Legal Insights

An audit of New South Wales local government procurement

By Joshua Same

• 24 December 2020 • 4 min read

On 17 December the NSW Audit Office released a performance audit on ‘Procurement Management in Local Government’. The audit focussed on six councils of varying sizes, levels of resourcing and locations (including metropolitan, regional and rural areas).

The selected councils for this audit were Cumberland City Council, Georges River Council, Lockhart Shire Council, Tweed Shire Council, Waverley Council and Wollongong City Council. The audit found that each council performed some procurement activities well, with some areas for improvement (as would be the case for almost every council we have worked with).

A useful reminder

A consistent theme throughout the audit report is that the concept of ‘procurement’ needs to be considered beyond the actual tendering activities, and includes:

  • Planning – including by documenting the justification or need for the specific procurement, and analysing and planning the specific strategy for approaching the market.
  • Sourcing – covering the approach to the market, for example by issuing a request for tenders, negotiation and contract execution.
  • Managing – including effectively managing contracts and assessing the performance of the contractors and suppliers.

Consistent with our experience, the audit report notes that while most councils dedicate sufficient resources to ‘sourcing’ (i.e. the tender process), the ‘planning’ and ‘managing’ aspects of procurement are often overlooked or undervalued.

Having assisted with numerous procurement processes for local government, on numerous occasions we have seen that time and resources invested by a council up front (in considering the procurement need and properly planning the procurement process), will directly equate to value derived by the council at the end of that procurement process.

Some useful recommendations

The report includes a number of useful recommendations for common gaps that arise in council procurement activities. Some recommendations that we consider particularly helpful include:

Documented justification of procurement needs

The audit report suggests that councils build into their procurement planning process a requirement for staff to document the justification of procurement needs. This is helpful in order to define the intended outcomes, identify risks, and ensure transparency by demonstrating that the procurement is needed and relates to a proper council purpose.

Procurement training

The audit report notes that most councils had implemented some form of procurement training, but the training had not been implemented consistently and often did not cover the council-specific procurement policies and procedures.

Wollongong City Council was presented as a favourable example in that their training program included a centrally administered suite of procurement training available for staff, with requirements that staff undertake that training before participating in procurement activities, joining a tender assessment panel, accessing procurement files or receiving financial delegation.

Segregation of duties

The audit report notes the importance of ensuring that no single staff member has complete control over a procurement process. This is highlighted as a fundamental aspect of effective procurement management, noting that its absence from policy and practice ‘limits transparency and exposes risks of fraud’.

What next?

Some changes have been made to s55 of the Local Government Act 1993 and Part 7 of the Local Government (General) Regulation 2005 (LG Regulation) over the past 12 months. These include changes to facilitate bushfire recovery works, to increase the tendering threshold to $250,000 (where the services are not provided by employees of Council at the time of tender) and to update the tendering exemptions so that they better reflect the panel arrangements provided by LGP and NSW Procurement and enable direct purchases from disability employment organisations.

Those changes have been helpful, but Part 7 of the LG Regulation would certainly benefit from a more substantial refresh, and the 2009 tendering guidelines provide limited guidance beyond the text of the legislation.

In a letter accompanying the audit report, Department of Planning, Industry and Environment confirms that a review of the LG Regulation tendering provisions has been programmed in the OLG 2020/21 operational plan – particularly to reflect the increasing use of electronic tender submissions rather than paper tenders. The review aims to be complete by June 2022.

The review proposes to withdraw the existing guidelines and replace them with a more comprehensive document that covers matters including:

  • procurement below and above the tendering threshold
  • contract management and evaluation
  • electronic tendering.

This is very welcome, although June 2022 does seem like a long time to wait.

Want more information on procurement management in Local Government NSW?

Get in touch with a member of the Local Government NSW team.

By Joshua Same

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