The role of the threshold

The tender threshold is both a form of control and a barrier to effectiveness. Tender thresholds are either self-determination (whole or part) or a statutory requirement for open tender above a specified monetary value. The statutory monetary value for open tender is the compliance rhetoric used by NSW and Victorian councils with the rhetoric meaning changing in SA to self-determined council policy and procedures. Six councils have upper threshold values incorporated into their policies and procedures with council Golf using the NSW LGAct as compliance. Below this open tender threshold, councils self- determine (Figure 19).

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The role and formation of thresholds in relation to business partnering and risk is detailed by Bravo 2.

“The team is quite small. It can't get involved in everything that goes on and we have compensating controls which sort of cover up on the risk. So at the moment zero to 30000 procurement involvement is not mandatory”.

This description provides two important aspects to the procurement process, an indicator of the procurement department’s role and introduction to risk. There is no one-model- fits-all in regard to thresholds or the degree of risk, as shown in Table 36, every council has their own determination. Thresholds are not a risk management tool, rather an indicator only, as Foxtrot 1 states:

“Purely having financial thresholds does not address a risk assessment of a contract, you can have an agreement that will cost you 20,000 dollars and there has been no requirement for a request for quote, there has been no requirement to test the market, the financial thresholds are designed as a method of measuring risk, but it is not sufficient “.

Table 36 - Diversity in lower level thresholds

Council Lowest threshold monetary value

Alpha Alpha 1 – ‘anything under a 1000 dollars is a huge problem – We don’t have a rigorous process for procurement – anything over a 1000 we’ve got a policy, processes Bravo Bravo 1 – ‘So (to – sic) 30k requires a couple of written quotes

Charlie Question – under 20000 its one quote and a purchase order. Charlie 2 – ‘Yes’ Delta Policy – zero to $5000 – one quote and a purchase order

Delta 2 –‘What is the right tender process for the right piece of work?’ Echo ‘Between 500 and 15000 is a purchase order’

Foxtrot No detail below the statutory threshold of >$150k

Golf Question – on the web site it provides a breakdown of expenditure less than 1500 dollars – one verbal quote. Golf 1 – ‘that’s ridiculous’

While thresholds are an initial risk indicator with a wide range of reasoning, the lower level threshold is a procurement difficulty to councils: ‘huge problem’, ‘zero to 5 sounds silly to a small amount of money but look at the volume and you’re getting verbal quotes and

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you’ve got to make a note within the finance system’, ‘basically because of the high administrative cost of purchasing (lower threshold – sic).

Councils cannot avoid the lower level of threshold spend for every day transactional items that are not covered by either an RFQ or RFT. Councils confuse the interpretation of thresholds with the respective LGAct, risk and procurement process, as shown in Table 37.

Table 37 - Executive level comments on threshold and risk

Council Threshold and risk

Alpha Alpha 3 – the procurement process at the minute is going okay. Low risk that people aren’t doing the wrong thing – compared to a couple of years ago

Bravo Bravo 1 - I think even though you have a risk strategy and risk management, a lot of the times in organisations especially in local government risk is not given the status that it should be given because really it is one of the most important things

Charlie Charlie 3 - A debate and as to whether the 200000 is an appropriate level certainly from the financial risk side of things, more not from the property side but more from the financial exposure. 200 is not a bad number and certainly in our research you will see that. That's tolerable, a moderate level of risk. But as to whether we're achieving the best procurement outcomes with that I don't think that we know. I don't honestly believe that we have the data that would tell us whether or not, if we had said it is 100, whatever it was instead of the 200, would we achieve substantially more? We don't track our cost of orders through procurement process, don't do any to that. So I would just say to you I guess from a financial exposure point of view to 200,000 is a lot of risk, then we can accept that

Delta Delta 2 - So it's really the enablement, the tendering to enable the business to deliver to having a risk layer put on it to make sure that the processes align with risk and some contracts are going to be riskier than others, some projects that would be risky than others

Echo Echo 1 - Two basic questions is what process do I go through and what contract conditions am I looking to put in place? And it's a combination of dollars and it’s a combination of dollars and a sort of a very simplified risk assessment

Foxtrot Foxtrot 1 - Financial thresholds should be identified and recognized as being one measure of risk or one measure of exposure to the council and the public but the guidelines or the tendering guidelines that are published by the office of local government are well overdue for review

Golf Golf 3 - It takes nothing to break to go over 150000. And it's restrictive. I mean it may well be better off doing a risk based approach. I don't know. I'm just kind of thinking. But you know if you look at the Act I think the Act actually specifies 100000 and then you go to the regulations and that's modified to 150, but it's been 150, you know I've been in local government for 30 some 35 years or something like that and it's been a 150 for I can't remember the last time it's changed.

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Thresholds are an integral part of practice policy and procedures and not limited to the procurement department, but rather across the business units as a guidance for whatever procurement action is to occur. Any price obtained for a council transaction is a seal bid offer from the supplier and therefore requires compliance to the practice policy and procedures.

Table 38 - Outcomes of e-Tender thresholds

Thresholds Facilitation Barriers

Statutory requirements Compliance No extension or analysis of

the benefit of tender initiated panels

Question of risk A indicator only Procurement and risk

management seen as administrative tools without value Strategy of self-determined

levels

Contemporary tender provides the opportunity to develop unique procurement process

None of the seven councils have procurement or tender data

Flexibility Seek sources of influence Rigid within their own

domain Bold is the summarised outcome – the themes that fall naturally into explanation