The Purchasing and Disposals Division of the Department of Local Government and Administrative Services has general responsibility for purchasing of stores and services for the Australian Government and its Departments and certain statutory authorities. (The State Governments have their own purchasing arrangements).
Functions of the Division include the purchasing of goods and services at the request of departments and certain authorities where the estimated value of each requirement exceeds the public tender threshold (currently $ 20 000) and the arrangement of contracts for the supply of common-use goods and services required by government bodies.
In 1983-84 the Division arranged 1770 contracts to the value of $ 505 million, including 179 period contracts for common use amounting to $ 87.3 million. On 30 June 1984 the Division had on hand 722 proposals for contracts to be made or renewed for amounts totalling $ 235 million.
In 1985 the Australian Audit Office completed an audit at the Victoria and New South Wales (NSW) Regional Purchasing and Disposals Offices (RPDO) of the Division. The audit examined procedures adopted by those Offices and several departments and authorities in NSW.
Cetralisation within the Purchasing and Disposals Division of arrangements for the purchasing of common-use supplies is largely a policy matter. The audit did not address the broader question of the extent to which in terms of net public benefit the balance lies in favour of-
Rather, the audit concentrated on whether, within the general policy framework, procedures and practices were of a satisfactory standard.
The audit found that significant purchases in NSW were made outside the contracts arranged by the Division. A similar situation appeared to exist in other States. Audit concluded that the Division's arrangements for collective^ purchasing were inadequate.
Set out below is a summary of the more significant Audit findings and recommendations.
The Australian Government's "Commonwealth Purchasing Manual", issued in March 1984, defines common-use supplies as goods and services used by, or with potential for use by, two or more departments or authorities where purchase can be coordinated through a contract to their mutual advantage. Audit found that there was confusion within the Purchasing and Disposals Division and outside regarding the Division's role and there were no clear criteria to determine common-use goods and services.
There was also some confusion as to which region or regions were responsible for common- use contracts and to what extent.
Audit recommended that the Division's role in the provision of arrangements for common-use purchasing be more clearly promulgated and promoted. In particular, the Division's role in relation to that of other departments and the responsibilities of each RPDO should be clearly established.
Audit found that the eligibility of statutory authorities and semi-government institutions to utilise Commonwealth period contracts was also unclear. The Commonwealth Purchasing Manual stated that eligible bodies include 'Commonwealth departments, statutory authorities and bodies which are not in competition with the private sector, and which are funded directly by the Commonwealth'. However, the Division had given little consideration to the common-use needs of entities other than government departments.
Audit recommended that the question of access by non-departmental government bodies to common-use contracts be resolved, the Division's role in this respect also be promulgated and adequate consideration be given in future to the requirements of all defined users for such services.
Audit found that the Division, when requiring departments to use period contracts, relied on a particular legislative provision concerning use of existing Commonwealth contracts as its authority. On a strict interpretation, however, the legislative provision did not apply to period contracts, because they were not legal contracts but only standing offers to supply goods and services.
Audit recommended that the legal position regarding period contracts under Commonwealth contracts legislation be clarified.
Audit observed that adequate performance standards for all operations associated with the Division's common-use purchasing arrangements had not been established. As a consequence, the management information systems in use were not adequate to monitor performance at the Section, Region and Division levels. Audit noted that basic management information in many instances was not readily available or was unreliable. For example:
Audit noted that statistics were manually collected by Central Office each week from summaries required to be published in the Commonwealth Gazette of contracts for $ 2000 or more placed by government departments. Audit considered that, if comprehensive data were required, the Division should also seek to obtain data on contracts by departments and authorities that were not required to be notified in the Gazette. The Division should also liaise with the Australian Government Publishing Service with a view to accessing the required data from the computer typesetting tapes prepared for the publication of the Gazette.
Audit noted that the Division had not implemented any systems to monitor areas of procurement that may or may not be suitable for collective purchasing. One example of a potential addition to items covered by common-purchase arrangements arose from an internal review conducted by the Victoria RPDO which identified potential cost saving through the introduction of period contracts for office machine consumables. The savings were conservatively estimated at $1 million per annum.
Audit recommended that the Division monitor more closely the market and the types of goods and services acquired by departments and authorities to allow the prompt identification of areas where the Commonwealth might benefit from the introduction of collective purchasing.
The Division had officers in each RPDO and the Central Office to answer enquiries regarding the availability of period "and specific contracts and to distribute contract notifications to departments and authorities. These officers should be in a good position to detect a need for a period contract, but there was no formal mechanism in place to initiate such a contract.
Audit recommended that responsibility for identifying areas of procurement suitable for collective purchasing be formalised and that appropriate procedures and mechanisms be introduced.
Period contracts should be arranged on the basis of careful estimates of the quantity likely to be required so that, in negotiations with suppliers, full advantage of bulk purchasing may be obtained. Preparation of such estimates requires information about past and current usage.
In arranging contracts for new requirements or renewing contracts that have expired, the Division normally provided an estimate of both the quantities expected to be required during the period of the contract (usually three Years) and the value of the contract. In a minority of cases only the estimated value of the contract was provided and the estimated quantity was omitted.
Examination of period contracts arranged for the supply of common-use goods and services by the Victoria and NSW RPDOs revealed that the estimates used were not soundly based. Audit noted that there was insufficient consultation with users as potential users of period contracts when determining the quality, quantities and specifications to be included in new or replacement contracts.
In some cases Audit found no evidence to support contract quantities or values used, while in other cases figures from earlier contracts were used or merely increased by an arbitrary factor of 5% or 10%. Audit was concerned that the Division had failed to specify requirements adequately. There were many instances of replacement contracts that merely specified the same quantities or values as the previous contracts, and those quantities or values were estimated without a sound basis when first made up to six years earlier.
Instances were also observed where details of quantities supplied by previous contractors were inaccurately represented by the Division to prospective tenderers. This situation arose where details for quantities supplied for part of a contract period were obtained and represented as estimates of the quantities required for the whole of the contract period. Examples indued ball point pens represented as 1.3 million units instead of 10.7 million units and rulers represented as 4000 units rather than 131 000 units.
Significant underestimation of demand for items available under period contracts reduced the ability of the Commonwealth to obtain its requirements at the lowest possible prices and provided an unfair advantage to previous contract holders when contracts were to be renewed. Where demand was significantly overestimated complaints from suppliers were likely even though the Commonwealth provided no guarantees regarding the quantities that may be required under a contract. Audit considered that information provided to potential suppliers should be as complete and accurate as practicable.
Audit examination revealed that specifications from earlier contracts were re-used in many instances when tenders were invited for renewal of contracts. It was apparent that specifications in some cases were out of date and were as originally set several years ago. Audit recommended that the suitability of specifications for common-use items be reviewed each time contracts are arranged. Audit also recommended that the Division's methods of establishing specifications and quantifying expected demand for common-use items be reviewed and formalised.
For effective management of collective purchasing, the requirements of each component or section of an organisation should be identified to see whether requirements of a like nature should be aggregated and obtained under one contract.
A number of contracts arranged separately by RPDOs for specific departments and authorities involved the supply of similar, or even identical, goods and services. Examples noted during the audit in NSW included the hire and maintenance of pot plants, supply of security patrol services, waste removal and laundry services, In Victoria examples included security services word processors, newspapers, journals and magazines.
Examination of contract documentation for many of the supplies mentioned above disclosed inadequate consultation with existing users and potential users of the contracts to ascertain the total current and expected demand. Some departments and authorities, independently of the Division, negotiated their own contracts for these supplies.
Audit recommended that, where savings from bulk purchasing would result, action be taken to amalgamate contracts for the supply of similar services at various locations within appropriate geographical areas. Audit also noted that little use was made of contracts for classes of supplies available from supplier chains such as hardware, tools, wines and spirits. Audit recommended that the feasibility of this form of arrangement for common-use purchasing be evaluated.
The RPDOs were required to compile lists of potential suppliers that may be accessed by departments and authorities and for use as mailing lists for the despatch of Requests for Tender where contracts were arranged by the Division.
Audit found that additions were made to lists upon request from potential suppliers, but deletions were seldom made. Tender documents were despatched using lists that were significantly out of date. Audit considered that financial and administrative resources of the Division were being wasted. For example, where contracts had recently been arranged by the Division, responses to tender invitations were not received in more than 50% of the cases sampled.
The RPDOs had implemented a resubmit system where files were normally brought forward approximately six months before the end of a period contract so that action could be initiated to renew the contract if necessary. However, Audit observed that in most instances contracts were arranged several weeks after the nominal commencement date of the contract and/or the expiry date of the previous contract.
Some contracts due for expiry were simply extended rather than replaced by new contracts. Extensions varied from three to twelve months. It was noted that some contracts were extended up to 4 times. Although extending a contract sometimes represented the most efficient purchasing option, there was the danger that, because of the less frequent testing of the market, multiple extensions of contracts would detract from the ability of the Division to arrange contracts at the best possible prices and terms. Audit recommended that processing time be assessed on a case by case basis, having regard to resources available and the complexity of the contracts, and that efforts be made to complete processing within the scheduled processing time.
For collective purchasing to be effective purchasing officers should have information such as whether a contract exists for the goods or services required and whether the quality, quantity, price, delivery and other contract conditions are suitable.
The Division had implemented a number of systems to disseminate contract information to users and potential users of period contracts. Audit found several defects in the system: the information was inappropriately classified, not indexed and not sufficient For purchasing officers to assess the suitability of contracts or to place orders with suppliers.
Audit concluded that the dissemination of contracts information was unco-ordinated, late and ineffective.
There was an obvious need for an information system designed to meet the specific requirements of end users in departments and authorities. Audit recommended that consideration be given to the introduction of a comprehensive system for prompt dissemination of accurate contracts information.
The Division was responsible for the administration of the common-use contracts that it arranged.
The Division relied on complaints from user departments and authorities to detect unsatisfactory performance by suppliers. However, there was no formal mechanism to ensure complaints were investigated and action taken particularly where complaints were notified by telephone. Audit recommended that all complaints regarding contractor performance be formally registered.
Audit was concerned that the major function of the Division which employs considerable resources had not received adequate internal audit coverage over recent years.
Numerous external and internal reviews of the Division's functions have been conducted in recent years but Audit had difficulty in identifying any significant resultant improvements. Internal audit's responsibilities should include reporting on progress made within the Division to rectify deficiencies identified by external and management reviews.
Audit recommended that internal audit reviews be regularly programmed for the common-use purchasing function.
Audit found significant purchases by departments and authorities of common-use goods and services outside the contracts arranged by the Division. There were four main factors that had contributed to this situation:
Audit concluded that the Division's arrangements for procurement of common-use supplies were inadequate.
In response to the audit the Purchasing Division conceded that there were problems and shortcomings in the Division's common-use purchasing function. A proposed system for obtaining information about purchases coupled with improved client liaison would lessen the incidence of absence of suitable contracts.
Improvement of the period contract awareness service would reveal the existence of usable State government contracts. Major enhancements of the method of dissemination of contract information should increase the awareness by purchasing officers of suitable contracts. A formal procedure for taking action on complaints regarding period contracts was expected to provide valuable information about contracts which for some reasons eg minimum order quantities were unsuitable.