Australia: Proposed reforms to government procurement in NSW

New South Wales could soon see changes to Government procurement based on a discussion paper released in late January 2012 by the NSW Department of Finance and Services.

The adequacy of procurement in NSW has been of growing concern following a report by the Independent Commission Against Corruption which identified procurement as a major risk area for corruption in the NSW Public Sector (see Value for Money in Australian Commonwealth Government Procurement – What is it? in the December 2011 issue of the Public Law Report). This concern, coupled with long standing criticisms that the system is overly complex, outdated and discouraging to small and medium sized businesses due to mounting red tape, has led the NSW Government to consider a complete system overhaul.

The current system

The framework of NSW Government procurement has been subject to continual modification for the last decade. Its current form combines a centralised system, operating under the NSW Government Procurement Policy and several decentralised procurement arrangements.

The Public Sector Employment and Management Act 2002 (NSW) (the Act) establishes the State Contracts Control Board (SCCB) which is responsible for the supply and disposal of goods and services. It operates by means of an open tendering process, with a view to obtaining whole-of-Government, long term contracts, and accounts for roughly one-third of procurement in NSW. Concerns with this centralised system include the limiting nature of panel contracts in terms of achieving long-term value for money, the lengthy contract processes which often discourage suppliers from bidding and a lack of compliance with policy and effective sanctions, which can potentially give rise to corruption.

The remaining two-thirds of NSW Government procurement is undertaken at the agency level. Agencies are permitted, outside the regulations, to buy goods and services, up to a certain amount, from suppliers that are members of the SCCB. Some agencies also have their own legislative power to undertake Procurement Activities. The concern here is that the two systems are too disconnected and a single point of leadership is lacking.

As such, the current framework is no longer practical in serving the needs of the NSW Government or business community and a simpler, more flexible approach is required.

Proposed reforms

The NSW Department of Finance and Services acknowledges the need to take Action and proposes a new Government structure and operating framework, which is outlined in its discussion paper.

A major proposed change is to abolish the SCCB and replace it with a NSW Government Procurement Board (Procurement Board), membership of which will be drawn from the Directors-General of the NSW Government's nine principal departments. This will effectively place procurement at the centre of Government responsibility. The Procurement Board will not, unlike the SCCB, be a contracting body but, rather, oversee the system, set policy and ensure compliance. Its key role will be to make decisions on what categories of goods and services should be procured centrally, and it will charge specific agencies with leading that central procurement role. It will also have statutory powers to make directions to agencies and accredit agencies to undertake procurement independently.

Other proposed changes include creating easier access for small and medium sized businesses to gain opportunities to supply goods and services by implementing price preference schemes, set-aside contracts, considering the size of contracts and the opportunities for small and medium sized businesses to be subcontractors where they are not in a position to be a prime contractor as well as improving communication. Also recognised is the need for a shorter, more flexible tendering process that encourages bids from suppliers and simplification of Government contracts to encourage competition.

Implications

The Act is expected to be introduced into Parliament in 2012 to bring into effect the new NSW Government procurement structure and framework. Subject to the amendments to the Act, the Public Sector Employment and Management (Goods and Services) Regulation 2010 (NSW) will also be amended to bring about the reforms.

The proposed reforms, once implemented, will affect all NSW Government departments, agencies and suppliers of goods and services to NSW Government, especially small and medium businesses.

The decentralisation of decision making processes will give more power to individual agencies. Principal departments and agencies will now be responsible for sourcing and managing whole-of-Government contracts. Specifically, where an agency is the largest spender in a particular procurement category and holds the necessary specialist expertise, it may be designated as the whole-of-Government lead agency for that category; where a whole-of Government contract or opportunity does not exist, agencies will be responsible for managing their own procurement and agencies that have their own legislative powers to procure goods and services will be subject to the Procurement Board's supervision.

The Department of Finance and Services will continue to be the category manager of whole-of Government contracts for those categories that remain best-managed by a central agency or function. This includes, for example, highly commoditised goods such as motor vehicles and travel.

On the whole, the reforms work towards a more streamlined and unified approach to Government procurement with an aim to minimise the risk of corruption in the NSW public sector.

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