Put simply, procurement refers to the process or act of sourcing or obtaining goods or services.
Procurement is an essential part of all industries, no matter how large or small. Whether you realise it or not, you are part of a procurement process, either as a business owner, a vendor, an adviser, a tender respondent, a purchaser, a contractor, a compliance officer, a contract manager, landlord, tenant, customer or an employee.
As an example, the agribusiness sector procures machines, equipment, stock, chemicals, goods and services and deals with suppliers, contractors and purchasers on a daily basis.
In construction projects procurement is essential to securing all goods and services necessary to bring the project to completion in a timely and cost effective manner. Procurement is very important in relation to building and infrastructure and encapsulates timeliness, quality, pricing, risk mitigation, communication and administration.
Ultimately, good procurement results in client satisfaction which is often measured by the ‘value for money’ proposition.
All tiers of government conduct large and small scale procurement processes that often involve expressions of interest, tenders and probity measures to meet compliance requirements. The procurement process in government is often complex, as it must also stand up to the public interest test, political issues, the media microscope and a range of additional legislative compliance and internal policy measures.
Government procurement involves teams of specialist procurement officers, while the private sector will often rely on industry experience, commercial acumen and the assistance of advisors such as valuers, lawyers, accountants or specialist service providers to a relevant industry group.
In certain scenarios the type of procurement may require use of an independent probity auditor to provide an objective opinion as to whether requirements have been adhered to, and an evaluation panel to evaluate tenders.
Many businesses will conduct what is known as ‘direct procurement’, which simply means when sourcing goods, materials and services, the company will rely on its good relationships with direct procurement vendors in negotiating the best outcomes. From time to time, the three tiers of government (Federal, State and local) may also enter into direct procurement arrangements where their internal policies and processes allow them to do so.
Procurement will include the process for:
- review of responses;
- payment negotiation;
- final selection;
- contract negotiation; and
- ongoing management of contract (depending on the form of contract).
The procurement process involves the use of various forms of agreements and contracts including:
- Expression of interest;
- Request for tender (RFT);
- contracts for services;
- distribution agreements; and
- contracts for the purchase of goods.
When handled correctly, the process can create considerable risk mitigation and cost saving to the procuring entity and can be the difference between profit or loss.
The main aim of the procurement is to boost efficiency and ensure that maximum value is derived from the process while minimising risk.
Clearly the procurement process isn’t the same for all businesses and entities and will vary according to specific needs and requirements that will determine how the process is undertaken and governed.
There are many legal matters to consider in any procurement process, ranging from:
- advising on strategic options;
- preparing and reviewing documentation;
- the preparation of industry specific suites of documents
- due diligence investigations
- governance and probity advice and;
- general advice on the legal framework relevant to the procurement being undertaken.
It is crucial that all contracts, documentation and processes comply with all relevant laws and it is for this for this reason that the contracts and templates used should be drafted by a lawyer and comply with the jurisdiction they are being used in. Examples may include expressions of interest, tenders, contracts for the provision of goods and services, distribution agreements, and contracts for sale, amongst many others.
It is important that those involved in procurement comply with consumer protection law in Australia which provides effective and fair regulation of the marketplace. This ensures consumers are treated fairly by businesses and are kept safe from harmful products, and provides remedies for when things go wrong.
Consumer protection law in Australia includes the Competition and Consumer Act 2010 (Cth) (CCA). This replaced the Trade Practices Act and retains many important features of that Act. The CCA is regulated by the Australian Competition and Consumer Commission (the ACC) who are responsible for ensuring that businesses comply with their obligations under the CCA.
In South Australia, the agency responsible for fair trading is the Consumer and Business Services (CBS) and the Fair Trading Act 1987 (SA) incorporates the ACL as a law of South Australia.
What can we do to help?
Depending on the types of goods and services being procured, there are many other laws that need to be considered in the procurement process and contracts generally. If you are involved in a business or entity that procures goods and services, Mellor Olsson can assist you with general advice on your rights and obligations and also prepare the necessary agreements and other documentation.
Our team can also provide advice on governance and probity for larger organisations or government entities who require a level of assurance to delegates and suppliers. This will ensure that a procurement has been conducted in a manner that is fair, equitable and defensible.
Mellor Olsson can also create a comprehensive tender process plan which includes advice on process, structure, probity issues, drafting documents, implementing and monitoring compliance.