Agency B case studies of procurements under $80,000

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Agency B case studies of procurements under $80,000Project Analysis and Review of Commonwealth

Procurement Processes for procurements under $80,000

Client Department of Finance and Deregulation

DateVersion

21 June 2011 FINAL 1.0

ThinkPlace Team

Linda Dewey, Behzad Emami

ANALYSIS & REVIEW OF COMMONWEALTH PROCUREMENT PROCESESS UNDER $80,000 – AGENCY B CASE STUDIES

About this documentThis document contains an analysis of three procurement case studies provided by Agency B. Each case study was analysed against a high level process model to understand actual procurement processes employed and to identify areas of good practice, unnecessary and / or duplicated processes, and convoluted processes (inefficient / ineffective).

ThinkPlace has worked with a small group of people in Agency B to develop this document.

ContentsProcurement case studies 3Procurement narrative - case study 1 4Procurement narrative - case study 2 5Procurement narrative - case study 3 6

High Level Analysis of Case Studies 7

Summary of process issues and insights 13Good practice, unnecessary and convoluted processes 14Opportunities for improvement 15

Methodology1. The Agency B provided three procurement case studies

that describe actual procurement processes

2. ThinkPlace reviewed the case studies validating them against processes mandated by the agency CEIs and relevant policies.

3. ThinkPlace worked with Agency B staff who are directly involved in the case study to identify areas of good practice, unnecessary and/or duplicated processes, or convoluted processes.



Procurement case studies In this section, three procurements under $80,000 that best represent typical procurements, examples of good practice and examples of convoluted processes are explored.

These case studies describe the facts, processes and experiences of the procurement.


Case Study 1Australian Bureau of Statistics (ABS) consultancy services

Questions Comments

What was procured? ABS consultancy services procured as part of a subcontract arrangement with ABARES

What was the value of the procurement? Two separate consultancy products were valued at:$55,000 (GST inclusive)$49,500 (GST inclusive)Advice was that products should have been consolidated and submitted under a single procurement request

How was the procurement valued? Market research was conducted as part of the initial proposal preparation by ABARES to the client

Was documentation developed (e.g. file notes, risk assessment, statement of work)?If so, what type and why?

• Reg 9 approval Minute (24 September 2010)• Reg 9 approval Minute (7 December 2010)• Memorandum of Understanding (MoU) between ABS and ABARES

How was the market approached (e.g. direct, select)?

Direct sourcing – at the initial proposal preparation stage, existing relationships and specific skills of partners are known and leveraged. As a rule ABARES always direct sources subcontract consultancy services due to the highly specialised skills required

How long did the process take, from beginning to end?

Approximately 3 months (24 September 2010 – 7 December 2010)

Who was involved in the process (e.g. central procurement area, delegate, line area, etc.)?What was their role?

End User (Business Line)Procurement OfficerDelegateSpecialist (Legal)

What did the approval process involve? Reg 9 approval Minutes

Was there a reporting process? Contracts register – used by procurement team to report on AusTender. Due to fact that contracts are not monitored in a central area, the ABARES Division Executive Director (SES 3) signs all consultancy contracts in order to keep a central record

Questions referred to the procurement area (if any).

None


Case Study 2Contract staff with Hays Specialist recruitment

Questions Comments

What was procured? Contract staff

What was the value of the procurement? $25,000 (GST inclusive)

How was the procurement valued? Understanding of market rates for similar work multiplied by the number of hours the contract staff member was required


Statement of work was provided to contract agencyContract and emails with prior approval


Direct source


Actual paperwork takes minimal time. Waiting for delegate approvals and pre-employment activities can take up to one week


Line area (Business Line) makes staff requestDelegate (GM) approves

What did the approval process involve? • Line area instruction• Discussion with Programme Manager• Development of paperwork• Approvals• Contract negotiation and signoff• Purchase order

Was there a reporting process? Entered into Agency B ‘s system which triggers reporting. Also reported at Senate Estimates and other governance bodies as required when report consultancies and internal reporting of budget variations

Questions referred to the procurement area (if any).

None


Case Study 3Provision of business cards

Questions Comments

What was procured? Standing order for business cards

What was the value of the procurement? $17,000 per year (approx.) for 4 years (approx,$68,000 total)

How was the procurement valued? Based on previous prices and estimates of usage from Corporate Communications Branch


• Reg 9 approval (24 Nov 2010)• Evaluation process (25 Nov 2010)• RFQ (29 Nov 2010)• Evaluation report (22 Dec 2010)• Supplier notifications (23 Dec 2010)


Select, 3 providers were selected based on past procurement experience of Corporate Communications Branch


Approximately 1 month


Procurement team (also acted as the Business Line)RFQ team (comprised of Procurement team and Corporate Communications Branch)DelegateSpecialist (Corporate Communications Branch)

What did the approval process involve? • Reg 9 approval• RFQ• Evaluation report

Was there a reporting process? No evidence provided

Questions referred to the procurement area (if any)

N/A – Procurement team led the procurement



High level analysis of case studiesIn this section, case studies are validated against processes mandated by the agency CEIs and relevant policies


Identify needIdentify need Plan procurement

Plan procurement

Approachmarket

Approachmarket

Assesssubmissions and negotiate contract


Receivegood(s)/

service(s) and pay

Receivegood(s)/

service(s) and pay

Case Study 1 - ABS consultancy services•ABARES provides its own consulting services to clients. During service negotiations, ABARES identifies elements of the service that it will have to subcontract to other specialist agencies. The ABARES procurement team questioned whether they needed to follow the CPGs since the funds used came from external revenue.•Detailed background research is undertaken to identify and scope any potential subcontract arrangements. This also included checking for existing arrangements such as Memorandum of Understandings (MoUs).•An existing MoU between Agency B and the ABS was identified and used for the subcontract arrangement•Throughout the process, a formal procurement risk assessment was not undertaken. This was identified as being due to the fact that risk was not well understood by the procurement team. The procurement team believed that the termination clause contained within the original service contract adequately managed any inherent risk.

Case Study 2 – Contract staff•Due to traditionally high turnover rates, the Business Area places provisions in the budget for contract staff (APS 4 staff for admin role) each year.•There is no official/formal existing arrangement between Agency B and contract staff suppliers. However there are two suppliers who Agency B has procured from in the past that the Business Areas currently direct source from.•The process is assessed to be very low procurement risk. Therefore the rigour and oversight required is minimal.

Case Study 3 – Provision of business cards•The procurement team sought to use existing whole of government contracts for the provision of business cards. To achieve this, the AusTender register was searched. The team found that although AusTender has listings for publishing and printing arrangements, there was no consistent contract naming convention used between government departments. This resulted in several hours of fruitless searching.

Issues

Good practice

Agency B Procurement Processes

Good practice, unnecessary and convoluted processes



Plan procurement

Approachmarket

Approachmarket



Receivegood(s)/

service(s) and pay

Receivegood(s)/

service(s) and pay

Issues

Good practice

Case Study 1 - ABS consultancy services•The original proposal given by ABARES to the client is cleared by the Corporate Manager (Executive). This proposal identifies the subcontract arrangements to be procured and the indicative costs.•Identified subcontract arrangements are often direct source due to the highly specialised nature of the skills/services sought.•Line areas engaging subcontract providers find this phase of the process to be slow. This is due to the approval/internal clearance processes required.•The procurement is required to be formally requested at least one week prior to the procurement deadline in order to capture it in the financial reporting process and assess the strategic appropriateness and value of the proposed work.

Case Study 2 – Contract staff•Due to the budgeted provisions for contract staff, which are approved by the financial delegate each year, there is no need to develop a business case or seek in-principle approval from the delegate.•Contract staff procurement for project work would require a development of a business case and delegate in-principle approval.

Case Study 3 – Provision of business cards•The procurement was identified as simply continuing an existing service and thus the procurement phase did not deviate from Agency B’s procurement process.•In order to plan the procurement appropriately, specialist knowledge from Corporate Communications Branch was used. This knowledge was crucial in allowing the business line area and delegate to understand the need.•A business case was developed for the procurement which identified the procurement risk as being low. The risk assessment completed was not understood correctly thereby resulting in what the procurement team felt was onerous procedures.





Plan procurement

Approachmarket

Approachmarket



Receivegood(s)/

service(s) and pay

Receivegood(s)/

service(s) and pay

Issues

Good practice

Case Study 1 - ABS consultancy services•Documentation developed within this phase served to outline the reasons why direct sourcing was used for the subcontract.•The procurement team stated that there has been a recent change for procurement of consultancy services greater that $20,000. Previously only the Deputy Secretary could approve such procurement however now approval can be granted by anyone with suitable delegation.•It was revealed that often a subcontractor has already been engaged (informally) before the phase has commenced. It was felt that this was due to the fact that the business line has significant pressure to complete work by a deadline. This gave rise to a perceived culture of placing deadlines ahead of procurement procedure.

Case Study 2 – Contract staff•The Business Areas have a good relationship with the suppliers. They approach each of the two suppliers and identify which one can provide them with staff that have the skills they need. The procurement officer is then instructed to direct source from the supplier. This relationship ensures that Agency B gets staff with required skills.•The current market approach process does not consider encouraging competition as required by the CPGs.•There is no formal agency guidance regarding the preferred supplier for contractors. More guidance on how to achieve value for money would also be beneficial to procurement officers.

Case Study 3 – Provision of business cards•The procurement phase did not deviate from Agency B’s procurement process.•The procurement team stated that the specialist advice provided to develop the specification documents was vital in planning the market approach.•The market approach selected resulted from a perceived contradiction contained in the CPGs. The CPGs create a tension between seeking value for money and encouraging competition resulting in an onerous market approach.





Plan procurement

Approachmarket

Approachmarket



Receivegood(s)/

service(s) and pay

Receivegood(s)/

service(s) and pay

Case Study 1 - ABS consultancy services•During contract negotiations , the following standard forms were used to make negotiations straight forward.

• MoU – between Agency B and other CoA FMA agencies• Custom template – for repeat suppliers• Modified short form contract – for CSIRO• All others – standard Agency B terms and conditions template

•There is no standard Agency B template for Reg 9 approvals. Issues also arise when attempting to utilise the above mentioned forms.•After gaining approval, Agency B’s contracts register is completed. This register is also used by the procurement team to enter details into AusTender. The process has no checking mechanism to determine if the contract was executed. Furthermore, the Division Executive Director (SES Band 3) signs off on all consultancy service procurements in order to maintain a central record for ABARES. While ensure traceability and transparency, the process adds time to the procurement process.

Issues

Good practice

Case Study 2 – Contract staff•The Business Areas assess the supplied contract staff via an interview process. This ensures that the staff are competent and a suitable fit for the business need.•Reg 9 approval is granted as part of the acceptance of the service provider’s orders.•Tools such as spreadsheets are developed to help the procurement officer track period of the contracts.

Case Study 3 – Provision of business cards•The procurement phase did not deviate from the outlined Agency B procurement process.•The evaluation team formed to assess submissions included technical specialists. This was done to understand the requirements of the business line and was not influenced by any risk assessment.•Furthermore, the procurement team identified that the level of reporting and rigour shown throughout the phase was influenced by the Delegate’s risk appetite and not a formal risk assessment.





Plan procurement

Approachmarket

Approachmarket



Receivegood(s)/

service(s) and pay

Receivegood(s)/

service(s) and pay

Issues

Good practice

Case Study 1 - ABS consultancy services•The project identified that this phase occurs at the business area and not the line area that engaged the provider. Therefore it is beyond the scope of the project.

Case Study 2 – Contract staff•The procurement did not deviate from Agency B’s process map.

Case Study 3 – Provision of business cards•The procurement was for a standing order meaning that this phase of the procurement is yet to occur and beyond the scope of the project.





Summary of process issues and insights In this section, case studies are validated against processes mandated by the agency CEIs and relevant policies


Agency B Procurement Process


GOOD PRACTICE

Proven techniques, methods and processes

•A process commensurate with the procurement risk ensures that simple, low risk procurements follow a streamlined process while high risk procurements require more oversight and rigour

•Central approval process within some divisions allowed for:

• The capture of information for reporting

• Alignment work with strategic goals

• Workforce/resource planning

•Inclusion of subcontract arrangements to initial contract ensured that subcontract procurement will be approved

•The negotiation process was made straight forward through the use of:

• Standard templates, MoUs

• Existing relationships with service providers

• Customised contracts for specific agencies / suppliers

•Establishment of a procurement coordinator ensured that the appropriate procedures were being followed and any over arching indemnity and confidentiality requirements are followed

•Inclusion of a technical specialist in the procurement team assisted with the development of specification documentation and reduced the delays associated with seeking advice from a subject matter expert

•Conducting detailed background research resulted in the ability to scope and appropriately specify the procurement process

UNNECESSARY PROCESSESRepetitive and / or duplicate processes

•Central approval processes within some divisions resulted in added administrative burden caused by a delegate potentially being required to approve all procurement contracts. This led to increased delays and can often be difficult to implement

•Indemnity and public liability issues were often dealt with by both the procurement team and the business line. This resulted in duplication of work and failure to adequately address the legal issues

•There is a lack of guidance regarding documentation required. For example, a separate business case is often unnecessary and can be adequately substituted with a official minute

•The standard agency templates do not cover the documentation requirements of the entire procurement process. For instance there is no standard Agency B Reg 9 approval form

•While searching existing arrangements on AusTender, the lack of a consistent contract naming conventions between government departments resulted in much wasted time. Existing arrangements were unable to be identified and leverage leading to duplication of government procurements

• Procurement teams often spend resources producing documentation over and above the amount required by the CEIs and operating guidelines in an attempt to be accountable. This is because there is a perception that the quantity of documentation produced equates to the level of rigour applied to the procurement process

CONVOLUTED PROCESSESInefficient and / or ineffective processes

•Education regarding procurement requirements/ processes appears to be ineffective. This results in business areas engaging (formally or informally) services before the procurement process is completed. With the funds being already committed, the procurement team is under pressure to successfully deliver the procurement

•There is a lack of clarity regarding the CPG principles governing the approach to market phase. These include conflicting requirements between:

• Effective and efficient use of commonwealth resources vs risk management (minimisation)

• Value for money vs encouraging competition

•The procurement process is primarily focussed on the monetary value of the procurement. This means that the same procurement processes are followed regardless of considerations of value for money or procurement risk

•Procurement risk is not assessed or managed consistently. An initial risk assessment may be completed but it does not influence the procurement process. Resulting in simply, low risk procurements following the same process as complex procurements


Standardised documentation and contract naming conventions• A clear, standard set of documentation requirements and contract naming conventions with guidance for procurements under

$80,000 would reduce instances of ‘over engineering’ and repetition of work. Standardised documentation would also reduce the need to have very experienced procurement officers on all procurements thereby allowing them to focus on complex and high risk procurements

Pre-process activities • A pre-procurement requirement such as market research, would result in better selections of market approaches and timely

input from specialist would reduce the risk of taking ‘shortcuts’ in order to meet client deadlines

Technical specialists• Inclusion of technical specialists in the procurement team would result in a better procurement specification documents

and timely input concerning the evaluation of responses to request documentation

Standard and holistic risk assessment process• Currently the $80,000 threshold is driving the procurement process rather than the overarching principle of achieving an

appropriate use of Commonwealth resources.

• Risk assessments should not be based solely on procurement costs. Risk to organisational capability and other factors pertinent to Agency B should also be considered. For example the procurement of $10,000 of off the shelf stationary should be considered as low risk compared to the procurement of $10,000 worth of consulting services from a sole trader. Procurement processes ought to be commensurate with the level of risk.

Agency B Procurement Process

Opportunities for improvement

Agency B case studies of procurements under $80,000

Documents

Transcript of Agency B case studies of procurements under $80,000