What do ‘Value-for-Money’ and ‘Broader Economic Benefits’ mean in procurement?

Written by: Brett Lyndon – Pro Leaders Academy Pty Ltd

Value-for-money is a term that is regularly used in Government procurement when deciding which potential vendor to purchase from. It is the primary principle for most Government procurement activities and is a key determining factor in the final purchasing and contract outcome. But what does value-for-money really mean?

Most people would be aware that Value-For-Money (VFM) is about more that just price. Commonwealth Procurement Rules (CPRs) Chapter 4 details in part that VFM takes into consideration:

the quality of the goods and services;
fitness for purpose of the proposal;
the potential supplier’s relevant experience and performance history;
flexibility of the proposal (including innovation and adaptability over the lifecycle of the procurement);
environmental sustainability of the proposed goods and services (such as energy efficiency, environmental impact and use of recycled products); and
whole-of-life costs (including the initial purchase price, maintenance and operating costs, transition costs, and disposal costs)

CPRs paragraphs 4.7 and 4.8 directs procurement officials to consider broader benefits to the Australian economy for procurements above $4 million (or $7.5 million for construction services). What does this mean?

Thank fully, the Department of Finance provides guidance on this in their article Consideration of broader economic benefits in procurement.

Consideration of broader economic benefits in procurement, Paragraph 5 details that, in general terms, benefits to the Australian economy result when the procured supply:

makes better use of Australian resources that would be otherwise under-utilised
otherwise increases productivity

While Paragraph 6 states:

An increase in productivity-enhancing technology development and adoption is also relevant to economic benefit, in matters such as:

research and development related activities and investments;
transfer of technology to Australian businesses;
Indigenous workforce participation;
use of goods and services from a business that provides services of persons with a disability;
traineeships or apprenticeships in areas of skills shortage; or
a positive effect on a supplier’s international competitiveness.

What do procurement officials need to do?

During planning, consider how the Australian economy may benefit from the procurement activity.

Consider what economic benefit information will be collected, and how it will be used as an evaluation criteria to assess value for money.

In accordance with paragraph 10.6 of CPRs, officials must include the evaluation criteria to be used in the procurement plan, the evaluation plan, and the approach to market documentation.

Evaluation of the economic benefit to the Australian economy should be balanced with the efficient use of Australian government funds. For example, advantages of the production of a good in Australia may be outweighed by the cost of a similar good produced overseas.

How can a supplier provide an economic benefit?

There are many ways that a supplier can provide an economic benefit to the Australian economy. Some examples include, but are not limited to:

competitive pricing;
building, leasing or procuring infrastructure that supports Australian communities;
providing skills and training that benefit Australian communities;
employing workers in Australia;
paying taxes in Australia;
the environmental benefit of the proposed solution to Australia;
contributing to positive social outcomes in Australian communities;
using indigenous businesses;
using SMEs in delivering goods and services, such as a subcontractor or a supplier;
sharing knowledge, skills and technology with SMEs; and
using goods and services from a business that provides services of persons with a disability.

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