Informed procurement decision-making

This one in a series that has been developed under the New Zealand Government Procurement R
Growing world-class procurement
Informed procurement
decision-making
Avoiding disasters and other dilemmas
A guide for government agencies
June 2014
For procurement planning advice, questions or feedback, please contact MBIE’s policy
team: [email protected].
Government Procurement Branch | Ministry of Business, Innovation and Employment
PO Box 1473 | Wellington 6140 | New Zealand | www.mbie.govt.nz | www.procurement.govt.nz
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Contents
Introduction ............................................................................................................................................ 4
Special planning procedures ................................................................................................................... 4
Better business cases (BBC) ................................................................................................................ 4
Gateway review process ..................................................................................................................... 4
Significant business cases (SBC) .......................................................................................................... 4
Why planning is important ..................................................................................................................... 5
Our model ............................................................................................................................................... 6
Templates................................................................................................................................................ 6
Key planning documents......................................................................................................................... 7
1.
Business case............................................................................................................................... 7
2.
Procurement plan ....................................................................................................................... 8
3.
Combined business case / procurement plan ............................................................................ 8
4.
Evaluation panel recommendation............................................................................................. 9
5.
Negotiation plan ......................................................................................................................... 9
6.
Contract and relationship management plan ........................................................................... 10
3
Introduction
Good procurement planning and informed decision making are essential to delivering successful
results. This guide and templates provide a simple model to be used at project level (rather than at a
higher programme level), for standard procurements across the public sector.
Special planning procedures
There are three situations where a procurement must follow set planning procedures, which are
listed below. This guide does not cover these procedures in detail.
Better business cases (BBC)



This methodology is a Treasury initiative that helps stakeholders work together, to develop a
business case that is fit for purpose. The level of analysis gives decision makers confidence
that investing in the proposed project is justified.
BBC represents good practice and is mandated for all state sector capital investments that
require Cabinet decisions.
For more information, visit: www.treasury.govt.nz.
Gateway review process
This is a State Services Commission initiative that provides an assurance methodology for major
investments. It is an independent review that examines projects at key decision points in their
lifecycle, to provide assurance that they can progress successfully to the next stage.
This function is carried out by the commission’s major project assurance group. For more
information, visit www.ssc.govt.nz.
Significant business cases (SBC)
The review of SBC is a Ministry of Business, Innovation and Employment (MBIE) initiative that
provides a constructive peer review at the initial procurement planning stage.
The SBC covers projects that:
 have an estimated total value over the whole-of-life of the contract, of $5 million or more
 due to the nature or complexity of the procurement, would expose the agency or
government to significant risks if not delivered to specification, within budget and on time
 have the potential for cross-government collaboration or resource sharing.
The requirement to submit a SBC to MBIE for review is contained in the Government rules of
sourcing – rule 19. Under this rule, MBIE will review the procurement planning documentation and
provide feedback. The procurement planning may be contained in a business case, procurement
plan, sourcing plan or other similar document. For more information, visit
www.procurement.govt.nz.
Just want to get on with advertising your tender? Before rushing ahead, consider these statistics for
IT projects:
 18% are cancelled prior to completion or delivered and never used
 43% are late, over budget, or deliver less than the required features and functions
 39% are delivered on time, on budget, with required features and functions.
The Standish Group’s CHAOS Manifesto 2013
4
Why planning is important
Many agencies experience resource and time pressures, which often make it hard to plan well.
However, insufficient or poor planning almost always leads to problems later on.
Good procurement planning:
 establishes evidence-based, transparent decision making
 provides a structured approach that allows key stakeholders to engage at the appropriate
stages and influence the outcome
 ensures sufficient market research and analysis
 ensures sufficient engagement with suppliers to inform options
 makes government an informed, intelligent customer.
The benefits of good planning include:
 better alignment of procurement activities to strategic objectives
 improved quality of analysis for recommending a course of action
 justifying the project is worth doing
 testing that implementation is realistic and achievable
 detecting the potential impacts and pitfalls before starting
 knowing the sustainability of service or product design and delivery
 identifying opportunities for government/public/private collaboration and innovation
 confident spending and investment choices
 better prioritisation of spending and resources
 more projects fully delivered on time, within budget and to agreed standard.
How can you get it wrong without even trying?
 Assume you know what the business needs.
 Assume you know what all suppliers can provide.
 Ignore market trends.
 Adopt a flexible approach to scope – it is what it is.
 Work on the basis that your stakeholders and the supplier are telepathic.
 Do not try to innovate – it is far too risky and hard.
5
Our model
The key planning and decision making documents in our model comprise a series of templates
including the:
 business case
 procurement plan
 combined business case and procurement plan
 evaluation panel recommendation
 negotiation plan
 contract and relationship management plan.
These templates build upon each other. For example, once you have completed the business case
and received approvals you may then develop the procurement plan.
Please note that you:
 do not need to repeat the key elements of the business case in the procurement – simply
refer to the document
 cannot complete all of the documents at the beginning of your procurement – they should
be developed in sequence as the procurement progresses
 can customise the templates to suite your agency’s requirements
 do not include information in the template that is not relevant to your project.
Templates
This guide references a number of templates, which should be used with the Mastering
procurement guide. For more information on all these documents, except the Treasury’s business
case template, visit www.procurement.govt.nz.
Don’t over-egg the cake.
It is only in certain high-value, high-risk procurements that an agency needs both a business case
and procurement plan. For others it can probably use just a procurement plan or perhaps the
combined template, which integrates the key elements of a business case and procurement plan.
Check your agency’s policy and practice to be sure.
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Key planning documents
1. Business case
The business case justifies undertaking the project. It:
 describes the case for change
 explains how to achieve best public value
 considers commercial viability
 recommends a preferred option that is affordable and achievable
 may include options for the exit strategy to be applied at the end of the contract term.
Subject
Structure:
Recommendation:
Approvers:
Template:
Description
The Treasury developed guidance on business cases under its better business
case initiative. This is based on the 5 case model, which includes the:
 strategic case, which provides the case for change and describes the
strategic fit to business needs
 economic case, which explores how to optimise best value for money
 commercial case, which addresses the commercial viability (how
attractive the contract is to the market) and explains how to prepare for
the potential deal
 financial case, which tests if the solution is affordable within available
funding
 management case, which checks if the solution be successfully delivered.
The business case recommends the option that best meets the agency’s need
and seeks approval to formally approach the market.
The key approvals include:
 project sponsor / business owner: gives approval to develop a detailed
procurement plan and approach the market.
 budget owner and delegated financial authority holder: (if different from
the project sponsor) gives financial approval to spend (this should cover
the total costs over the whole-of-life of the goods or services or works)
 add other approvals as required by your agency.
The two options provided by the Treasury under its better business case
guidance are:
 single-stage business case
 single-stage light business case.
To view these documents, visit www.procurement.govt.nz.
Some agencies have a project or procurement board which must also approve business cases.
Sometimes this is the role of the senior leadership team or a sub-group of that team.
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2. Procurement plan
The procurement plan explains how the approach to market will be carried out. It:
 outlines the strategy for stakeholder engagement
 assigns roles and responsibilities in the cross-functional evaluation team
 details how the agency will approach the market, evaluate bids and decide on the
recommended supplier
 details due diligence requirements
 sets a realistic timeframe that ensures that suppliers have sufficient time to develop
meaningful responses.
Subject
Recommendation:
Approvers:
Description
The procurement plan recommends the approach to market strategy.
The key approvals include:
 manager of the procurement team: gives approval that the proposed
approach and methodology are consistent with the Government
Principles of Procurement and / or the Government Rules of Sourcing
and the agency’s procurement policy and procedures.
 project sponsor / business owner: gives approval to proceed with the
procurement as per the approach to market strategy
 add other approvals as required by your agency.
Template:
To view the procurement plan template, visit www.procurement.govt.nz.
3. Combined business case / procurement plan
This combined single-stage template is an alternative to using both a business case and a
procurement plan when you are not required to do so. Most procurements fall into this category.
Subject
Recommendation:
Approvers:
Template:
Description
This combined business case and procurement plan recommends the
preferred option to address the need and sets out the approach to market
strategy, the evaluation methodology and due diligence requirements.
The key approvals include the:
 manager of the procurement team, who gives approval that the
proposed approach and methodology are consistent with the:
- NZ Government’s procurement principles and /or;
- Government rules of sourcing and;
- agency’s procurement policy and procedures.
 project sponsor / business owner, who gives approval for the
procurement to proceed as per the approach to market strategy
 budget owner and delegated financial authority holder (if different from
the project sponsor), who gives financial approval to spend (this should
cover the total costs over the whole-of-life of the goods or services or
works)
 add other approvals as required by your agency.
To view the combined business case / procurement plan template, visit
www.procurement.govt.nz
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4. Evaluation panel recommendation
The evaluation panel recommendation records the panel’s deliberations and is signed by all
members of the panel. It:
 lists the bids received
 explains how bids were evaluated
 records scores and the panel’s critique of each bid (relative strengths and weaknesses)
 records due diligence findings
 ranks bids in order of preference
 identifies the recommended supplier.
Subject
Recommendation:
Approvers:
Template:
Description
The key recommendation is to negotiate with the recommended supplier,
toward establishing a contract.
The key approvals include:
 chair of the evaluation panel, who gives approval that the evaluation of
bids was carried out as planned and that the recommendation is correct
 project sponsor / business owner, who either accepts or rejects the
panel’s recommendation (if accepted, this person gives approval to
proceed to negotiate with the recommended supplier toward a contract)
 add other approvals as required by your agency.
To view the evaluation panel recommendation template, visit
www.procurement.govt.nz.
5. Negotiation plan
The negotiation plan describes the strategy that will be used to negotiate the contract with the
recommended supplier. It:
 details the desired outcomes for the negotiation
 considers price versus budget
 lists key deliverables, performance indicators, milestones and timeline for delivery
 identifies payment options
 records the proposed contract terms and conditions and acceptable variances, if any
 may address transitional measures from current supply arrangements, if relevant
may include an exit strategy to be applied at the end of the contract term.
Keep it simple.
The level of detail in your plan must be proportionate to the nature, value and risk of the
project. Our model has been developed with this in mind and you should scale your
documents appropriately.
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6. Contract and relationship management plan
The contract and relationship management plan identifies the desired relationship with the supplier
(e.g. short-term tactical or long-term strategic) and describes how the desired relationship will be
established and managed to ensure successful delivery under the contract. It:
 sets out who will be responsible for managing the delivery under the contract
 describes the nature and extend of engagement with the supplier
 describes how issues and disputes will be resolved
 identifies risks, how they will be mitigated and managed and by whom
 includes a methodology and plan for evaluating the quality of delivery and the benefits
achieved
 lists key stakeholders (internal and external) and outlines how these relationships will be
managed and by whom
 may include an exit strategy to be applied at the end of the contract.
Subject
Recommendation:
Approvers:
Template:
Description
The key recommendation is to manage and evaluate the contract based on
the plan.
The key approvals include:
 manager of the procurement team, who gives approval that the contract
and relationship management plan is comprehensive and appropriate for
the nature, value and scope of the procurement
 project sponsor / business owner, who gives approval to proceed to
manage and evaluate the contract based on the plan
 add other approvals as required by your agency.
To view the contract and relationship management plan template, visit
www.procurement.govt.nz.
Six simple success factors for all procurement activities are:
• executive management support
• agreed clear objectives and results
• clearly defined plans with assigned responsibilities and accountabilities
• proactive management of scope, budget, timing and risk
• constant open communication
• a skilled, empowered team.
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