NSW Government procurement reform Part 3 – Smarter shopping

Government procurement processes can be like going through a maze: they are often complex, confusing, and filled with twists and turns. Prospective suppliers are typically well-informed about their market and often commercially astute. The rise of professional procurement officers has gone a long way to level the playing field, bringing business acumen, effective tools, and an understanding of good practice. However, there is still more work to be done.

This is part three 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 and our second article here.

We’ve come a long way from the Commissariat Stores

New South Wales (like most Australian jurisdictions) operates a ‘dual-devolved’ procurement system where procurement policy is set by Government and articulated by the NSW Procurement Board (Procurement Board) and summarised in the NSW Procurement Policy Framework (Policy Framework). This is supported by centralised infrastructure managed by Buy.NSW and implemented by various agencies in accordance with their respective complementary policies and delegations, often with guidance from agency procurement experts.

NSW has evolved from a highly centralised system, where the Commissariat Stores were responsible for all purchasing and distribution of food and other necessities for inhabitants of the colony[2]. This progressed into the Government Stores Department, which undertook both government purchasing and the operation of manufacturing facilities for items such as uniforms, before it was folded into the Department of Administrative Services in 1988 and effectively abolished[3].

The governance of procurement has also evolved from a more intensively centralised system under the State Contracts Control Board, established in 1923, and comprised senior stores officers from various agencies, to the higher level Procurement Board which replaced it in 2012[4].

While a centralised approach has some appeal, as it relieves officers from having to run procurement processes, it can also be inflexible to meet the diverse requirements of each agency in a timely way and may represent a costly way for government to procure (or produce) necessary items. Of course, the economy has evolved rapidly in recent years, driven by international trade and reduced protectionism.

Strengthening the compliance and enforcement capabilities of the Procurement Board

Established under the Public Works and Procurement Act 1912 (NSW) (PWP Act), the Procurement Board operates as a separate agency[5] led by the Secretary of the Treasury and the heads of six other Departments[6]. The Treasurer determines its composition and possesses a power of direction. over it[7]. The Procurement Board has several key functions, notably:

• Setting whole-of-government procurement policy.
• Overseeing agency procurement practices.
• Monitoring agency compliance with policy.
• Investigating and resolving complaints involving agency procurement activities[8].

To manage the devolution of procurement responsibilities to agencies based on their resources and experience, the Procurement Board has established a system of accreditation system. This system regulates what types of procurement activities can be undertaken and to what monetary value, supported by central agencies responsible for specific procurement issues and 42 whole-of-government contracts that agencies are required to use[9].

The Inquiry found that the Procurement Board was not functioning effectively as an oversight body to ensure agency compliance with obligations under the PWP Act and the Policy Framework[10]. Evidence presented during the Inquiry highlighted challenges in ensuring proper oversight in a decentralised system, particularly the prevalence of agency self-attestation, as evidenced by findings[11] of agency non-compliance in the NSW Audit Office’s 2023 review of use of consultants[12] by way of example.

The Inquiry acknowledged the limited resources of the Procurement Board and emphasised the need for agencies to take greater responsibility for compliance.  It pointed out that inconsistent internal auditing and assurance across agencies as an impediment. The Inquiry recommended that the Procurement Board develop an independent and robust compliance and enforcement mechanism with enhanced data monitoring capabilities[13]. The Government supported this recommendation and indicated that additional measures would be introduced to improve agency compliance with the Policy Framework and ‘aim to introduce an appropriate consequences management regime’[14]. This could have significant implications for agencies.

Enhancing the power and capability of agency procurement officers

The success of a devolved system is determined by the strength of each link in the chain, including the expertise of agency procurement experts and their authority to promote compliance with procurement policy requirements throughout the agency.

The Inquiry heard evidence from the Independent Commission against Corruption (ICAC), which raised questions about the expertise of some procurement officers, particularly less senior officers who were responsible for advising on day-to-day procurement activities[15]. ICAC also observed the power imbalance within some agencies, particularly between budget owners who made the final procurement decisions and procurement experts whose advice may be ignored[16].

To address these issues, the Inquiry recommended that the remit of procurement officers should be expanded to undertake sufficient due diligence functions and monitoring of agency compliance with the Policy Framework[17]. This recommendation was supported by Government[18]. The Inquiry also recommended that the Procurement Board enhance the training, skills and resources provided to procurement officers and anyone else exercising procurement delegations, in order to:

• build procurement capacity and experience in the public sector
• ensure proper consideration of broader factors when assessing value for money, and
• ensure accountability for risk management and monitoring of procurement contracts[19].

The Government also supported these recommendations[20].

Mandating use of standard form contracts

The use of standard contract templates by agencies is an important way to promote consistency in approach, predictability in the market, and efficiency in contract administration. The Inquiry heard from industry representatives observing the lack of standard templates, particularly in construction contracting, despite the availability of various standard form contracts across government[21]. 

The Inquiry recommended that the government review the availability of standard procurement contracts across agencies and consider developing standard procurement contracts where none currently exist. Furthermore, it recommended investigating the possibility of mandating the use of standard procurement contracts where appropriate[22].  The Government supported this recommendation and also proposed identifying opportunities to simplify procurement contracts to drive more robust contract management[23].

More effective contract administration

Officers work hard to negotiate the best deals for the public. However, their efforts can be undermined if the resulting contracts are poorly managed. The regular movement of officers between roles is a feature (and a strength) of the public service. A consequence of this is that often the individuals administering a procurement contract will differ from those who negotiated it.

At a basic level, ensuring that agencies have a copy of the signed contract and can accurately track variations if often a challenge. That is before you consider the effective monitoring of performance and milestones, as well as enforcing the rights government negotiated (and paid for), which are often intricate and have subtle nuances. Agencies require a system to securely store and track agreements, operationalising the contractual rights and obligations so that any officer can easily pick up a contract and effectively administer it.

The Inquiry acknowledged the importance of contract management and recommended the establishment of a set of contract management standards, including expectations around contract management and storage[24]. The Government supported this recommendation and committed to modernising contract management standards to establish minimum requirements for monitoring, retention, and storage of contracts[25].

There are some very practical changes on the way which will impact how agencies and their procurement teams operate. We will keep you informed as the detail emerges.

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

[2] The Dictionary of Sydney (State Library of New South Wales: 2008) [Link].

[3] AGY-5142 | Stores Supply Department (1908-1923) / Government Stores Department (1923-1983) / Government Supply Department (1983-1988) (Museum of History New South Wales) [Link].

[4] AGY-2092 | State Contracts Control Board (Museum of History of New South Wales) [Link].

[5] Public Works and Procurement Act 1912 (NSW), Section 164.

[6] Public Works and Procurement Act 1912 (NSW), Section 165.

[7] Public Works and Procurement Act 1912 (NSW), Section 166.

[8] Public Works and Procurement Act 1912 (NSW), Section 172.

[9]  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], pp 9-12.

[10] Ibid, Finding 3, p 44.

[11] Note 9, p 39.

[12] NSW Government Agencies’ use of consultants (Audit Office of NSW: March 2023) [Link].

[13] Note 9, Recommendation 7.

[14] 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], p11.

[15] Submission of the NSW Independent Commission Against Corruption to the 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 (19 January 2024) [Link], p5.

[16] Ibid.

[17] Note 9, Recommendation 9.

[18] Note 14, p12.

[19] 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], Recommendation 22.

[20] 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.

[21] Note 9, p 41.

[22] Note 9, Recommendation 2.

[23] Note 14, p5.

[24] Note 9, Recommendation 4.

[25] Note 14, p 7.