Contracts and Procurement Part of today’s discussion will be around the LGA requirements and we will also cover some aspects of procurement regarding best practice, keeping in mind financial sustainability. Procurement is an area where costs can exceed budget expectations when correct procedures are not followed Whole of life costs should be part of the planning process to ensure financial sustainability.

Contracts Local government has the power to do anything that is necessary or convenient for performing their responsibilities, including entering into contracts When entering into a contract the local government must have regard for sound contracting principles

Procurement Local governments are major purchases of goods and services Simplified framework Sound Contracting Principles Long term financial plan Incorporate an investment policy Incorporate a procurement policy Procedural fairness

Sound contracting principles “Value for money; and Open and effective competition; and The development of competitive local business and industry; and Environmental protection; and Ethical behaviour and fair dealing.” S 104 Financial Management Systems To remove any doubt, it is declared that subsection (1)(a) does not require equal consideration to be given to each of the sound contracting principles. Weighted criteria

Value for Money How is value measured?

Cost Time Quality Safety

Situation – Temporary accommodation, short asset life Need – Bookcase Situation – Temporary accommodation, short asset life Criteria Expect Cost Low Quality Time High- Deliver now Temporary – no long term need Cost – keep expenditure to a minimum. Look for being available as a low margin commodity Quality – short life requirement, expect mass produced low quality products Time – the need is now. Seek availability “off the shelf.”

Low -Long delivery time Need – Bookcase Situation – Permanent accommodation, match existing style, high quality furniture, long life Criteria Expect Cost High Quality Time Low -Long delivery time Need – A bookcase with a long life, built to match other high quality furniture Cost – Would not be expecting a similar low cost to the previous example. Quality – Inherently high, solid timber, tradesman finishes. Time – Likely to be an individually fabricated item, hence need to allow for fabrication and delivery time.

Further discussion on Value for Money? Sustainability (Asset life, environmental impacts) Prudent and efficient expenditure

Ethical behaviour and fair dealing Equal opportunity Transparency Commercial-in-confidence Defendable decision making Open to challenge Another of the Sound Contracting Principles

Procurement Policy “A local government must prepare and adopt a policy about procurement The procurement policy must include details of the principles, including the sound contracting principles, that the local government will apply in the financial year for purchasing goods and services. A local government must review its procurement policy annually.”

Procurement Plan Council must resolve to adopt a procurement plan (as part of long term investment plan) that outlines: Proposed activities for the financial year How procurement principles will be applied How measured (value for money) Policy regarding delegations Significant procurement activities and policy for making a plan Market and Risk assessment A market assessment is an assessment of the relative cost and difficulty in securing supply under each type of contract.

Asset Disposal Plan Council must resolve to adopt an asset disposal plan that states: Proposed disposal for the financial year Identify significant disposal activities Strategies/principles How measured and recorded Market Assessment Risk Assessment

Estimating and budgeting Procurement Asset Creation Planning Estimating and budgeting Procurement Financial Sustainability - questions Repair/replace? New/ upgrade? Fit for purpose?

Planning Fail to Plan = Plan to Fail Stakeholder involvement What is the need for the asset? How will the need be satisfied? Does it comply with Council’s strategy and investment policies? What will be the success factors? Multi-criteria analysis Be clear what is needed Involve all stakeholders who will be impacted List all the expectations List the rocks in the road Identify risks Allows the projects to be correctly scoped Should all be included in the tender documents

Opportunity to influence project outcomes Concept is the same for any type of project – Creation of infrastructure, large or small; Procurement of new IT system

Opportunity to influence project outcomes

Opportunity to influence project outcomes

Discussion Question- Contingencies - what percentage to allow 5% 10% 15% Other

Discussion Question – Estimate contingencies – why are they included? Not sufficient costing experience with this type of work? Not sufficient knowledge of the site? Allowance for scope creep? Allowance for variations? Other? Contingency amounts calculated to cover cost of Risks

Direct Costs – People, Plant, Materials Indirect Costs – Admin, Approvals etc

A brown bag is required to be used as an overnight or weekend bag It will be used by family members. Family members have been consulted. It needs to be good quality It needs to be leather It needs to have shoulder straps It needs to have large waterproof external pockets each side Delivery time is flexible - but as soon as possible The Brown Bag ? A brown bag is required to be used as an overnight or weekend bag It will be used by family members. Family members have been consulted. It needs to be good quality It needs to be leather It needs to have shoulder straps It needs to have large waterproof external pockets each side Delivery is required now or within two weeks What is missing in the scope? Overall dimensions? Does it need a hard base? Able to tow along? Type of seams – glued? stitching? Fasteners on main bag and external pockets?

Project Scope Clear and unambiguous Include: Need for new asset Fit with Council strategies Design parameters Timings Constraints Links with other assets and projects Risks Multi-criteria for assessment KPIs

Variations Lump Sum contract – no schedule items to calculate cost Schedule of Rates contract – no schedule items to calculate cost if not included in tendered schedule Can result in major cost over-run, time delays and legal argument

Questions /discussion?