Procurement improvement: top tips from the ANAO’s performance audits

Eight tips to save your procurement reputation when the national auditors come knocking, gleaned from ANAO’s own audits by KWM partners.

Raise your hand if you used the summer to swot up on ANAO performance audits from last year?

Anyone? No? Well, we at KWM did, and we’ve identified some ‘top tips’ for procurements in those reports and included a pithy summary for you.

Our friends at the ANAO have been busy this financial year. You know they do performance audit reports analysing the success of key initiatives and projects undertaken by Commonwealth entities (i.e. you). But did you know that since July 1, 2016, 38 reports have already been released, and there are more coming. That’s against a total in the previous financial year of 35.

Over the summer we had a look at the performance audits released since July 1, 2016, with a particular focus on procurement (always fertile ground for tricky issues). Now, we know the word ‘audit’ tends to instil fear, but stay with us, this is pretty interesting stuff, and totally relevant to a large part of the Commonwealth.

1.  Have a plan

Rushed procurements can lead to poor outcomes. Poor outcomes mean a failure to achieve procurement objectives like cost savings. If you rush, you’re also more likely to fail to comply with procedural requirements, such as the Commonwealth Procurement Rules or probity requirements.

This is not really a surprise — but how can it be managed when so many procurements are ‘urgent’? Taking time to plan is essential, even if it is urgent. Planning from the outset needs to be emphasised rather than discarded. By “planning”, we mean:

  • Having a project-specific strategy that incorporates lessons learned from past procurements and identifies key risks (including the risks posed by urgent timeframes). However, don’t limit the risk assessment to the things that were risks last time. Each new project has different risks so a “cookie cutter” approach to identifying risks is not the most effective approach.
  • Setting realistic timeframes for each phase of the procurement. Make sure you think about that in terms of the whole life of the procurement including how long it will take to properly negotiate a particular aspect of the deal. Rushing contract negotiations was something the ANAO called out as resulting in sub-optimal results. Also be realistic about how long it is going to take to get proper documentation together (see Point 3 — Vet Your Procurement Documentation below) so you don’t end up sending out something that is incomplete, or worse, just plain wrong.
  • Documenting the process from day one – so that you can keep track of things. A trail of documentation showing CPR compliance is a good discipline. Make sure your documentation includes conflict of interest declarations (i.e. showing everyone turned their mind to whether they had a conflict for this particular procurement) and confidentiality agreements from those participating in the process (the ANAO checked up on those!).

Revisiting “the plan” can stop the procurement running out of control, and ending up on the front page of the ANAO audit reports website.

2. Who is the expert?

“Procurement is core business for Commonwealth entities and deficiencies in capability, process and advice can result in higher than necessary expense for taxpayers and significant reputational risks for the Australian Government”.

Do you treat procurement as ‘core business’? Do you have people who are experts in the area who can guide the agency through the ins and outs of significant purchases of goods or services? What about for this particular procurement? Do you have people in the organisation who really understand what’s needed for the goods/services, what the procurement objectives are and how they can be achieved?

This Commonwealth procurement stuff is complicated, and in a couple of instances, the ANAO said lack of procurement expertise was a key issue. Best to identify any procurement skill and capacity gaps prior to commencing the procurement, and address these gaps with training or getting in people with those skills. Of course, you don’t want to be doing this as the urgent procurement request lands on your desk – you need to get ready well before that.

What is the best way to identify these gaps? Reviewing the internal experience with procurements of similar size and type (e.g. based on your agency’s procurement plan for the year) is one way – if your organisation lacks suitable experience, there are likely to be expertise shortfalls.

Training is essential, but you need to train the right people. That doesn’t just mean the central procurement unit. There are other people in the chain who also need to understand the “rules of engagement” for procurements. The ANAO pointed to personnel in budget areas and program areas as well as delegates (yes, delegates too!) as people who need to be considered for procurement training.

But a word of warning, those gaps cannot always be solved by contracting that experience in: another thing the ANAO cautioned against is the over-reliance on contractors under “strategic partnerships” instead of building an organisation’s own capacity. This can sometimes result in by-passing the usual competitive procurement processes and that’s a big ‘no-no’.

3.  Vet your procurement documentation

Procurements often involve vast amounts of information, and the ANAO found that procurement documentation, like tender documents and contracts, could be a source of problems. For example, tender data packs must contain accurate information, if only to prevent tenderers bidding on an incorrect basis. Attention to detail is key, and time spent reviewing documentation early in the process can produce savings down the track (even for those “urgent” procurements, take a breath and get the documents checked for accuracy).

Contracts, in particular, must be well designed, and negotiated so that they give the Commonwealth the best chance for recourse if a contractor doesn’t deliver. Previous contracts can be useful here (but each procurement has its own peculiarities). It is worth setting a reminder to revisit any relevant deals to avoid repeating their mistakes (i.e. a post-procurement review helps with future procurements because we learn from our mistakes). So, if last time you procured these kind of services you went for a volume discount approach … but then the volume didn’t eventuate and neither did the savings, then apply that lesson for next time.

4.  Update crucial policies and procedures

Agency-specific policies and procedures are a key source of information on how to carry out procurements. They are highly influential on procurement execution and outcomes for that reason.

Because of this, policies and procedures must be kept up to date with changes to the procurement landscape. If they don’t reflect key procurement principles, your procurement might not either. Bear in mind that some changes to the Commonwealth Procurement Rules took effect on March 1, 2017.

5.  Know where you stand with your objectives

To support the objectives in your contract, there needs to be effective performance monitoring frameworks and/or systems for capturing data related to the objective, so that the outcomes can be measured (the key focus is on ‘effective’). You can then address underperformance. If you don’t know (and can’t measure) underperformance, you can’t fix it.

In terms of measuring value for money, this might mean monitoring and reporting on service fees and contract administration costs, for example. The impact of other initiatives and innovation measures should also be monitored — i.e. if you found a way to encourage innovation under the contract, it’s a good idea to have a way of testing if it worked (ie was it effective?).

Get started on monitoring from day one (or close to it), so that performance standards don’t slip without you noticing. The ANAO sensibly said that for some procurements, IT systems for contract management can provide greater visibility of contractor performance, while also offering low costs of doing the monitoring.

Be wary of contractor self-assessment as a method of performance monitoring. When conducting a self-assessment, you are inclined to be wearing rose-coloured glasses and give yourself ten out of ten. This may be a low cost approach to administer, but how can you be assured that the self-assessment provided is a fair and reasonable reflection of performance? Even if there is self-monitoring, you still need some way to check performance yourself.

6.  If you’ve got it, use it — enforce your contract

Know your contractual rights and enforce them — they exist for a reason and won’t enforce themselves (not yet — but we’re working on self-executing contracts — speak to us if you want to know more). Be proactive about enforcement too. Your remedies will be more effective that way.

For large contracts operating in multiple areas (e.g. different states or territories), you may need to ensure that the contract is being interpreted consistently by everyone. Otherwise, there may be regional drops in service standards, and loss of value.

7.  Cover your probity bases

We understand: probity management is ALWAYS a key issue, but the ANAO reports reiterate that. To avoid issues, you need a probity plan, and once you have it, ensure it is properly executed and managed. This means identifying and managing actual, potential and perceived conflicts of interest at all stages. Those declarations about no conflicts of interest/confidentiality — they are important.

Appoint a probity adviser and conduct probity audits for large procurements. When you have a probity adviser, seek their advice and follow it. Remember that it’s not much use getting the advice after you’ve made the decision.

Finally, keep comprehensive records and document your decision making, to ensure you can attest to your scrupulous process.

8. Sort out those manuals

We know the problem — those details that got pushed down the road so you could get the Contract signed, where the ‘operational/process’ documentation would be done later. But when the ink is dry, and everyone is exhausted from doing the deal, it can take a while to get around to those documents.

It turns out that ‘a while’ should be quite short. And certainly not two years after that ink is dry. One common problem we see is where the ‘negotiating team’ is different to the ‘implementation’ team. When the deal is done, the negotiators are off to somewhere warm and sunny and the implementers are left to try and pull together those operational documents without the benefit of knowing all the ins and outs of the deal. Maybe keep those negotiators around for a few weeks longer (or get them back well-rested after that holiday) to help out with those documents. Otherwise, you might have process gaps and if your contractors aren’t playing nicely, you won’t have any documents to point to in order to set them straight.

This article was written by Rachael Lewis, Annabel Griffin and Oscar Boag Taylor from King & Wood Mallesons, and originally published on KWM’s insights.