Context
State Purchase Contracts are a procurement arrangement established when multiple entities have a common requirement for frequently purchased goods and or services, and value for money can best be achieved through aggregating demand.
The Victorian Government and the Victorian Government Purchasing Board (VGPB) have adopted a strategic approach for procurement through the establishment of State Purchase Contracts to improve value-for-money outcomes and drive continual improvement over the life of a contract.
This strategic approach is based on the development of a business case that justifies proceeding with a State Purchase Contract.
Priority will be given to creating additional value for public expenditure on goods and services through alignment of entity requirements, and by aggregating purchasing demand into State Purchase Contracts for use by the inner and outer budget sectors.
Departments and administrative offices will be referred to collectively as inner budget entities and are bound by VGPB policies. Statutory authorities, Government Business Enterprises and other government organisations that are only partly funded by government will be referred to collectively as outer budget entities and are not bound by VGPB policies.
Policy Framework
State Purchase Contracts (SPCs) are standing offer agreements used to purchase common use goods and services to provide more effective and efficient procurement. SPCs do not have fixed expenditure limits as they are not an individual procurement activity. The indicated expenditure is an estimate based on the anticipated use by the entities bound to the agreement. SPCs can involve arrangements with one or more suppliers for a set period of time, incorporate a schedule of rates and performance levels, and usually require no obligation on the State to purchase a particular quantity of the goods or services.
Individual entities will be encouraged to take lead entity responsibility for the development of a SPC in areas where the entity has specific knowledge, market information and business drivers relating to the goods and services being sought.
SPCs are either mandated or non-mandated for inner budget entities. The preferred arrangement is mandating the use of SPCs across a defined number of entities, to ensure the optimal value for money solution for government while providing the framework for continuous improvement in collaboration with the supplier over the term of the agreement. SPCs can be used by outer budget entities who commit to the requirements of the agreement.
A comprehensive business case is used to establish a SPC to determine the benefits of aggregating demand, the optimal path to the market and the scope of entities to be bound by the contract.
Previous arrangements known as Open SPCs, Whole of Government (WofG) contracts and Open Standing Offer Agreements (OSOAs) are no longer stand alone arrangements under the SPC policy. The operation of these previous arrangements can exist as either mandated or non-mandated SPCs.
Key Requirements
1. Categories
SPCs fall into two categories which define the scope:
1.1. Mandated
Established as a standing offer agreement(s) when there is strong and ongoing demand generally in all or the majority of inner budget entities for common use goods and services that generally can be readily or broadly defined in advance (for example commodities and some professional services). These arrangements include the following features:
- scope of the entities mandated to use the SPC are determined in the business case;
- accessible by outer budget public entities that subscribe to the requirements of the agreement and the Rules of Use; and
- accessibility can be extended by the Minister for Local Government to Municipal Councils. Those councils electing to participate must subscribe to the requirements of the agreement and the Rules of Use.
1.2. Non-mandated
Established as a standing offer agreement(s) where there is strong and ongoing demand generally in all or the majority of inner budget entities for common use goods and services that generally can not be adequately defined in advance, (for example broad markets, with a diverse range of services and a large number of suppliers such as some ITC services). These arrangements include the following features:
- considered as a second option to mandatory SPCs;
- must not to duplicate the scope and specification of mandatory SPCs;
- value-for-money outcomes are not enhanced by mandating its use;
- access is optional; and
- entities that use the arrangement must subscribe to the requirements of the agreement and the Rules of Use.
Whilst the two categories above comprise the framework for establishing SPCs, it is anticipated that mandated SPCs will be the general arrangement for inner budget entities.
2. Contract Arrangements
SPCs are structured as standing offer agreements that involve a head agreement between the lead entity and supplier(s). The head agreement can cover matters such as the terms and conditions of contract, performance requirements as well as how entities are to purchase under the head agreement using a standard purchase order or equivalent.
SPCs can be structured as follows:
- sole or multiple suppliers (multiple suppliers constitute a panel arrangement);
- open or closed panels (where open panels are able to accept new suppliers at set or other times during the contract period whereas closed panels are restricted to the suppliers engaged at the commencement of the contract);
- brokerage services model; and
- Software Licence Enterprise Agreements (SLEAs) which are agreements to supply multiple software licences and associated services on a whole of government or entity basis.
Panel arrangements may vary in complexity and the number of panellists. Guidance is provided below on the selection and use of both.
2.1 Closed panels
Closed panels are typically established through a contestable process that results in a set number of panel members for a given period of time. Closed panels may be appropriate when:
- fixed prices, fees or rates apply;
- there are specific requirements such as specialised skills and knowledge;
- regional or area based suppliers are needed to ensure responsiveness; and
- product differentiation exists in the marketplace.
2.2 Open panels
Open panels are also typically initially established through a contestable process and allow for the addition of new service providers through subsequent procurement or qualification processes. The lead entity must document how potential ‘new’ suppliers are to be added to the panel contract and the circumstances and evaluation criteria for doing so. Open panels may be appropriate when:
- prices or rates are indicative and may change up or down;
- there is diverse expertise or a large number of suppliers in the market place;
- the requirement is broad;
- the market is emerging or immature, and there is a likelihood of new entrants and changes over time;
- the contract term is particularly long;
- new products, providers and technologies are constantly emerging; and
- where there is a strong potential for the government’s purchasing power to influence the market, which would be restricted if the panel was closed to new entrants.
2.3 Number of panel members
The indicative number of panel members should be determined in the SPC business case development phase and preferably indicated in the Request For Tender and finalised at the conclusion of the evaluation phase.
The following factors should be considered in determining the size of the panel:
- the anticipated amount of work to be performed;
- the need to provide choice of providers for users;
- the type and breadth of work to be performed and whether individual panel members are able to fulfil all requirements;
- the cost to the panel members in relation to the estimated work obtained; and
- ensuring a reasonable level of work for the number of panel members.
3. Aggregated Demand for Establishing SPCs
The basis for establishing a new arrangement will be aggregated and aligned user demand supported by an analysis of factors documented in a business case.
Unless it is clearly shown not to be the best-value option, the approach is to maximise aggregated demand and appoint a sole supplier. Where this is not the best-value option or a risk analysis shows that there is a greater risk than the benefit of a sole supplier, consideration should be given to establishing a panel of suppliers. However, the number of suppliers on a panel arrangement should be minimised to ensure as far as practicable, the equitable distribution of supply opportunities.
Where an entity has an existing standing offer agreement for goods or services covered by the proposed SPC, the entity is to migrate to the SPC when its initial contract period excluding options expires. A request to execute an option to extend the entity’s existing standing offer agreement must be approved by the Minister for the lead entity responsible for the SPC.
Before a SPC is established, significant outer budget entities should be invited to participate and contribute to the predicted aggregated demand. Outer budget entities with high levels of transactions and/or expenditure are to be contacted by the lead entity during the development of a business case and where appropriate, their specifications for goods and services will be considered. The lead entity will also need to include in the aggregated demand any requirements where there are significant cost penalties in remote area delivery or a specific high risk demand. Where additional costs (e.g. for remote delivery) or a higher risk profile is involved, the decision on whether these entities should be included in aggregated demand or purchasing from an SPC require a separate agreement from the lead entity and the contracted supplier(s).
Note: Where there is significant procurement by other entities from a Sole Entity Purchase Contract , consideration must be given to transitioning the arrangement into an SPC and a cost benefit report undertaken.
4. Business Case Planning
Robust business case planning must be undertaken for each proposed SPC.
4.1 Business Case Report
A business case for a new arrangement should address some or all of the following:
- project scope;
- benefits and costs;
- organisational resource and management requirements for the SPC initiation;
- stakeholder analysis (including both the inner and outer budget sector organisations where appropriate);
- demand analysis;
- spend analysis;
- market analysis;
- potential impact of aggregation on small businesses
- sourcing options;
- risk analysis;
- optimal path to market and tender strategies;
- contract/category management strategies;
- reporting strategies;
- resourcing and training; and
- scope of entities to be bound by the contract.
Prior to renewing a SPC, a high level review of the original business case should be undertaken to update the basis for re-establishment of the SPC. The recommendation to renew the SPC is to be approved by the Accountable Officer for the lead entity.
4.2. Supportive Role of Entities
The role of the entities includes:
- assisting in identifying potential SPC opportunities, including working with DTF to collect procurement data to assist in developing a SPCs work program;
- taking the lead on establishing new SPCs (lead entities should be those best placed to undertake the particular SPC activity, for example, those with a sound knowledge of that specific market for goods and services or is a predominant user for the goods or services);
- providing input into the development of SPCs when not the lead entity;
- participating in project teams to develop tender specifications for new SPCs and evaluate bid responses; and
The Minister for Finance may request an inner budget entity to assume the lead entity role where the entity spend comprises a significant component of the total spend for a specific category or where the entity has particular knowledge of a specific spend category.
4.3. Market Approach
RFTs include the following:
4.3.1. General
- State the proposed number of suppliers;
- Arrangements (if any) to allow for other entities access in the future;
- Proposed Rules of Use for accessing the contract;
- Contract/category management arrangements.
- State that the contract is closed for the term of the agreement.
- State that the contract is open, and the frequency and process for refreshment.
5. Governance Arrangements
5.1. Role of Lead Entity
The key responsibilities for the lead entity are as follows:
- Minister for Finance and the VGPB are responsible for formally approving the business case (including the scope of mandated entities) and the strategy for engaging the market.
- Accountable Officer for the lead entity is to take into account any comments by the Minister for Finance prior to approaching the market.
- Accountable Officer for the lead entity (or financial delegate) is responsible for approving the procurement process prior to the award of a contract or agreement to a tenderer(s).
- Accountable Officer for the lead entity is also to formally inform the Minister for Finance and VGPB of the outcome of the market engagement stage.
- Minister for the lead entity (or financial delegate) is responsible for authorising the contract on behalf of the government.
5.2. Role of DTF
DTF will take responsibility for communicating the SPC policy by developing technical standards and strategic priorities, to foster the establishment of SPCs.
DTF will work collaboratively with other entities to identify and analyse aggregate spend and SPC opportunities. This role is to foster cooperation within government, provide a better understanding of government’s business needs, and seek a whole-of-government alignment of specifications for goods and services delivery.
5.3. Granting of Exemption for Mandated SPCs
5.3.1 Exemption required at the Business Case Planning Phase
Where a SPC business case proposes to mandate an entity, the entity may apply for an exemption in the following circumstances:,
- It is able to obtain value for money from an alternative arrangement;
- A security risk will exist if the entity is a party to the proposed SPC.
The entity must prepare a business case in support of any alternative arrangement to the SPC proposed.
The Minister for Finance is responsible for granting an exemption from the SPC, impose conditions or refuse the request.
5.3.2 Exemption from an Established SPC
The SPC category/contract manager may grant an exemption from an established mandated SPC where the entity can demonstrate special circumstances have arisen in relation to sourcing from the SPC including:
- Where a supplier is no longer able to effectively service a regional area;
- Regional suppliers within regional Victoria can offer the same or better value for money.
Note: Under the Regional Sourcing Policy, amongst other things, departments are not bound to source requirements under $25,000 from a SPC where services are delivered outside of the metropolitan area. However the SPC must be used where it specifically caters for regional supply ie. the contract provides a supplier or outlet in the regional area or the contract conditions note a regional supply obligation.
6. Contract and Category Management
The lead entity responsible for managing an SPC must maintain effective contract and category management practices throughout the period of the contract.
A key consideration for contract and category management practices is exploring opportunities for continual year-on-year improvement in value for the life of the contract.
Lead entities for SPCs are to report to DTF on the impact of the contract on a quarterly basis during the contract period. This report should include the benefits and any significant issues, and DTF will produce reports on all SPCs for distribution and discussion with relevant parties.
6.1 Rules of Use
The Rules of Use established for the SPC determine the procurement process to be undertaken when engaging a supplier from a SPC for a particular procurement need. The Rules of Use should be as simple and efficient as possible and the effort to engage a supplier should reflect the benefits identified in establishing the SPC.
- Rules of Use for SPCs should at a minimum detail:
- who can access the SPC;
- contractor selection process (if not a sole supplier);
- engagement process;
- approval process after supplier selection;
- management/support obligations; and
- FAQs.
The Rules of Use for the contract supersede normal procurement processes including quotation and tender threshold requirements.
6.2 Contract Variations
6.2.1 SPC Head Agreements
6.2.1.1 Administrative Variations to the Head Agreement
Approval of administrative variations to the head agreement, and individual contracts under the head agreement; is the responsibility of the contract/category manager for the SPC/SEPC head agreement.
6.2.1.2 Financial Variations to the Head Agreement
SPCs and SEPCs have estimated expenditure limits based on estimates of potential usage. Increases to the estimated expenditure are, therefore, different to increases to a fixed amount documented in a contract for a ‘one-off supply’. An adjustment to an estimate of expenditure does not constitute a financial variation or a breach of Supply Policies.
A person with the appropriate financial delegation is to approve any financial commitments or change in the estimated expenditure.
6.2.1.3 Extensions to the Head Agreement
Extensions of a contract beyond the original term, including any options, and beyond initial agreed period, after review of an updated business case, require approval by Accountable Officer of the lead agency.
6.2.2. Purchase Order Contracts (i.e. purchase from a SPC)
The Rules of Use are to detail the approval process for variations to a purchase order contract from a SPC. There is no requirement to obtain further APU/VGPB approval, unless the entity has adopted internal procedures for further reporting/review.
6.3 Options to extend a SPC
Before exercising an option to extend, contract/category managers are required to consult with stake holders at least six months before the expiry date to ascertain:
- level of satisfaction with the current arrangements;
- support for a renewal or extension; and
- transition requirements.
Where actual usage significantly exceeds the estimate expenditure, lead entities are required to assess whether options to extend the contract (when options apply), is in the best interest to the government.
7. Collecting Procurement Data
Strategic Sourcing, DTF are responsible for monitoring the use of each SPC.
DTF will collaborate with entities to collect procurement data to facilitate decisions on priorities for potential new arrangements to apply across all or a cluster of entities.
8. Eligibility for Non-Government Bodies
Subject to lead entity approval, eligible (tax exempt) non-government bodies associated with philanthropic or other public benefit activities may purchase from a SPC by committing to comply with the Rules of Use.
9. Contract Publishing Systems
Where relevant, the lead entities is responsible for updating the estimated spend of each SPC on the Contracts Publishing System on a bi-annual basis, with appropriate explanation on contract use.
Entities are required to report individual purchase order contracts over $100 000 on the Contract Publishing System.
Other requirements
Training and Education
Where a entity is responsible for leading the development of a SPC the project manager must:
- have attended an appropriate procurement course; or
- competency based (accredited) training or;
- have the skills and expertise to manage the establishment of the SPC.
Related VGPB Policy and DTF Guidelines
Good Practice Guidelines - State Purchase Contract Business Case (697 KB DOC)
VGPB Conduct of Commercial Engagements Policy
Strategic Sourcing Policy
Tender Processes and Tender Documents Policy
Open and Selective Tendering for purchases in excess of $150000* Policy
Category Management Guidelines (346 KB DOC)
Related DTF Templates and Forms
SPC Business Case Report Template (229 KB DOC)
SPC Exemption Request Template (73 KB 1.DOC)
Agreement for the Provision of Services (SPC) (405 KB DOC)
Agreement for the Supply of Goods Template (SP) (295 KB DOC)
Links to relevant websites
Nil
Version Control Information
 Version Number | 9.1 |
Release Date | 27 July 2011 |
Further Information | Strategy and Policy, Government Services Division, Department of Treasury and Finance |
Phone | (+613) 868 32944 |
| vgpb@dtf.vic.gov.au |
