The path of least resistance is not a procurement strategy

A call for better procurement and contracting practices in Local Government

Local government legislation regarding tendering plays a vital role in ensuring communities receive essential goods and services efficiently and affordably. However, recent practices have shown that local government procurement is rife with challenges, particularly in contracting and panel arrangements. While panels were initially intended to streamline procurement processes and foster competitive tension, they have often devolved into nothing more than "phone books" of suppliers, leaving room for complacency and lack of competitive rigour.

Panel arrangements can be ‘The Good, the Bad, and the Problematic’

Panel arrangements offer local governments access to pre-qualified suppliers, providing convenience and purportedly simplifying procurement. But as the saying goes, the path of least resistance is often taken. Here’s the dilemma: often, council buyers have fallen into the habit of simply naming a panel contract on the purchase order and deeming it compliant, circumventing due diligence in competitive sourcing and undermining the integrity of procurement processes.

The risks of complacency

1. Lack of competitive tension Simply naming a panel contract without a proper review or competitive process eliminates the opportunity to maximise value through competition among suppliers. This can lead to higher prices and less favourable terms.
2. Dilution of value By bypassing rigorous competitive processes, councils risk missing out on favourable pricing and innovative solutions that could come from a more thorough market engagement.
3. Absence of accountability The ease of selecting from a panel can reduce accountability, as some councils may prioritise expediency over finding the best supplier fit for specific projects.

Legislative frameworks are a streamlined approach or tick-and-flick?

Various state based local government tendering and procurement related legislation aims to provide a streamlined approach to contracting, enabling local governments to procure goods and services efficiently. However, the intent behind this streamlined approach is not a "tick-and-flick" method where compliance is achieved by simply referencing a contract number on a purchase order.

Instead, procurement legislation emphasises principles such as:

1. Value for Money Ensuring that councils receive the best possible outcome for each dollar spent, considering factors beyond just price, such as quality, sustainability, and supplier capability.
2. Fair and open competition Creating a level playing field for all suppliers, encouraging participation through transparent tender processes.
3. Accountability and probity Councils must ensure procurement decisions are transparent, well-documented, and can withstand scrutiny.
4. Efficient and effective processes Balancing streamlined procurement with rigorous due diligence to foster efficiency without compromising on competitive tension.

Despite these legislative frameworks, the entrenched "tick-and-flick" approach has become pervasive, particularly in panel arrangements.

Moving towards robust contracting practices

To elevate procurement practices and mitigate the risks associated with complacent panel arrangements, local governments must embrace more rigorous contracting practices. Here are key steps that councils can take to ensure better procurement outcomes:

1. Enhanced panel management Panels should not be static directories but dynamic platforms that require regular evaluation of supplier performance and competitiveness. Councils should establish criteria for regular reviews and create mechanisms to ensure panels remain relevant and competitive.
2. Competitive tension through RFQ When using panels, councils should conduct RFQ’s for larger contracts. This ensures that suppliers on the panel have an equal opportunity to bid competitively for each specific project.
3. Transparent and fair procurement processes Open and transparent procurement processes should be adopted to ensure all potential suppliers, including those outside panels, have equal opportunities to participate. This will encourage innovation and offer councils a broader selection of suppliers.
4. Engagement frameworks for Supplier Relationships Establishing structured engagement frameworks can help councils and suppliers build mutually beneficial relationships while maintaining fairness and compliance.
5. Regular market testing Periodic market testing outside of existing panels can help councils benchmark current pricing and service levels against broader market offerings, ensuring that panel suppliers remain competitive.
6. Utilise data and technology Modern procurement platforms provide valuable data insights into spending patterns and supplier performance. Councils can leverage these insights to make informed procurement decisions, improve supplier management, and identify opportunities for cost savings.

A new standard for procurement - Changing attitudes and legislation

A significant shift in attitudes and legislative frameworks is needed to establish a new standard for local government tendering for panel arrangements. Here are some ways to address the path of least resistance:

1. Legislative reform to strengthen procurement principles Review and amend current procurement legislation to ensure that principles such as value for money, fair competition, and accountability are rigorously enforced. Implementing mandatory guidelines for competitive processes within panel arrangements can foster compliance and reduce complacency.
2. Encourage attitudinal change through training and education Councils need to prioritise training and education for procurement professionals, emphasising the importance of thorough market engagement and competitive tension. This will ensure that compliance doesn't just mean referencing a contract number but achieving the best possible outcome for ratepayers.
3. Enhanced panel management Panels should not be static directories but dynamic platforms that require regular evaluation of supplier performance and competitiveness. Councils should establish criteria for regular reviews and create mechanisms to ensure panels remain relevant and competitive.
4. Competitive tension through mini-competitions When using panels, councils should conduct mini-competitions for larger contracts. This ensures that suppliers on the panel have an equal opportunity to bid competitively for each specific project.
5. Transparent and fair procurement processes Open and transparent procurement processes should be adopted to ensure all potential suppliers, including those outside panels, have equal opportunities to participate. This will encourage innovation and offer councils a broader selection of suppliers.
6. Engagement frameworks for supplier relationships Establishing structured engagement frameworks can help councils and suppliers build mutually beneficial relationships while maintaining fairness and compliance.
7. Regular market testing Periodic market testing outside of existing panels can help councils benchmark current pricing and service levels against broader market offerings, ensuring that panel suppliers remain competitive.
8. Utilise data and technology Modern procurement platforms provide valuable data insights into spending patterns and supplier performance. Councils can leverage these insights to make informed procurement decisions, improve supplier management, and identify opportunities for cost savings.
9. Avoid Unfair Contract Clauses for Small Businesses Councils should review and eliminate unfair contract clauses that disproportionately affect small businesses. Introducing standardised, fair terms for small suppliers within panel arrangements ensures a level playing field and encourages diverse participation.
10. Competitive Neutrality Ensure government-owned businesses do not have an unfair advantage over private sector suppliers by adhering to competitive neutrality principles. Councils should consistently apply fair and transparent rules, allowing all suppliers to compete on equal terms.
11. Diversity of Providers Encourage diversity in procurement by actively seeking suppliers from different backgrounds and regions. Establishing targets for supplier diversity within panel arrangements can lead to more innovative and inclusive outcomes. This can also include incentivising participation from Indigenous-owned, women-owned, and socially responsible businesses.

HYPOTHETICAL SCENARIO

The Procurement Pitfalls at Sydney Haven Council

Background Sydney Haven Council prides itself on its efficient procurement and contracting practices. To streamline procurement, it established a panel arrangement called the "Preferred Partners Programme" (PPP), comprising over 100 pre-qualified suppliers across various categories. The intention was to simplify purchasing while ensuring competitive tension among suppliers.

The Scenario

Situation The council is initiating a project to revamp its parks and recreational facilities, a contract valued at $1.5 million. Instead of conducting a competitive tender process, procurement officers simply referred to the PPP and chose a supplier, GreenScape Solutions, from the panel without further competitive tension. They justified the selection by citing the panel contract number on the purchase order and began work immediately.

Problems Unveiled

Lack of Competitive Tension GreenScape Solutions delivered the project but charged 20% above the average market price due to complacency in pricing competitiveness. Other suppliers in the PPP, including GreenPlus Co. and EcoLandscape, were not given a fair opportunity to bid, despite offering better value for money.

Dilution of Value Without a thorough market engagement, innovative solutions proposed by competitors, such as sustainable irrigation systems, were missed. The selected solution led to higher maintenance costs, reducing long-term value.

Absence of Accountability The "tick-and-flick" approach of naming the panel contract number and assuming compliance left room for expediency over proper due diligence. No accountability framework was in place to ensure the best supplier was chosen based on specific project needs.

Aftermath Ratepayers became aware of the overspending, leading to public scrutiny and criticism of Sydney Haven Council's procurement practices. A local media outlet highlighted that the council did not issue any RFQs or hold a mini-competition within the PPP.

Solutions Implemented Post-Issues

Enhanced Panel Management SHOP Haven Council set up an annual review mechanism to assess supplier performance, pricing competitiveness, and innovative solutions. Non-performing suppliers were replaced, and the panel was expanded to include more innovative players.

Competitive Tension through RFQ For contracts above $500,000, the council mandated issuing an RFQ to at least three suppliers within the panel. An RFQ template was created to ensure suppliers bid competitively on specific project requirements.

Transparent and Fair Procurement Processes The council developed transparent evaluation criteria for all projects, ensuring an open and fair opportunity for suppliers, even those outside the PPP. Procurement officers were trained on evaluating the qualitative aspects of bids to achieve value for money.

Supplier Engagement Framework The council established regular supplier engagement meetings to build mutually beneficial relationships while maintaining probity. Feedback mechanisms were introduced to improve supplier performance and identify areas of collaboration.

Regular Market Testing Every two years, the council would conduct market testing outside the PPP to benchmark pricing and service levels. This periodic testing ensured that panel suppliers remained competitive.

Utilise Data and Technology The council adopted a new procurement platform, providing insights into spending patterns and supplier performance. This allowed procurement officers to make data-driven decisions and identify opportunities for cost savings.

Conclusion SHOP Haven Council learned that panel arrangements cannot be static "phone books" of suppliers. Without competitive tension, accountability, and thorough market engagement, procurement practices become prone to complacency, risking overspending and diminished value. Through enhanced panel management, competitive RFQs, and transparent processes, the council redefined its procurement approach, ensuring panels delivered genuine value for money and innovation.

Key Takeaways for Irregular Procurers

• Never assume compliance by contract number alone; always conduct competitive processes within panel arrangements.
• Ensure accountability by creating frameworks that emphasise transparent supplier selection and regular performance reviews.
• Maximise value through market engagement by conducting regular market testing outside panel arrangements.
• Leverage technology by utilising procurement platforms to gain insights into spending patterns and supplier performance.

"It's crucial to challenge the status quo and redefine procurement practices by moving beyond the ease of compliance to deliver genuine value for money," says Brooke from SHOP Consulting.

Conclusion - The road ahead

The need for change in local government procurement practices is clear. Councils must take deliberate steps to ensure that panel arrangements are not just "phone books" of suppliers where users take the path of least resistance. By fostering a culture of accountability, transparency, and competitive tension, councils can maximise value and ensure sustainable, fair contracting practices.

It's time to challenge the status quo and redefine local government procurement by embracing better contracting rigour. Let's move beyond the ease of "compliance" by contract number and toward a future where procurement practices deliver genuine value for money and encourage innovative market opportunities for all.