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ANAO calls for greater value for money consideration in direct source procurement

by Aleks Vickovich •
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An Australian National Audit Office (ANAO) report into direct source procurement by four government agencies has found shortcomings in adherence to a number of key principles of the Commonwealth Procurement Guidelines (CPGs).  Chief amongst these was a lack of consideration of value for money and competitiveness.  

The audit, tabled on September 30, reviewed the procurement activity of four selected agencies:

  • The Department of Families, Housing, Community Services and Indigenous Affairs (FaCHSIA);
  • The Department of Innovation, Industry, Science and Research (DIISR);
  • The Department of Veterans’ Affairs (DVA); and
  • The Australian Crime Commission (ACC).

While none of these is a large ‘tier one’ agency, all four were actively engaged in ICT procurement in the 2009-10 financial year, according to Intermedium’s analysis of AusTender data:

  • DIISR had a total ICT contract value of $27.2 million;
  • DVA had a total ICT contract value of $33.5 million;
  • FaCHSIA had a total ICT contract value of $62.9 million; and
  • ACC had a total ICT contract value of $8.3 million.

The ANAO investigated a sample of 654 procurements of all descriptions over $10,000 – 285 of which were direct source procurements – and concluded these agencies “lacked sufficient focus on attaining value for money and encouraging competition in their procurement activities”.

As much as 74% of direct source procurements in the sample demonstrated a “lack of evidence of any comparative analysis of the relevant costs and benefits of different procurement options to support the procurement decision,” the report states. 

Value for money is the central tenet of government procurement at both the Federal and State levels.   According to the CPGs, “value for money is the core principle underpinning Australian Government procurement.  In a procurement process this principle requires a comparative analysis of allrelevant costs and benefits of each proposal throughout the whole procurement cycle (whole-of-life costing)”.

The CPGs make clear that value for money is enhanced by:

a.    Encouraging competition by using competitive procurement processes and ensuring non-discrimination;

b.    Promoting the use of resources in an efficient, effective and ethical manner; and

c.    Making decisions in an accountable and transparent manner.

The procurement activity of the relevant agencies lacked consideration of these supporting factors, according to the audit report.

One of the key procedures in ensuring competitiveness and value for money in direct source procurement is seeking multiple quotations for the provision of property or services.  Agencies were found to only approach one supplier in 85% of instances, according to the report.

The report also made the point that direct source procurement is inherently uncompetitive, particularly in comparison with open and select tender processes, as it “does not provide the opportunity for all or, in many instances, a number of potential suppliers to compete”. 

For this reason the CPGs outline that agencies are to use a direct sourcing method for procurement only where, “in response to an approach to market, no submissions were received”.

Despite this stipulation in the guidelines, in the 2009 calendar year “48 per cent of all contracts entered into by the Government and reported on AusTender were Direct Sourced” and “Direct Source procurement accounted for 43 per cent (or $10.2 billion) of the total reported value of all these contracts,” according to the report.

The audit found efficiency and effectiveness measures lacking across the reviewed agencies.  “For 60 per cent of the Direct Source procurements examined, there was limited evidence of the aforementioned efficiency and effectiveness considerations prior to commencing the procurement”, the report states.  It also found, however, that DIISR demonstrated consideration of “procurement need and process” in 84% of cases. 

Ethical procurement practice was another key concern of the audit.  The report found that “it was only evident from procurement documentation for two procurements that conflicts of interest had been considered, and for all agencies documentation of probity matters, such as dealing with suppliers, was limited”.

In response to these findings the report made three recommendations to agencies for better procurement practice:

1.    That agencies develop concise guidance and templates covering methodology for value estimation and the application of ‘covered’ status, and consideration of conflicts of interest and levels of risk;

2.    That agencies are more diligent in documenting procurement need, market circumstances and value for money assessments; and

3.    That agencies enhance the annual procurement planning (APP) process and “provide a basis for adopting more strategic and efficient procurement processes”.

While the audit was critical of a number of procurement practices by agencies it also recommended that “Finance review the clarity of the CPGs, including classification of procurement methods”.  The CPGs are unclear and partly to blame for a lack of compliance, according to the report.

In its official response to the report the Department of Finance and Deregulation did not explicitly agree to review the CPGs.  Rather, it emphasised that “Finance continues to provide a broad range of support to agencies to assist them to manage their procurement obligations”.

The ANAO maintains that all four audited departments have experienced and qualified central procurement units (CPUs).  But while procurement training was offered in all four agencies, none had mandatory requirements for staff to take part.

All four agencies agreed to the recommendations in their responses to the ANAO.   FaCHSIA also expressed that it “looks forward to the Department of Finance and Deregulation reviewing the clarity of the Commonwealth Procurement Guidelines relating to classification of procurement methods”.

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