Australian Public Sector Work For State Government – Procurement, Selection And Risk Management

Procurement selection and recommended partnership strategy

The Australian public sector work for state government is responsible for the procurement of the services, goods and construction on behalf of the government agencies which in this case is the health ministry. The Australian government has laws that regulate the procurement process in order to prevent corruption, waste, embezzlement of funds and waste. The law that governs the Australian government procurement is the Commonwealth Procurement Rules which is under the Department of Finance. The NSW Government procurement office was formerly under the Department of Commerce from 1^st April 2003 and was responsible for procuring and tendering and also enhances cost reduction in the processes. The department of commerce was restructured in November of 2004 to include the position of the Government Chief Information Office, which forms part of NSW Procurement. As at July 1^st 2009, the Department of commerce was replaced by the Department of services, technology and administration. However, the name was changed in 4^th of April 2011 to the department of Finance and Services which is currently responsible for procurement. The roles of the government in procurement are as follows:

• Ensure that government agencies achieve value for money.
• Promotion of competition in procurement process so as to achieve greater efficiency.
• Ensure that the procurement upholds sustainable thus ensuring government money is used in a manner that is ethical efficient and economical.
• Enhance accountability by reducing corruption and bringing about fairness in procurement.
• Ensuring that the code of practice for procurement is followed.

However, the process of procurement in Australia has randomly transitioned from being manual and is now fully digitalized, that is E-procurement and tendering. This will enable and enhance accountability.

Procurement selection aims at choosing the right contractor that will provide the lowest cost for quality services and thereby enhancing and providing value for money. (Kumar and Pani, 2014). Partnership is where the government will consider choosing two or more separate contractors to work collaboratively rather than competitively to works towards the expansion of the hospital. This can be termed as “delegation of duties”. (Jing, 2015).There are several steps to be followed in the procurement selection and they are as follows:

1. Need recognition

The first step is to conduct an internal need analysis so as establish what is to be targeted.  Once the target has been established, then it will be easy to choose the right pool of contractors. This will be the foundation to build on in order to establish a clear forecast with regards to the budget. In this case scenario, the budget is $350 but the monetary finances resources are constrained and what can be utilized is $250. With regards to the constraint budget, a need analysis is necessary as it will help to determine the best procurement strategy that will be met with the $250 but also provide quality services and goods.  Also, the government will look at each partnership of the potential contractors to evaluate their viability. (Rendon and Rendon, 2015).

1. Conduct an assessment of the supplier’s market

Risk management

This is the next step after conducting a need analysis. In this step, the government representative will evaluate the sources of raw and manufactured materials both locally and internationally. It involves evaluating the potential contractor’s performance with regards to supply of raw and manufactured products. This will be an in deep analysis of the potential contractor’s historic finances including future projections of the demand. This step also assesses the competition in a bid to seek alternatives. Competition analysis will encompass a detailed comparison to technological and sustainability issues. (Georghiou, et al, 2014).

1. Collecting supplier information

For accountability it is very important to scrutinize a potential contractor thoroughly for the best favorable outcome. Choosing the wrong contractor can lead to significantly huge financial losses, substandard work and delay in the completion of the project. In this step it is quite crucial to evaluate the reputation and performance of all the potential contractors. This will involve drawing references from previous clients and a report on their credit and financial statements.  The government representative will seek to get direct feedback from previous customers to establish their experiences. (Kumar, and Pani, 2014). Of beneficial can be the use of an agent who is quite familiar to the stakeholders and the market. At this stage the essence of considering more than one supplier comes into to play in that it will avoid potential supply disruptions and also creating a competitive environment.

1. Developing sourcing/outsourcing strategy

This involves selecting a strategy to use when purchasing from supplier. There are various strategies which include:

• Strategic partnership – this involves the government and the supplier entering into an contractual agreement. (IšoraIt?, 2014).
• Acquisition – this is making a purchase from a desired supplier.
• Direct purchase – this is where quotation is used to select suppliers whereby supplier are invited to bid.(Ruparathna and Hewage, 2013).

However, the right strategy will be determined by the level of competition in the supplier market, the outsourcing organization’s risk tolerance and the level of motivation in outsourcing.

1. Implementation of the sourcing strategy

 The implementation will depend on the type of strategy chosen. If the approach used is competitive, which also the most suitable, then preparation of quotation form (RFP) will be necessary so that the competitors can bid.  Competition will enable the government to choose the supplier will the lowest price and will also encourage a price war among the suppliers. The FRP should have the following details:

• Prices
• The financial terms
• Specification of the products and services
• The criteria of evaluation
• Requirements of service and delivery

Enough time should be accorded to the suppliers for response once the FRP forms are sent to them. In order to encourage better response, follow up messages to suppliers is necessary. (Inderfurth, Kelle and Kleber, 2013).

1. Negotiation with suppliers and selection of the bid that wins

This involves evaluation of the responses of suppliers via the FRP forms sent to them. The company with the most suitable prices (lowest prices) and at the same time offering the best quality goods and services, will meet the expected or set criteria and will thus be selected. Once the supplier has been chosen, what follows is that there will be contract negotiations to make the agreement legally binding. (Baily, 2017).

1. Contractual supply chain improvements

When incorporating the new suppliers, it is quite crucial to transfer information and making links to logistics and communication systems, give training and even specific physical assets, if necessary. The process of implementation of the transfers takes time and a lot of expertise is needed to set and start up. There should be an agreed time frame during the negotiation of contract(s) for commencement of full operation of the projects and the expected time frame for completion of the project and the time to be used during for expected deliveries.

Risk can be defined as exposure to loss due to uncertainty of an event to occur. Thus risk management can be described as identification, prioritization and assessment of risks in a bid to reduce the chances and the impact of the unseen events leading to losses or maximize the opportunity realization. (Wolke, 2017). The main aims of risk management are as follows:

• Determination of the response to be taken in case the uncertainty occurs.
• Identification of the uncertainties before they occur
• Coming up with a strategy that will minimize the chances of the uncertainties from occurring.
• Ensuring that resources are used effectively with little or no wastage thus making the project financially viable.

In all public procurement projects, risk management is quite useful. However, there should be proportionality in the resources spent on a risk and the amount of time to the uncertainty level associated with the procurement project. In projects that are not very complex, whereby the stakeholders involved are few, management of the risks will lead to implementation which is very efficient and successful, lowering the costs and also reducing any delays. In projects that are more complex, whereby the stakeholders are many, management of risks will be the key determinant to success of the project in that it will ensure that there are no delays in delivery. (Klakegg, Williams and Shiferaw, 2016).

1. Risk identification

This involves recognition and description of uncertainties that may occur during a project that affecting it negatively. (Kendrick, 2015). Sources of risked can be categorized into four subdivisions as follows:

• Project risk – this includes technical, cost, schedule, quality personal provider failure and resource risks.
• Program risk – this includes procurement, funding, organizational, safety, provider failure and security risks.
• Corporate/strategic risk – this include acquisition, political, economic, financial and environmental risks
• Operations risks – this includes technical operational support, provider failure cost, quality, and environmental infrastructure and schedule risks.

After the risks have been identified, it is important that they are well documented in the risk register.

1. Assessment of risks

This is looking into the probability that a risk will occur and what will be its impact if it occurs. The probability of a risk occurring is the assessed chance that a certain outcome will happen which includes the frequency expected of the outcome arising. On the other hand, the impact is the result of given outcome occurring which is evaluated in terms of scheduling, quality and cost. Assessing the risk can be greatly aided by use of a risk probability framework. (Aven, 2016).

1. Control

This step involves addressing and controlling the risks that have already been identified and assessed. There are four ways in which the risks can be addressed and controlled, namely;

• Tolerate – this suggests that risks will be tolerated if they are deemed to be low or very low. It implies that cost of taking addressing or controlling a risk should be proportional to the potential benefits gained. However, the risk should be monitored to ensure that the level of risk does not increase due to situational changes.
• Treat – the main aim of treating a risk is to ensure that the risks are reduced to an organization’s acceptable level. The action taken on a risk will depend on the type and impact the risk has. A risk is treated if its probability of occurring and impact is deemed medium.
• Transfer – this involves transferring a risk to a third party. It is quite crucial to evaluate the party that is best placed to manage the risk. Risks are transferred when their impact is very high and the probability of occurring is low. The risk maybe transferred internally or externally. What should also be evaluated is the cost that will be incurred as a result of transferring the cost.
• This strategy is applied if the risk level is deemed to be very high. This involves ending the current action and starting over. Terminating the project is an option but should be the last resort.

In order to avoid escalation of risks leading to huge losses and causing inconvenience, suppliers should be honest in the contract negotiation stage by sharing information on potential problems that may arise. (Hopkin, 2018).

1. Risk monitoring

This involves observing and keeping a continuous record of the risks. Risks are usually recorded in the risk register. A risk register contains the following information; risk owner, risk identification number, a thorough description of the risk, the assessed impact and probability of a risk and the date in which it the assessment was done, the action that will be taken to address the risk and the date in which the risks will be reviewed next. It is very important to clearly define the owner of a risk in the risk register and the owner of the risk should agree to this. By doing so, it ensures that responsibilities and roles are clearly understood thus ensuring that there is accountability. Also, it is important the owners of the risks have the authority, experience and capability, to handle the risks that have been given to them. (Hawkins, et al, 2015).

Strategic organizational procurement analysis and planning

Risk	Impact	Action to be taken
Failure to meet the supply demands of an organization.	· Failing to meet the required results by an organization. · Procurement cost is too high.	· Scrutinize the organization’s procurement portfolio, capability and function and then do an efficient strategic procurement planning.

Planning of a procurement activity

Risk	impact	Action to be taken
Little time accorded to supplier for response on quotation.	· The supplier’s response is quite inadequate. · It may lead to prices which are inflated.	· Procurement officers should be involved in the project planning phase.

Requirement definition

Risk	Possible Consequences	Action to be taken
Vague specification in the quotation	· Responses from suppliers are not enough · Suppliers misunderstanding of the needs to be met.	· Professionals should draft and write the organizations procurement manual.

Sourcing

Risk	Impact	Action to be taken
Market approach which is wrong.	· Inappropriate selection · Inflated prices.	· Thorough analysis of the supply market

Preparation of terms and conditions

Risk	Impact	Action to be taken
Unacceptable terms and conditions to suppliers.	· Bids may be few	· Use standard conditions of contract.

Receipt and opening of offers

Risk	Impact	Action to be taken
Confidentiality breaching	· Complaints and mistrust by suppliers. · Political intervention.	· Establish effective security measure to curb leaking of information.

Contract finalization and issuance

Risk	Impact	Action to be taken
Disagreement with the suppliers	· Dragging of the delivery process. · May force starting of the procurement process	· Having experts to negotiate the contracts and ensuring parties involved are satisfied. .

Contract management

Risk	Impact	Action to be taken
In case of foreign suppliers there be a problem due of foreign exchange rates	· High cost may be incurred depending on the currency.	· Agree on the currency to use in price quotation
Contractor not willing to accept contract	· Delays in delivery. · Restarting of the procurement process	· Negotiate with the supplier to establish their concerns and thus coming up with an appropriate consensus which favors both parties.
Either party failing to meet the contract terms and conditions.	· Contract disputes. · Satisfaction of needs is not met. · Time wastage · Legal action which may be quite expensive and time wasting.	· Performance Record should be reviewed · Contract management should be proper. · Hold regular inspections and get progress reports. · Ensure that all staff and suppliers know and understand their responsibilities. · documents and records should be maintained and should be quite accurate

This is the protocol to follow before bidding for a tender is done. It should be noted that for a project to be considered successful, it should have the lowest possible price with the highest possible quality. However, on the side of the supplier, it is quite contrary as they will seek to the highest possible price while applying the least possible effort. Due to the extreme difference in the objectives of the supplier and project owner, it is therefore essential to draw up a tendering strategy. (Brook, 2016). In order to reduce the cost associated with the supply chain, it is very essential to come up with a procurement strategy that is clear and ensure that the tender documents are in place. The cost can be reduced by over 20 percent. In fact, Cost Engineering has customers showing even higher reductions in cost. One client saved 23 percent on projects with a total value of tens of millions. The documents should be drafted in such a manner that the policies included ensure that the tendering and procurement defined in a clear and simple manner, thereby ensuring that the best procurement results are obtained for an organization.

1. planning stage

This is the initial stage in the tendering strategy. The first thing is to figure out what are the needs to be fulfilled by suppliers and what is expected to be achieved at the end of the project. It should be done carefully so as to avoid wastage thus cutting on costs. Once the need have established, then a shopping is established for all that is required for the project to take off to the very end. After writing a shopping list, it will be very easy to come up with the estimated budget size. The responsibilities of each party in the project will be outlined at this stage and clearly stated. It is at this stage the government representative gets an okay from the ministry involved. Once an “okay” is given by the relevant authorities a project management plan is drawn up. Also, it is at this stage where a time schedule of the project established and drawn. (ED Love, et al, 2014).

1. Creation of a tender

It is at this stage where it is determined the procedure to be used in the tendering process which will either be open, negotiated or restricted. The award criteria will also be stipulated in this stage. Normally, the criteria will be to offer the contract to the bidder with a combination of the lowest price and high quality goods and/or services. Also, aspects related to the tender such as technical specification are also addressed in this stage. Other aspects to be addressed are social, environmental and bidder related aspects. Also, the projected budget and the available funds available will be looked into at this stage. In this case scenario, the projected budget is $350 but the fund allocated is $250. Thus it will quite important to consider this as there are strained funds and the project should be complete with the available funds. Also, other formal aspects such as documentation and legality of the tender are also considered. Since the tenders are legally binding, the tendering documents should in general:

• Use language that is unambiguous and clear.
• Give a clear indication of the client’s obligation, liabilities and rights of the parties involved in the contract.
• It also defines the quantity, quality and nature of the supplies, work or services to be offered as per the contract.
• How submission of offers will be evaluated should be documented in a manner that is clear and free of any ambiguities.
  1. Evaluation criteria

The evaluation criteria for picking the successful winner of the tender will be determined at this stage. Evaluation criteria will include how weighting will be done to come up with the best possible candidate. Also, the team that is going to do the evaluated will be determined and chosen at this same stage. It is also at this stage where scheme or grid is created. (Puri, and Tiwari, 2014).

1. Publication

Once all of the requirements in the previous stages have been met, then publication of the tender is done both in national and international official journals via the use of a standards notice and an invitation to tender. Publication also allows for accountability. (Fazekas and Kocsis, 2017). All the time limits and formal aspects should be respected and adhered to. At this stage, the tenders are ready for bidding suppliers start to respond to the offers.

1. Evaluation

After the stipulated period for handing in offers expires, the opening procedure begins which involves looking into the offers received from the interested suppliers. It is at this stage that the team selected for evaluation comes together in a bid to select the winning bid. The first step the team does is to eliminate all the offers that are formally incorrect. The bidders are then evaluated with regards to their technical aspects and the prices they quote for supply of their goods and/or services. Once the team weighs the bids by the suppliers, they decision on who will win the tender putting into regards the best combination of the lowest price and quality services. (Hay, 2013).

1. Contracting

Once the provisions have been fulfilled, all the legal and formal aspects such as signing are followed and adhered to strictly so as to make the contract binding to all of the parties concerned. (Clack, Bakshi and Braine, 2016). The documents involved in contracting are as follows:

• List of returnable which indicates the documents to be returned such as the standard proforma.
• Offer and acceptance forms – the forms should be fully filled and signed accordingly.
• Pricing instructions
• Bill of quantities and activity schedules
• Site information documentation usually for construction contracts.
• Scope of work to be carried out and it also stipulates the time period the contract will take.

Conclusion 

It has been established that procurement and tendering is quite a tedious process that needs a lot scrutiny for the success of a project. The contract should will be of much benefit to the owner of the projects if they get the supplier who will offer their good and services at the lowest possible price and also provide quality work too. To achieve this, it has been established the best way to go is by competitive bidding. Different suppliers will try to outdo each other thus there swill a price and quality “war” to the advantage of the owner of the contract.  Also, it has also been established that in any procurement process, there are uncertainties or risks are bound to occur. If the risks occur, there could be a huge financial loss and also delays in the project leading to inconveniences. Thus in order to reduce or mitigate these uncertainties, then risk management should be carried out. There are several steps to be followed in risk management and from the report it has been established that different ways to resolve or mitigate the risk with regards to how the level of the risk from a range of very low, low, medium, high and very high. Finally, it been established that a contract is a legally binding document. In order for the offer to be accepted and a contract is drawn be drawn up, then all documents and protocols should be followed to make the contract legally binding and avoiding any legal loopholes in the contract.

References 

Baily, P. (2017). Procurement. In Contracting for Project Management (pp. 105-116). Routledge.

Brook, M. (2016). Estimating and tendering for construction work. Routledge.

ED Love, P., O’Donoghue, D., R. Davis, P., & Smith, J. (2014). Procurement of public sector facilities: Views of early contractor involvement. facilities, 32(9/10), 460-471.

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Jing, Y. (2015). Introduction. In The Road to Collaborative Governance in China (pp. 1-20). Palgrave Macmillan, New York.

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Puri, D., & Tiwari, S. (2014). Evaluating the criteria for contractors’ selection and bid evaluation. International journal of engineering science invention, 3(7), 44-48.

Rendon, R. G., & Rendon, J. M. (2015). Auditability in public procurement: An analysis of internal controls and fraud vulnerability. International Journal of Procurement Management, 8(6), 710-730.

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