Governance of State Purchase Contracts and the VGPB’s engagement model – goods and services procurement guide

Introduction

The Financial Management Act 1994 details the functions of the VGPB in relation to the supply of goods and services. Section 54B(a)(ii) includes the provision of advice and consultancy services by the VGPB.

Purpose of this guide

The Victorian Government Purchasing Board’s (VGPB’s) Market analysis and review policy imposes mandatory requirements on departments and organisations within the VGPB’s scope for consultation and endorsement when establishing, extending or replacing a State Purchase Contract (SPC).

This guide expands on the Market analysis and review policy to provide practical direction to Government organisations that are leading or proposing to be the lead organisation for SPCs.

This guide also provides direction to organisations in relation to the engagement process with the VGPB. Organisations are encouraged to engage with the VGPB at least annually regarding procurement strategy, forward procurement activity plans, compliance, matters for advocacy, and specific matters related to high risk or complex procurements. Chief Procurement Officers (CPOs) may collectively engage with the VGPB on procurement matters that affect multiple organisations.

The approaches detailed in the guide are not prescriptive and are provided for reference only.

This guide is divided into two sections:

1. Governance of SPCs – this section provides practical advice for government buyers regarding the compliance requirements, under the VGPB’s Market analysis and review policy, in relation to establishing a new SPC and extending or replacing an existing SPC.
2. VGPB’s engagement model – this section advises on the approach for engagement with the VGPB for non-SPC procurement activities.

Governance of SPCs

Policy requirements

SPCs are standing offer agreements for Victorian Government common use goods and services, which are established when value for money can be achieved through aggregating demand.

As detailed in the VGPB’s Market analysis and review policy, an organisation that seeks to establish a new SPC must:

• consult with the VGPB regarding the category of goods and services proposed for aggregation and inform the VGPB of any analysis of spend or assessment of complexity that indicates grounds for aggregated demand
• have the business case endorsed by the VGPB prior to being approved by that organisation’s relevant Minister
• demonstrate to the VGPB that it has the capability to establish and manage the proposed SPC as the lead agency
  • lead agencies are to report to the VGPB on the ongoing use of SPCs, spend and savings generated

In addition, the process involved in establishing an SPC may be nominated for strategic oversight by the VGPB.

An organisation that seeks to extend/vary or replace a SPC must consult with the VGPB and obtain approval from its relevant Minister before:

• extending (not including the exercising of a contractual option)
• varying (where the variation is significant/material) or replacing an SPC
• an organisation must notify the VGPB and the relevant Minister of the outcome of the market engagement

Significant/material changes may include but are not limited to: cost, scope, quality or any variation that requires approval from an organisation’s financial delegate. You may need to consider associated risks and potential legal implications. Minor administrative corrections are excluded. Where uncertainty exists, an organisation should consult with the VGPB Secretariat to determine what constitutes a significant or material change.

Guidance

The VGPB provides strategic, Whole of Victorian Government (WoVG) governance for SPCs. To perform this function, the VGPB consults with organisations regarding SPC activities. The level of consultation with the VGPB will vary depending on the type of SPC activity and the stage of the procurement. Through consultation, organisations can benefit from the VGPB’s independence, broad view across government organisations, private sector knowledge, and its ability to identify significant issues.

The lead agency should initiate consultation with the VGPB Secretariat to assess and determine the appropriate form of consultation to take place with the VGPB.

The VGPB Secretariat will record the consultation on the VGPB SPC pipeline, inform and update the VGPB, ask for further documentation to provide to the VGPB or propose a presentation to the VGPB by the lead agency.

It is important that the consultation occurs prior to activities being approved by the relevant delegates.

Consultation activities in three groups as follows:

• annual planning (a high-level view of all current and upcoming SPC activities)
• review and endorsement of new SPCs
• review of variations and replacement of SPCs

Annual planning

Consult:

• provide the VGPB with an annual overview of SPC activity including:
  • SPCs listed in forward procurement activity plans
  • proposed new SPCs
• provide a high-level status update for SPCs and associated activities by exception or on request

Refer to VGPB SPC pipeline information (below) for the detail contained in the VGPB’s SPC activity pipeline.

VGPB Action – provide comment and may request additional documentation.

New SPC

Initial consultation:

• provide an outline of the proposed SPC strategy including:
  • the grounds for aggregation
  • background documentation
• present the proposal to the VGPB at its bi-monthly meeting

VGPB Action – provide advice and direction. May appoint a VGPB member to consult on early market engagement, market analysis and development of the business case.

Business case endorsement:

• submit full business case for endorsement by the VGPB prior to seeking approval from the relevant minister (mandatory)
• present the proposal to the VGPB at its bi-monthly meeting

Note: Refer to the VGPB’s Guide to Creating a procurement business case for guidance on what to include in a business case.

VGPB Action – may ask questions to clarify the business case or require matters to be addressed prior to endorsement.

Will detail any requirements for additional oversight. Should any matter/s remain unresolved, they may be referred to the Minister by the VGPB

Additional oversight – there is no set process or requirement, and may include:

• notifying the VGPB of the recommendation for exercising an option to extend or approaching the market, prior to delegate approval
• reporting the first 12 or 24 months in contract

VGPB Action – provide written acknowledgement and comment.

Extend, vary, replace an SPC

Consult:

• provide an outline of the proposal (executive summary of business case or draft brief to delegate)
• presentation to the VGPB at one of its bi-monthly meetings on request

Note:

• The VGPB may determine that the business case to extend, vary or replace an SPC must be endorsed by the VGPB prior to the lead agency obtaining approval from its relevant Minister
• “Extend” refers to varying the term of the contract and not to exercising an option to extend
• “Vary” refers to a material variation of the contract terms and conditions, which may comprise a change to any of the following:
  • cost
  • scope
  • schedule for deliverables
  • performance/quality
  • performance measures and reporting
  • intellectual property
  • insurances
  • bank guarantees
  • price escalation formula

Consult with the VGPB Secretariat to determine ‘material’ if required.

VGPB Action – provide written acknowledgement and comment.

The VGPB critiques submissions based on their application of the four principles (value for money, accountability, scalability and probity), the five supply policies, and other relevant policies such as Social Procurement.

It is expected that organisations will address comments from the VGPB and respond to the VGPB’s comments. However, when an organisation does not accept the VGPB’s feedback, the organisation will be requested to provide a written explanation to the VGPB. The VGPB may inform the Minister of any unresolved matter/s, concerns, reservations or qualification to its endorsement or consultation.

When seeking endorsement of a business case for a new SPC, organisations should allow a minimum of 20 business days for the VGPB to finalise its review. This review is performed out of session and requires comments from the VGPB to be communicated to the organisation for response. The time taken for the endorsement process is affected by the quality of the business case and the responsiveness of the organisation to answering questions and addressing matters raised by the VGPB.

VGPB’s engagement model

The VGPB policy framework emphasises strategic planning of procurement activity and early and thorough market engagement to maximise value for money. Whilst accountability for procurement sits with the accountable officer (AO) of each organisation, the engagement model encourages organisations to engage with the VGPB on procurement strategy and complex procurements that are not covered by the mandatory requirements as detailed in the VGPB’s Market analysis and review policy.

The purpose of engagement is for the VGPB to assist organisations with advice, consultancy and advocacy. It also provides the VGPB with insights that assist the VGPB in its leadership of WoVG procurement, particularly in setting policy, advocacy, and supporting capability.

The VGPB may from time to time, select different topics of focus e.g. contract management, depending on the current environment, issues and observations (e.g. from the audit program) and other matters identified by the Board.

Engagement with the VGPB can be with organisations individually or collectively. Generally, engagement is with Chief Procurement Officers (CPOs) or arranged through them.

Engagement with individual organisations

Organisations are encouraged to engage at least annually with the VGPB.

There is no standard process or format for engagement and an organisation should contact the Secretariat to make arrangements. In practice, engagement typically occurs in the following areas:

• Strategy and plans
• Individual procurements
• Visits

Strategy

Organisations are invited to present and discuss their annual procurement strategy and plans with the VGPB. Indicatively, such a presentation may describe the following:

• procurement strategy
• procurement profile (including number and total value of sourcing activities and current contracts by complexity quadrant)
• the risk profile (e.g. low/medium/high overall, lower/similar/higher than previous years) and specific strategic risks
• insights from category planning, including opportunities for aggregation within the organisation or for WoVG
• implications for the organisation arising from the volume, complexity and risk of the planned procurements (e.g. capability, capacity, organisational structure, process)
• strategic procurements that have been or will be initiated during the year but will be out to market beyond the current procurement activity plan
• any matters arising that the organisation would like to engage with the VGPB on during the year

Organisations are also encouraged to discuss in detail specific strategies and plans e.g. relating to improving capability (people, systems or processes), governance frameworks, risk management or application of government initiatives such as social procurement. Organisations should also be mindful of when proposed changes could impact their VGPB accreditation as mandated organisations, in which case there is an obligation to consult with the VGPB.

Individual procurements

On occasion, organisations may wish to seek the VGPB’s advice on specific aspects of individual procurements to take advantage of the VGPB’s independence, its broad view across government organisations, its private sector knowledge for comparison and benchmarking, or for assurance of compliance with VGPB policies.

Requests for engagement may be based on any or a combination of the following criteria:

• complexity
• capability of the organisation
• risk - political, reputational, economic etc
• scope of the project e. g. when impacting beyond the organisation or
• compliance with VGPB supply policies

Visits

Organisations may invite the VGPB to have a member visit an organisation. Examples of this may be:

• to provide information about the VGPB and its policies e.g. when significant reforms or changes are introduced, with the audience being procurement staff or the Internal Procurement Unit or
• to meet with the Internal Procurement Unit and/or other executives to discuss their organisation’s procurement strategy

Collective engagement

Organisations may choose to engage collectively with the VGPB on matters that affect a number or all organisations. This may be to provide feedback on the application of policies and associated VGPB requirements or perhaps to seek VGPB leadership and advocacy for an initiative.

Where the matter for engagement affects many organisations, it may be advantageous to progress the engagement through the CPO Forum and have a representative(s) meet with the VGPB.

VGPB SPC pipeline information

To keep the VGPB informed of the status of SPC activities, the Secretariat maintains an SPC pipeline. The pipeline document is populated with information provided by the lead organisation.

In addition, the VGPB Secretariat will update the pipeline with details of consultation activities and outcomes regarding SPCs.

The following table describes the type of information required for the pipeline.

Using this guide

This guide accompanies the goods and services supply policies. There are 5 supplies policies:

• Governance policy
• Complexity and capability assessment policy
• Market analysis and review policy
• Market approach policy
• Contract management and disclosure policy

This guide supports the market analysis and review policy.

Tools and support

Access a document version of this guide in the Toolkit and library.

For more information about procurement complexity and how to assess it, please contact the goods and services policy team.