Local Government Magazine
Procurement

Procurement governance guide

Dos and don’ts for senior managers and elected members

 

By Caroline Boot NZ Procurement & Probity Services and Richard Kettelwell, Sharp Tudhope Lawyers.

Effective procurement in local government finds a perfect balance on the tight-rope between governance and management.

Approvals and communications are well-managed; tender decisions are robustly and impartially supported; and procurement expertise is valued and strengthened at all levels.

So why do so many Councils experience difficulties and challenges to tender evaluation outcomes?

This article provides some background and guidance to help define appropriate responsibilities for all involved and is based on our discussions with senior managers and procurement teams in over 70 of councils over the past 15 years, plus guidance from the Government’s Procurement Rules, NZTA’s Procurement Manual and processes, and a recent report from the Office of the Auditor-General on Procurement in Local Authorities.

A sobering majority of the Council Procurement Managers report conflicts in councils between elected members and procurement teams. In the most worrying of these instances, maverick councillors have appointed contractors for council works with no proper procurement process; or have attempted to overturn tender evaluation recommendations on grounds that are outside prescribed and compliant public procurement process.

Most commonly, council procurement managers report a reluctance of councillors to accept decisions that prioritise long-term value for money, community outcomes, or ‘sustainable’ asset management ahead of cheapest tender-box price.

It’s also common that councillors have not been well informed about the outputs from procurement planning on significant project, such as the risk analysis, drivers for value for money and recommended tender evaluation processes and tools.

Without that knowledge, it’s easy for decision-makers to morph into seagulls and fly in last minute, make loud noises, dump on the troops and fly off again, leaving confusion and a messy aftermath!

All the more reason why decision-makers should be involved in the key governance activities that steer procurement activity; and leave the operational implementation of those strategies to their procurement staff.

Procurement direction needs guidance and buy-in from councillors

First and foremost, councils should establish their overall procurement directions and balance. Councillors frequently experience a personal conflict between honouring their pre-election promises to limit rates rises, and their responsibilities under the Local Government Act’s 2019 amendments to “… promote the social, economic, environmental and cultural well-being of [their] communities in the present and for the future.”    

If promoting ‘well-being’ for communities is part of a council’s mandate, then procurement of cheap solutions that compromise long-term sustainability does not sit well.

As a group, you should actively debate where the balance lies for your council. Many councils have built in requirements for all significant tenders to include a minimum percentage dedicated to scored criteria that assess suppliers’ ability to contribute to the ‘well-being’ and ‘sustainability’ of the communities that are served by council assets.

The Achilles Heel, however, is that most (but not all) initiatives that promote long-term well-being will cost more. And councillors need to be comfortable with the amount they are prepared to pay for those additional benefits. It’s not easy!

Procurement know-how for governance

As the Auditor General’s Office frequently points out, procurement in our country ‘village’ needs to be squeaky clean, with protocols firmly in place that will minimise the opportunities for any real, or perceived, bias to influence the procurement decision.

This is particularly important within smaller communities, where it’s almost inevitable that personal or business relationships will exist with some suppliers in the community.

Conflict of interest and confidentiality declarations and agreements should be in place not only for the procurement staff who are directly involved, but also for senior managers and elected members who may influence the procurement planning process or contract award decision. Moreover, these need to be reviewed at several junctures as an annual commitment; during procurement strategy development; and when planning and executing significant procurements.

Procurement leaders should cover issue first in every procurement meeting agenda, as conflicts of interest can arise at any time during the process. It’s useful to know that if a conflict is identified, it is often enough to simply declare it, and consider whether it could result in bias.

In many cases no significant bias would be caused or simple tools (such as fact-based pre-determined evaluation scoring scales) can be put in place to minimise or eliminate potential real, or perceived, bias.

Elected members must recognise the importance of confidentiality in relation to procurement practices within their councils.

Understandably, as representatives of the communities they serve, they are often approached by suppliers within their communities for advice or information relating to current or future procurements. This can lead to confused messages in the marketplace, or worse with one supplier being given information that is not available to others.

This introduces a significant risk to probity of procurement processes, which can lead, and often has led, to challenges or investigations that are difficult and costly to defend.

For these reasons, it’s critical that any inquiries made about tendering processes are channelled to a single source within procurement who takes responsibility for ensuring that information provided to the market is consistent and is not prejudicial.

Beyond confidentiality and managing conflicts of interest, the most critical aspect of good procurement governance is understanding what input is appropriate into specific procurement processes, and when that input will be effective and useful.

There are two key points in the procurement lifecycle of a specific tender when input from the governance team may be relevant, in the planning; and in the final sign-off. The nuts and bolts of tender reviews and evaluations are generally considered inappropriate areas for elected members to be involved in, for reasons of applying appropriate expertise, maintaining confidentiality, and avoiding conflicts of interest.

When can councillors and senior management have Input?

For situations where councillors or senior management have an interest in a particular upcoming tender, we suggest that their inputs will be most appropriate and effective if applied early in the procurement lifecycle, at the planning stage.

This is the point well in advance of the Request for Tenders being released to the market. It is the stage where risks are identified, priorities are set and when the die is cast in terms of the attributes that will differentiate between a successful and unsuccessful tender for the project.  Practically speaking this will include consideration of matters such as:

  • Deciding whether the tender process will prioritise lowest price, highest quality, or some middle ground.
  • ‘Setting the baseline’ for suppliers by establishing transparent minimum standards or pre-conditions for attributes such as relevant company experience, qualifications for key personnel, H&S history and the like. Any supplier that cannot meet those standards need not apply (and if they do, they will likely be excluded from consideration early).
  • Weightings for scored attributes.
  • What matters to ratepayers and the broader community in the context of this project, such as noise, dust, down-time for an existing facility or asset, environmental and sustainability outcomes, focus on the use of local subcontractors, and the like.

It is at this point that the parameters are put in place that will shape and determine the characteristics and merits to select the winning tender. The emphasis on strategy makes this early phase of the procurement the only appropriate window of opportunity for the executive team or councillors to ‘put their oar in’ to help ensure alignment of the procurement plan and hence, the procurement outcome with the overall intent as understood at governance level.

While some may challenge the appropriateness of such input, we see it as a legitimate means of avoiding the disconnect we occasionally see between a high level purchasing decision and the reality of what is actually purchased as a result of the tender process. There are safeguards however, and we address these as follows.

Practical considerations for involvement

Safe involvement in the planning stage described above requires:

  • Authorisation from the wider council for any individual councillor/s to represent the council in the procurement planning.
  • Completion of a satisfactory conflict of interest and confidentiality declaration
  • Sign-off from the project’s Probity Advisor
  • Participation in the planning meeting/s on the basis of being an envoy of the broader council. This necessarily entails making your preferences clear but being mindful of the skillsets of the professionals (both internal and external) that will implement the procurement process. They are likely to carry years (and in some cases decades) of experience in the niche area of procurement and/ or technical aspects of the project.
  • Expecting to have an influence but not ‘final say’ in the Procurement Plan.
  • Exiting the procurement process completely, once the Procurement Plan is finalised. Input into the actual Request for Tenders is considered inappropriate, as is attendance at tender evaluation meetings and supplier interactives. Your next involvement should not occur until you read the Tender Evaluation Team’s report and recommendation for preferred tenderer.

Finally, elected officials or senior decision makers wanting to maximise the effectiveness of their participation in procurement planning might consider high level procurement process and compliance training.

This training should be targeted on critical areas that are needed to guide procurement strategy and policy; provide the right level of input into procurement planning reviews; and provide guidance on activities needed to satisfy yourselves that procurement in your council is ethical and follows proper guidelines for ‘good practices’.

The right expertise in your procurement team

Once a Procurement Plan is approved for a significant procurement, the most important responsibility of senior managers and elected members is to make sure that those implementing that plan (putting together RFT documents, processing and evaluating the tenders) are appropriately trained and will follow robust, impartial and transparent processes.

If it’s a roading project valued at over $200,000, you’ll need to be sure that a NZQA Qualified Tender Evaluator is involved, which is usually an internal senior member of your procurement team, or a qualified consultant specialising in procurement.

It’s worth noting that those who have qualified recently will have been put through their paces on Government Procurement Rules as well as demonstrating current good practice in procurement planning, developing RFT documents and processing/ evaluating tenders.

The newer version of this time-tested qualification is more demanding than the old version, and recent graduates are well placed to give you assurance that effective and efficient, ethical tendering practices are being followed.

Investment in procurement training within your council is worthwhile. Trained procurement professionals can significantly increase the efficiency of your procurement processes. They have the skills to right-size procurement requirements to the risks and complexity of the projects you’re investing in; reduce the risk of costly procurement challenges; and design processes that select suppliers who will deliver quality without unnecessarily tying up council resource in their management.

With good guidance from your strategy documents, they’ll also be empowered to deliver additional benefits from procurement (such as jobs within your community, innovations or more resilient assets).

Most recent NZQA graduates know how to put in place a fact-based, benchmarked ‘anchored’ scale for scoring the tenders and before the responses are reviewed. This is the responsibility of the procurement team, and should be part of its evaluation plan.

The beauty of this relatively new practice covers many bases and it speeds up the scoring process, provides more consistent and defensible scores, and it provides very robust insurance against potential or perceived bias.

Right input, right time

With the comfort of effective policies and strategies and a trained procurement team in place, senior managers and elected members can focus on providing their delegated approvals for significant expenditure in a timely manner. Setting and approving appropriate budgets for coming financial years is the first step; and the follow-through takes the form of approving contract awards post tender processes.

Timing may be critical here. Once a tender process has run and an evaluation recommendation is acted on, successful tenderers often need time to mobilise.

For construction projects, the mobilisation period may be critical to successful on-time delivery. If there are delays to finalising contract award, risks are introduced that nominated staff on whose merits the contract was partly won, may no longer be available. Who can blame a contractor for deploying their best staff into the first guaranteed contract that’s confirmed and awarded?

For maintenance contracts, especially if a non-incumbent has been successful, smooth transition and minimising disruption takes time. Waiting for a council ratification of contract award decision jeopardises customer satisfaction, and may even cost jobs in your community.

Where it’s possible to enable contract award promptly after tender evaluation, it is in a council’s interests to act fast.

Decisions at this stage should not be contentious if the groundwork has been done to set appropriate procurement policy, accurate budgets, review of quality detailed procurement plans, and use of expert qualified procurement personnel to undertake the tender process.

 

For more information on probity and best practice in procurement governance contact caroline.boot@nzprocurement.com or phone 021 722 00.

 

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