Our team recently acted for a group of local governments who secured long-term agreements for essential services, and investment in critical infrastructure. These outcomes would have been unlikely without a collaborative approach to procurement.
What is collaborative procurement?
In collaborative procurement, parties with shared interests and needs engage with the market jointly, pooling resources and capacity to scale their value proposition to relevant markets through their tendering processes.
It is recognised as one of the procurement objectives for local government in Victoria in section 109 of the Local Government Act 2020.
It is important to recognise that collaborative procurement is not necessarily the same as collaborative contracting. Collaborative procurement under the Local Government Act 2020 refers to a single tender process which results in local governments contracting individually under a similar set of conditions.
In collaborative contracting, entities with a joint interest, or who need to be able to demonstrate a sufficient degree of financial depth, commonly contract on a joint basis to formalise their shared interests and help manage associated liability. However, restrictions on accepting liability and expending funds unrelated to their relevant municipality make this difficult for local governments.
In particular, local governments face significant limitations in accepting liability in relation to other local government entities. While terms may be negotiated collaboratively by local governments, respondents to a request for tender must be prepared to enter into separate agreements with each participating local government.
Upside and downside risk of collaborative procurement
While local governments may be reluctant to contract collaboratively , risks can still be managed across various individual contracts. For example, where a group of local governments have collaboratively negotiated contracts to supply feedstock and entered into separate contracts: if one local government fails to meet volume requirements under its contract, its liability for that shortfall may be offset by another local government's supply of feedstock in excess of the obligations under its contract.
Costs and economies of scale
Collaborative procurement can offer significant cost savings to local government, including:
- sharing of consultant costs, especially in relation to legal, procurement and technical support
- being able to offer a larger commitment to the market to attract larger contractors and investment commitments
- collective bargaining by local governments to drive down prices.
A clear example is where collaborating parties request a long-term service offering which requires the construction of new infrastructure by the market. Collaborating local governments could offer significant aggregated supply. This enables respondents to create business cases for the construction of new infrastructure that may not otherwise have been possible had the same offering been made to local governments individually.
The benefits of collaborative procurement
In our recent matter, our clients could collaboratively offer to purchase significant services on the market. This helped attract several genuinely innovative offers. Several of these offers were able to demonstrate economies of scale which would not otherwise have been achievable.
Local governments shared a common interest, allowing for tendering and negotiation to be conducted collectively. This created efficiencies and significantly reduced costs for each participant.
Collaborative procurement facilitated a transparent and cooperative approach throughout complex and sometimes protracted negotiations. The final offering involved the construction of a project-financed facility to service each participating local government. This outcome would have been far less likely had each local government gone to market individually.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.
