Non-traditional methods and complex market engagements

These methods could help you tap into innovative procurement approaches and solutions.
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What you need to know
  1. Non-traditional methods can often help you deliver more innovative and cost-effective solutions. You should always consider them where appropriate.
  2. Non-traditional methods include using managed services contracts (MSCs), reverse auctions and direct negotiations.
  3. These methods also often carry greater risk than traditional methods, so you must carry out a proper analysis before proceeding.

When to consider a non-traditional method or complex market arrangement

Whenever it’s appropriate, consider using non-traditional procurement methods:

  • managed service contracts
  • strategic commissioning
  • direct negotiation
  • reverse auction
  • unsolicited proposals.

These often involve giving suppliers more scope to suggest their own solutions and can:

  • encourage innovation
  • result in goods and services being procured in a more cost-effective and resource-efficient way.

That said, non-traditional approaches often come with more risk than traditional ones. For this reason, you must always be able to justify why you’ve chosen your approach. You must also follow any relevant agency and government policies and procedures.

So long as you do, you’re likely to find that using these ways to approach the market opens up exciting, even cutting-edge, new ways of procuring goods and services.

Managed services contract (MSC)

You can use an MSC when you’re procuring a total service offering. These contracts are service level agreements that outline both parties’ responsibilities, such as minimum service time and payment terms.

MSCs are becoming increasingly popular for ICT contracts. That’s because ICT ‘as a service’ is replacing the traditional buy/build procurement method and internally-managed procurement process.

Establishing an MSC is a complex task. For this reason, you should always do it with the support of your procurement team or Chief Procurement Officer.

Any MSC you enter into needs to be consistent with the Procurement Policy Framework. That means you must always:

To minimise some of the risks that come with MSCs, you should also make sure:

  • your MSC agreement explicitly states the full price of the services
  • you can demonstrate that the full cost of the agreement over its life will be lower than the cost of using traditional arrangements
  • your agreement still achieves comparable economy of scale to a whole-of-government arrangement
  • you properly assess any residual value risks, and
  • you understand the Public Authorities (Financial Arrangements) Act 1987 if you intend to include a finance lease.

Strategic commissioning

Strategic commissioning involves developing a commissioning process that lets you access, deepen and develop supply markets. In this sense, it’s broader than simply contracting, purchasing or procuring.

Read more about strategic commissioning on the NSW Treasury website.

Direct negotiation

In special circumstances, you can negotiate directly with a supplier without a competitive tender. This is also known as sole sourcing.

You should only use this approach when it’s clear it will deliver the best value for money.

Direct negotiation may be appropriate if you’ve already held a tender but no tenderer could meet your requirements due to non-conformance gaps. You can also use it when the market consists of just one supplier. However, you should always be careful about making this assessment.

Before negotiating directly you’ll need to get high-level authorisation from the appropriate delegate in your agency. You must also take into account ICAC’s direct negotiation guidelines for managing risks.

Reverse auction

In a reverse auction, bids reduce rather than increase as the auction progresses.

You’d usually carry out a reverse auction on a secure online platform such as eTendering, where registered suppliers can log in and bid.

Traditionally, in a reverse auction, price is the main - or only - consideration for evaluating bids. Where it’s not, you should have mechanisms for also evaluating each bid on quality and reliability.

Reverse auctions are becoming increasingly popular in some jurisdictions. However, in Australia, government agencies have been slow to adopt them.

This is partly because reverse auctions are not always popular with suppliers, who often associate them with ‘bid shopping’. This is the practice of pitting one supplier’s price against another to drive down costs.

As price is central to reverse auctions, they can also make it difficult for SMEs to compete.

You should always carry out a thorough assessment before choosing this procurement method.

Unsolicited proposals

Sometimes the most effective and original ideas for procurement will come from unsolicited proposals, although they must not be used as an alternative to a routine competitive procurement.

Unsolicited proposals are assessed and managed by the Department of Premier and Cabinet.