Local Government Structural Reform
Procurement Guide /
This document will be updated periodically.
Current Version: 1, dated January 2014
Contents:Section / Name / Page
Intro / Levels of Procurement Maturity / 3
1 / Procurement structure / 5
2 / Purchasing policy / 12
3 / Procurement governance / 15
4 / Contract register / 19
5 / Tenders register / 22
6 / Resources and templates / 24
7 / Current activity / 27
8 / Due diligence / 34
9 / Insurances / 37
10 / Skills development / 40
11 / Compliance and probity / 43
12 / Property contracts and capital assets / 47
13 / ICT contracts / 50
14 / Service contracts / 53
15 / Goods Contracts / 55
16 / Summary and procurement Reform Support / 57
Well organised procurement functions can deliver significant financial and non-financial benefits to a Local Government.
Procurement functions across Local Governments in WA play a critical role in ensuring that public money is spent through well controlled processes and delivering good value for money.
Procurement functions that are well set up, resourced and organised can use this significant expenditure and focus it in the areas that the Local Government and community requires it most. In this way, well organised Procurement functions can help deliver benefits in helping support local suppliers, support suppliers with strong sustainability credentials, deliver savings through better contracts or any other objectives a Local Government may have.
There is often a mismatch between the Procurement function and the organization in defining the required role. Often Procurement’s own definition of the role and the perceptions of the organisation differ markedly. Perceptions and expectations are drawn from experience, history, individual interactions, the service provided from experience in previous organisations. Therefore the role needs to be defined and constantly reinforced across the organisation.
Levels of Procurement Maturity
Before Procurement organisations can start on their journey towards better practice, it is important to assess what the Local Government needs from Procurement.
Not every Procurement function needs to be best practice. What is important is that Procurement is the right size, shape and has the right role for the Local Government. A maturity assessment can help identify where Procurement currently is and will help identify where it needs to go to deliver against the objectives and goals of the Local Government.
In the model on the right, we identify four levels of maturity.
Procurement in an emergent function has largely uncoordinated procurement activities, with many stakeholders responsible for buying and the Local Government is likely to have many gaps in compliance – either with its own procurement policy or with legislation.
In a basic function, the compliance issues have been addressed, and the Local Government has a focus on meeting legislative requirements.
Procurement in developing functions have started to think strategically and have some category strategies in place.
In the highest level of maturity, Procurement is leading change across the Local Government and is recognised as a Centre of Excellence delivering year on year benefits to the organisation.
In defining the required role of Procurement we need to understand:
1. How is Procurement perceived?
- What is the role today and what does it need to be in the future?
- Is the focus on process control, cost reduction, value improvement, revenue growth or some other driver?
- What is the baseline in terms of cost, performance and orientation?
2. What are the priorities and objectives of the CEO and Senior Management Team?
- Procurement’s value is derived from its ability to meet the organisation’s needs and priorities
- There is a need to set out a clear vision that meets these priorities
- It is necessary to create passion and unify purpose which all stakeholders can buy into.
Vision for the role of procurement in Local Government
Every Local Government is different and therefore Procurement functions will have a different role in each organisation. However it is possible to describe a high level vision for the role of Procurement in a Local Government, with the intention that each organisation takes those elements that are appropriate and incorporates into their organisational model.
The Procurement team:
- Are responsible for the procurement processes that sit above all spend across the Local Government.
- Responsible for developing 3-5 year procurement strategy, with targets objectives and plans highlighted.
- Are driving procurement change across the organisation.
- Have a procurement leader who is highly visible across the organisation.
- Is involved and adding value to major projects on a regular basis.
- Articulate value that is very clear
- Are invited into projects at early stage to add value.
- Are experienced and have professional qualifications (MCIPS)
- Are responsible for providing systems and tools to users
- Provide meaningful reporting on procurement across the organisation.
- Manage compliance to policy framework and give regular reporting to key business areas.
- Follow up non-compliance with senior management.
- Train and develop all procurement related roles across the organisation
- Have developed consistent Contract Manager roles which are in place for all major contracts.
- Have an overview of all supplier performance and KPI's measurement methodologies are in place to benchmark suppliers.
- Have developed category strategies for all key categories.
- Are experts in analysing supply markets and supply chains
- Are responsible for savings programs are in place to proactively drive better value
The key drivers that determine the shape of the procurement team (organisational models) are determined by analysis of the following:
The Local Government
How well does the Local Government collaborate across Business Units?
To what extent is centralisation/decentralisation preferred for service functions?
What is the intended culture of the organisation?
Supply Market Shape and Action
Are the supply markets regional or local?
How are the suppliers organised in managing accounts – industry focus, geographic focus, product/service focus?
What is the level of supplier concentration?
Are there opportunities for consolidation of expenditure?
What is the complexity and risk of expenditure?
The core structure of a Procurement team is often defined as either “centralised” or “decentralised”.
Under a centralised structure a team of skilled and experienced professionals will oversee the procurement activities of the organisation.
- Strong governance
- Robust compliance
- Consolidation of spend prominent
- Low awareness of Business Unit needs; often secondary to corporate or Procurement objectives
- Detached – can lead to poor stakeholder alignment
- Can often be inflexible
Under a decentralised model a functional and integrated approach is taken towards procurement within respective technical areas. Decentralized organisations empower business units and sites with autonomy and control over supply, process, and technology decisions, as well as sourcing and procurement execution. This structure improves satisfaction at the site and business-unit level, but fails to leverage corporate spending; is costly to operate; and leads to inconsistent supply cost and performance across the enterprise.
- Very low level of connectivity across the business
- Little or no consolidation of expenditure
- No overarching governance
- Strong understanding of needs
- Fully aligned to meeting the Business Unit strategy
- Operational focus
It is most common for WA Local Government to centralise a team of Purchasing Officers who are responsible for running compliant procurement processes, and who then deliver executed contracts back to business units for Contract Management.
A centralised system has the advantage of better control, greater expertise, and recognition of the procurement function. However workflow and resource pressures can lead to bottlenecks and lack of technical input relating to business requirements. Conversely, decentralised procurement improves supplier relationship management, however can also result in a lack of scale and experience in procurement competencies and risk breach of policy/compliance. There is also greater inconsistency within approach,leading to different expectations in the marketplace.
WALGA advocates a hybrid procurement structure whereby there is centralised procurement control (policy and compliance) and devolved end user access. The eQuotes system developed by WALGA supports this structural model, delivering process control such that the risk of procuring from unauthorised or uncontracted suppliers is removed.
Some hybrid structural models are presented as follows:
Category Management is an organisational structure based around individuals with responsibility for identified areas of expenditure. A category is a group of products/services which can be treated as a single requirement from a sourcing perspective; the supply market largely determines how the category is defined and shape. The focus is typically on non-transactional processes and supported with a structured sourcing methodology and tends to be more centralised.
Within Business Units, a category management structure can be applied to key strategic functions. For example centralising the energy contracts and spend within one business team (e.g. sustainability services), centralising the fleet and fuel spend with depot administration, and facilities maintenance with an area such as asset administration or parks and gardens can also be critical to delivering optimal contract management and supplier relationship management
One of the key benefits of such a structure is that in ensures a market-led focus and enables the organization to consolidate its spend and manage at an enterprise-wide level. Category management has been popular in recent years as it enables alignment to supply markets, but has been challenging to implement in Local Government.
Centre Led Action Networks can work where procurement officers are co-located with business units to support business alignment:
Alternatively, the separation of duties can be asserted by an organisational split between sourcing and transactional purchasing:
The structure of the procurement team, its management, and reporting also requires strategic consideration. Currently it is common for the purchasing staff to report to Finance and/or Corporate Services, and the functions of the team are predominantly transactional in nature. However strategic procurement is critically important to the planning and effective operation of the organisation and procurement can also be structured into the organisation in areas such as governance, economic development, and even technical services. By positioning procurement as more than an administrative function within the organisation structure, a statement is made about the value and importance of procurement as an enabler and efficiency generator to the entity. Many corporate (private sector) organisations have a CPO (Chief Procurement Officer) that directly represents spending efficiency and analytics to the Executive table. There are currently no CPO roles within Western Australian Local Government, however there are several CPO’s within Local Government in the Eastern States, charged with oversight of expenditure into the hundreds of millions.
The reform challenge for Local Government is to provide an organisational structure for the procurement team that is sufficient in size, commensurate with the expenditure levels, supplier numbers, and workflow of the new Local Government. Process efficiencies can be identified through technology (electronic tendering, online contract management, eQuotes, etc). The structure should take into account those elements of the procurement process that are to be centralised and which components of activity will be driven by functional business units.
Checklist: Procurement StructureTask / Critical Considerations / Stage
Review and explore current procurement structure, numbers of staff, numbers of contracts and workflow /
- Are there similar or different structures within the incumbent organisations?
- Do the systems and software used by each organisation vary?
- Are the internal purchasing thresholds aligned?
Determine initial procurement structure and the role of the procurement team /
- Will there be centralised or decentralised procurement?
Determine the management structure of procurement /
- What will the title of the Manager be (Purchasing Manager, CPO etc)?
- Who will the manager of the procurement team report to?
Consider skills development for staff seeking roles in the future organisation /
- What development opportunities will be considered for the future procurement team?
- What structural enablers will be put in place to position general administrative staff to grow into purchasing based roles?
Check for alignment between the draft Purchasing Policy and the procurement structure deployed /
- Refer to Purchasing Policy section, and cross check for structural alignment
Recruit staff for new purchasing team /
- Are specialist procurement recruitment agencies deployed?
- Are position descriptions inclusive of procurement capabilities and competencies?
Review structure, technology, and workflow /
- Is the optimum structure working as intended from the start date of the new entity? If not, are the issues systemic and structural in nature, or driven by operational circumstances?
- Has the procurement team been introduced and have their roles been communicated through the new organisation?
Set annual procurement plan /
- Procurement planning by new procurement team
Further support resources specific to the procurement structure:Resource Name / Description / Source
WALGA Procurement Handbook / Produced by WALGA’s Procurement Consultancy Service to support best practice procurement. / Laura Cull
Business and Procurement Manager
Ph 9213 2045
CIPSA Global Public Sector Portal / Over 80 government agencies and professional associations across the globe have already adopted the Values and Guiding Principles and the Partnership continues to promote them globally as fundamental to good procurement practice. /
The Faculty / FLiP (Future Leaders in Procurement) Roundtable /
Local Government Procurement Training / Procurement training including Certificate IV in Government (Procurement and Contracting) available through WALGA Training Solutions /
RTO Training Manager
CIPSA White Paper / Building the case for Centralisation in Public Procurement. /
Tenderlink/Financial Review / Australian Procurement research report and survey results on procurement structures. /
The Local Government (Functions and General) Regulations were amended on 2 February, 2007, to introduce a mandatory requirement to implement a Purchasing Policy for the organisation. The regulatory requirements provide for the adoption of quotation thresholds for sub $100,000 purchasing values, form and retention of quotations, and different classifications of purchasing. It is the intention of the regulations to provide an opportunity for all suppliers in the market to have the opportunity to bid for Local Government business, and the resulting policy should both reflect and enable this.
WALGA has developed a Model Purchasing Policy that is included in the Procurement Handbook. The template covers off headings including:
- Ethics and Integrity
- Value for Money
- Sustainable Procurement
- Purchasing Thresholds
- Regulatory Requirements
- Records Management
- Regional Price Preference
Using the principles of the Integrated Planning Framework, Local Governments should ensure that the Purchasing policy aligns and converses with other policy documents and corporate documentation. In particular the delegations register should be compatible with the purchasing policy so that an appropriate Head of Power is given operational approval.
Elements of a purchasing policy that extend beyond the basic requirements include oversight of related functions, for example integration of internal audit of procurement, spend analysis, contract review, ethics, and flags for issues such as long-term supplier relationships (review of contracts with no change of service provider over a decade). The division of duties, for example supplier selection and supplier management can also be asserted at policy level if desired. There can be tension within areas of the policy for example, balancing the principles of competitive neutrality against the administrative costs and commercial drivers of the organisation.
The reform challenge for Local Government is to determine optimum minor purchasing thresholds. They should be sufficiently high such that best value is derived through the collection and qualitative evaluation of formal quotes, but not too high to the extent that there is an overinvestment of administrative time into the purchase decision making. Checks and controls to minimise the propensity of fraud are also important considerations within the establishment of a minor purchasing threshold framework and to this end the procedural requirements of each threshold tier should be considered as part of the policy development. Buy Local considerations should also be represented at policy level.
A well constructed purchasing policy can derive significant process benefits and also feed into a more meaningful annual budget process. It is a regulatory requirement to have a policy, but good governance will move beyond the minimum requirements and utilise the policy as an effective way to derive value and best practice procurement.
Checklist: Procurement PolicyTask / Critical Considerations / Stage
Review current purchasing policy documents of the current entities. /
- Draft a schedule of differences
- Reconcile content
- Check all elements of the policy are included
- Determine if Regional Price Preference is required and what Buy Local inclusions apply.
Scope future size of procurement operation and determine suitable thresholds /
- Develop thresholds that are commensurate with the number and value of envisaged contracts.
Review procurement process controls, separation of duties and fraud minimisation strategies. /
- Relate back to organisational structure and reporting lines, delegations register, and internal audit
Determine additional purchasing policy requirements /
- Beyond the minimum consider audit, analytics, regional economic development and supplier review requirements that should be elevated to policy level outside of operational practice.
Merge the current purchasing policies in conjunction with the model template and other discussions to draft a new Purchasing Policy /
- Maintain a focus on the future, not the past. The new entity has the opportunity to improve and enhance its procurement function, driven by the new policy.
Check policy for Procedural Fairness /
- Test out procurement processes through reviews and probity audits to ensure that the process is procedurally fair and that objectivity has been applied.
Implement procurement governance compliance and conditioning report /
- Incorporate a methodology for Elected Members to be able to assess compliance with the policy and to have attention drawn towards any policy departures relating to unique circumstances
Establish regular policy review/check /
- Regularly assess the policy to ensure it is meaningful, effective, and practical.
Further support resources specific to the Purchasing Policy: