SME and Regional Procurement Policy - buyer guide

Updated: 27 Aug 2020
Guidance for buyers on the SME and Regional Procurement Policy.

1. Policy context

1.1 Purpose

The NSW government values the economic and social contribution offered to NSW from small and medium enterprises (SMEs).

The SME and Regional Procurement Policy progresses the government’s commitment to grow NSW’s economy through supporting SMEs and local jobs and skills through government procurement. As part of this policy, a range of additional reporting and monitoring obligations will help government to better understand the participation of SMEs and local businesses within the government supply chain.

This guide aims to support government agencies in understanding their requirements and permissions under the policy.

The partner guide, the SME and Regional Procurement Policy Supplier Guide, aims to assist suppliers in understanding the policy initiatives and how they may benefit from these.

1.2 Procurement principles

All procurement under the policy is to be consistent with the principle of value for money, as outlined in section 171 of the Public Works and Procurement Act 1912 and in a manner that is fair, ethical and transparent.

1.3 Objectives

Government procurement provides significant opportunities to suppliers of all sizes to grow.

Given the importance of small and medium enterprises (SMEs) within the NSW economy, the NSW Government is committed to ensuring that SMEs have the necessary support to compete fairly to provide goods and services to the NSW Government.

Thepolicy has 4 primary objectives:

  • supporting local businesses, start- ups and innovation and primary industries
  • building SME capability to supply to government
  • making supplying to government easy for SMEs
  • listening to local businesses and measuring participation.

1.4 Application

This policy applies all procurement of goods and services (except construction) by NSW Government agencies, as defined in Part 11 of the Public Works and Procurement Act 1912.

Agencies that must apply this policy include:

  • government departments
  • executive agencies related to a department
  • statutory authorities and trusts established by legislation for a public purpose.

This policy does not apply to local councils and state-owned corporations.

1.5 Commencement

NSW Government agencies must apply this policy to all goods and services procurement commencing from 1 February 2019.

Agencies are encouraged to assess whether there are opportunities for SMEs to participate in a procurement activity early in the process. A procurement activity starts when an authorised officer approves an approach to market to select a supplier. This includes approval to commit expenditure directly with a specific supplier, such as for lower value purchases where there is no competitive tender process.

1.6 Definition of a small and medium enterprise

For the purpose of this policy, an SME is an Australian or New Zealand based enterprise with fewer than 200 full-time equivalent (FTE) employees.

A local business has the same definition as an SME.

A small business is defined as an enterprise with 1-19 FTEs including sole traders and start-ups. A medium business is defined as an enterprise with 20-199 FTEs.

There is no associated revenue limit for an SME within this policy.

Ceasing to be a small and medium enterprise

Where an SME is engaged under this policy and ceases to become an SME through growth (either natural growth or by acquisition), the SME will no longer be able to take advantage of the initiatives outlined in this policy.

Regional NSW is all areas within NSW outside the greater Newcastle, Sydney and Wollongong metropolitan areas. A list of regional Local Government Areas is available on ProcurePoint and in Appendix 1 of this guide.

1.7 How to use this guide

This guide outlines how suppliers should apply the SME and Regional Procurement Policy throughout the procurement process to ensure that SMEs and regional businesses have the greatest opportunity to succeed in supplying to government.

A summary of the policy initiatives is found in Appendix 2 -Summary of requirements and permissions.

For more information and assistance contact nswbuy@treasury.nsw.gov.au

2. NSW Government and agency obligations

2.1 Compliance and reporting

2.1.1 Reporting requirements

Agencies must incorporate supplier SME and sustainability commitments into agreements and monitor compliance as part of contract management activities.

An online reporting portal is being developed to simplify the reporting process. An interim reporting tool is available to assist agencies and suppliers.

Agencies must ensure suppliers are made aware of their obligations under this policy as early as possible in the procurement process.

2.1.2 Non-compliance

Agencies should regularly test their compliance with the mandatory requirements of the NSW Government Procurement Policy Framework including this policy.

Where an agency is unable to apply the SME and Sustainability criteria the agency will need to provide the reasons for not complying with this requirement in the procurement strategy and obtain Executive approval.

2.2 Agency procurement planning

Agencies should provide as much advance notice to prospective suppliers as possible, particularly for larger procurements: This can be done by:

  • working closely with the NSW Industry Capability Network (ICN) to identify and connect upcoming opportunities with SMEs and local suppliers.
  • publishing an advance notice on eTendering ahead of the tender, and/or notifying relevant local or industry organisations.
  • reviewing and updating their annual procurement plans throughout the year for publishing on eTendering.

Agencies must provide pre and post tender briefings when reasonably requested by SMEs and regional suppliers to clarify requirements and provide feedback on unsuccessful bids.

Pre-tender briefings should provide suppliers with:

  • an overview of the tender process
  • indication of evaluation criteria including any SME participation requirements
  • the timeframe to conduct the evaluation and award the contract
  • general information on the final contract.

It is an opportunity for potential tenderers to clarify requirements, ask questions and seek guidance on the tender process.

Agencies should provide tender briefings for all significant or complex procurements to allow suppliers to better understand the requirements. To ensure all suppliers have equal access to tender information group pre-tender briefings are recommended rather than to individual suppliers, to ensure all suppliers have equal access to tender information.

Pre-tender briefings should give enough visibility to the tender, include all key information needed by the suppliers, and provide the same level of information to all suppliers. For example, all supplier briefings, responses to enquiries, issuing of addenda and management of late tenders, should be responded to in an open and honest manner.

Agencies must not intentionally split purchase requirements into components or a succession of orders for the same (or similar) goods and services to obtain them under the thresholds in this policy.

Agencies should carefully consider the requirements placed on suppliers, considering the impact on SMEs competing for government work. Where there are essential requirements that may exclude SMEs, agencies should consider other means to encourage SME participation in the contract, for example through participation targets or sub-contracting.

2.3 Exemptions from purchasing from whole-of-government contracts

2.3.1 General exemption

Government agencies may purchase goods and services valued up to $10,000 (excluding GST) from any source, despite those goods or services being available on

whole-of-government contracts. This is provided that the supplier’s rates for the goods or services are reasonable and consistent with normal market rates.

2.3.2 Small business exemption

Government agencies may purchase goods and services valued up to $50,000 (excluding GST) from a small business, despite those goods or services being available on

whole-of-government contracts. This is provided that the supplier’s rates for the goods or services are reasonable and consistent with normal market rates.

Agencies should note that small businesses are a type of SME, that has fewer than 20 FTE staff.

2.3.3 Purchasing using a single quote

Agencies must first consider purchasing from a regional supplier for procurement in a regional area. If the procurement is not in a regional area, then the agency must first consider purchasing from an SME whenever direct procurement is permitted, up to a value of $250,000 (excluding GST).

Agencies must also consider this requirement when selecting suppliers from prequalification schemes, panel contracts and standing offers and where only one quote is required. If the agency determines there is no suitable SME or regional supplier to fulfil the contract, they may then consider other suppliers on the scheme or panel.

Where the opportunity for direct engagement is not practical and will not deliver value for money, agencies are not be required to apply this requirement.

Priorities included in this policy may at times overlap with the Aboriginal Procurement Policy, the Australian Disability Enterprises (ADEs) provisions in the Public Works and Procurement Regulation 2014 and other government priorities. The provisions should be considered in parallel. In practice, government priorities often align, for example Aboriginal-owned businesses and ADEs are often themselves SMEs.

These preferences are compliant with International Procurement Agreement (IPA) obligations. They fall within exemption provisions and/or are under the thresholds for covered procurements.

2.3.4 Procurement Innovation Stream

Accredited agencies may directly purchase from an SME for short-term contracts of up to

$1 million for proof of concept or outcomes-based trials. The test or trial should be designed to demonstrate the feasibility of a good and/or service to solve a specific problem or improve government service delivery.

The following conditions apply:

  1. the supplier agrees that the agency is permitted to publish a report on the use of its products or services
  2. the agency publishes a report on the outcome of the trial within 21 days of its completion (see below)
  3. the procurement must be approved by the agency’s Chief Procurement Officer or agency head.

Agencies are permitted to procure one or more goods or services as part of the test or trial and should test all goods/services against a ‘control’ wherever possible. Where this is not possible, agencies should consider using data or information available about the same or similar products or services being used by other entities with the Australian public sector.

When assessing value for money prior to entering the trial, the agency should not assess the down-stream benefits of a successful trial as being greater than ten percent of the direct benefits of the trial.

Proof-of-concept testing should only be used to prove that a particular good or service can feasibly meet a business need and/or to identify costs with its (potential) wider use. Proof- of-concept testing cannot alone identify the preferred procurement solution.

Unless agreed otherwise, any intellectual property created during the course of the test or trial is retained by the supplier, and the agency should not be licensed for its ongoing use.

In meeting its obligation under (2) above, the agency is to publish a report on the ProcurePoint website about the test or trial, including:

  • a statement by the agency as to why the test or trial was undertaken
  • the identity of the supplier(s) involved in the test or trial, and whether the agency or the supplier-initiated negotiations leading to the test or trial
  • the value and duration of the test or trial
  • all data and findings associated with the trial, except where it is deemed commercial-in-confidence
  • the treatment of intellectual property created during the trial
  • whether the agency has any further procurements planned to arise from the test or trial.

Commercially-sensitive information may be withheld from publication, including the supplier’s intellectual property.

Following a successful trial period, agencies may continue to engage the SME for the supply of the goods or services obtained during the trial period using any suitable procurement method for a subsequent contract, including direct negotiation, subject to the NSW Government Procurement Policy Framework and agency procurement rules.

2.4 SME and sustainability criteria

For engagements that are expected to exceed more than $3 million over the life of the procurement arrangement, and where the supplier or suppliers are selected using a competitive process, agencies must assign a minimum 15% of the non-price evaluation criteria to considering how the tenderers will support the government’s economic, ethical, environmental and social priorities trough the contract. At least 10% must be allocated to SME participation.

If the procurement is covered by international procurement agreements, the criteria will need to be consistent with IPA obligations or align with relevant exemptions (see below, Consideration of International Procurement Agreements (IPAs)).

By leveraging even a small slice of the government’s spend to add sustainable value, communities and suppliers across the state can benefit.

Procurement weighting ratios %

Price

Non-price

Other non-price

Total sustainability criteria

SME commitment

Sustainability commitment

90

10

8.5

1.5

1

0.5

80

20

17

3

2

1

70

30

25.5

4.5

3

1.5

60

40

34

6

4

2

50

50

42.5

7.5

5

2.5

40

60

51

9

6

3

30

70

59.5

10.5

7

3.5

20

80

68

12

8

4

10

90

76.5

13.5

9

4.5

2.4.1 SME commitment in evaluation criteria

Evaluation criteria applied to assess the participation of SMEs should include considerations of:

  • the value of goods and services that will directly support SMEs
  • where appropriate, ask the tenderer to indicate how many SMEs will gain access to their subcontracting opportunities
  • being open to consortia bids from SMEs as this is one way in which small businesses can tackle large procurements

2.4.2 Sustainability commitment in evaluation criteria

Where evaluation criteria are applied to assess the participation of environmental, economic or social priorities the evaluation criteria could consider:

  • use of social enterprises in the supply chain
  • use of Aboriginal-owned businesses in the supply chain
  • engaging with disability enterprises to support the contract
  • supplier commitments to prevent or minimise the risk of modern slavery in their supply chain
  • initiatives to increase resource efficiency and reduce waste
  • if the supplier has an Aboriginal Reconciliation Action Plan
  • if the supplier has a Corporate Responsibility Action Plan.

This will also provide suppliers with the opportunity to innovate. The requirements should be outcome-orientated and encourage innovative responses from the market, such as partnering arrangements. SMEs can then form partnerships, joint ventures or consortia to deliver larger contracts.

These requirements must also establish measurable performance indicators that enable progress against the SME and sustainable procurement commitments to be monitored and verified.

2.4.3 Consideration of International Procurement Agreements (IPAs)

NSW participates in the government procurement chapters of several Free Trade Agreements (FTAs), including the Australia-United States FTA (AUSFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) and the World Trade Organisation Government Procurement Agreement (WTO GPA).

The government procurement requirements apply to 41 NSW government agencies, including all the principal government departments, and cover goods and services procurement valued above $657,000 (ex GST). Schedule 1 of the Enforceable Procurement Provisions (EPP) Direction identifies the agencies covered by the IPAs.

When applying the SME and Sustainability Criteria, government agencies must ensure the provisions comply with the IPAs, such as aligning with the exemptions listed below.

IPA exemptions

Some categories of procurement are exempt from the international procurement agreements, such as health and welfare services, education services, and motor vehicles. A full list of exemptions is provided in Schedule 2 of the EPP Direction.

All agreements exempt:

  • any form of preference to benefit small and medium enterprises
  • measures to protect national treasures of artistic, historic, or archaeological value
  • measures for the health and welfare of Indigenous people
  • measures for the economic and social advancement of Indigenous people.

All of the agreements also exempt the following, subject to the measure not being applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between parties where the same conditions prevail, or a disguised restriction on international trade:

  • the protection of public morals, order or safety
  • the protection of human, animal or plant life or health
  • the protection of intellectual property
  • relating to the goods or services of handicapped persons, of philanthropic or not for profit institutions, or of prison labour.

For procurement covered by the FTAs, agencies must treat a supplier from the other country the same as a domestic supplier.

Permitted initiatives and preferences

The exemptions allow the following initiatives and preferences to be applied:

  • SME First (first consideration for SMEs for direct procurements) – only applies to procurements under the IPA threshold, also a form of SME preference
  • SME participation – considered a form of SME preference so falls under the SME exemption
  • procurements from Aboriginal-owned businesses – falls under the exemption for measures for the economic and social advancement of indigenous people
  • procurements from disability enterprises – falls under the exemption for goods or services of handicapped persons.

Other provisions, such as requirements to report on modern slavery risks and commitments regarding resource efficiency, may also be permitted provided the requirements are applied fairly and equitably to all prospective suppliers. If in doubt, contact your legal team or seek advice from NSW Procurement.

2.4.4 Prequalification schemes

Procurement activities to establish prequalification schemes are exempt from applying the SME and Sustainability criteria however the criteria must be applied when suppliers are being selected from a prequalification scheme and the value of the procurement will exceed $3 million over the life of the contract. Buyers are responsible for applying the criteria and reporting.

2.4.5 Standing offer arrangements

Procurement activities to establish standing offer arrangements where the estimated spend with any supplier will not exceed $3 million over the term of the contract, or cannot be estimated, are exempt from applying the SME and Sustainability criteria.

The criteria must be applied to procurement activities to establish standing offer arrangements where the spend with every supplier is estimated to exceed $3 million over term of the contract. The contract manager setting up the head contract is responsible for applying the criteria and reporting.

For competitive processes under a standing offer arrangement or with an expected value of less than $3 million, agencies are also encouraged to apply these criteria.

2.5 Process and documentation

A key goal of this policy is to ensure that SMEs and regional businesses have equal opportunity to win government business when competing against larger enterprises.

Where the products and/or services may be too large for one SME to undertake alone, these enterprises should be given the opportunity to prepare tender responses by forming consortia and joint ventures.

To assist SMEs and regional businesses to respond to procurement opportunities agencies:

  • must specify a maximum length for tender responses on all market approaches to ensure that expectations for the length and complexity of responses are clear, and to assist smaller businesses with limited capacity to better compete against larger businesses in the proposal writing process.
  • must minimise tender and contract requirements including:
    • insurance and indemnity conditions that exceed the risk to government
    • lack of flexibility in setting supply volume requirements or geographic coverage
    • unnecessarily short supply or service times.
  • must ensure that tender periods allow enough time for prospective suppliers to price and prepare their responses. Agencies should consider the minimum tender periods outlined within the Market Approaches Guide PDF, 602.98 KB and note the requirements for procurements covered by IPAs as listed in the EPP Direction.
  • Should use standard tender and contract templates or clauses where possible.

2.5.1 Standard contract templates

Using standard contract templates can help to minimise supplier costs, particularly for legal advice, as SMEs may already be familiar with the contracts.

If a different contract document is used, ensure it is consistent with the following principles:

  • use simple structure: The contract structure should be easy to navigate and have clear relationships between its different parts. Label head agreement and schedules. Explain how the contract is structured and which parts come first. Place key terms in prominent positions. Agencies should be prepared to help SMEs understand contract agreements if required.
  • use plain English: The contract should be as brief as possible and written in plain English. Ensure suppliers, particularly SMEs, can understand the contract terms without legal review.
  • align commercial terms with the Procurement Board’s advice: Minimise types and levels of insurances; cap indemnities; allow for alternative dispute resolution mechanisms; a reasonable approach to ownership of intellectual property; limiting guarantees to necessary circumstances; fair compensation for termination for convenience; and carefully consider the approach to proportionate liability.

2.5.2 Establishing contract terms

Contract risk: Consider the risk profile of the goods and services, including whether there have been claims or problems in the past, and reflect this in the contract terms. Conduct a risk assessment and select insurances and other clauses relevant to the contract risk profile.

Contract period: Contract period may impact the participation of SMEs. For example, long contract terms may prevent SMEs not sufficiently established to enter into long-term contractual commitments. See the Procurement Policy Framework for more guidance on contract period.

Dispute resolution: Mediation is the preferred method of dispute resolution following attempts to resolve differences between the agency and the supplier in good faith. Expert determination should be avoided, especially where the goods or services are of low risk or low value.

Insurance: Identify the insurable risks to decide on the types and level of insurance suppliers will need to have.

Professional indemnity insurance should only be required if professional services are being provided and the risk assessment identifies a significant and insurable risk. Ensure requirements are reasonable taking into account the risk profile and value of the contract. Recognition should be given to professional liability limitation schemes. Check the levels of insurance in the standard contract templates for guidance, and consider if:

  • the type and level of insurance is available for SMEs
  • the cost of the insurance is prohibitive for SMEs
  • insurance is the preferred treatment for the risk or if there's another way to protect your ability to recover from supplier failures or errors (either alone or in combination with insurances)
  • for low-value and low-risk engagements, whether there is a need to have professional indemnity insurance at all.

See also: Mandatory use of the Treasury Managed Fund (TMF) for all government insurance requirements. View the Treasury Circular TC12-12 - PDF.

Intellectual property: Existing ownership of intellectual property should be undisturbed by the contract, so that whichever party owns existing intellectual property at the start of the contract will continue to own it. The default position is that intellectual property in the new contract material is to be owned by the supplier and the agency is to be given a perpetual, transferable, royalty free licence to use it, unless the nature of the goods or services warrants an alternative approach.

Guarantees: Financial securities, bank guarantees or performance guarantees should be limited to necessary circumstances.

Liability: As a rule, liability of suppliers to government agencies in the contract should be:

  • commercially realistic in terms of which party can control the risk
  • capped at an appropriate level for the nature of the goods or services (for example, at a multiple of the contract value).

Proportionate liability: The NSW Civil Liability Act 2002 allows for liability for loss to be apportioned between defendants proportionately. While the Act allows ‘contracting out' of proportionate liability, exercise this right only if the risk assessment justifies it.

Contracting out can pose disadvantages to both suppliers and government. For example, it can expose suppliers to significant liability regardless of the size of their contribution to the loss. It can limit competition because of higher insurance costs. Contracting out can reduce the range of suppliers, particularly SMEs. The supplier’s costs arising from contracting out may also be passed on to an agency through higher prices for services.

2.6 Contract management and reporting

Agencies will be responsible for monitoring supplier performance and ensuring the fulfilment of commitments made through the tender process.

2.6.1 Reporting – direct procurement

Where SMEs are directly engaged and paid for by agencies, NSW Procurement will monitor SME participation using existing spend data provided by agencies.

2.6.2 Participation of SMEs in larger procurements

For contracts with a value of more than $3 million in which SMEs are sub-contracted to a lead contractor:

  • Agencies are required to provide details through the interim reporting tool on the SME participation commitments and obligations made through the tendering and contracting process. The agency contract manager should then submit reports monthly to NSWP.Policy@treasury.nsw.gov.au with the email subject heading: APP/SME Reporting - (month/year) - (contract name) - (agency name)
  • Lead contractors are required to provide actual SME participation details monthly through the interim reporting tool throughout the delivery of the engagement and submit their sheet to the agency contract manager at the end of each month.

An online reporting portal is being developed to replace the interim reporting tool.

For contracts with a value of less than $3 million in which SMEs are sub-contracted to a lead supplier, the agency and lead supplier are encouraged to comply with this requirement where possible.

2.7 Supplier and agency feedback

To improve the opportunities for SMEs and regional businesses to win government business, agencies must provide feedback to both successful and unsuccessful suppliers when reasonably requested by SMEs.

Post-tender briefings help SMEs and regional businesses win future government business by providing feedback on the strengths and weaknesses in their tender responses.

Agencies must direct all suppliers towards the Supplier Feedback Tool. Suppliers can use that tool to give anonymous feedback on the procurement processes, including on the performance of specific agencies and specific procurement processes. The Tool is structured to ensure the feedback is constructive and specific to the procurement process rather than a supplier complaint mechanism.

This feedback will be monitored by NSW Procurement and reports provided to the NSW Procurement Board.

2.8 Faster Payment Terms Policy

NSW Government agencies must pay registered small businesses within 20 calendar days of receiving a correctly rendered invoice. In December 2019, this will change to 5 business days of receiving a correctly rendered invoice.

This improves support to small businesses and helps ensure they are paid on time.

View more information on the Faster Payment Terms on the NSW Small Business Commissioner website.