Structuring state purchase contracts and other procurement arrangements: goods and services guide

Mandatory arrangements

A mandatory arrangement may be appropriate where:

• participating organisations need to meet a specific level of demand to obtain benefits from the market
• the main purpose of the arrangement is:
  • increasing the efficiency or consistency of the procurement process
  • mitigating a significant risk to the State
  • achieving broader policy objectives
• legislation or government policy requires use of the arrangement
• the needs or requirements of participating organisations are certain and unlikely to change

Participating organisations must use a mandatory arrangement for its entire term (after any transition period).

Non-mandatory arrangements

A non-mandatory arrangement may be appropriate where:

• participating organisations can obtain benefits from the market without meeting a specific level of demand
• participating organisations will often need to procure goods or services outside the arrangement (e.g. in some regional areas)
• the arrangement may not provide value for money for a significant proportion of participating organisations (e.g. their value drivers differ)
• the needs or requirements of participating organisations are uncertain or likely to change

A mandatory arrangement may include categories of goods or services that are ‘non-mandatory’. In this scenario, the rules of use should clearly state which goods or services are mandatory and non-mandatory.

Participating organisations are strongly recommended to use a non-mandatory arrangement (or non-mandatory goods or services covered by an arrangement) if it demonstrates value for money for their organisation.

Open arrangement

An open arrangement allows new suppliers to be added during the arrangement.

An open arrangement may be appropriate when:

• market conditions are dynamic (e.g. new solutions, providers and technologies are emerging)
• prices, fees, or rates are indicative or may fluctuate
• the supply market has diverse expertise or many potential suppliers
• requirements are broad or expected to evolve
• demand is high or expected to increase compared to the number and capacity of potential suppliers when establishing the arrangement.

When establishing an open arrangement, organisations should:

• determine how they will add or remove suppliers and explain this in the market approach
• ensure that the expected benefits outweigh the expected cost of operating the arrangement
• assess and manage any risks relating to the arrangement.

Closed arrangement

A closed arrangement does not allow new suppliers to be added during the arrangement.

A closed arrangement may be appropriate when:

• fixed prices, fees or rates apply
• requirements are specific (e.g. specialised skills and knowledge, intellectual property) or stable
• requirements (e.g. regulatory, confidentiality, security) are better managed by working with a known and trusted group of suppliers
• concentrating demand with fewer suppliers would increase the potential for government demand to influence the market
• demand can be met by the number and capacity of potential suppliers when establishing the arrangement and is not expected to increase beyond their capacity.

When establishing a closed arrangement, organisations should consider the potential impact on small to medium-sized enterprises, social benefit suppliers, or new entrants. These impacts can be reduced by limiting the duration of the arrangement.

Number of suppliers

The number of suppliers included in an arrangement can have a significant impact on value for money. This includes the organisation’s costs to establish and manage the arrangement.

When establishing an arrangement, organisations should disclose to potential suppliers:

• their demand forecast (e.g. quantity, timing)
• the expected structure of the arrangement (e.g. sole supplier, supplier panel).

This will help potential suppliers compare the expected costs and benefits of participation.

Sole supplier arrangements

A sole supplier arrangement has a single supplier to meet the needs of participating organisations. This is typically a closed arrangement and may be appropriate when:

• only one supplier can meet the requirements (e.g. proprietary products or services)
• the needs or requirements of participating organisations are similar and unlikely to change
• the expected benefits of offering exclusivity outweigh the costs or risks of limiting competition between suppliers or the choice and flexibility for buyers
• there are fixed rates or established boundaries around rates, time, and performance levels
• developing a long-term relationship with one supplier would improve coordination, responsiveness and understanding of requirements
• participating organisations aim to simplify or streamline their supplier base or the procurement process by dealing with only one supplier.

Sole supplier arrangements may take different forms, including:

• Exclusive supplier model – Participating organisations meet their needs by entering an agreement to exclusively acquire goods or services from a single supplier for the duration of the agreement.
• Master vendor model – Participating organisations appoint a single supplier (the master vendor) to coordinate and manage the supply of goods or services from multiple (second tier) suppliers.
• Brokerage service model – Participating organisations engage a single supplier (the broker) to facilitate the connection of buyers with suppliers. This can leverage a broker’s market knowledge, supplier network, or procurement expertise.
• Software enterprise licence agreement – Participating organisations enter an agreement with a software provider that allows licensees to use the provider’s software products at an organisational or whole-of-government level. The agreement may cover multiple products or associated services from a provider.

Multiple supplier arrangements

A multiple supplier arrangement has more than one supplier to meet the needs of participating organisations. This may be an open or closed arrangement. A multiple supplier arrangement may be appropriate when:

• multiple suppliers can, or are necessary to, meet the requirements
• the needs or requirements of participating organisations are diverse or likely to change
• the costs or risks of limiting competition between suppliers or the choice and flexibility for buyers outweighs the expected benefits of offering exclusivity
• prices, fees or rates are indicative or may fluctuate
• developing relationships with multiple suppliers can improve responsiveness and fulfilment of requirements
• participating organisations aim to simplify or streamline their supply base or the procurement process while providing choice and flexibility for buyers.

Multiple supplier arrangements may take the form of a:

• supplier panel (i.e. a standing offer with two or more selected suppliers)
• register with multiple pre-qualified suppliers.