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DFSI pilots outcome-based procurement reform

by Nathan Stormont •
Free resource

The NSW Department of Finance, Services and Innovation (DFSI) has undertaken trial ICT procurements in an attempt to develop a process more outcome-based and innovation-friendly, joining the growing number of Australian jurisdictions looking to cut costs by streamlining procurement practices and fostering a more inclusive supplier ecosystem.

One of the pilots supports the new Compulsory Third Party (CTP) insurance scheme and involves a collaboration with DFSI’s Data Analytics Centre (DAC), its Legal and Procurement units, and the State Insurance Regulatory Authority (SIRA).

The concept is to collaboratively involve a range of suppliers in developing a solution to a specific issue in the hope to significantly reduce procurement costs for both government and suppliers and deliver better outcomes for participants throughout the process.

The pilot’s approach stands in contrast to the current traditional procurement process, in which agencies formally issue prospective tenders with a detailed requirement which the agency believes to be the best solution to their problem. Increasingly, agencies are becoming aware that, given how rapidly technology is evolving, the requirement they issue may not be the best or only solution.

The core of the procurement innovation involves agencies outlining their need or problem to prospective suppliers, who are then given some time to propose their solutions.

During the CTP Insurance Scheme trial, potential vendors gathered in a “Hackathon” style activity to propose solutions to challenges faced by the insurance regulator, including gathering information on claimants’ recovery and mechanisms to prevent insurance fraud. Vendors then presented DFSI with 24 projects in response to the agency’s needs, of which two were chosen for testing under the new CTP Insurance Scheme.  The first related to goal setting and progress monitoring for people injured in motor accidents and the second to the development of nudge-messaging notifications for CTP claims.

The potential benefits of the piloted approach include removing complexity, and thereby risk, cost, and assessment duration.

The likelihood of ambiguity in procurements is also minimised, which in turn reduces the risk of incurring downstream costs arising from inappropriate or not-best-fit contracts, including the cost and risk of having to approach the market again.

A spokesperson from DFSI confirmed that further (Beta) testing of this procurement model was “due to commence shortly, following the successful completion of the Alpha stage earlier this year.”

Procurement reform  

DFSI’s innovation stream procurement approach is one of a number of attempts throughout Australia to overhaul how governments collaborate, and contract, with vendors in a manner that is mutually beneficial for both suppliers and agencies.

In NSW, procurement reform has been underway since 2014 with an emphasis on increasing the involvement of small and medium enterprises (SMEs) in the tendering process.

A fundamental element of NSW’s procurement overhaul is an outcomes-driven approach, placing an emphasis on key considerations including value for money, service delivery improvement, and alignment with agencies’ needs. This approach is consistent with NSW’s Whole-of-Government (WofG) principles for procurement, which involves “[p]romoting a strategic, coordinated, and outcomes-based approach to procurement.”

The NSW Procurement Plan supports this direction, noting that government procurement decisions should be driven by “early industry engagement and the development of procurement solutions that are outcomes rather than process driven”, while the 2014 Procurement Strategic Directions Statement called for a “shift from a focus on process to a focus on outcomes, while looking at the overall value-add gained through the procurement method”.

Similarly, the NSW Procurement Strategy, adopted in June, requires government agencies to consider the desired outcomes of each procurement, structured around a methodology covering performance, cost, technology, innovation, and, notably, environmental and social sustainability.  It includes consideration of Small to Medium Enterprises, Aboriginal businesses, and disability enterprises.

An emphasis on environmentally and socially beneficial procurements is also a major feature of procurement reforms throughout Australia, with governments increasingly engaging SMEs and social enterprises while looking for innovative vendor solutions to agencies’ problems.

In May, NSW announced a revamp of its Aboriginal Procurement Policy (APP), which foresees the allocation of three percent of government contracts to Aboriginal companies by 2021. The new APP also permits agencies to procure up to $250,000 in goods and services directly from suitably qualified Aboriginal businesses.

These efforts to increase Aboriginal involvement follows the Federal Government’s Indigenous Procurement Policy (IPP), introduced in 2015, which sets a minimum number of contracts that must be awarded to Indigenous businesses.

From November 2018 NSW required agencies to use ‘short form’ contracts for procurements less than $500,000 to ease the administrative burden for small businesses. Queensland has also committed to assisting SMEs through providing a “full, fair and reasonable opportunity to access government business for the supply of goods and services”, with the Queensland Government’s SME Access Incentive allowing the government to directly engage smaller businesses for procurements valued up to $500,000 without jumping through all the formal hurdles, provided the projects addresses government priorities.

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