Australia: Value for money in Commonwealth Government procurement – What is it?

Last Updated: 12 December 2011
Article by Vince Sharma, Paul Armarego and Lynn Nguyen

In the 2009-2010 financial year, the Commonwealth Government spent around $42.6 billion procuring goods and services, making it one of the largest purchasers in Australia. The statistics show a dramatic increase in Commonwealth procurement over the last few years, with the Commonwealth spending just under $33 billion in the 2008-2009 financial year and approximately $26.3 billion in 2007-2008.

The increase in the number of tenders issued by the commonwealth arguably brings with it greater legal risk for the commonwealth, as its agencies seek to manage the rising number of tender processes. Where these tender processes are inadequately conducted, the commonwealth may be exposing itself to reputational risks as well as litigation challenging the tender process. it is therefore important for australian government agencies to understand their obligations under the commonwealth procurement framework, particularly in relation to the core principle of 'value for money'.

'Value for money' is the key principle in all government procurement. under the Financial Management and Accountability Act 1997 (cth), agency chief executives must promote the proper use of commonwealth resources. this means that they must use their agencies' resources in an efficient, effective, economical and ethical way not inconsistent with commonwealth policies. commonwealth policy in the form of the Commonwealth Procurement Guidelines,1 which is given legislative effect by regulation 7 of the Financial Management and Accountability Regulations 1997 (cth), emphasises the obligation of agencies to achieve 'value for money'. accordingly, the concepts of efficient, effective economical and ethical are ultimately subject to the overarching principle of 'value for money'.

Despite being the core principle underpinning australian government procurement, 'value for money' is not always easily defined, assessed or understood. While it can be summed up as the achievement of the desired outcome at the best possible price, it is clear that 'value for money' does not necessarily mean the lowest price. this was confirmed by the recent decision of Ipex ITG Pty Ltd (in liq) v Victoria [2010] Vsc 480 (Ipex). in that case, the court held that an obligation to assess tenders for best 'value for money' did not compel the selection of the cheapest tender. even though the plaintiff's tender was compliant with the essential criteria set out in the relevant request for tender, the court found that it did not necessarily mean that the plaintiff had complied with the Victorian government's expectations and business requirements. the court further held that the nature of that particular request for tender meant that the question of best 'value for money' was a subjective business judgment.

The subjective nature of the concept of 'value for money' is apparent when considering the procurement of goods which are not readily quantifiable. the procurement of a fleet of government vehicles is vastly different from the procurement of exhibits for a contemporary art exhibition for the national art gallery. the former is easily quantifiable into classes and categories. the latter, however, is necessarily more subjective and difficult to quantify, with relevant considerations including:

  • the type of art, for example paintings, sculptures, photographs or costumes
  • the period, theme and type of artists, and
  • the price range for each piece.

As the latter example demonstrates, 'value for money' cannot be readily determined by a quick and easy mathematical or other formula. What is required is a holistic approach which transparently identifies the requirements of the particular procurement and the basis of the matters that will be regarded in coming to what is effectively a decision that has objective and subjective elements to it.

The Commonwealth Procurement Guidelines state that in assessing 'value for money', a whole-of-life 'value for money' assessment is required. this includes the consideration of factors such as:

  • fitness for purpose
  • the performance history of each prospective supplier
  • the relative risk of each proposal
  • the flexibility to adapt to possible change over the lifecycle of the property or service
  • financial considerations including all relevant direct and indirect benefits and costs over the whole procurement cycle, and
  • the evaluation of contract options.

Accordingly, 'value for money' is a comparative concept that requires an analysis of a wide range of factors including all relevant costs and benefits of a proposal against alternative options. practically, however, 'value for money' evaluations for so called run of the mill purchases often give more weighting to fitness for purpose aspects having regard to the requirements specified in the request for tender. this means, in practical terms, that assessments of 'value for money' often tend against high quality goods and services and naturally tend towards the lowest price. as such, developing proper legal process and probity plans and effective evaluation criteria architectures, methodologies and processes will assist in achieving 'value for money' and demonstrating that all legal, process and probity obligations have been met.

Ultimately, there is a high degree of subjectivity inherent in the principle of 'value for money'. courts are willing to take a practical and commercial approach and have recognised the subjectivity of 'value for money' in cases such as Ipex and Cubic Transportation Systems v New South Wales [2002] nsWsc 656 (where the court held that the government was entitled to place considerable, if not exclusive, weight on commercial considerations). the courts do not, however, accept improper motive or bias in the making of decisions. generally, the agencies that best manage 'value for money' assessments not only recognise the concept as inherently subjective but are able to develop effective and practical ways to address the issue and to demonstrate compliance with their legal, policy and accountability obligations under the financial management framework. it is evident that commonwealth agencies need to have developed clear indicators of what they wish to achieve and how much it should cost in the open market. accordingly, the importance of proper market research and analysis cannot be underestimated. a sensible approach is to identify the procurement activity and then map the steps to foster this in a way which demonstrates the four "e's" – efficiency, effectiveness, economy and ethics.

Conclusion

As outlined above, an assessment of 'value for money' essentially involves the consideration of a variety of factors. it is not sufficient to choose the lowest priced tender on that basis alone. the failure to establish proper methodologies and processes to assist in this assessment and any consequential failure to assess 'value for money' adequately has the potential to result in prolonged and highly publicised litigation. therefore, when managing a tender process, it is vital that government agencies be fully informed of their obligations under the commonwealth procurement framework and be able to identify the circumstances upon which considered legal advice should be sought, whether from an internal or external source.

Footnotes

1 In March of this year, the department of finance and deregulation indicated that part of the current review by the department of the Commonwealth Procurement Guidelines would examine whether the next document should be renamed the Commonwealth Procurement Rules to reinforce to government agency staff that they are mandatory, not discretionary. see for example, Mr John grant, first assistant secretary, procurement division, department of finance and deregulation, Committee Hansard, canberra, 2 March 2011, 13 and Joint committee of public accounts and audit, parliament of the commonwealth of australia, Review of Auditor-General's Reports Nos 39 2009-10 to 15 2010-11 (2011) [4.23].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Vince Sharma
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.