Introduction

The Australian Government procures annually some $26 billion of goods and services. When undertaking procurement, entities are required to follow the government's procurement framework, as set out in the Commonwealth Procurement Guidelines (CPGs) and associated guidance material.

Revised CPGs took effect on 1 January 2005. Amongst other things, the changes to the guidelines gave effect to the government procurement provisions of the Australia-United States Free Trade Agreement. These changes did not alter the overarching principle of value-for-money, through encouraging competition, accountability and transparency, and the efficient, effective and ethical use of resources. They outlined more specific, government-wide procurement requirements. Key changes were:

• the need to publish annual plans of intended procurements; and
• the introduction of a set of mandatory procurement procedures for procurements over a certain value, including the presumption of open tender.

The introduction of the revised CPGs had been foreshadowed earlier in 2004, and the details of the changes were announced later that year. The Department of Finance and Administration (Finance) provided seminars and advice on the new requirements and the Government provided some entities with additional funding to assist in introducing the changes. Individual entities were responsible for implementing the revised CPGs through revision of their own procurement procedures and practices.

Audit objectives and coverage

The objective of the audit was to:

• assess, in a selection of FMA Act and CAC Act agencies, how well the revised Commonwealth Procurement Guidelines had been implemented; and
• identify any better practice or common problem areas to assist other agencies in their future procurement activities.

The audit focused on procurement requirements that had changed as a result of the revised CPGs, rather than being a more general audit of compliance with all procurement requirements.
The audit was conducted in the following entities:

• Australian Federal Police;
• Bureau of Meteorology;
• Commonwealth Scientific and Industrial Research Organisation (CSIRO);
• Department of Defence;
• Department of Education, Science & Training;
• Family Court of Australia; and
• National Museum of Australia.

Audit conclusion

Audited entities had taken reasonable steps to introduce the revised CPGs. These steps included updating procurement policies, procedures and systems, and providing training to relevant staff. These actions were generally completed progressively during 2005. Entities issued initial Annual Procurement Plans by the due date (1 July 2005), however there was scope to improve the accuracy of the forecast timing of procurements listed in the plans.

A selection of procurements were examined for compliance with the revised CPGs. The ANAO found a high degree of compliance with the new requirements where procurements were undertaken by open tender. However, in the majority of cases where direct sourcing was used for procurements, the reason for adopting this approach was not justified and properly documented as required by the CPGs. In addition, many of the contract variations reviewed involved a significant change in scope but were not supported by an assessment to determine that the variation demonstrated value-for-money.

Most entities needed to improve the accuracy and timeliness of their public reporting of procurement activities. In some cases entities also needed to improve the practical guidance and support provided to staff with procurement responsibilities and the documentation of procurement decisions and processes.

More broadly, the ANAO considers that entities should review, in the context of the CPGs, how to best manage their procurement to make the most effective use of resources. This could include, for example, ensuring the scope of the initial procurement is sufficient to accommodate future requirements, or implementing organisation-wide procurement arrangements such as panels and standing offers for relevant categories of goods and services.

During the audit, the ANAO observed a number of examples of good procurement practice by the audited entities, and some of these are highlighted in the report.

Key findings

Implementing the revised CPGs (Chapter 2)

Planning: The audited entities generally managed the changes to the CPGs as part of normal management responsibilities for procurement and financial management. In most cases, they adopted a straightforward approach to identifying implementation activities, and monitored these through established processes, such as a corporate management committee. In some entities, a more structured approach to identifying tasks, formally allocating responsibility, and specifically monitoring implementation would have been beneficial.

Policies and procedures: All entities provided timely advice to staff of the broad requirements of the new CPGs, although there was generally a delay in updating all relevant procurement policies, procedures and systems. This delay was due, to some extent, to the short time from the promulgation of the CPGs in November 2004 to their date of effect, 1 January 2005. Some had developed detailed entity specific guidance for procurement under the new CPGs, while others referred staff to the CPGs available from the Finance web-site. The ANAO found compliance by staff with the new CPGs was enhanced where relevant staff were provided with tailored, practical guidance and support.

Staff awareness and training: The audited entities advised staff of the new CPGs through staff emails and circulars, and updated material was readily available for reference on entity intranets. All entities arranged training in the new CPGs for key procurement staff, usually through attendance at seminars organised by Finance. Some agencies, particularly larger ones, also arranged additional training for procurement staff. However, the ANAO found there was generally not a structured approach to identifying staff who needed training or recording whether they received it; and that some staff undertaking procurements were unaware of the new requirements. Accordingly greater attention to awareness and training activities would have been beneficial in some entities.

Budget supplementation: The Government allocated a total of $85 million for the period 2004–05 to 2008–09 to assist in implementing the revised CPGs. Typical uses of the funding by audited entities included providing procurement training to staff, recruiting specialist procurement staff, and covering the cost of additional procurement activity. At the time of the audit, most of the specific activities had been implemented, although in some entities additional procurement staff had not yet been recruited.

Planning procurement activity (Chapter 3)

Annual Procurement Plans: 98 per cent of entities published Annual Procurement Plans for 2005–06 on AusTender by the due date of 1 July 2005. These Plans provide a strategic procurement outlook, as well as details of significant procurements planned for the year to draw business' early attention to potential procurement opportunities. Entities generally indicated the planning process had also been useful for internal management purposes.

The audited entities forecast 292 significant procurements for 2005–06. Of those that were due to have been advertised and for which entities could advise the status, 51 per cent had been advertised, and 49 per cent had been deferred or cancelled. This highlights the need for entities to periodically review the status of forecast procurements, and to update Annual Procurement Plans as necessary. Of the seven audited entities, three updated their published Annual Procurement Plan at least once during 2005–06.

Assessing procurement requirements: A key step in effective procurement is properly determining the requirement. The ANAO observed that, in a number of cases, the analysis of requirements was too narrowly focussed and did not consider reasonably foreseeable needs. These incomplete requirements led to additional procurement activity and the inappropriate use of direct sourcing and contract variations.

Selecting a procurement method: The CPGs apply Mandatory Procurement Procedures (MPPs) to covered procurements. CPGs required agencies to estimate the value of procurement by including all taxes, charges and any potential extension options to determine if the value of procurement is above the covered procurement threshold. In all of the procurements reviewed the ANAO found that the entities estimated the value of procurement according to the CPGs.

The MPPs have a presumption of open tendering as the procurement method, with provision in certain circumstances for select tender or direct sourcing. In many cases of covered procurements, the audited entities used open tender or an appropriate select tender. However, the ANAO found a number of cases where direct sourcing was used outside the permitted circumstances. These included the use of standing offers that had expired or were non-compliant, the claimed use of standing offers that did not exist, inappropriate claims of compatibility or urgency; and significant contract variations and extensions that did not meet the requirements of the CPGs. The ANAO considered entities needed to improve their decision-making processes in cases where open tender was not used.

The CPGs also make provision for certain categories of goods and services to be exempt from the MPPs. Fifteen categories of procurement are exempt, such as the leasing or purchase of real property or accommodation, the procurement of research and development services, and procurement by certain intelligence organisations. Although these categories of procurement are exempt from the MPPs, they are still required to adhere to the procurement policy framework. The ANAO found that entities needed to give greater attention to ensuring exemptions comply with the procurement policy framework, and that the procurement process used is documented and approved.

Conducting procurement (Chapter 4)

Ensuring non-discrimination: The CPGs include a number of requirements aimed at ensuring non-discrimination in procurement. These include avoiding unnecessary requirements in specifications, avoiding inappropriate conditions for participation by vendors, advertising of opportunities on the Australian Government AusTender Internet web-site, and specifying a minimum period for tender responses. These requirements are most relevant where a tender process is used, and in these cases there was a high degree of compliance.

Tender processes: There was a high degree of compliance with requirements for treating suppliers equally during the tender process. However, in some cases entities had used request for tender clauses relating to the acceptance of late tenders that did not reflect the CPG requirement.

Reporting: The CPGs outline a range of procurement reporting requirements. Many contracts were either not reported or were reported with incorrect details. In addition, the CPGs require contracts to be reported within 6 weeks of signing. Across all APS agencies 29 per cent of contracts were not reported on time and in the audited entities between 2 per cent and 92 per cent were not reported on time.

Issues contributing to the effective management of procurement (Chapter 5)

Record keeping: The CPGs require entities to keep appropriate documentation of each procurement. The ANAO found that while many of the procurements reviewed had adequate documentation, a significant minority had poor documentation, including a lack of documentation of key approvals.

Monitoring and review: A range of procurement information was readily available within audited entities although many entities had not made effective use of this information to identify areas for improvement to strategies and procedures.

Effective procurement support: Many of the audited entities had developed comprehensive procurement support arrangements, including the use of computer systems, and access to procedural documentation and specialist advice. However, there was scope to improve procurement arrangements associated with low to medium value procurements. Collectively these procurements involve a significant level of expenditure, and a high proportion of those reviewed departed from required or better practice procurement arrangements.

Organisation-wide approaches: A number of the audited entities had, to varying degrees, taken a strategic approach to their procurement, including having long-standing panel and standing offer arrangements. However, a review and update of previous arrangements in the light of the changed requirements may improve the overall effectiveness of procurement activity.
A summary is provided of the key findings arising from the audit in relation to key activities involved in implementing the revised CPGs and conducting individual procurements.

Sound and better practice

The Report identified examples of sound and better practice in the audited entities. These practices were considered to beneficial in the implementation of the revised CPGs.

Recommendations

The Report makes six recommendations that are based on the findings made in the entities reviewed but are likely to have relevance to other Commonwealth entities.

Entity Comments

Each of the audited entities and Finance responded positively to the audit report¹ and agreed to each of the recommendations.

Footnotes

1 Entities' comments are provided in Appendix 1 of the Report.