NSW Minister for Finance and Services, Greg Pearce, will launch a comprehensive review into the procurement practices of the NSW Government, in an attempt to achieve better value for money and to improve compliance with procurement rules across the state’s public sector.
Documents released by the Department of Finance and Services (DFS) say that the Minister is seeking a “fundamental revision of the New South Wales Government’s management and delivery of goods and services procurement”.
According to these documents, released as part of an approach to market for advisory services, the DFS has already commenced a project to find $1 billion in savings over four years, which will form part of the 2011-12 Budget. This will be drawn from an annual government expenditure of $12.7 billion on goods and services, of which more than $2 billion goes towards ICT.
The Department is looking to commission a high-level review of procurement frameworks and functional structures used by other governments in Australian and abroad, with a particular emphasis on Victorian and Queensland models.
It is also looking for a high-level review of the NSW Government’s own procurement model, as compared against any best-practice models identified in these other jurisdictions. This comparison should generate a set of options available to the NSW Government to improve procurement policy.
“The Government is undertaking the review to examine the management of its goods and services procurement. The Government will appoint a consultant to provide advice,” said a spokesperson for the DFS.
“The Department will appoint the advisor by the end of August and the review will be completed in due course,” he said.
The review has not come as a total surprise. In the run up to the March 2011 election, Pearce made a number of references to his intention to review procurement in NSW and in particular the number of panels in use in NSW.
However, it also follows the publication of a highly critical report by the Independent Commission Against Corruption (ICAC) in July, which found that one in three surveyed businesses failed to make a bid on government tenders because they perceived the process to be corrupt.
ICAC also said that each year, 12 percent of all complaints made to the commission related to NSW Government Procurement, and that 30 percent of inquiries into the government’s procurement activities resulted in findings of corrupt conduct.
One of the seven recommendations made in the report was the review of all public sector procurement in the State.
The report also suggested that NSW follow the lead of the Queensland and Western Australian Governments in establishing a centralised body with responsibility for procurement regulation and compliance. ICAC was critical of the way that procurement oversight is structured within the NSW Government, describing it as being “characterised by complexity and a great deal of uncertainty”.
It pointed out that responsibility for procurement is spread over no less than five different government entities, to the point that accountability and compliance got lost amongst the intersections of policy.
A spokesperson for the Department told Intermedium that the ICAC recommendations will be taken into consideration.
“The review will provide a valuable opportunity to consider the ICAC inquiry’s findings,” he said.
In a break with prior practice the DFS has gone to the open market for proposals to supply advice to the government regarding the review. In the case of the 2009 ICT Costs Review and the 2010 Review of the People First Strategy, the appointment of advisors had been done via a restricted procurement process.
Given the nature of the review, it would have been difficult for the government to do anything other than elect an advisor via a full market test.
Pearce has also established a Government Procurement Review Taskforce, which will be chaired by Director-General of the DFS, Michael Coutts-Trotter, to oversee the initiative. The taskforce will comprise of representatives from all of the largest departments, the State Contracts Control Board (SCCB) and the private sector.
It will recommend a strategy for achieving the $1 billion in savings and will also develop an implementation plan for the recommendations that emerge from the completed review.
When it comes to ICT procurement, Pearce has also made it clear that he is open to a consideration of outsourcing models for ICT procurement. Prior to the election, he told The Australian’s Fran Foo that “on a general plane, clearly we have got to do more outsourcing”.
Pearce’s procurement review is also likely to focus on the advantages and disadvantages of panel arrangements as part of its brief.
One of the key reasons for the establishment of a panel is to eliminate costs in the procurement process. However the rationalisation in NSW of these panels from over 40 to 12 over the last seven years has resulted in a set of panels which are largely focussed on ‘commodity’ items and which are principally used to drive down prices through economies of scale.
Despite Government wishes to the contrary, panel arrangements also have a tendency to channel government contracts towards a select few incumbent suppliers, at the expense of SME’s and market innovation. This was borne out by Intermedium’ssurvey of NSW 2020 panellists, which suggested that agencies continued to procure from vendors they have used previously and who have a proven track record, rather than move to using an unfamiliar supplier on the panel, leaving many panellists no better off.