Part 5: Competitive processes
5.1
Decisions on how to approach the market are best made in the context of a public entity’s procurement strategy.
5.2
Depending on the value and risk of the procurement, competitive processes can involve verbal quotations, written quotations, or formal written tenders or proposals.
5.3
In principle, advertising an open request for tender or proposal should be the preferred method for higher value and/or higher risk procurement (quadrants 2, 3, and 4 of Figure 2). It offers all interested suppliers fair and equitable opportunity, and allows a range of competing offers to be evaluated when assessing value for money. However, the method should be appropriate to the market for the particular goods or services, and the circumstances of the procurement. These considerations may mean that an open call for tender or proposal is not practicable or cost-effective, or may not produce the best procurement outcome.
Quotations
Verbal quotations
5.4
Verbal quotations provide a quick and convenient way of exploring the market and determining availability and price for low value, low risk goods or services.
Expectations
5.5
We expect that using quotations will not change the requirement for good procurement practices.
5.6
The procurement objective is still to achieve value for money (that is, a combination of quality, reliability, timeliness, service, and whole-of-life cost).
5.7
The value and risk of the procurement and the number of potential suppliers should determine the number of quotations the public entity will seek.
5.8
Records of decisions, including reasons for recommending and deciding on the selection and rejection of offers, should be kept in a manner that facilitates audit and other normal processes of accountability.
Guidance
5.9
A public entity’s relevant policies and procedures should include guidance on requesting verbal quotations. The guidance should cover the need for the person requesting the quotation to have a clear, written statement of the requirements and any questions to ask before speaking to suppliers. This helps to ensure that they seek the same information from suppliers and can properly compare the goods or services offered.
5.10
When staff have received pricing and all other details from suppliers, they can then appropriately decide which supplier to procure the goods or services from.
5.11
The public entity’s guidance should also specify the need to record the reasons for selecting a particular supplier and maintain an audit trail.
5.12
If staff are only getting quotations, they need to be careful when talking to suppliers to avoid inadvertently making a verbal promise to purchase from the supplier.
Written quotations
Expectations
5.13
Our expectations are the same as those required for verbal quotations (see paragraphs 5.5-5.8).
5.14
As the value and risk of these goods or services is likely to be higher, the process and documentation should be more comprehensive. However, the process and details recorded should still depend on the value and risk of the goods or services.
5.15
The value and risk of the procurement and the number of potential suppliers should determine the number of quotations the public entity will seek.
Guidance
5.16
A public entity’s procurement policies and procedures should include guidance on the process that should be followed when requesting written quotations.
5.17
The emphasis, time, and detail given to each stage of the process should be proportionate to the value of the goods or services being procured and the level of the risks involved. In every case, however, the process should:
- define the need and specification;
- establish the potential sources of supply;
- get the appropriate approval for the procurement;
- seek written quotations;
- evaluate responses and select a supplier;
- get approval for the decision;
- advise the decision – when the evaluation process is completed, both the successful and unsuccessful participants should be advised of the decision; and
- monitor performance of the service provider.
5.18
There must be a clear understanding of the goods or services to be procured. Generic product names or descriptions may be adequate.
5.19
A public entity should provide guidance on the information sources that may be used to ascertain potential service providers – for example, previous orders, common use or period contracts, newspapers and trade journals, telephone directories, catalogues, and the Internet.
5.20
The evaluation process should provide a fair comparison between the responses. The evaluation should be conducted by staff with the relevant skills and knowledge appropriate to the value and importance of the procurement. Conflicts of interest should be declared and resolved. The same evaluation method should be applied to each response. The selected quotation should provide the best value for money when evaluated against the evaluation criteria. When the responses have been evaluated and a supplier selected, a short report should be produced outlining the findings of the evaluation process, the recommendation, and reasons for the recommendation (especially if the supplier offering the lowest price is not recommended). For smaller, less complex procurement, the reasons for the selection may be noted on the relevant procurement documents.
5.21
The recommendation to accept a quotation should be approved by a staff member with the appropriate delegation. The staff member should satisfy themselves that the best offer, as measured against the evaluation criteria, is being accepted.
5.22
The performance of the supplier against the specifications and requirements needs to be monitored. Any goods or services that do not meet the specified requirements should be rejected and the supplier advised. Instances of poor performance should be documented for future reference. Invoices should be reviewed before they are paid to ensure that the goods or services have been accepted and the invoice amount is correct and in line with the agreed terms and conditions.
Competitive tenders or proposals
5.23
There are many expressions used both in government and the private sector that relate to the process of inviting tenders or proposals from the market:
- A registration of interest (ROI) or expression of interest (EOI) is generally used to request information from suppliers that may be used to identify potential suppliers before seeking tenders or proposals. Usually the information sought is high level and specific.
- A request for proposal (RFP) is a formal means of seeking proposals for goods or services where the public entity is open to innovation on the part of a supplier – that is, where the outputs and outcomes are important, not the process the supplier follows to deliver them. The RFP therefore normally invites suppliers to make a proposal based on specifications, with scope for variety and innovation. This method is usually used to seek a solution to a problem or process.
- A request for tender (RFT) is a formal means of seeking tenders to provide goods or services. It is used where the public entity’s specification or requirements are clearly defined and there is little room for flexibility or innovation. An RFT is often based on technical, highly prescribed specifications. This method is often used in the construction industry.
5.24
In complex procurement activities where the public entity needs to learn more about the goods or services or the market, it may be helpful to use a multi-stage process:
- Stage 1: An ROI or EOI is issued to find out more about the goods or services, the market, and the capability of suppliers to satisfy the procurement need.
- Stage 2: An RFP or RFT is issued requesting suppliers to submit an offer for goods or services or propose a solution.
- Stage 3: The public entity evaluates the tenders or proposals received at stage 2 and awards a contract to the preferred supplier.
5.25
In addition, a public entity may include another stage between stages 2 and 3 – the best and final bid, where the public entity invites the most promising of the suppliers from stage 2 to submit their final bid.
5.26
It is important that a public entity using a multi-stage approach clearly understands the purpose of the approach.
5.27
Multi-stage processes are time consuming and expensive for all parties. They should only be used for goods or services categorised as high value and high risk. In these circumstances, a multi-stage process may reduce tendering costs.
Closed and open tenders
5.28
The method of inviting tenders or proposals may also be “open” (all possible suppliers are invited to respond) or “closed” (only some of the possible suppliers are invited to respond). A closed tender or proposal involves inviting a predetermined list of suppliers to respond without an open pre-selection or pre-qualification process as part of a multi-stage process.
5.29
Part 7 sets out our expectations and recommended guidance on conducting a tender or proposal process.
Registered or qualified supplier lists
5.30
A variation on the open or closed tender or proposal process is pre-qualification using registered or qualified supplier lists.
5.31
Pre-qualification is a method where a public entity assesses suppliers of particular goods and/or services against predetermined criteria and then invites only those suppliers who satisfy the pre-qualification criteria to respond. The public entity generally includes suppliers that are successful in meeting the pre-qualification criteria on a database it maintains.
5.32
Pre-qualification in itself does not form a contractual or legal relationship between the public entity and the pre-qualified supplier. Essentially, the supplier has simply met preliminary standard criteria and will be required to meet other evaluation and performance criteria as part of a procurement process.
5.33
Pre-qualification differs from multi-staged procurement and panel contracts in that there is no specific contract in mind when suppliers are pre-qualified. Although there is the potential for pre-qualified suppliers to win many tenders or proposals over time, pre-qualified suppliers are not necessarily given any guarantee of work. Similarly, pre-qualification is not normally used to get price information from suppliers.
Expectations
5.34
A public entity should carefully consider the need for a pre-qualification process. For example, pre-qualification adds no value and is not an appropriate procurement strategy when procuring off-the-shelf goods or services where there are several sources of supply and the value is low.
5.35
Government departments should also be aware that the Mandatory Rules for Procurement by Departments contain specific requirements relating to registered or qualified suppliers.
Guidance
5.36
A public entity’s relevant policies and procedures should include guidance on:
- the information that is required from potential suppliers;
- the method the public entity will use to evaluate registered or qualified suppliers for inclusion on the list;
- who will approve a supplier’s inclusion on the list;
- the way the list will be maintained;
- the way suppliers will be notified of the results; and
- the documentation and records of the process and the results of the process that need to be retained for probity and audit processes.