Types of Agreement Guideline

A contract is the most common type of agreement used to procure products or services. A contract is appropriate where a State agency has a defined requirement – that is, the State agency knows how much of a product or service is needed and when that product or service should be delivered. That is, there is certainty of supply and demand. A supplier is obligated to provide the product or service and the State agency is obligated to buy those products or services from that supplier.

Standing offers are competitively tendered agreements that are used when a State agency has an ongoing, repetitive requirement for products and/or services, but the exact volume of products or services is not known.

It is inappropriate to use a standing offer when a State agency does not have an ongoing need for a particular product or service; in other words, where a State agency is making a ‘one off’ purchase of products or services.

A standing offer contains agreed prices and the terms and conditions under which the products and services are to be delivered.

A contract is formed, under a standing offer, when the State agency submits an order to the contractor. Until that time, the State agency is not bound to buy any volume of products or services, at any time. Agencies must set out how they will buy from the panel in the ‘Buying Rules’ for that panel. Agencies must comply with the Buying Rules.

A standing offer may be established for use by the whole government sector. These are established by the Department of Finance and are called Common Use

Arrangements (CUAs). Refer to the Guideline – Purchasing from a CUA for further information about CUAs.

Where a mandatory CUA does not exist, a State agency may establish its own standing offer, for its own use.

Standing offers can achieve substantial savings and benefits to government by reducing purchasing, administration and transaction costs.

Other benefits include:

• Achieving improved quality, service and prices through aggregating spend and leveraging off this aggregated requirement;
• Reducing costs to suppliers by having to respond to fewer tenders;
• Increasing transparency in procurement though aggregating demand for low cost, high demand items that otherwise are likely to have been directly sourced in accordance with the Western Australian Procurement Rules;
• Decreasing risk in procurement by establishing predetermined contract terms, conditions and performance measures; and
• Providing an opportunity for better strategic relationships with suppliers.

Types of Standing Offers

There are two types of standing offers – a panel arrangement, and a single supplier standing offer.

A panel arrangement is a standing offer that includes a number of suppliers that all provide the same products and services. A single supplier standing offer is one in which a single supplier is to provide all the products or services required.

Panel Arrangements

Panel arrangements are most often used when an agency has an ongoing requirement for a large volume of products and/or services and it is unlikely that one supplier can supply all of the required products and services. A choice of suppliers ensures availability of supply.

Panel arrangements may also be used where there are a large number of suppliers who are able to provide the product or service for which an agency has an ongoing need. Maintaining a panel arrangement encourages competition between the suppliers and usually results in more competitive prices.

An additional benefit is that work is shared amongst a number of panel members, thus allowing smaller businesses to participate where otherwise a single larger supplier would be chosen.

Panel arrangements are sometimes appropriate where choice of suppliers is important because a service is being delivered in an environment where conflicts of interest may occur. Where a conflict may be present, agencies are given the flexibility to easily choose other panel suppliers.

It is inappropriate to use a panel arrangement when the volume of required goods or services is not sufficient to provide adequate return to the suppliers chosen. This is true when determining whether to create a panel contract, as well as when determining the number of panellists chosen on a panel contract.

When establishing a panel arrangement it is necessary to consider such factors as:

• How many panel members should be included on the contract? In making this decision it is appropriate to conduct an assessment of how many suppliers are required on the panel. This should take into account a consideration of the value of the contract and the amount of work likely to be given to panel members;
• The rate/costs of the potential panel members should be given due consideration at the time of evaluation and prior to placement on the panel contract; and
• How the work will be allocated under the panel arrangement? For example, is it reasonable to just “pick and buy”, will the work be rotated between panellists, or will a quote be sought from each panellist etc.

It is imperative that panel arrangements contain Buying Rules, which set out the manner in which work will be allocated under the panel arrangement, how the panel members can be contacted and their rates.

Just as importantly it is vital that buyers comply with these Buying Rules. Buying Rules should be determined prior to tender release.

In general a panel arrangement, as with any contract established, should aim to achieve best value for money for the particular purchase. This includes establishing an efficient process by which to buy, while having regard to fairness between suppliers and viability of the panel as a competitive arrangement.

Single Supplier Standing Offer

Single supplier standing offer is used when a State agency has an ongoing need for a good or service; where they don’t know how much of the good or service they need; and a panel arrangement is not appropriate. In this situation, a single supplier will supply the State agency’s requirement.

Where there is more than one supplier supplying a State agency with their requirements under a standing offer, but each supplier provides an exclusive part of that total requirement (e.g. one supplier per ‘category’ of products or services), then this is also a single supplier standing offer – there are not two suppliers supplying the same good or service.

Standing Offer Arrangements with Regional Impacts

When establishing standing offer arrangements for regional purchasing, agencies must make best endeavours to ensure regional businesses are not disadvantaged through the procurement process. Western Australian Procurement Rule C2.5 – Standing offer Arrangements with Regional Impact reflects this concern.

Effort should be made to engage with and provide local regional businesses an opportunity to participate in the procurement. This may include:

• Investigating whether there are local regional businesses able to deliver the proposed contract (the local content advisor in the relevant Regional Development Commission can assist with identifying potentially suitable local suppliers);
• Considering whether a regional business will be capable of delivering the required contract;
• Considering whether the procurement specifications or evaluation criteria will disadvantage a local regional business;
• Specifically inviting suitable identified local regional businesses to participate in the procurement (although it must be made clear to the regional business(es) an invite to participate does not guarantee a successful outcome for them);
• Planning for the resulting standing offer to be non-mandatory where no potential representation was identified within a reasonable distance of the contract delivery point (in order to prevent future local regional businesses from being locked out of supplying to Government for the duration of the standing offer term); and
• Establishing buying rules that encourage use of local regional businesses that have an operational office or presence near the contract delivery point (noting however that this option must not create conflict with the Australian and New Zealand Government Procurement Agreement or Free Trade Agreements).