SA Local Government Procurement Forum “Value for Money” Amendments to the Local Government Act….. what does it mean?, how do you manage it? how do you justify? Bruce Fleming Senior Policy Officer - Financial Office for State/Local Government Relations Department of Planning and Local Government September 2010

Value for money Parliament has delegated to councils, by legislation, power over people’s lives and property that are exercisable only by governments – powers to tax, powers to make and enforce laws, powers to issue orders to land owners, and so on. The authority entrusted to councils as local governments must be exercised in the public interest, and councils must be accountable for its exercise. (Extract from Second Reading Speech to Parliament by Minister Gago, Minister for Sate/Local Government Relations, SA Government)

Value for Money Because of their powers, Councils must exhibit “good public administration” meaning that a council; acts with due care, diligence and foresight identifies and manages risks associated with a procurement makes informed decisions is accountable for the use of council and other public resources.

Value for money Procurement is; "the whole process of acquisition from third parties (including logistical aspects) and covers goods, services and construction projects. This process spans the whole life cycle from initial concept and definition of business needs through to the end of the useful life of an asset or the end of a services contract". (Review of Civil Procurement in Central Government, Peter Gershon, 1999, UK National Audit Office, Office of Government Commerce)

Value for money Definitions In the context of procurement, value for money has been defined as: –‘the best available outcome for the money spent in procuring the agency’s needs’ (Australia New Zealand Government Procurement Agreement) –the ‘best possible outcome for the total cost of ownership’ (guidance provided by the OAG) –‘the optimum combination of whole-of-life costs and quality (or fitness for purpose) of the good or service to meet the user’s requirement’ (HM Treasury, United Kingdom). How do you manage value for money in procurement?

Value for money Section 49 (1) of the LG Act states; A council must develop and maintain procurement policies, practices and procedures directed towards: (a) obtaining value in the expenditure of public money Value for money is not about achieving the lowest initial price: it is defined as the optimum combination of whole life costs and quality. How do you manage value for money in procurement?

Value for money Achieving VfM may be described in terms of the 'three Es' - efficiency, effectiveness and economy, of all activities where: a. ‘Efficiency’ means doing the same as before, but with fewer resources (money, staff, space). b. ‘Effectiveness’ means doing more than before with the same resources as now (or less). c. ‘Economy’ means doing less with fewer resources, i.e. making savings. (Annual Report on Value for Money, 2006, (KPMG) Imperial College London Central Secretariat) How do you manage value for money in procurement?

Value for money How do you manage value for money in procurement? (Annual Report on Value for Money, 2006, (KPMG) Imperial College London Central Secretariat)

Value for money Transparency and consistency Regulations Accountability Equitable access Efficiency and effectiveness Policies, practices and procedures How do you manage value for money in procurement?

Value for money is an assessment of elements that considers cost and non-cost factors Value for Money Non-cost factors including:  Fitness for purpose;  Technical and economic issues, such as technical performance, reliability and economic life;  Supplier capability;  Exposure to risk;  Availability of maintenance and support;  Compliance with specifications. Cost factors including: Whole-of–life costs: including:  Acquisition costs  Operating costs  Maintenance costs  Alteration and /or refurbishment costs  Support costs  Disposal costs  Transaction costs (Procurement Policy Framework - South Australian State Government)

Value for money An assessment of whether or not an organisation has obtained the maximum “whole of life” benefit from the goods and services it acquires and/or provides, with the resources available to it A measurement of the “actual” cost of goods and services And taking into account of the mix of quality, cost, resource use, fitness for purpose, timeliness and convenience of the procurement To judge whether or not the above, when taken together, constitute good value for money. How do you justify value for money in procurement? Involving:

Value for money Obtaining value for money refers to formulating procurement decisions that achieve the best possible outcome in both financial and non-financial terms in a timely and efficient manner, commensurate with the nature of the purchase. (Procurement Policy Framework - South Australian State Government) How do you justify value for money in procurement?