Develop Business Case Guideline

The business case is part of the internal budget approval process, defines the scope of the purchase, and ensures that the procurement option selected will meet the agency’s requirements. Your agency is likely to have its own requirements for business cases. 

The business case includes consideration of the procurement options, however greater procurement planning information is included in a procurement plan. A procurement plan is required for high value, high risk procurement. See the Develop Procurement Plan Guideline for more information. 

The purpose of a business case is to obtain management commitment and approval for the investment or funding. A business case template for goods and services may be found on the Goods and services templates page. A business case template for community services may be found on the Community services templates page. 

The business case also records the justification for undertaking a project. It could include evidence from evaluating the benefits, costs and risks of alternative options, and presents the rationale for the preferred solution. In order to properly identify the benefits, costs, and options, research and analysis is required 

Market sounding or industry engagement describes a range of activities through which an agency consults with industry regarding an upcoming procurement. Early engagement with industry provides valuable information to make the subsequent procurement process more focused, efficient and ultimately deliver improved contract outcomes.

Market sounding is a valuable research tool for a broad spectrum of procurement processes. It gives agencies the opportunity to challenge their assumptions of a particular industry, clarify industry capabilities and determine the most appropriate procurement strategy.

The focus is on suppliers within a particular industry as a whole rather than the merits of individual suppliers. It includes no element of supplier selection or the evaluation of offers and involves no commitment from industry or the agency.

Market sounding is beneficial because it:

• Allows access to rich sources of data and information from industry on the way a particular market operates, the types of services and products available, industry pricing structures and any future changes to the industry;
• Enables the development of Request documentation relevant to the targeted industry and easy to understand and complete, reducing the need for addenda or post-tender clarifications;
• Provides an opportunity for industry to be informed about government procurement processes, which is particularly relevant in sectors where suppliers may lack experience in completing government tenders; and
• Facilitates the consideration of innovative solutions that which had not previously been identified or considered.

Probity Ethics and Accountability

State agency employees are expected to undertake market sounding in a manner consistent with integrity, transparency, and accountability policies and expectations included in the Western Australian Procurement Rules.

In order to best ensure that these obligations are upheld, the process used to gather information from industry and the information collected should be documented. This also enables the information to be used by the State agency in the future.

Whatever method is chosen to undertake market sounding, it is critical that there is no element of bid selection, evaluation, actual or perceived conflict of interest, commitment or undertaking towards any potential supplier. Where information is provided by a supplier and an agency wishes to use that information, careful consideration must be given to potentially confidential information, or use of the supplier’s intellectual property.

It is important to note that the obligations of probity ethical conduct and accountability should in no way stop an agency from undertaking market sounding for a new procurement requirement. Rather, market sounding affords agencies an opportunity to demonstrate to industry that it is undertaking due diligence and consultation before presenting a Request to the market.

Planning Market Sounding

Proper planning is necessary if market sounding is to result in the desired outcome. Poorly planned market sounding can result in inadequate outcomes for both the agency and industry, as well as unjustified costs in terms of time spent and resources allocated to the engagement. Furthermore, an agency could suffer from reputational damage if industry feels that the market sounding process was poorly facilitated.

As no two types of procurement are identical, there is no ‘one size fits all’ approach to planning a market sounding process. It is important to understand what information is required from industry, and what questions need to be raised, before initiating contact. This will help ensure that the agency drives the direction of the engagement. If industry sets the parameters of the discussion, there is a risk that the information attained is akin to a ‘sales pitch’, which may not be beneficial in terms of broadening the agency’s knowledge of industry and clarifying requirements.

When planning market sounding consider the following points:

• What is the nature of the requirement? How narrowly can the requirement be defined in terms of the product/services sought, the nature of the industry, and its distinct features?
• Who are the main users or clients of the products and/or services sought, and what outcomes are they seeking through the consumption of the products/services? 
• How has the requirement been serviced historically? Why has the existing approach to procuring the goods/services been taken, and have alternative approaches been considered in the past? If procurement practice in this area has changed, why? How has previous Request documentation been designed, and why?
• Who forms the known supplier base? Does any supplier have unique offerings? Are you confident that you have identified as many suppliers as possible?
• What are the main risks associated with the procurement of the requirement? How have these risks been mitigated in the past, and were these methods successful? Have recent changes in the industry created new risks to consider?
• Has any noteworthy trend in industry become apparent lately? If so, what are these trends and what is the expected impact on the procurement of the services? Will these trends have a positive or negative impact on the agency’s business? Furthermore, is it believed that opportunities for innovation exist in the procurement of the requirement?

Best Practice in Market Sounding

While there is no one failsafe means of engaging industry for the purposes of market sounding, there are several approaches and principles which, if adhered to, are likely to assist in achieving a positive outcome.

It is generally good practice to engage with the supplier base as early as possible. Before consultation with the known supplier base commences, research should be undertaken to establish whether any new providers have emerged since any previous procurements or market research were undertaken. Consulting with the broadest range of suppliers possible helps ensure that a range of different perspectives are considered before Request documentation is prepared.

Whilst one of the key benefits of market sounding is that it provides an opportunity to learn more about the procurement requirements, it is important to be as informed as possible about the market before commencing the engagement. This will make it possible for the agency to determine what they do and don’t know, and the subsequent market sounding can be used to fill in the knowledge gaps.

When planning market sounding, it is important to focus on the desired outcome of the procurement; which does not have to be achieved using a particular type of product or service. It is acceptable to solicit information on new solutions. Marketplaces can change significantly during the lifespan of a contract, and as such it is important that you avail yourself of market developments as much as possible.

Supplier expectations with regards to the market sounding should be managed at the outset of market sounding. Agencies should define what is required from the engagement process, and ensure they lead conversations with suppliers. Suppliers should be informed about the procurement process and agency obligations regarding open and effective fair competition in procurement.

Meeting with supplier representatives in person is the most straightforward, and often the most successful method of engaging with industry. Individual meetings with suppliers often lead to more useful information being elicited than group briefings, as representatives are likely to be reluctant to share information when competitors are present.

The nature of communication with the supplier base should be as uniform as possible. Agencies should ensure that all identified suppliers are given the same level of access to procurement staff and the same level of opportunity to contribute to the engagement process.

Any commercial in confidence information shared by suppliers through market sounding must remain confidential, and not shared beyond those for whom it was intended.

It is acceptable to discuss previous procurements for the same products/services or in the same market space. This will assist suppliers in providing relevant information and insights. However, be mindful of not disclosing commercial-in-confidence information, or getting side-tracked into a discussion on past contracts, rather than future requirements.

Be wary of over-reliance on the information provided by suppliers when designing Request documents. Using outcome-based specifications instead of specific technical requirements can help mitigate the risk of advantaging one supplier.

Be mindful of both the value and risk level associated with the kind of procurement being undertaken. More complex and expensive procurement processes are likely to require a more structured and rigorous approach to market sounding.

Market sounding does not have to be limited to specific suppliers in the industry that is being targeted. Industry representative groups may also have relevant information, and a different perspective to individual suppliers. Also, it is worth consulting with other agencies that may have recently approached the market with a similar request. This includes agencies located interstate and overseas.

Sound recordkeeping is vital to document that an agency’s probity and accountability obligations have been adhered to. Records of market sounding should include who the agency has engaged with, the reason for the engagement, and any actions resulting from the engagement.

Risk Management in Market Sounding

One of the main obstacles to the implementation of effective market sounding during the planning of procurement processes is the perception that it contravenes the Western Australian Procurement Rules, and as such is inappropriate conduct. This perception is not accurate. Rather, in some circumstances, failure to undertake market sounding poses a far greater risk to agencies in the procurement process. Risks associated with a lack of market sounding include poorly designed specifications, unsuitable conditions of contract, a lack of tender responses, and inferior value for money outcomes.

The market sounding process itself carries little risk to agencies if the following principles are followed:

• Uniformity - while no two suppliers are alike, engagement with all suppliers consulted should be as uniform and consistent as possible.
• Security - if information is provided by a supplier it should not be shared with other suppliers (directly or inadvertently), or people outside of the agency unless permission from the supplier is attained. Any documentation provided by suppliers should be stored securely.
• Boundaries - agency staff should be open with suppliers about what can and cannot be discussed. The purpose of the market sounding must be clearly communicated to suppliers before it begins to avoid any misunderstanding.

When Should Market Sounding End?

For the purposes of these guidelines, market sounding is a planning activity. Therefore, market sounding should cease when the agency is prepared to advertise their Request or has determined that the procurement process will not proceed. Communications to suppliers about the end of the market sounding period should be made at the same time, to ensure that no supplier is unfairly advantaged.

It is important to note that ending the market sounding period should not inhibit standard ‘business as usual’ with existing suppliers. However once the procurement becomes a competitive process, any discussion that could potentially advantage (whether real or perceived) one Respondent over another should not occur.

Examples of Effective Market Sounding

As previously stated, there is no one way to conduct market sounding. Depending on factors such as the make-up of the industry, complexity of the requirement and the value/risk proposition of the procurement, effective market sounding could be accomplished through a range of approaches including:

• Telephone calls;
• Meetings;
• Workshops;
• Product demonstrations;
• Publicly advertising an Expression of Interest; and
• Issuing a Draft Request for Comment.

The following case studies have been chosen to illustrate good practice in this area.

Case Study – Pharmaceuticals

The project

With previous pharmaceutical contracts, there were significant difficulties in encouraging suppliers of patented pharmaceuticals to submit an Offer. This created a significant risk to WA State agencies (primarily WA Health, as the largest purchaser of pharmaceuticals), as it resulted in a substantial portion of the requirement for pharmaceuticals being purchased outside of a formal contract, which meant that the purchases were not protected by government terms and conditions.

Market sounding approach

Planning meetings were held with potential respondents. These discussions revealed that suppliers saw no benefit to tendering for patented items, and that they did not wish to be ‘locked into’ a contract. From these discussions, it was determined that suppliers’ concerns primarily related to the preference of using their own terms and conditions rather than adhering to the State Government Request Conditions and General Conditions of Contract (GCoC). Additionally, suppliers were concerned with the lack of flexibility in using a contract price fixed state-wide.

The results 

As a result of this consultation, the supply of pharmaceutical products was categorised into “patented” and “non-patented” groups to better reflect market conditions and the requirement for different pricing structures. The ‘patented products’ category was designed with greater flexibility and opportunity for suppliers to negotiate terms and conditions that are suitable for the supply of patented products. In addition, hospital sites can enter into Site Level Orders (SLOs) to negotiate directly with suppliers for reduced pricing based on expected usage at the site.

In the lead up to issuing a Request, all dialogue with industry emphasised the objectives of WA Health and non-Health agencies for the proposed arrangement. That is, greater compliance with the Western Australian Procurement Rules and a requirement for greater coverage of pharmaceutical products under a state-wide arrangement.

This outcome has resulted in a significant increase in the number of patented items being offered through the new Request. Upon contract award, this will lead to a broad coverage of patented items under a contractual framework for the supply of patented items, and greater surety regarding the terms and conditions under which these items are supplied both to WA Health, and other WA government consumers of pharmaceutical products.

Case Study – Human Resource Management Information System (HRMIS) - Multi-Agency Aggregated Buy

The project

An HRMIS is computer software used/designed to improve the efficiency of HR management processes, and to improve outcomes through the automation of basic HR tasks and activities. Due to the fact that a number of agencies had not tendered for this type of system for a number of years, and the fact that most agencies were only familiar with the product of the current provider, an early decision was made to undertake a detailed market sounding process.

Market sounding approach

In order for the agencies participating in the procurement to gain a better understanding of what the market could provide, potential respondents were invited to participate in product demonstrations, which would showcase the capabilities of their system to agency representatives. To ensure probity and to structure the process, potential respondents were provided with an agenda to adhere to, and a time limit. All participants were briefed beforehand on the demonstrations to ensure obligations of all parties were clearly defined.

The results

As a result of this exercise, the participating agencies were able to better define their specifications in line with the offerings available in the marketplace. Furthermore, by improving their knowledge of the marketplace, the agencies determined that they were more likely to attain suitable responses through outcome-based specifications, rather than solely providing specific technical requirements for Respondents to comply with.

Discussions with potential Respondents also clarified that the base cost of the HRMIS would be less expensive according to the number of employees in the agency. This assisted the agencies in determining that significant savings through aggregation could be made. Potential respondents were made aware that aggregation was a possibility the agencies were exploring, which allowed the suppliers time to consider their pricing under an aggregated arrangement once the Request was advertised.

Case Study – Radio Communications for Perth Arena

The project

VenuesWest wished to procure a radio communications system, which would be fit for purpose in the yet to be completed Perth Arena. As this was a relatively unique requirement (the system was required to operate within unalterable architecture), it was important that the Request was correctly specified to prevent errors once Perth Arena became operational.

Market sounding approach

In order to ensure that the agency’s understanding of the nature of this requirement was realistic and in line with the capabilities of industry, a draft Request was issued for comment through Tenders WA. This gave industry an opportunity to provide comments and feedback on the proposed specifications, qualitative requirements and appropriate methods to test the communications equipment during any product trialling which may occur. This process also gave the agency an opportunity to ensure that its specifications were suitably generic, which was hoped would elicit a competitive amount of offers. This also ensured that a single supplier’s products were not given preference, which would then satisfy probity concerns. This strategy was supported by an industry briefing, which allowed for further collaboration with industry to determine the nature of the requirement.

As a result of this consultation, the specifications were modified based on current industry practice, solutions and standards. The need for an emphasis on the importance of case studies and referee reports in the Request documentation was also identified, so that Respondents could clearly demonstrate their experience in dealing with radio transmission issues in a heavily concreted complex. This approach greatly assisted with the short-listing process and identifying trialling solutions which were more likely to work and provide a fair demonstration of the capabilities of any one proposed solution.

Once you determine the need and specification, you will need formal approval to undertake the procurement process. Approval of the business case might be the way to secure this approval for high risk, high value procurement activities.

It is important to ensure that your agency's Accountable Authority is aware of the estimated cost and that there is an approved budget that will cover the required good or service cost for the life of the agreement, before proceeding with the procurement. 

Determining your budget upfront is important as it will dictate the journey which you need to follow in your procurement.

Before starting any procurement, you need approval in line with your agency’s internal procurement policies and guidelines, and procurement delegation matrix.

All approvals, including the budget, need to be confirmed before commencing a procurement process.

Approvals required could include:

• Ministerial authorisations;
• confirmation by the government agency’s Chief Financial Officer that funds are available;
• Business Case approvals;
• compliance with agency-related instructions and financial and procurement delegation matrices; and
• written approval by the State agency’s Accountable Authority, for example, an Executive Director or Director General, may also be sufficient in certain instances. You should also check your agency’s governance procedures.

When commencing a procurement process, you also need to be aware of the difference between your agency’s financial delegation and procurement delegation matrices. A procurement delegation matrix includes officers who can act on behalf of the agency for procurement processes up to a pre-determined value. A financial delegation matrix is different - it outlines officers who are responsible for spending your agency’s funds. The values in financial and procurement delegations often differ, so be aware of the appropriate officer who has the authority to commence and approve procurement processes within your agency.

For larger procurements, you should also consider providing potential suppliers with advance notice of the upcoming procurement using an Early Tender Advice on Tenders WA.