Approaching the market
What to consider when approaching the market
Each agency is responsible for its own procurement.
That said, an agency must use any whole-of-government contract to buy any goods or services unless it has a procurement exemption [Anchor LINK].
An agency approaching the market should always consider 8 factors:
- How to best achieve value for money over the full lifecycle of the goods or services.
- What impact different ways of approaching the market will have on long- and short-term competition.
- The benefits and risks associated with different ways of approaching the market.
- Its role in promoting and sustaining viable NSW-based industry.
- Its obligation to act transparently and ethically.
- Its capacity to manage both the approach to market and procurement process.
- Any relevant government policies.
- How its actions will impact on other agencies’ procurement processes.
This means in some circumstances a full open tender may be the best course of action; in other limited circumstances, it may be more appropriate to negotiate directly with suppliers.
What does an agency need to do before approaching the market?
Before approaching the market any agency must have:
- the intention, commitment and authority to proceed
- an approved and adequate budget and
- arrangements in place to manage all stages of the process and outcome.
Important documents and reference materials
- The Procurement Policy Framework [LINK:].All agencies should be guided by the document when approaching the market.
- Procurement Board Directions contain specific rules agencies must adhere to when approaching the market depending on factors such as:
- their accreditation status
- the value of the procurement
- the nature of goods and services and
- the risks involved.
- The Agency Accreditation Scheme for Procurement Guidelines sets out how agencies are accredited and what this means for the way they can procure goods and services.
- Our Engaging with Industry page sets out the broad principles agencies follow for engaging with industries, including information on market sounding, bidders’ conferences and indicative approaches to market.
There are three systems agencies can access for sourcing suppliers.
For sourcing ICT cloud products or services.
For advertising tenders and prequalification schemes. Suppliers can also respond using the same portal. All upcoming and closed business opportunities and awards of contracts of more than $150,000 are also listed.
For seeking and awarding requests for quote (RFQs) from suppliers on prequalification schemes.
There are some instances where an agency does not have to approach the market using a competitive process. Instead, it can purchase directly from certain types of suppliers, up to defined values, even if there is a whole of government contract in place.
In these instances, the agency should always make sure it is still achieving value for money [LINK: ]. It may be able to do this, for example, by confirming the price quoted is similar to market rates.
Anyone within an agency using a procurement exemption must also check if the agency’s specific requirements or policies limit the use of these exemptions due to safety, security or infrastructure considerations. They should also make sure they seek internal approval and follow the agency’s delegations manual.
Agencies may purchase directly from any supplier.
PBD-2019-04 Approved Procurement Arrangements [LINK: ]
Agencies may purchase directly from a small business (a business with fewer than 20 full-time equivalent employees, including sole traders and start-ups).
SME and Regional Procurement Policy[LINK: ]
PBD-2019-03 Construction Procurement Opportunities for SMEs [LINK: ]
Agencies may purchase directly from an Aboriginal-owned business (any business that is recognised as an Aboriginal owned business through an appropriate organisation).
SMEs, for innovative trials
Accredited agencies may negotiate directly with an SME supplier to do proof-of-concept testing or outcomes-based trials.
Disability employment organisation
Agencies may purchase goods and services from an approved disability employment organisation via a single written quote.
Traditional ways to approach the market
Where an agency does not meet these criteria, there are eight non-complex and low-risk methods agencies can use to approach the market, outside of directly negotiating a contract. Each of these is discussed in more details below.
- open request for tender (RFT)
- selective or multi-stage request for tender (RFT)
- limited tender
- request for quote (RFQ)
- expression of interest (EOI)
- request for proposal (RFP)
- best and final offer
What to do before choosing a method for approaching the market
Before selecting any of these methods for approaching the market, an agency should always make sure it has engaged with industry to acquire an informed understanding of the market for the good or service it is looking to procure.
Read more about industry engagement [LINK: industry engagement]
An agency should also consider:
- any special requirements for the work, products or services
- the work capabilities and commitments of suppliers in the market and
- its ability to monitor and assess supplier performance.
Different procurement methods are appropriate in different scenarios. What’s best usually depends on the value, complexity and timing of the procurement, as well as the nature of the market for products or services itself.
For instance, frequently purchased goods and services with a mature market are often best procured through a selective tendering process with prequalification scheme. The best approach to market in these circumstances may be a request for quote (RFQ) from prequalified providers.
Meanwhile, when it’s unclear who can supply a good or service or whether a market for it even exists, an expression of interest (EOI) is likely to get a better result because it allows an agency to determine whether there are any suppliers who can meet its requirements.
In an open RFT, there are no restrictions on who can submit a tender. Every tenderer needs to demonstrate how they satisfy the evaluation criteria and meet any specific requirements.
Benefits of an open RFT
An open RFT encourages competition among tenderers. That means it can be an effective way of ensuring value for money, especially where there is no accurate price data or it’s unclear who can carry out the procurement.
When to use an open RFT
An open RFT tends to be effective when:
- there is a broad and competitive market for goods or services
- that market is dynamic and subject to change
- the procurement has a high value, and
- there’s likely to be a lot of interest from the market.
A multi-stage RFT (sometimes also known as a selective RFT) involves 2 stages.
- Stage 1. The agency identifies suitable prospective suppliers. These may already be pre-qualified or new suppliers can be asked to apply via an Expression of Interest (EOI) [LINK:EOI].
- Stage 2. The agency shortlists those applicants who have the demonstrated ability to fulfil the procurement. It usually then invites at least three of these shortlisted applicants to tender for a contract or for several contracts in an ongoing work program. Although, this may not be required for low value or unusual projects.
Choosing suppliers to tender under a multi-stage RFT
To determine whether to invite a potential supplier to tender, an agency should consider:
- the supplier’s past performance under similar contracts, both to the NSW Government and other organisations
- any previous tenders the supplier has made to NSW Government
- the special requirements of the work, product or service
- the supplier’s capacity to deliver and their relative skill or ability, and
- the supplier’s current commitments
- any performance measurement results or reports on the supplier’s performance in the NSW Government system and
- the supplier’s location and the areas in which they already work.
Benefits of a multi-stage RFT
A multi-stage or selective RFT can be an effective way to reduce the cost of tendering both for an agency and for suppliers. It can also help an agency quickly identify the best and most qualified providers of a good or service, especially in a mature marketplace.
When to use a multi-stage RFT
A multi-stage RFT can be an effective way to approach the market when an agency:
- is looking to establish a panel of providers for ongoing work
- wants to establish several potential providers for a single contract, or
- wants to identify the best provider for a complex or unusual procurement.
In a limited tender, an agency issues an RFT only to those suppliers it analyses to be most capable of delivering the work, product or service. This might include the agency’s prequalified suppliers, suppliers prequalified by other agencies or suppliers who they can contract on a standing-offer basis.
Although in a sense RFQs are a type of limited tender, this method of approaching the market can go even narrower to include inviting just one supplier to tender.
This may be justified where an open or limited tender was held but:
- no tender was submitted
- no tender that was submitted complied with the RFT’s requirements, or
- no tender satisfied the conditions for participation and the agency does not want to modify them.
Benefits of a limited tender
A limited tender can be an effective way of securing goods or services quickly and efficiently.
When to use a limited tender
A limited tender can be an effective option:
- in emergencies
- for specialised work
- when the agency knows only one or few suppliers are capable of undertaking the work, or
- for low-value, off-the-shelf procurement.
A request for quote (RFQ) involves inviting potential suppliers to provide a price quote for specific goods or services.
Benefits of a RFQ
An RFQ can be an efficient way to obtain quotes from a pool of pre-qualified or existing NSW Government suppliers.
When to use an RFQ
An RFQ can be an effective way to approach the market for low risk, low-to-medium-value contracts for well-defined goods and services that can be purchased using standard terms and conditions.
In an EOI, an agency seeks to find out whether there are suppliers who are interested in undertaking and capable of performing, specific work.
At this stage, no pricing information is required and no contract is awarded. Instead, after the EOI process is complete, the agency’s evaluation committee can assess all applications before shortlisting potential suppliers and inviting them to tender.
Benefits of an EOI
An EOI can:
- Allow an agency to genuinely ‘test the market’ to determine whether a good or service is available
- Help keep costs down for suppliers because only those who can realistically supply the goods are invited to go through the entire tender process
- Help keep costs down for agencies because there are fewer tenders to evaluate. can also help
- Foster competition between potential suppliers by providing many parties with the opportunity to compete for government business.
When to use an EOI
An EOI can be useful when an agency is uncertain about the nature of the good or service to be procured, or the best way to supply it. It allows an agency to determine whether products and services are available and evaluate who can supply them, independent of any price considerations.
An RFP lets an agency draw out a detailed response to a specific need, idea or business solution. The RFP should contain criteria evaluating a suppliers expertise, experience and capacity to deliver the good or service.
As with an RFT, an RFP should be the first step in a multi-stage procurement process. Once proposals have been received, an agency can shortlist suitable suppliers and invite them to tender. Alternatively, it may choose to negotiate directly with the most appropriate supplier on both the scope of work and price.
Benefits of an RFP
An RFP can help agencies tap into new and potentially innovative approaches and solutions. It can also help an agency explore multiple solutions to one problem or need.
When to use an RFP
An RFP can work well when:
- the final product or solution is well-defined but there are different ways to achieve it, or
- the agency wants an innovative solution or wants to explore different ways of delivering a service or product.
An agency may invite potential suppliers to make a “best and final offer” as a second or subsequent stage of the procurement process. Any agency considering using this approach should foreshadow it in its approach to market documents.
Complex market engagements
- Justify in detail the suitability of its approach in the procurement strategy. For direct negotiations and sole-sourcing arrangements, this should include a comprehensive risk assessment and analysis of the market demonstrating why a competitive process is not necessary.
- Follow its internal delegations process. This usually involves getting the approval of the Chief Procurement Officer, or someone executing the functions of this role. Sometimes, it may also involve getting the approval of a more senior executive within the agency, especially if the engagement is high-value or high-risk.
A managed services contract (MSC) can be used to procure a total service offering.
[NB. What does 'procure a total service offering' mean?]
They are becoming increasingly popular for ICT contracts where ICT ‘as a service’ is replacing the traditional buy/build and internally-managed procurement process.
MSCs must be consistent with the Procurement Policy Framework. Any agency undertaking an MSC must:
- assess value-for-money
- balance risk
- recognise the greater freedoms and responsibilities now assigned to agencies (especially accredited agencies)
- be consistent with the Board’s Value for Money Statement, [LINK: ] and
- keep in mind the Board’s approach to whole-of-government arrangements.
To minimise the risk associated with MSCs, agencies should also make sure:
- the MSC agreement explicitly states the full price of the services
- they can demonstrate that the full cost of the agreement over its life will be less than the cost of traditional arrangements
- any individual agreements doesn’t diminish the economies of scale that a whole of government arrangement could achieve
- it properly assesses any residual value risks, and
- it understands the Public Authorities (Financial Arrangements) Act 1987 if it intends to include a finance lease in the agreement.
Non-traditional approaches to procurement
- encourage innovation and
- acquire goods and services in a more cost-effective and resource-efficient way.
Types of buying arrangements
Regardless of which method of approaching the market an agency chooses, there are generally two types of buying arrangements.
Agencies most commonly buy goods and services using a government contract. These have a start and end date and may come with extension options.
Prequalifications schemes have no fixed term. While suppliers must go through an extensive assessment process they are usually free to join or leave at any time.
More information on buying arrangements
Read more about buying arrangements at s3 Negotiating and Awarding Contracts [LINK: ]
Running the tender process
How long should a tender period last?
Minimum tender periods for contracts up to $100 million
Minimum tender period for complex procurements and contracts over $100 million
Extending a tender period
Extending a tender after issuing an addendum
Dealing with late submissions
- the lateness is the result of the agency’s own action or failure to act or
- the agency considers that no other tenderer will be disadvantaged.
How many quotes or tenders should you obtain?
- When sourcing from the NSW Government Prequalification Scheme, an agency should follow the guidelines recommended in Procurement Board Direction 2013-03.
- For high value and prescriptive contracts, an agency should use its discretion to make sure there is enough competitive tension to ensure value for money.
Who bears the cost of a tender?
External advisers precluded from tendering
Agencies’ obligations to suppliers
Duties of disclosure when approaching the market
- The Premier’s Memorandum 2001-07 sets out an agency’s requirements for disclosing tender information. Specifically, it states that tenders should be included on the eTenders website. [NB the LINK to the memorandum is dead. Also, the original copy is vague. Is our statement correct?]
- The Government Information (Public Access) Act 2009 Pt 3 Div 2 sets out an agency’s disclosure requirements for any contract valued at more than $150,000.
- Procurement Board Direction 2013-06, which directs each NSW government principal department to progressively publish a Strategic Procurement Outlook Statement and Procurement Contract Information on the eTenders website. [NB again, this is vague. We’re unsure if this is what it means].
Obligation to minimise information requested
At every stage of the procurement cycle, an agency should seek to minimise the amount and type of information they seek from potential suppliers. Consistent with this, an agency must:
- include as early as possible in contracting documents and communications, the type and amount of information they’re seeking. This extends to any documents issued after the contract has been awarded.
- only require a potential supplier to provide information that is necessary for assessing a proposal.
- ask for information at the latest possible stage of the contracting process and only then from suppliers it is still considering.
- not ask for the same or similar information at more than one stage of a multi-stage procurement process. However, it can ask a potential supplier to supply additional information or for clarification on whether information previously provided is still current.
- not ask for publicly-available information unless it is necessary to confirm its accuracy or validity.
Asking a supplier for information
Whenever an agency asks a potential supplier for information it should:
- provide options as to the format for supplying that information
- use industry standards and commonly-used terminologies
- only ask for financial information at the contracting stage on low-value contracts
- not ask for financial information at the prequalification stage or when creating a standing offer, and
- inform the potential supplier when information it provides may be released publicly or to other agencies.
Preparing a contract
When preparing any contract, an agency must:
- describe any information it is likely to require, as well as the formats in which this information can be supplied and the frequency it will be requested.
- not ask for information, unless:
- it is required by law
- it will be used to assess the delivery of goods and services under the contract, or
- it will be used to assess performance.
- give the potential supplier the option of giving other NSW Government bodies permission to access the information.