Review of Procurement Processes for Procurements Under $80,000

Review of procurement processes for procurements under $80,000

From ThinkPlace Pty Ltd ACN 116 993 170
Trading as ThinkPlace UNIT Trust ABN 34 280 130 162

Level 1 Unit 3 Green Square Kingston 2604 p +61 2 6282 8852 f +61 2 6282 8832

Contents

Review of procurement processes for procurements under $80,000

Contents

Executive Summary

Section 1

Purpose of the review

Project approach

Phase 1: Establishing project intent

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

Phase 3: Business process mapping – agency specific

Phase 4: Procurement case studies – agency specific

Phase 5: Identifying good practice

Section 2

The Conceptual Business Process

Procurement Framework – High Level View for FMA Act requirements

Interpreting the CPG Principles

Observations of Agency Business Processes as per CEIs

Process roles

Approvals

Value thresholds

Process mapping insights

Observations of actual agency case studies

Section 3

Current State Assessment Key Insights

Practical Implementation of the CPGs

Scale of Procurement Processes

Procurement Thresholds

Over-engineered processes

Agency documentation

Individual Expertise

Delegate Involvement and Experience

Procurement workflows

General observations

Section 4

Good Practice Model

The Shift Required to Streamline Processes

Determining the Risk Profile of a Procurement

Section 5

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

Recommendation 2 – Improve interpretation of CPGs and agency policies

Recommendation 3 – Simplify and standardise documentation toolset

Recommendation 4 – Clarify approval requirements

Recommendation 5 – Enhance people capability

Recommendation 6 – Automate workflow

Next steps

Acknowledgements

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