NSW Government procurement reform Part 2 – Finding value

Every shopper likes a bargain; however, for officers procuring on behalf of the public, obtaining ‘value for money’ presents a real challenge largely due to its subjective nature. What factors should be considered in this assessment? Is it strictly about price and quality, or do social, economic, environmental, ethical and industrial factors also play significant roles?

This is part two of our series exploring the NSW government’s procurement reform agenda, which includes matters raised in the recent Upper House inquiry into government procurement practices (Inquiry)[1] and what this inquiry means for both government officials and suppliers. You can find our first article here.

The obligation to achieve ’value for money’

Achieving ‘value for money’ in procurement is a core requirement for agencies under section Public Works and Procurement Act 1912 (NSW) (PWP Act)[2] and is a key objective of the Procurement Board[3]. This obligation reflects the overarching requirement for officers to use government resources in an ‘efficient, effective and prudent’ manner, as specified under the Government Sector Finance Act 2018 (NSW) (GSF Act)[4].  It also aligns with the broader goals of the GSF Act, which promotes stewardship of public resources[5].

A range of government policies and Procurement Board directions are relevant to this broader consideration of non-financial costs and benefits. These are summarised in the NSW Government Procurement Policy Framework (Procurement Framework)[6], which for instance, includes a mandatory 10% evaluation weighting for SMEs under Small and Medium Enterprise (SME) and Regional Procurement Policy[7].

The Procurement Board has set out in the Enforceable Procurement Provisions direction (EPPs)[8] various factors that an agency must consider when determining whether a covered procurement, being a higher value procurement covered by the EPPs, constitutes value for money. This includes evaluating both the ‘financial and non-financial costs and benefits of making the procurement’[9]. Such criteria offer considerable leeway for interpretation by officers. 

Lack of consistent or comprehensive definition of ‘value for money’

An initial focus of the Inquiry was on the use of the ‘value for money’ requirement across government procurements. The Inquiry found that there was no consistently applied or comprehensive definition of ‘value for money’. It considered the guidance provided in the Procurement Framework to be ambiguous[10], recommending that Government provide a clearer definition in the Procurement Framework[11].

The Procurement Framework summarises government policy and outlines various procurement objectives, the first of which is to achieve value for money. It states that:

Value for money is not necessarily the lowest price, nor the highest quality good or service. It requires a balanced assessment of a range of financial and non-financial factors, such as quality, cost, fitness for purpose, capability, capacity, risk total cost of ownership or other factors.[12]

The Inquiry cites the first sentence as the statement of objective, yet it is evident from the paragraph that there is much more to consider. Ultimately, this statement allows significant latitude to officers to determine what constitutes value for money in a particular situation.

What one person perceives as ‘inconsistency’ in approach, another may view as flexibility to tailor the decision to the specific circumstances of the procurement. As the Procurement Framework applies across government, it has to apply to a wide range of goods, services, and construction projects.

The Government has accepted the Inquiry’s recommendation and committed to strengthening the existing definition of ‘value for money’[13]. Adopting the more granular definition of ‘value for money’ in the EPPs is one approach that could provide the necessary clarity regarding discretion while ensuring consistency between covered and other procurements.

How do you apply ‘value for money’ in practice?

The Inquiry heard evidence from supplier groups expressing frustration over the application of the definition of ‘value for money’ in procurement evaluation decisions.  Concerns were raised about whether procurement officers consider anything beyond the lowest price when making decisions[14].

In response, the Government committed to working with agencies to ensure a consistent application of the definition.[15]. Assessing value for money requires application of judgement, and it can be challenging to mandate assessment in every situation without it becoming rigid and potentially unhelpful. A constructive approach would be to expand the guidance provided to officers on how to conduct these assessment[16].This could include case studies and worked examples, with the guidance made publicly available to build confidence in the market.

Advancing policy objectives

The Procurement Framework sets an objective for economic, social, and sustainability outcomes, with guidance and referencing to various Government policies connected to procurement[17]. The Inquiry found that procurement officers do not consistently understand or apply non-price considerations when assessing value for money[18], including how social or environmental costs or benefits are included in evaluation[19].

The Inquiry recommended that further training, skills developing, and resources be provided to procurement officers.  This would ensure that social, economic, environmental, and sustainability objectives are properly considered when assessing value for money in procurement processes[20]. The Government accepted this recommendation.[21].

The Inquiry made several recommendations to enhance social objectives through procurement activities, including:

• amending the Procurement Framework to set specific targets for procurement from social enterprises[22]
• enhancing support for procurement from Aboriginal businesses[23]
• amending the Procurement Framework to incentivise employment of people with disabilities[24], and
• requiring agencies to consider recycling materials and end-use options to support a circular economy and membership in product responsibility and stewardship schemes[25].

The Government was broadly supportive of recommendations to enhance social objectives through procurement, although in some cases guidance is already included in the Procurement Framework[26]. However, a recommendation of the Inquiry to amend the PWP Act to incorporate specific social procurement and environmental sustainability objectives for the Procurement Board was only acknowledged by the Government[27].

We will keep you informed as Government procurement policy evolves in response to the recommendations in this area.

[1] Parliament of NSW Legislative Council Standing Committee on Social Issues Inquiry into procurement practices of government agencies in New South Wales and its impact on the social development of the people of NSW [Link]

[2] S.176(2) of PWP Act.

[3] S.171 of PWP Act.

[4] S 3.7 of the GSF Act.

[5] S.1.8 of the GSF Act.

[6] NSW Government Procurement Policy Framework (Procurement Board: December 2024) [Link].

[7] Small and Medium Enterprise and Regional Procurement Policy (NSW Government: July 2021) [Link].

[8] PBD-2019-05 – Procurement (Enforceable Procurement Provisions) Direction 2019 (NSW) [Link]

[9] S. 3(2) of EPP.

[10] Procurement practices of government agencies in New South Wales and its impact on the social development of the people of New South Wales  - First Report (Parliament of NSW Legislative Council Standing Committee on Social Issues: Report No.63: June 2024) [Link], Finding 1, p 40.  

[11] Ibid, Recommendation 1, p41.

[12] Note 10, p 8.

[13] NSW Government Response to Standing Committee on Social Issues’ Inquiry into procurement practices of government agencies in New South Wales and its impact on the social development of the people of New South Wales – First Report (NSW Government: September 2024) [Link], p 4.

[14] Note 10, pp 18-19.

[15] Note 13, p 4.

[16] NSW Government guidance on ‘value for money’ (Procurement Board) [Link]

[17] Note 6, pp 27-34.

[18] Procurement practices of government agencies in New South Wales and its impact on the social development of the people of New South Wales  - Final Report (Parliament of NSW Legislative Council Standing Committee on Social Issues: Report No.63: October 2024), [Link] Finding 13, p 69.

[19] Ibid, p 64.

[20] Note 18, Recommendation 22, p69.

[21] NSW Government Response to Standing Committee on Social Issues’ Inquiry into procurement practices of government agencies in New South Wales and its impact on the social development of the people of New South Wales – Final Report (NSW Government: December 2024) [Link], p 24.

[22] Note 18, Recommendation 12, p 58.

[23] Note 18, Recommendation 14, 15, p 58.

[24] Note 18, Recommendation 16, p 59.

[25] Note 18, Recommendation 18,19, p 60.

[26] Note 6, pp 27-34.

[27] Note 21, Recommendation 11, p 13.