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Business cost savings on State Government contracts

South Australian businesses could save more than $20 million a year on tendering for State Government contracts if the procurement process was streamlined and improved, according to Visiting Research Fellow, Darryl Gobbett from the University of Adelaide’s South Australian Centre for Economic Studies (SACES).

In its first draft report published in March, SA’s new Productivity Commission says its inquiry into State Government procurement revealed that the business community thought it should be spending between 25% and 70% less time on preparing tenders for government contracts.

Mr Gobbett said his analysis of the Commission’s report indicated that the private sector outlaid about $70 million in 2016-17 tendering for government contracts valued at $5.1 billion.

“This is likely an underestimate, depending on the size distribution of non-reported contracts and the number of bids per contracts,” Mr Gobbett said.

“However, it would still suggest potential savings of over $20 million to the private sector per year if the possible time reductions noted by private contractors could be achieved.

“These could be early wins at little or no cost to the government at a time when the slowing national and SA economies are putting more pressure on local business,” he said.

SACES has been a long–term advocate of a State Productivity Commission and the incoming Liberal Government acted quickly to establish such a body after its election last year.

The Commission received its first reference from the State Government in October last year with a brief to examine the time and costs associated with procurement; the level of compliance by public authorities with government procurement guidelines and policies; the appropriateness of governance and reporting arrangements; the effectiveness of the Industry Participation Policy; the risk management framework used by public authorities to evaluate tenders; and interstate and overseas procurement practices.

“The SA Government requested a report with “recommendations on action the government should take to improve the effectiveness and efficiency of State Government policies and practices for the procurement of goods and services,” said Mr Gobbett.

“The Commission found a number of shortcomings – from both public and private sector perspectives – in the design, context and operation of State Government procurement processes. High on the list was a lack of knowledge and experience about local markets’ capability and the context of government purchases, and little understanding within the public sector of the concept of ‘value for money’.

The report notes: “The Commission has been advised it is difficult to attract appropriately educated and experienced procurement staff…. as a result, the Commission considers that an investment in training, career paths and a recognition that procurement professionals are strategic assets of the public authority will be needed to build that capability inside government.

On the ‘value for money’ issue, the Commission notes: “Feedback from agencies and business indicates that value for money is seen through the narrow lens of ‘lowest price’ as against broader government objectives, for example, supporting the development of competitive local businesses and environmental sustainability.

The report adds later: “The Commission’s view is the State Procurement Board guideline on value for money is unsatisfactory and provides limited guidance for officers in public authorities on practical application in the procurement activities they undertake.

The Productivity Commission’s draft report is currently being considered by the State Government with a final report due by the end of October 2019. The Commission’s terms of reference on procurement have been expanded to include prescribed agencies and capital goods in Stage II of its inquiry.

The SACES Independent Research Fund Advisory Committee at its most recent meeting welcomed the report by the State-based Productivity Commission and has agreed to provide input to the ongoing inquiry after the State Government responds to the draft report on Stage I.

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