The Australian National Audit Office (ANAO) recently conducted an audit on limited tender processes undertaken by Commonwealth Government entities. It aimed to assess whether entities had appropriately justified the use of limited tender procurement and whether the processes met the requirements of the Commonwealth Procurement Rules (CPRs).
The audit examined a sample of limited tender procurements conducted by three Commonwealth Government entities who had reported a high proportion of limited tender procurements. The ANAO considered whether the entities had:
- adhered to the requirements of the financial management framework
- applied sound practices when undertaking limited tender procurements, and
- established effective procurement support and review arrangements.
What is a limited tender?
A limited tender is when a Commonwealth entity attempting to buy goods or services, or both, approaches one or more potential suppliers directly and requests that they make submissions without having to comply with the process for open or pre-qualified tenders.
As the entity does not have to comply with the requirements of a full open market approach, limited tenders are often the quickest and cheapest procurement method. In 2013-14 alone, limited tenders accounted for 56% of all procurements, worth approximately $23.8 billion.
However, as they often have the effect of reducing competition, the CPRs only allow limited tenders in specific circumstances. Even if an entity's procurement qualifies for a limited tender process, the CPRs still require the procurement to provide a value for money outcome.
Some of the key findings of the audit include:
- 85% of the procurements reviewed contained an estimate of the procurement's value in the planning documents.
- 71% of the procurements reviewed contained evidence of delegate approval or clearance to approach the market.
- For high-value limited procurements (which under the CPRs are required to have a written justification for their use and appropriate supporting documentation maintained), 80% of the procurements reviewed contained written justification of how the procurements represented value for money, but not all of them maintained appropriate documentation supporting the assessments.
- 26% of the procurements reviewed did not have evidence of appropriate approval before entering the arrangements.
- 29% of the sampled contract notices had been misreported on AusTender.
- Although the entities had developed guidance material that aligned with the CPRs, in practice the guidance was not always followed.
- Only 26% of the procurements were correctly reported on AusTender and within the required time period of 42 days.
ANAO guidance on choosing a procurement method
The ANAO report provides a useful summary of the typical considerations for choosing a procurement method for procurements at or above the relevant financial threshold.
The summary notes two preliminary steps to consider before deciding whether a procurement meets the requirements for a limited tender process:
- Are there any special directions for procuring the type of good or service (such as a Whole-of-Government arrangement)?
- Does the entity have any pre-existing arrangements for the type of procurement, such as a panel or a multi-use list, or is there an opportunity to "piggyback" on another entity's arrangement?
If none of these arrangements or opportunities exist, then the entity can consider if a limited tender process is suitable.
When can an entity use a limited tender?
Entities can use limited tenders where their procurement is below the threshold value-generally below $80,000 for non-corporate Commonwealth entities or $7.5 million for construction services-as long as the procurement still provides a value for money outcome.
For an agency to conduct a limited tender for procurements equal to or above these financial thresholds, the procurement must fall within either:
- an exemption in Appendix A of the CPRs, or
- a condition for limited tender in line with the conditions set out in paragraph 10.3 of the CPRs.
If either of these appear to apply to a procurement process, this should be discussed with the relevant delegate for the procurement process and clearly articulated in the planning documents or the corporate record.
For example, if urgency is identified as the basis for conducting a limited tender process for a procurement valued above the applicable financial threshold, paragraph 10.3 b. of the CPRs requires the urgency to be "extreme" and brought about by "events unforeseen by the agency". A statement that a procurement is urgent is not enough to satisfy the CPR requirements.
What this means for entities
This audit is the sixth that the ANAO has conducted since 2007 that has specifically focused on aspects of procurement by Commonwealth Government entities.
This demonstrates the ANAO's continuing interest in monitoring compliance with the CPRs and reiterates the importance of conducting all procurements in a way that will withstand an audit process.
Two of the report's key recommendations are:
- entities should review and, where necessary, strengthen pre-approval compliance assurance mechanisms and supporting documentation (including estimated procurement value, justification for using a limited tender process and how the procurement represents value for money in the circumstances), and
- entities should review their reporting arrangements, including quality checks, to improve the accuracy and timeliness of contract information reported
- on AusTender.
Agencies should implement these recommendations into their procurement processes.
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.