Procurement Reform: Beyond Compliance to Customer-Focus

Report No 7 - June 2006

Background

Since early 2004, the Department of Treasury and Finance (DTF) has been leading a procurement reform agenda covering over 100 agencies across government. It comprises 12 crossagency programs, 11 of which are designed to assist agencies to obtain greater value for money and improved outcomes when procuring goods and services. Through the twelfth program, the government takes back some of the savings in procurement from agencies through a process called ‘harvesting.’

DTF published their 2004-05 estimates of savings achieved through procurement reform in their ‘Benefits Realisation Report’. They estimated that, as a result of these reforms, agencies realised savings amounting to a total of $47 million in 2004-05.

This performance examination assessed the implementation and savings achieved by DTF and agencies during the initial year of procurement reform, so as to identify opportunities or threats to success at an early stage.

What the examination found...

DTF and agencies have made reasonable progress with the reforms so far. All parties will need to monitor their performance and be ready to adapt their approaches if the full benefi ts of the reform programme are to be achieved.

Our key findings were:

• DTF’s estimate of the $47 million in savings achieved by agencies in 2004-05 is reasonable.
• DTF’s savings estimate did not include the costs of procurement reform. We have estimated the costs to be $36 million over five years.
• In 2004-05, some $29 million in direct savings was harvested and is now available to Government for other uses.
• Agencies could not provide their own savings estimates, to verify or reject DTF’s estimates, mainly because they lacked comprehensive baseline data on procurement.
• In implementing Common Use Arrangements (CUAs), the rigour applied by agencies to identifying and addressing non-compliance varied significantly. Non-compliance can reduce the savings that can be achieved by government.
• There are some warning signs about the balance between achieving savings and maintaining service delivery. These are:
  • agencies have not necessarily sourced the funds for the savings harvest from internal procurement reform
  • some agencies reported instances in which they have not had sufficient lead times for introducing new or revised CUAs.

What the examination recommended...

DTF should estimate and publish in full the costs of procurement reform, to accompany their estimate of savings achieved. DTF should work with agencies to:

• resolve the barriers to wider adoption of procurement reforms, including purchasing cards
• improve data on procurement performance at the individual agency level
• ensure that procurement reform improves value for money by:
  • ensuring that they provide agencies with the optimum lead time for introducing new and revised CUAs. This will maximise agency compliance, ensure a smooth transition to new suppliers, and most importantly, avoid service disruptions to the public
  • continuously improving their responsiveness to agencies’ specifications, particularly where these relate to direct service delivery.

Agencies should:

• ensure that they have adequate processes for identifying and addressing non-compliance with CUAs
• establish baseline data so that they can monitor procurement performance and identify opportunities for improvements, and redirect procurement savings to service delivery
• ensure that procurement reform improves value for money by:
  • identifying where they are achieving savings and drawing the funds for the savings harvest from these sources
  • ensuring their monitoring of the delivery of services to the community will capture any significant impacts of procurement reform.

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