated into the maps and final endorsement was given by each agency.

Agency CEI requirements and process maps are contained in Appendix Section 3.

Phase 4: Procurement case studies – agency specific

ThinkPlace worked with each agency to analyse case studies that represented actual procurements. This allowed a deeper exploration of the actual procurement experience for each agency, and for different parts of the same agency. It provided participants the opportunity to identify and analyse major problems that exist, inefficiencies in the current process, and also to identify good practice. The real-life case studies provided an opportunity to reflect upon and understand the practical issues experienced by the agencies in conducting procurements. They also provided the opportunity to explore whether the problems occur due to complexity, ambiguity and inefficiencies in the CPGs, or whether they were due to agency specific practices.

Three case studies per agency were explored in a workshop environment and the discussions from each workshop were documented to highlight good practice and process inefficiencies. The documentation was validated with each agency.

Agency procurement case studies are outlined in Appendix Section 4.

Phase 5: Identifying good practice

Based on the outcomes from Phases 4 and 5, ThinkPlace developed a prototype good procurement practice model. The model was validated with Finance and includes:

Identification of the major problems that exist in agency procurement processes;


Understanding the reasons for these problems – the FMA Act, the CPGs, or the agency CEIs and procedures;

Identifying the alignment of agency procurement processes with the procurement policy framework (FMA Act and CPGs);

Identifying the shifts required to streamline procurement processes, while ensuring the policy and legislative intent are met; and

Designing procurement pathways for procurement officers undertaking procurements of different risk profiles, ensuring the process is simple, streamlined, and workable in practice by relevant agencies.

The Good Practice Model is contained in Appendix Section 1.


Section 2

Current State Assessment


The Conceptual Business Process

The high level process for procurements under $80,000 was derived from the current requirements set by the FMA Act and CPGs. The process starts with an identified procurement need and ends with the acceptance of the goods / services. The process is triggered by a business need or external drivers.

Further detail is provided in Appendix Section 2.

Figure 1: High Level Conceptual Process


Procurement Framework – High Level View for FMA Act requirements

The procurement policy framework for FMA Act agencies comprises several legislative and policy elements, including the FMA Act, the CPGs, policy guidance material, and other legislation which interacts with the procurement policy framework. The CPGs are legislative instruments with which agencies must comply. The intent of s. 44 of the FMA Act is that Chief Executives promote the proper use of Commonwealth resources. ‘Proper use’ is defined as efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth. Figure 2 (below) illustrates the high level view of the FMA Act requirements.

Figure 2: Procurement Framework – high level view of the legislative and policy framework

The operative provisions of the FMA Act and Regulations that are relevant for procurement are detailed in Figure 3 (over page). The outcome that Parliament expects is that Chief Executives promote the proper use of Commonwealth resources.

The fundamental procurement rules are expressed in Regulations 6 – 10 and 12, covering commitments to spend and approvals for spending public money, and how and when these approvals are to be granted.


Figure 3: Operative Provisions of the FMA Act and Regulations

Procurement Principles

The procurement principles are outlined in Division 1 of the CPGs. The CPGs prescribe a number of business rules (denoted by a “must” and “should” or “need”) that govern the way agencies conduct procurements. There are 21 “musts” which are obligations with which agencies must comply. There are 20 “shoulds” which are matters of sound practice. There are 10 “needs” which are standards that agencies ought to meet.

As shown in Figure 4 (over page), the design of the system is geared towards Accountability and Transparency, given there are more rules for this principle. This can also be an indication of what is driving agency behaviour in procurement.

The requirements, rules and standards set out by the FMA Act and the CPGs configure the way the “procurement system” operates in practice and drive the performance of the system. In the absence of legislative change, agencies need to find ways to ensure their practices meet the requirements of a regulated system.

Further detail is provided in Appendix Section 2.



Figu

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CPG

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must should need

1

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373

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1Value for money

Encouraging competition

Efficient, effective, ethical use of resources

4.34.1

5.3

5.4

5.5

5.7

5.8

6.8

6.9

6.10

6.12

6.13

6.14

6.15

6.16

6.19

6.20

6.21

6.21

6.22

Accountability and Transparency

7.2

7.9

7.9

7.10

7.12

7.15

7.16

7.17

7.18

7.19

7.20

7.21

7.21

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7.23

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7.28

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7.31

7.32

7.33

7.34

7.34

7.34

7.34

7.34

7.34

5.2

Note• Clause 4.1 is treated as a ‘must’.

Interpreting the CPG Principles

The aim of the CPGs is to provide a principles based approach to procurement. However, participating agencies indicated that the principle are subjective and required clearer definitions, an indication of how to demonstrate adherence to the principle and the respective requirements for documentation. The following table addresses the issues.

Figure 5: A simple interpretation of the Principles

Principle Definition How to demonstrate Minimum Documentation requirements

Value for Money The cost of procurement, plus the cost of the goods/ services, over the life cycle of the goods

The process equates to the risk of the procurement.

The evaluation can consider:

Fitness for purpose Performance history of the

prospective suppliers Risk of the proposals Direct and indirect

financial benefits and costs over the lifecycle of the goods

Evaluation of contract options

The documentation specifies:

What is required (a clear statement of work)

Why it is required (business case)

Who and how the good/ services can be provided (approach to market), and

How the procurement will be evaluated.

An official email can provide documentation of the procurement reasons, process and all relevant decisions (including Reg 9 pre-approval, Reg 9 approval and authorisations).

Encouraging competition

Effective processes that give all suppliers the same chance to compete for business

All potential suppliers should be given the same opportunities to do business with government.

Procurement methods should not unfairly discriminate against small and medium enterprises.

Efficient, effective and ethical use of resources

Appropriately using agency resources to achieve agency outcomes.

Ensuring procurement makes maximum contribution to the organisation.

Identifying and avoiding conflicts of interest and improper use of position.

Agency processes ensure resources (including people and their time) are not wasted on unnecessary activities, and that activities are not repeated. Simple risk identification and management is the key to achieving this.

Risk may be to the project, the process, or the contract. Low risk does not need a complicated process.

The agency should only accept the risk on contingent liabilities where the benefits outweigh the costs.

When undertaking procurement activities:

The need is correctly identified

The functional specifications are written to match this need,

Responses are appropriately evaluated,

Contracts effectively negotiated and managed.

A simple risk assessment can be undertaken and included in the documentation supporting the process.

An official email can provide documentation of the procurement reasons, process and all relevant decisions (including Reg 9 pre-approval, Reg 9 approval and authorisations).


An open and transparent process enables officials and potential suppliers to deal with each other with mutual trust and respect.

Accountability and transparency

Implementation of procedures to ensure any procurement process is open and that decisions are transparent and justified.

A well planned, conducted and documented process that meets the principles will withstand scrutiny.

The level of documentation will match the level of risk. A low risk procurement does not need a complicated process. Documentation must be retained for three years.

There must be evidence of the agreement between the agency and the supplier.

All agencies publish their procurement plans on AusTender by 1 July each year, and report on AusTender all procurement activities greater than $10,000.

Agencies should treat the information provided by suppliers and confidential, and arrange for suppliers to sign confidentiality agreements for any information they are provided.

Successful and unsuccessful suppliers must be advised of the results of the procurement process.

Agencies must apply complaints handling procedures that are fair, equitable and non-discriminatory.

An official email can provide documentation of the procurement reasons, process and all relevant decisions (including approvals and authorisations).

For low value contracts a purchase order will provide evidence of agreement between the agency and the supplier, for higher value contracts a written contract will provide this.

Observations of Agency Business Processes as per CEIs

Three FMA agencies participated in the review. These agencies will be referred to as Agency A, Agency B and Agency C.

Typically, the procurement function is decentralised across participating agencies, and a central procurement unit provides general guidance on policy, tools and support on process. In some agencies it is not clear who owns, runs and supports the procurement processes. In Agency B for example, it was observed that the planning phase of the procurement is a mirror image between the client area and the centralised procurement unit. This suggests there is a duplication of process and responsibilities are not delineated.

Process roles

The procurement roles are standardised across the participating agencies with slight variations in role names and responsibilities. The major exception is the role of Budget


Holder in Agency A. The Budget Holder performs a check on budget availability early in the procurement process.

Under the FMA Act, the Delegate is ultimately responsible for spending approval and procurement outcomes. In practice responsibility for meeting the obligations of both the FMA Act and the CPGs overlaps between the procurement officer and the Delegate. As the Delegate typically has limited involvement in or visibility of the procurement process it means the Delegate can defer to the procurement officer to ensure proper process and documentation.

At a high level, agency procurement processes are not dissimilar (see Figure 5 over page). Different terminology is used to describe process activities, and within each phase variations are evident. Thresholds, approval processes and documentation are primary examples.

In summary, business process mapping revealed that the procurement CEIs and operational guidelines are convoluted and not user friendly - in some instances they contained more than 30 templates and checklists. Some agencies reported they would not read the operational guidance material and the CPGs are too high level to apply in practice. Participating agencies suggested that simple guidelines and tools that are mid-way between the CPGs and operational guidance material would make it easier for people to know what to do and how to run an effective and efficient procurement process.



Assess existing arrangements for

suitabilityGo to market Evaluate and

enter contractReceive goods and services

Define procurement need

Undertake approach Evaluate response

Develop and finalise

arrangementPlan procurement

Approach market Establish contract Receive goods and servicesInitiate procurement process

Approach marketAssess

submissions & negotiate contract

Receive goods and services and

payPlan procurement

Includes assessing existing arrangements, developing a plan, valuing the procurement, seeking in-principle approval and developing request documentation

Includes notifying suppliers, establishing a contract, gazettal, receiving goods and services and paying invoices

Agency B

Agency A

Agency C

Overarching process (CPGs)

Identify business

need

Identify business

need

Identify business

need

Identify business

need

Includes seeking quotes, providing clarification to potential suppliers and receiving quotes

Includes developing an evaluation report, negotiating with successful supplier, and seeking delegate approval (Reg. 9, 10 )

Includes determining best approach and valuing procurement

Includes identifying existing arrangements and seeking Reg 9 approval

Includes writing specification, issuing the request and receiving submissions

Includes assessing submissions, identifying successful suppliers, obtaining approvals (Reg 8, 9,10), entering into arrangements and AusTender reporting

Includes accepting and paying for goods/ services

Includes developing requirements, assessing existing arrangements, valuing the procurement, seeking pre-approval from delegate approval

Includes seeking quotes, evaluating submissions, compiling an evaluation report, seeking delegate approval (Reg. 9, 10)

Includes negotiating and establishing a contract, notifying unsuccessful suppliers, and preparing SAP contract and purchase order

Includes (contract management) receiving goods and services and paying invoices checking PO and invoices match

Includes checking existing arrangements, valuing procurement, developing a business case, and seeking approval and confirmation of budget

Includes preparing specification documents, seeking approval on approach, issuing request and providing clarification

Includes negotiating and establishing a contract, notifying unsuccessful suppliers, and registering contract on Contracts Register

Includes creating and raising purchase orders, receiving goods and services and paying invoices, matching CFP and invoices, documentation and reporting

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Approvals

Approval requirements are not consistent across the agencies. Business process mapping highlighted that approvals can be sought several times – for example, in Agency B approval from the Delegate is sought five times, to commence a procurement process, to approve the specifications (requirements, value, timing and potential suppliers), to approach the market, to approve spending before a contract is granted, and finally to sign the contract.

Value thresholds

The procurement value thresholds differ across participating agencies. These thresholds determine the process adopted by the agency, for example Agency A and Agency B have specific processes and approvals for the procurement of consultancies; and Agency A and Agency C can undertake procurement of less than $5,000 and paying by credit card.

Process mapping insights

One of the significant insights from mapping business process is the consideration of ‘risk’ in the procurement process. Agencies do not have a common definitions of risk, nor a standard methodology for assessing risk. The CPGs do not clearly define ‘procurement risk’. Participating agencies tend to define risk as the final cost/price of the purchased goods or services. Some agency CEIs and guidance material include checklists to support the identification and mitigation of risks, however participants indicated these tools are more daunting than helpful. All agencies indicated that a focus on risk management would streamline the process as the process could then be scaled according to the risk profile of the procurement.

The process mapping exercise highlighted that the agency processes are largely manual and involve the use of disparate systems and databases. Each agency is using different financial and information management systems, and with differing levels of compatibility that is encouraging the establishment and maintenance of individual methods of record keeping. There is an opportunity to automate workflows to ensure proper record keeping and audit trials.

There is no minimum standard for documentation. In practice, documentation is not commensurate with procurement value. The case study agencies produce business cases, executive minutes, statements of work and procurement plans – they all perform the same function in initiating the procurement process. Aligning documentation requirements with the risk and complexity of the procurement activity will simplify the process for agencies.

Appendix Section 3 is the record of findings from mapping agency business processes as per their CEIs and operational policies.


Observations of actual agency case studies

Each agency selected three case studies to be reviewed as part of this project. The case studies highlighted the issues that were exposed during the business process mapping experience. Essentially, procurement is a straightforward process that should be efficient. However, efficiency is being lost due to layers of controls, prescriptive approaches and even a lack of clarity of, misinterpretation of, or ‘administrability’ of the CPG principles.

The key observation from the case studies is that the behaviour of agencies in the procurement process is a focus on the cost of the item being procured and demonstrating accountability and transparency. This is demonstrated by the use of the same, over engineered process, for all procurement activities. For low value/low risk procurements this is not representing value for money, and streamlining the process will provide administrative cost savings for FMA Act agencies.

Appendix Section 4 is the record of findings from the analysis of agency case studies.


Section 3

Key Insights


Current State Assessment Key Insights

The review of the FMA Act framework, principles, agency business processes as per their CEIs, and agency case studies revealed a number of key insights. These are outlined below:

Practical Implementation of the CPGs

While the intent of the CPGs is to provide a principles-based approach to procurement, participating agencies expressed concerns about the practical implementation of the CPGs. Participating agencies reported that the CPGs are non-specific for procurements under $80,000 and subjective terms such as “value for money” are open to interpretation.

Scale of Procurement Processes

FMA Act agencies do not scale their procurement processes. Agency specific processes for procurement of less than $80,000 are typically focused on the cost of what is being procured. Cost will determine the process requirements such as the number of quotes required, the level of documentation required, delegation and approval processes, reporting processes and which part of the agency will take responsibility for the procurement activity.

Procurement Thresholds

The application of thresholds will influence procurement activity, and these thresholds are inconsistent across the FMA Act agencies. Each participating agency has a credit card threshold with a simple procurement process requirement. Each agency then applies varying thresholds that will influence the delegate and approval process, and which part of the agency will take responsibility for the procurement activity.

Over-engineered processes

Analysis of participating agency case studies revealed instances of low value and low risk procurements that involved excessive documentation, market research and approval processes. Two factors appear to drive this – the level of experience of the procurement officer, and the risk appetite of the agency or the delegate, that is, the lower the risk appetite of the agency, the greater the emphasis on demonstrating accountability and transparency.

Agency documentation

Procurement CEIs and operational policies are lengthy, convoluted documents that are not user friendly. In some agencies procurement guidelines can contain up to 30 different templates and checklists. Staff undertaking procurements have reported that there are many rules within their agency that they are expected to follow. Inexperienced staff can feel overwhelmed and not know where to start. Procurement processes can be confusing and onerous for staff, particularly if that is not their core role.


Individual Expertise

The level of expertise of people involved in procurement is a key factor of how well procurement processes are executed and whether outcomes are achieved in an efficient and effective way. It is especially difficult for people new to procurement to know what to do and how to navigate the process. Very experienced people know how to navigate the process and manipulate it if they believe it is in the interests of their business outcome.

Delegate Involvement and Experience

Delegates typically have limited involvement / visibility of the procurement process. However they are ultimately accountable forming procurement decisions that constitute “proper use of Commonwealth resources”. Agencies reported that the previous experience of a delegate, often with another agency, would influence the behaviour in procurement activities

Procurement workflows

Procurement workflows are largely manual (with the exception of raising purchase orders and payment processing). Workflows involve usage of disparate systems and databases that are not integrated systems.

General observations

Throughout the project a number of general observations were made regarding the impact the procurement policy framework may be having:

One of the principles of the CPGs is to encourage competition by providing all suppliers the same chance to compete for business. A case was cited where for work in some remote areas of Australia, local providers do not have the capacity, compared to their city counterparts, to dedicate the effort required to effectively complete request documentation. The end result is that contracts are awarded to city contractors who have the capacity to respond to requests, while local contractors are inadvertently disaffected.

Examples were also cited of splitting procurement activities or altering the specification of the work to keep the final price under the $80,000 threshold, and signing extensions with a provider (sometimes multiple times) with each extension coming under the threshold. This behaviour is driven by a couple of factors: an intention to avoid the $80,000 threshold and therefore avoid the application of Mandatory Procurement Procedures, and a perception that the threshold is arbitrary and can hinder delivery on the business need.


Section 4

Future Directions


Good Practice Model

The intent of the “good practice model” is to provide a framework for streamlining and simplifying the process for procurements under $80,000. The model seeks to address inefficiencies in procurement practices and maximise the likelihood of achieving the CPG principles: value for money; encouraging competition; efficient, effective, economical and ethical process; and accountability and transparency.

The impact for the FMA Act agencies will be the delivery of high volume transactions at the lowest possible cost per transaction. These transactions will be consistent with the procurement risk profile and generate savings to FMA Act agencies in the overall cost of administration.

Appendix Section 1 provides the detailed Good Practice Model for procurements under $80,000.

The Shift Required to Streamline Processes

The current processes reflect a focus on cost rather than on risk. There is little difference in process between low cost and high cost procurements and there is a disproportionate effort and attention to transparency and accountability. Process cost can well exceed and outweigh the cost of what is being procured.

The shift to a risk based approach to procurement, as represented in Figure 6 (over page) means processes and standards are scalable and the effort in the procurement process is proportionate to the scale and procurement risk. For low risk procurements (for example – travel or stationery) minimal effort would be required in developing documentation and seeking quotes and approvals. For higher risk procurements (for example – consultancies) more effort is required in developing comprehensive documentation, market testing and seeking approvals.



Proper use of Commonwealth

resourcesValue for money

EfficientEthical

EffectiveEconomical

Encourage Competition

Transparent and

Accountable

Value for money

EfficientEthical

EffectiveEconomical


Transparent and Accountable

Value for money

EfficientEthical

EffectiveEconomical


Transparent and Accountable

Current situation

Low cost

Medium cost

High cost

Proposed Model

Low risk

High risk

Proper use of Commonwealth

resourcesValue for money

EfficientEthical

EffectiveEconomical


Transparent and

Accountable

Medium risk

Value for

money

EfficientEthical

EffectiveEconomical


Transparent and

Accountable

Value for money

EfficientEthical

EffectiveEconomical


Transparent and

Accountable

Procurement processes are clearly directed at delivering policy and legislative intent – proper use of Commonwealth resources

Procurement effort is proportionate to the risk** profile of a procurement

As the scale and risk profile of the procurement increases, greater attention is paid to the ‘defensibility’ of the procurement activities (able to withstand public scrutiny)

**Risk comprises impact, overall cost, and complexity of the procurement

Procurement processes and effort determined solely on process cost

− The level of expertise, experience and risk appetite of those involved in the procurement influences the effort placed on each activity

There is little differentiation in process between low cost and high cost procurements – in practice, the same level of documentation and approvals for low cost procurements as for high cost procurements

The effort and attention on transparency and accountability is disproportionate with the procurement – the behaviour is “I’ll make sure I do everything to demonstrate I’m doing the right thing”

The Process cost can outweigh cost of what is being procured

SIZE The size of each activity represents the amount of oversight and rigour

Figu

re 6

: Sh

ift to

Str

eam

line

Proc

urem

ent P

roce

ss

In order to streamline procurements, a shift in the way procurement processes are managed is required:

Procurement processes are clearly directed towards delivering policy and legislative intent – the proper use of Commonwealth resources;

Procurement effort is proportionate to the risk profile of a procurement; and

As the scale and risk profile of the procurement increases, greater attention is paid to the “defensibility” of the procurement activities.

Determining the Risk Profile of a Procurement

FMA Act agencies currently have procurement processes that are based on cost of goods/ services rather than risk thresholds. A simplified process would have minimal documentation and quotation requirements for low risk procurements and more comprehensive documentation, market testing and approval requirements for higher risk procurement.

Procurement risk comprises the following elements – impact, cost and complexity. The perception of risk to either an individual or an organisation is subjective and influences by past experiences, organisational culture, technical skills and knowledge. Therefore, a number of focussing questions ought to be considered when determining the risk profile of procurement.

Figure 7 (over page) provides a simple risk framework that is based on a series of focussing questions that enable a procurement officer to make defensible decisions regarding the level of risk for a procurement.



Risk ProfileDetermines how much rigour and

oversight you will need to employ for the procurement

ImpactIdentify and assess what risks need to be managed

throughout the procurement

Does this procurement impact on the reputation of the organisation and/or government (political)?

Does this procurement impact on the capability of the organisation?

Is this a supplier who is known for successful delivery?

Is the good/service readily available?

Overall Cost*Assess whether to apply agency credit card policies or

Mandatory Procurement Policies (Div 2)

Is the procurement below $80,000 in value?

Is it suitable to apply agency credit card policies for the good(s)/service(s) being purchased?

ComplexityAssess whether or not your procurement demands close

attention

Is a good or service being procured?

Is this a routine or one-off procurement?

Will procurement of the good(s)/service(s) impact on business-as-usual?

Is an existing arrangement being used?

Procurement Officer

undertaking low risk

procurement

Procurement Officer

undertaking medium risk

procurement

Procurement Officer

undertakinghigh risk

procurement

Procurement Officer

undertaking low risk

procurement viacredit card – with Reg 9 delegation

* OVERALL COST includes all procurement process costs as well as the cost of the good/service being procured

Figu

re 7

: Det

erm

inin

g th

e ris

k pr

ofile

of a

pro

cure

men

t

The level of risk identified will determine the procurement pathway as outlined in Figure 8 (over page). As the level of risk increases, so does the requirement for documentation. The low risk credit card procurement illustrated in grey below shows a very simple process that is completed on-line using existing arrangements. As the risk levels increase the pathway illustrates additional documentation and delegate approval steps.

The Good Practice Model (in Appendix Section 1) represents the most efficient way of undertaking procurement up to $80,000 in an FMA Act agency. It meets the FMA Act framework and CPG requirements, and provides FMA Act agencies with a streamlined, simple and safe process. The streamlined process provides a Delegate with the confidence that the process they are approving provides value for money. It details the pathways and provides illustrative case studies to highlight the differences in the levels of process activity needed as the risk level increase.



Figu

re 8

: Pro

cure

men

t Pat

hway

s

Section 5

Recommendations and Implementation


The following recommendations would improve the efficiency and effectiveness of procurement processes for procurements under $80,000. These recommendations are based on the findings of the review and input from participating agencies.

Recommendation 1 – Take risk based approach to procurement activities under $80,000 to streamline processes by implementing the Good Practice Model

The current procurement processes developed by agencies to address the FMA Act framework are complex. APS 5/6 level staff are investing excessive amounts of time to complete low value and low risk procurements. The inconsistent thresholds, templates and approval delegations within and between agencies are resulting in ineffective and inefficient processes. Addressing these issues will enable FMA Act agencies to generate savings in the costs of administration.

It is recommended that the Good Practice Model be adopted and recommended to FMA Act agencies in order to take a risk based approach to streamline procurements which fall under $80,000.

Recommendation 2 – Improve interpretation of CPGs and agency policies

The research established that the CPG principles lack specificity and are too high level to be ‘administrable’ in practice. The principles are open to interpretation by individual agencies and can result in agency CEIs being too prescriptive. These prescriptive CEIs are translated into operational policies that are lengthy, convoluted and not user friendly. An agency’s CEIs and operational guidelines contained up to 30 different templates and checklists.

In order to address these issues it is recommended that:

Definitions of subjective terms within the CPGs be developed – for example: value for money; and

A single CEI that is easy to follow and adopt by FMA Act agencies be developed.

Recommendation 3 – Simplify and standardise documentation toolset

There is no minimum standard for documentation and evidentiary requirements are unclear so multiple documents are created to “ensure the right thing is done”. This is resulting in the over-engineering of documentation for low value procurements and the subsequent administrative impost on employees undertaking procurement activities. It is also not unusual to have the Delegate prescribing documentation requirements.

It is recommended that a suite of simple and standard documentation that supports the procurement process be developed and provided to FMA Act agencies.

Recommendation 4 – Clarify approval requirements

Multiple approvals are sought over and above the two (2) required delegate approvals. In some agencies Delegate approvals are sought at least three (3) times in addition to signing contracts.


It is recommended that approval requirements under the FMA Act be clarified and standardised across FMA Act agencies. The Good Practice Model reinforces the approval requirements prescribed by the FMA Act.

Recommendation 5 – Enhance people capability

The level of expertise and experience of the procurement officer is a key factor in the easy and effectiveness of the process. New people find the process daunting and are unsure of the “next step”. Delegates typically have limited involvement or visibility of the process although they are ultimately accountable for making procurement decisions.

It is recommended that general awareness and education for staff needs undertaking a procurement activity be developed and that it include:

Self-help mechanisms such as on-line learning and web-based document libraries be established to facilitate access to information to improve awareness and efficiency;

A Centre of Excellence that promotes using best practices around procurement to drive better results; and

Greater training be provided to staff involved in procurement (including Delegates) to improve understanding of principles, rules, and practices.

Recommendation 6 – Automate workflow

Procurement workflows and documentation are largely manual (with the exception of raising purchase orders and payment processing). Workflows involve usage of disparate systems and databases that are not integrated.

It is recommended that automation of workflows at a whole of government level be investigated as part of a scoping study, to improve efficiency, record keeping and auditability.


Next steps

The following steps are recommended to introduce the Good Practice Model and other recommendations to FMA Act agencies.

1. Socialise the Good Practice Model with FMA agencies more broadly – this needs to involve the most senior levels of agencies, central procurement areas, and general procurement officers;

2. Design a suite of supporting templates (i.e. procurement plan, evaluation plan etc.) and other relevant support material for procurement officers. The supporting templates should be designed with procurement officers and should be tested for usability with both specialised and general procurement officers, and when fully completed, implemented with FMA Act agencies;

3. Present the Good Practice Model and the suite of supporting templates, simplified contracts and CPG principles definitions to the Senior Procurement Officers Reference Group and seek endorsement and commitment to implement within their agencies;

4. Work with central procurement areas in agencies to educate in how to apply Good Practice Model and to work through the implications for agency specific CEIs and operational policies to ensure agency process are aligned with the Good Practice Model;

5. Provide a channel for agencies to share experiences and provide feedback on how the Good Practice Model operates in practice;

6. In consultation with FMA Act agencies, prioritise the recommendations outlined in Section 5 and plan implementation across agencies; and

7. Review implementation of the Good Practice Model within 12 months to ensure agencies processes are aligned and as streamlined as possible and that supporting templates remain useful and useable.


AcknowledgementsThe ThinkPlace Team would like to thank the Department of Finance and Deregulation for their input into the review and coordinating the effort associated with this project. ThinkPlace would also like to thank the agencies which participated in the Review.

ThinkPlace consultants:

Raffaella Recupero (lead consultant)

Linda Dewey

Mark Thompson

Behzad Emami


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