Contract Stream C - Pro Leaders

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Contract Stream C

Procurement & Contract Management Program

Student Notes Commonwealth

Procurement & Contract Management Program – Contract Stream C – Student Notes

Pro Leaders Academy Pty Ltd ~ www.proleaders.com.au Page 2 of 202

About Pro Leaders Academy Pro Leaders Academy Pty Ltd, or PLA for short, is a leader in the field of business education

and training with over 30 years of experience in business, management, project management,

procurement, contract management, and leadership development within government, private

organisations, and not-for-profit organisations.

Our approach to education and training is based on experience and our commitment to comply

with the industry standard Australian Quality Training Framework (AQTF) to ensure our

qualifications are nationally recognised at the highest recognition level. Our approach to

training is highly effective to ensure the best practical use of skills learned and to maximise a

student’s competency.

For specific details of the qualifications that we have on our scope, please visit

Training.gov.au.

Document Revision

Version Date Change Details Changes by Approver

1.0 February 2018

Reconstruction of original document into Contract Stream C.

Phil Sealy Jacqui Sealy

2.0 April 2019 Review and update Phil Sealy Jacqui Sealy

3.0 May 2019 Included Disposal of Assets Phil Sealy Jacqui Sealy

3.1 Sept 2020 Updated Risk Brett Lyndon Phil Sealy

Any recommendations for amendments should be directed to the document approver.

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Table of Contents Procurement & Contract ..................................................................................................................... 1

Management Program ........................................................................................................................ 1

Student Notes ..................................................................................................................................... 1

About Pro Leaders Academy......................................................................................................... 2

Document Revision ............................................................................................................................. 2

Introduction ................................................................................................................................ 9

Program Objectives and Learning Outcomes ..................................................................................... 9

What is an Acceptable Standard for a Qualification at this Level? ................................................... 10

Units of Competency and Learning Objectives ................................................................................. 10

About the Units of Competency .................................................................................................... 11

How you will be assessed .............................................................................................................. 17

Further reading ............................................................................................................................. 17

Introduction to Contract Law...................................................................................................... 18

What is a Contract? ........................................................................................................................... 19

Offer .............................................................................................................................................. 19

Acceptance .................................................................................................................................... 20

Consideration ................................................................................................................................ 21

Intent ............................................................................................................................................. 21

Legal Capacity ............................................................................................................................... 21

Legality .......................................................................................................................................... 22

Genuine Consent ........................................................................................................................... 22

Other Legal Issues ............................................................................................................................. 23

Estoppel ......................................................................................................................................... 23

Agency ........................................................................................................................................... 24

Waiver ........................................................................................................................................... 24

Contract Terms and Conditions ........................................................................................................ 25

Express and Implied Terms ............................................................................................................ 25

Standard Terms and Conditions .................................................................................................... 26

Other Supply Arrangements ............................................................................................................. 27

Memoranda of Understanding (MOUs) ........................................................................................ 27

Standing Offers ............................................................................................................................. 27

Letters of Intent ............................................................................................................................. 27

Planning to Manage the Contract ............................................................................................... 28

Understanding the Background to the Contract .............................................................................. 29

Analysing and Understanding the Contract ...................................................................................... 29

The Contract Management Plan ....................................................................................................... 30



Building Professional Networks .................................................................................................. 36

Networking........................................................................................................................................ 37

Different Levels of Networks ......................................................................................................... 37

Provide, seek and verify information to the network .................................................................... 37

Build and maintain networks ........................................................................................................ 40

Participate in business associations .............................................................................................. 43

Networking strategies ................................................................................................................... 44

Communication Principles and Skills ........................................................................................... 47

Communication Principles and Skills ................................................................................................ 48

Plan your communication ............................................................................................................. 48

Channels of Communication ......................................................................................................... 51

Advantages and disadvantages of communication methods ....................................................... 52

Potential barriers to effective communication ............................................................................. 54

Listening ........................................................................................................................................ 57

Questioning Techniques ................................................................................................................ 59

Types of Questions ........................................................................................................................ 60

Communication Strategies ................................................................................................................ 62

Communication with Stakeholders ............................................................................................... 62

Feedback to Suppliers ................................................................................................................... 64

Management and Review Meetings ................................................................................................. 64

Management Meetings ................................................................................................................ 64

Review Meetings ........................................................................................................................... 64

Risk Management ...................................................................................................................... 65

Overview of Risk Management ......................................................................................................... 66

Why is Risk Management Important to Procurement? ................................................................ 66

Risk Definition ............................................................................................................................... 67

Defining Risk Management ........................................................................................................... 68

Risk Management Benefits ............................................................................................................... 68

Consequences of Poor Risk Management ........................................................................................ 69

The Risk Management Process ......................................................................................................... 70

Step 1. Communication and Consultation ........................................................................................ 72

Example Tables ............................................................................................................................. 73

Step 2. Establish the Context ......................................................................................................... 74

Develop Risk Criteria ......................................................................................................................... 77

Evaluation Criteria ........................................................................................................................ 77

Critical Success Factors ................................................................................................................. 79

Risk Identification .......................................................................................................................... 81

Risk Analysis .................................................................................................................................. 86



Risk Evaluation .............................................................................................................................. 93

Risk Treatment Options .................................................................................................................... 98

Avoiding Risk ................................................................................................................................. 98

Reduce the likelihood that it will occur ......................................................................................... 99

Reduce the seriousness of the consequence if it does occur ......................................................... 99

Transferring Risk ........................................................................................................................... 99

Sharing Risk ................................................................................................................................. 100

Avoid the Risk .............................................................................................................................. 100

Accept and Retain the Risk .......................................................................................................... 100

Manage residual Risk .................................................................................................................. 104

Implementing Risk Treatments ................................................................................................... 104

Benefits and Opportunities presented by Risks ........................................................................... 104

Monitoring and Review of Risk ................................................................................................... 105

Risk Documentation ........................................................................................................................ 107

Recording Risks and Issues .......................................................................................................... 108

Risk Action Plan ........................................................................................................................... 112

Risk Treatment Plan .................................................................................................................... 112

Closing Risks ................................................................................................................................ 114

Set-up and Transition Arrangements ........................................................................................ 115

Transition In Arrangements ............................................................................................................ 116

Transitioning Out ............................................................................................................................ 118

Transition Checklist ......................................................................................................................... 119

Measure and Monitor Performance of a Contract ..................................................................... 120

Performance Measurement ............................................................................................................ 121

Developing a System for Performance Measurement ................................................................ 121

Performance Indicators ............................................................................................................... 121

Targets ........................................................................................................................................ 122

Performance Incentives and Disincentives .................................................................................. 123

Service Level Agreements ............................................................................................................ 123

Stakeholder Involvement ............................................................................................................ 124

Monitoring the Performance of the Contract ................................................................................. 124

Who Does the Monitoring? ......................................................................................................... 125

Cost Effectiveness of Performance Monitoring .............................................................................. 126

Performance Monitoring Techniques and Tools ............................................................................ 126

Contract Reporting .......................................................................................................................... 127

Managing WHS, Environmental and Sustainability and Corporate Social Responsibility

Requirements .................................................................................................................................. 127

Meeting Obligations to the Contractor ........................................................................................... 128



Making Contract Payments ......................................................................................................... 128

30-Day Payment Policy ............................................................................................................... 130

Resolving Performance Problems ................................................................................................... 130

Late Deliveries ............................................................................................................................. 130

Dealing with Changes ...................................................................................................................... 131

Poor Performance ........................................................................................................................... 131

Managing Contract Relationships ............................................................................................. 133

Managing the Contract Relationship .............................................................................................. 134

Traditional Contract Relationships .............................................................................................. 135

Partnering ................................................................................................................................... 135

Alliancing ..................................................................................................................................... 136

Negotiation and Conflict Resolution ......................................................................................... 138

Negotiation ..................................................................................................................................... 139

Negotiation with Preferred Tenderer/s ....................................................................................... 139

Contract Negotiation Plan .......................................................................................................... 139

Principled Negotiation ................................................................................................................ 140

The Negotiating Environment ..................................................................................................... 142

Ethical Negotiations .................................................................................................................... 144

Parallel Negotiations ................................................................................................................... 144

Coverage of all Requirements ..................................................................................................... 145

Negotiation Tactics ..................................................................................................................... 145

Conducting Negotiations ............................................................................................................ 149

Communicating with Stakeholders ............................................................................................. 151

Documenting the Agreement ...................................................................................................... 151

Funds Availability Check .............................................................................................................. 151

Contract Approval and Execution ............................................................................................... 152

Managing Contract Disputes .................................................................................................... 153

Contract Disputes ............................................................................................................................ 154

Reducing the Likelihood of a Dispute .......................................................................................... 154

Managing Disputes ..................................................................................................................... 154

Managing Contract Variations .................................................................................................. 157

Contract Variations ......................................................................................................................... 158

Minor Variations ......................................................................................................................... 158

Major Variations ......................................................................................................................... 159

Formalising the Variation............................................................................................................ 159

Dispose of Assets ..................................................................................................................... 161

What is an Asset? ............................................................................................................................ 162

Legislation and Policy ...................................................................................................................... 162



Public Governance, Performance and Accountability Act 2013 .................................................. 162

Other Legislation ......................................................................................................................... 163

Commonwealth Procurement Rules............................................................................................ 163

International Treaty Obligations and Trade Sanctions ............................................................... 163

Organisational Policy .................................................................................................................. 164

Government Asset Disposal Principles ........................................................................................... 164

Warranty and Liability ..................................................................................................................... 164

End User Restrictions ...................................................................................................................... 165

Identifying Assets for Disposal ........................................................................................................ 165

Methods for Identifying Assets for Disposal ................................................................................... 166

Developing a Strategy for the Disposal of Assets ........................................................................... 167

Determining the Market Value of Assets .................................................................................... 167

Methods of Disposal ....................................................................................................................... 168

Auctions....................................................................................................................................... 169

Tenders ........................................................................................................................................ 170

Private Treaty .............................................................................................................................. 171

Trade-in ....................................................................................................................................... 172

Sale to Another Government Entity ............................................................................................ 172

Donation ..................................................................................................................................... 173

Recycling and Cannibalisation .................................................................................................... 174

Sales to Staff ............................................................................................................................... 174

Destruction and Dumping ........................................................................................................... 174

Dilution is the Solution ................................................................................................................ 175

Agents and Brokers ..................................................................................................................... 175

Special Categories of Assets ............................................................................................................ 177

Information Communications and Technology Equipment......................................................... 177

Heritage and Cultural Items ........................................................................................................ 177

Arms and Controlled Defence and Related Goods ...................................................................... 178

Dangerous and Hazardous Goods ............................................................................................... 179

Radioactive Materials ................................................................................................................. 179

Security Classified Material ......................................................................................................... 179

Intellectual Property .................................................................................................................... 179

Buildings for Removal ................................................................................................................. 180

Stores Located Overseas ............................................................................................................. 180

Implementing a Disposal Strategy .................................................................................................. 180

The Disposal Process ................................................................................................................... 180

Obtain Approval to Dispose of Assets ......................................................................................... 181

Preparing Assets for Disposal ...................................................................................................... 181



Dispose of Goods ......................................................................................................................... 182

Treat Revenue from Disposal ...................................................................................................... 182

Record and Account for the Disposal .......................................................................................... 182

Evaluate Disposal Process ........................................................................................................... 183

Evaluate Asset Disposal .................................................................................................................. 183

Effective evaluation of disposal activities: .................................................................................. 183

Sources of Evaluation Information .............................................................................................. 183

Evaluation Checklist .................................................................................................................... 185

Contract Completion and Review ............................................................................................. 186

Completing Contracts ..................................................................................................................... 187

Review of Expiring Contracts ...................................................................................................... 187

Extending or Renewing Contracts ............................................................................................... 187

Closure of a Successfully Completed Contract ............................................................................... 189

Re-Tendering for a New Contract ................................................................................................... 189

Termination and Breaches of Contract ........................................................................................... 190

Show Cause ................................................................................................................................. 190

Breaches of Contract ................................................................................................................... 190

Other Reasons for Termination of a Contract ............................................................................. 192

Review and Evaluation of Completed Contracts ............................................................................ 193

What to Evaluate? ...................................................................................................................... 193

Evaluation Methods .................................................................................................................... 195

Capturing Lessons Learnt ............................................................................................................ 195

Providing Feedback ..................................................................................................................... 196

Maintaining Contract Records .................................................................................................. 197

Maintaining Contract Information .................................................................................................. 198

The Audit Trail ................................................................................................................................. 198

What Documentation to Keep? ...................................................................................................... 199

Maintaining Files ............................................................................................................................. 199

Electronic Record Keeping ........................................................................................................... 200

Appendix A – Contract Management Checklist .......................................................................... 201

References and Bibliography .................................................................................................... 202

Publications ..................................................................................................................................... 202

Reference Internet Sites ................................................................................................................. 202



Introduction Welcome to the Student Notes for Contract Stream C of the Procurement & Contract

Management Program that aims to build the competencies towards the Certificate IV in

Procurement & Contracting qualification (PSP40616) from the Public Sector Training Package

(PSP12).

Contract Stream C consists of the Contract Management component of the Certificate IV

qualification and is designed to build your knowledge and understanding about contract

management activities within a procurement environment and it supports compliance and

practical application within the Australian Government. It is assumed that the participant

completing this stream will have some knowledge of the legislation, policies and financial

processes that may affect the procurement and contract process.

These Student Notes are designed to assist you in developing the skills and knowledge

necessary to achieve the Certificate IV in Procurement & Contracting qualification. Throughout

these notes, you will find information, further recommended reading, case studies and

activities which are deliberately structured to assist your learning. Much of the information in

these Student Notes has been sourced from commonly available Australian Government,

State and Territory procurement policy and guidance. The sources have been listed in the

references and bibliography section and are recommended as further reading.

The instructions and procedures described in this training program are provided for training

purposes only; they do not replace or take precedence over either the procedures or

instructions issued by your agency, or relevant legislation. You should ensure that you are

familiar with any legislation, policies, procedures, or other guidelines that apply within your

organisation.

Program Objectives and Learning Outcomes This program addresses procurement planning and tender evaluation activities of a complex

nature and the development and distribution of requests for offer and contracts. It includes

information about the identification, management and treatment strategies that will support an

effective procurement outcome.

On completion of this program, participants will be able to:

Plan for a procurement process;

Identify and manage risks associated with the procurement process;

Evaluate offers and debrief tenderers;

Plan for and undertake negotiations;

Manage contracts;

Develop advanced workplace communication strategies;

Develop internal and external networks; and

Comply with government process and requirements.



What is an Acceptable Standard for a Qualification at this Level? The Certificate IV is a qualification that requires breadth, depth and complexity of knowledge

covering a broad range of varied activities or application in a wider variety of contexts most of

which are complex and non-routine.

Leadership and guidance are involved when organising the activity of self and others as well

as contributing to technical solutions of a non-routine or contingency nature. Performance of

a broad range of skilled applications including requirements to evaluate and analyse current

practices, develop new criteria and procedures for performing current practices are also

required.

You should have this standard in mind as you complete the readings and exercises set for this

program.

Units of Competency and Learning Objectives Training packages are sets of nationally endorsed competency standards and qualifications

used to recognise and assess people’s skills. They are developed by national skills councils

in consultation with industry, employers, enterprises, and education providers to meet the

identified training needs of specific industries or industry sectors. To gain national

endorsement, developers must provide evidence of extensive consultation and support within

the industry area or enterprise.

Within each training package a number of core and elective competencies are grouped

together to form nationally endorsed qualifications. For more information about training

packages, visit www.training.gov.au.

These Student Notes cover elements of the following Units of Competency from the Certificate

IV in Procurement and Contracting qualification and will be assessed against the same units

from the Public Services Packages 2012 (PSP12):

PSPGEN027 – Gather and analyse information;

PSPGEN038 – Identify and treat risks;

PSPPCM007 – Manage contracts;

PSPGEN033 – Use advanced workplace communication strategies;

PSPGEN039 – Develop internal and external networks; and

PSPPCM002 – Dispose of assets.

Pro Leaders Academy have elected to combine these units because of the synergy and

commonality between them as part of the Values and Principles of Public Service. The

elements and performance criteria for these competencies have been provided below.



About the Units of Competency

Each unit of competency consists of elements and performance criteria that identifies what

you can do within the workplace and how you can be assessed as competent. These

assessments against each unit of competency are counted towards a qualification from the

Public Sector Training Package.

In practice, establishment of the procurement need and developing requests for offers overlap

with other public sector generalist and specialist work activities such as acting ethically,

complying with legislation, supporting the implementation of policy, applying government

processes, working with diversity, gathering, and analysing information, etc.

Therefore, the following elements and performance of related competency units from the

Certificate IV in Procurement and Contracting have also been included in this cluster.

PSPGEN027 – Gather and analyse information

This unit covers the skills required to collect and analyse information and will include

interpreting information, developing, and applying workable solutions, presenting information,

and maintaining information.

Elements Performance criteria

1. Identify and collect information

1.1. Identify nature, extent, and purpose of required information.

1.2. Identify and access internal and external sources to produce required information.

1.3. Collect, organise, record and report information.

1.4. Organise information collected in a way that enables easy access and retrieval by other staff.

2. Analyse and interpret information

2.1. Evaluate information and its sources for relevance and validity to business and/or client requirements.

2.2. Analyse information as required to identify key issues.

2.3. Carry out detailed analysis of information as required using relevant techniques including mathematical calculations.

3. Develop and apply workable solutions

3.1. Develop workable solutions to business and/or client requirements.

3.2. Communicate or implement proposed solutions as required.

3.3. Report and present information in required medium using relevant technology.

4. Maintain information 4.1. Maintain information and records to ensure data and system integrity using a range of standard and complex information systems and operations.

4.2. Reconcile routine data and records as required.

4.3. Identify and correct inadequacies in system/s relating to information retrieval or reported to relevant staff as required.



PSPGEN038 – Identify and treat risks

This unit covers the identification and treatment of risks using the organisation’s risk

procedures and treatments. It includes establishing the risk content, analysing, evaluating

risks, and monitoring and reviewing the risk treatment plan.


1. Establish the risk content

1.1. Establish the nature and extent of the work activity within the broader organisational context.

1.2. Identify and document outcomes to be achieved.

1.3. Analyse relationship between the activity and its environment and identify critical factors in the environment that may impact on the achievement of outcomes.

1.4. Identify and consult stakeholders to understand their opinions, concerns and needs.

1.5. Determine risk evaluation criteria for the activity.

2. Identify risks 2.1. Select method/s for identifying risks in accordance with risk management policy and procedures, budgetary and time constraints relative to the type of activity to be undertaken.

2.2. Identify and document sources of risk as required.

2.3. Identify and record risk events related to each source of risk.

2.4. Undertake consultation to ensure all possible risks are identified.

3. Analyse risks 3.1. Analyse and rate the probability of identified risks occurring and consequences.

3.2. Consider current control measures for any of the identified risks in the risk analysis and analyse and include residual risks if necessary.

3.3. Determine levels of risk in accordance with risk matrix used by the organisation.

3.4. Consult as required to confirm risk levels, and document analysis.

4. Evaluate risks 4.1. Evaluate risks by comparing the level of risk with risk evaluation criteria established at the beginning of the risk management process.

4.2. Consider the importance of the activity, its outcomes, and the degree of control over the risks.

4.3. Consider potential and actual losses which may arise from the risk.

4.4. Take into account benefits and opportunities presented by the risk.

4.5. Identify risks as acceptable or unacceptable in accordance with risk evaluation criteria and obtain approval.

4.6. Prioritise unacceptable risks and document the reason/s for acceptance of risks.

5. Treat risks 5.1. Determine options for treating risks.




5.2. Select the best treatment option and undertake a cost-benefit analysis.

5.3. Prepare, approve, and communicate a risk treatment plan to those who will be involved in implementation.

5.4. Negotiate changes required to operational structure, procedures or staffing in order to implement risk treatments.

5.5. Organise resources and implement risk treatment plan.

6. Monitor and review risk treatment plan

6.1. Monitor changes in the organisational environment and factors impacting on the organisation for their impact on risks and existing risk treatments.

6.2. Monitor and adjust risk treatments for unacceptable risks as required.

6.3. Monitor acceptable risks to ensure these risk levels do not increase over time.

6.4. Consult and collect, analyse, and use data relating to risks and risk treatments to improve risk management in own area of operation.

6.5. Review risk treatment plan in accordance with timetable for review of plan and updated as required.

6.6. Provide input into formal reviews of risk in the organisation to improve risk management outcomes.

PSPPCM007 – Manage Contracts

This unit describes how to undertake preparations, establishing and maintaining contract

management arrangements, monitoring, and maintaining contract performance, and

completing and reviewing contracts.


1. Prepare to manage a contract

1.1. Confirm and clarify contract requirements, approvals and funding arrangements and identify obligations and limits of authority.

1.2. Clarify and assist with contract administration issues by contacting specialists and stakeholders and confirm operational elements of the contract.

1.3. Identify and clarify key contract clauses.

1.4. Identify and confirm process, timings, and key performance indicators with stakeholders.

1.5. Develop or review the risk management plan.

1.6. Develop or obtain contract management strategy and enter key details from the contract.

1.7. Form contract management team and allocate roles and responsibilities.

2. Implement a contract management strategy

2.1. Confirm and implement start-up or transition arrangements.




2.2. Establish information and contractor and stakeholder communication strategies.

2.3. Monitor and update risk management plan.

2.4. Manage relationship with contractors and stakeholders.

2.5. Obtain specialist expertise as necessary for progress meetings and for advice on or resolution of contract issues.

2.6. Maintain contract information and documentation.

3. Monitor and maintain performance of a contract

3.1. Ensure obligations to contractor and stakeholders are met.

3.2. Use monitoring and control measures and performance indicators to manage performance of contract and ensure that all obligations under the agreement are being met.

3.3. Manage contract variations.

3.4. Investigate and resolve or refer disputes and complaints.

3.5. Manage negotiation of contract issues.

3.6. Maintain communication with all stakeholders on the performance of the contract.

4. Complete and review contract

4.1. Confirm client satisfaction with contract deliverables.

4.2. Finalise, amend, cancel, or terminate contracts.

4.3. Manage close-out, and renewal of contract or transition to a new contract.

4.4. Review contract management, contractor performance, user satisfaction and audit results.

4.5. Document and explain variances to measures or outcomes that are not met in full.

4.6. Report on contractor performance and review contract management practice and make recommendations for improvement.

PSPGEN033 – User advanced workplace communication strategies

This unit describes how to use advanced workplace communication strategies, including

dealing with complex enquiries, complaints, giving directions, managing meetings, and

giving presentations.


1. Deal with complex enquiries and/or complaints

1.1. Establish relationship with the client by displaying understanding towards client needs, and the nature of complaint and/or enquiry by listening, questioning, and confirming.

1.2. Record complaint and/or enquiry and verify with the client.

1.3. Obtain documentation to support complaint and/or enquiry if required.

1.4. Identify action available under organisational policies and follow procedures to respond to and resolve complaint and/or enquiry.




1.5. Identify and refer complaints and/or enquiries that require other personnel or external organisations’ input to resolve.

1.6. Advise client of action taken to resolve the complaint and/or enquiry and record.

2. Give directions 2.1. Give ethical, lawful, and reasonable directions to others, and protect staff from reprisals for refusing directions to act unethically.

2.2. Give directions and confirm understanding of directions.

2.3. Resolve problems or refer if required.

2.4. Provide feedback on implementation.

3. Manage meetings 3.1. Clarify purpose of each meeting and develop the agenda in consultation with participants.

3.2. Select procedure for each meeting and style of facilitating.

3.3. Chair meetings in accordance with agreed conventions for the type of meeting and legal and ethical requirements.

3.4. Ensure meetings are focused on the objectives of the meeting and are time efficient.

3.5. Enable participation, discussion, problem solving and resolution of issues by all those present.

3.6. Summarise decisions and recommendations, check for accuracy and record as required.

4. Make presentations 4.1. Make presentations to a range of audiences.

4.2. Structure presentations logically and ensure they contain relevant information to meet the purpose of the presentation.

4.3. Create, organise, and select supporting materials and presentation aids to enhance audience understanding of key concepts and ideas.

4.4. Choose presentation strategies to match the characteristics of the target audience, the location, the resources, and the personnel needed.

4.5. Evaluate effectiveness of the presentation formally and informally for the purpose of continuously improving future presentations.

PSPGEN039 – Develop internal and external networks

This unit covers the competencies required to develop and maintain effective workplace

relationships and networks, including establishing and maintaining working relationships,

and representing and promoting the organisation.


1. Build and maintain networks

1.1. Identify networking opportunities and pursue to maximise a range of personal industry contacts.




1.2. Communicate information regarding new network opportunities to inform colleagues and managers of the potential benefits to the organisation of involvement.

1.3. Assess the level of usefulness of existing networks against current involvement and make adjustments to improve or downgrade relationships.

1.4. Maintain participation in professional networks and associations to obtain and maintain personal knowledge and skills.

2. Establish and maintain working relationships

2.1. Use networking strategies to establish and maintain working relationships that promote benefits consistent with organisational objectives.

2.2. Gain and maintain trust and confidence of key stakeholders through high standards of ethical practice.

2.3. Use negotiation and collaborative problem solving to achieve positive outcomes when difficult situations arise.

2.4. Establish and maintain formal and informal communication channels to exchange information and ideas.

2.5. Incorporate networking into professional and organisational planning regimes to maximise its usefulness to the organisation.

3. Represent and promote the organisation

3.1. Represent and promote the organisation’s interests and requirements using a range of strategies tailored to diverse participants in the networks.

3.2. Provide information on organisational issues, policies and practices authorised for public presentation orally and in writing in accordance with network requirements.

3.3. Seek feedback from stakeholders to identify and develop ways to improve promotional activities within available resources.

PSPPCM002 – Dispose of assets

This unit covers the competencies required to dispose of assets and gain a return from

sales, and includes identifying assets for disposal, developing, and implementing an asset

disposal strategy, and evaluating disposal.


1. Develop a strategy for the disposal of assets

1.1. Identify assets for disposal.

1.2. Determine potential market value of assets.

1.3. Evaluate case for expending resources to add value to assets prior to sale.

1.4. Investigate options for disposal and determine method providing maximum return, in the context of policy, probity requirements and desired outcomes.

1.5. Consider disposal requirements for special categories of assets, including environmental and corporate social responsibility issues.




1.6. Consult stakeholders and incorporate feedback into strategy.

2. Implement a disposal strategy

2.1. Write off and dispose of goods according to approved disposal plan and requirements.

2.2. Maintain records for audit and evaluation purposes.

2.3. Evaluate asset disposal against expected outcomes, including forecast market value of assets and document.

You will find detailed information relating to each performance criterion as you work through

this book but if you are unclear about what is expected of you, please seek clarification from

your workplace trainer as soon as possible.

How you will be assessed

There are a variety of assessment options available to you depending on how and where you

are studying. As well as completing the activities and case studies throughout this book, you

may be asked to compile a portfolio of evidence, complete a workplace project or case study

and answer questions relating to your learning. Your trainer and/or assessor will discuss these

options with you.

Further reading

Although you will find all of the information that you should need to complete the competency

within this book, you may wish to refer to the list of references at the end of the student notes

to broaden your knowledge and for help when completing projects and case studies.



Introduction to Contract Law



It is vital when involved in procurement and contract management functions to understand

how contracts are formed, to ensure that contracts are only ever entered into (and varied)

intentionally, and when the delegated authority to do so exists. Our everyday words and

actions may lead to legally binding contractual arrangements, so care must be taken in the

management of all associated duties and interactions with the other party, prior to any contract

being formed and during the subsequent contract management phase.

What is a Contract? A contract is an agreement between two or more parties, which details the legal rights and

obligations that are enforceable in law. For a legally enforceable contract to be formed, the

following elements must be satisfied:

Offer;

Acceptance;

Consideration;

Intention to create legal relations;

Legal capacity to contract;

Legality; and

Genuine consent.

Even if the above criteria have been met, the agreement must also be sufficiently certain and

sufficiently complete so that the parties' rights and obligations can be identified and enforced.

The topic of certainty encompasses three related and often overlapping problems:

The agreement may be incomplete because the parties have failed to reach agreement

on all of the essential elements or have decided that an essential matter should be

determined by future agreement.

The agreement may be uncertain because the terms are too vague or ambiguous for a

meaning to be attributed by a court.

A particular promise may be illusory because the contract effectively gives the promisor

an unfettered discretion as to whether to perform the promise.

A contract does not need to be in writing (unless the subject of the contract is governed by

specific legislation requiring a written contract, such as Conveyancing Acts), so care must be

taken with any verbal representations because it is possible to make a legally binding

commitment verbally.

Offer

An offer is a promise to be bound on the basis of any terms included in that offer if that offer

is accepted. There are a number of rules governing offers:

An offer must be communicated to the person to whom it is made.

An offer can be made to a single person or to a class of persons or to the world at large.



Offers must distinguished from invitations to treat - goods displayed and price tagged for

sale are invitations to treat as are Requests for Tenders issued by a buying organisation.

An offer may be revoked at any time prior to acceptance (even if the offeror tells the offeree

they will hold their offer open for a specific time).

An offer may be rejected or accepted or revoked or it may lapse.

When an offer is rejected it comes to an end and may not be subsequently accepted.

A counteroffer (e.g., “I accept your offer, but I require something more”) has the same legal

effect as outright rejection.

An offer may be accepted at any time prior to the offeree obtaining information upon which

they could reasonably have relied to the effect that offer has been withdrawn.

If any offer is neither revoked, rejected not accepted, it may lapse in any of the following

circumstances:

On the death of either party:

If not accepted within a time prescribed in the offer or, if no time is prescribed, within a

reasonable time; or

Because of the failure of a condition attached to the offer.

A tender to supply goods or services to a buying organisation is an ‘offer’.

Acceptance

Acceptance occurs when the party that the offer was made to, agrees to accept that offer

through their actions or statement. The rules of acceptance are:

Acceptance must be unconditional – any variation from the original offer has the effect of

creating a counteroffer which in turn may be accepted or rejected.

An acceptance which is stated to be ‘subject to contract’ is not a counteroffer unless new

or different terms are being proposed.

Acceptance must be communicated to the offeror.

An offeror cannot impose an agreement on an offeree by default.

If the offeror does not prescribe a particular mode of acceptance, then acceptance must

be communicated in a way that is reasonable.

Important Tip

In any communications with tenderers, you should take great care with your

words and actions to ensure the communication is not construed as an

acceptance of their offer until you are ready to commit to a contract.



Consideration

Consideration is something of value given or promised in return for something of value given

or promised. In law a promise to give or do something is regarded as just as valuable as the

actual giving or doing itself.

The rules of consideration include:

Unless a party to a contract has provided consideration, they cannot enforce the other

party’s promises under the contract.

The following things are not consideration as recognised by law:

- A moral obligation.

- Past consideration.

- The performance or promise to perform a public duty already imposed by law or a

duty already imposed on the promisor by any existing contract.

Intent

The actions of offer and acceptance do not create a legally enforceable contract on their own.

The parties to the contract must intend to enter into a legally binding agreement. This intention

is usually not explicitly stated but is ‘gathered’ as a result of the circumstances in which the

agreement was made. For example, unless there is clear evidence to the contrary, the courts

will hold that an agreement reached in a commercial or business context is intended to be

legally binding. Conversely, in the absence of clear evidence to the contrary, the courts will

hold that an agreement made in a social or domestic context is not intended to be legally

binding.

Legal Capacity

Not everyone can enter into a valid contract. The following classes of persons are considered

not to have full capacity as compared with a normal adult person.

Minors (under 18) - Valid contracts with minors can only be for ‘necessaries’ or beneficial

contracts of service (e.g., an apprenticeship agreement).

Aliens - Friendly aliens have the same rights as Australian subjects. During wartime,

enemy aliens cannot contract nor have access to any rights or remedies for contracts

entered into before the war.

Corporations - The legal capacity of a company is found in its Memorandum of

Association which regulates the dealings of the company with other parties.

Bankrupts - Bankrupts may still make contracts but their capacity is limited according to

the provisions of the Bankruptcy Act 1966, and they must disclose their bankruptcy status,

for example, if obtaining credit above a specific value.

Convicts - A person cannot make a valid contract while serving a prison sentence. The

courts will sometimes appoint an administrator to enforce contracts entered into prior to

conviction.

Lunatics and drunken persons - If at the time of making a contract a person is suffering

from mental instability or drunkenness to the extent that he/she is incapable of



understanding its nature, that contract is voidable. It will not be voided unless it can be

proved that the mental instability or drunkenness was known (or ought to have been

known) by the other party.

Note that for most PGPA Act 2013 budget funded non-corporate Commonwealth entities

(NCCEs), the body with the legal capacity to enter into a contract is ‘The Commonwealth’.

Corporate Commonwealth entities (CCEs) governed by the PGPA Act 2013 will normally have

a legal capacity separate to the Commonwealth.

As the Commonwealth is a legal entity, two Commonwealth departments cannot

enter into a contract with each other as they are both the same legal entity. They

usually enter into agreements such as Memoranda of Understanding which are

not legally binding.

Legality

The object or purpose of a contract must be legal if it is to be enforceable in a court of law. A

contract contrary to public policy may be treated similarly to a contract for an illegal purpose

e.g., a contract to defraud revenue.

Genuine Consent

The parties to a contract must enter into the contract freely and with a full understanding of

the contract and what each party to the contract is doing, that is, with genuine consent.

Consent may be affected by:

Undue Influence – the decision of a party to enter into the contract was not a free and

independent decision (this is often the case where one party is weaker and unfair

advantage has been taken of that party through a wrongful act, or as a result of an

‘advisory position’) and essentially the party’s ‘will is overcome’.

Duress – the decision of the party is as a result of actual or threatened violence (they have

not acted as a result of free will) and may include a threat to their business or trade.

False Statement – where the party has agreed to enter into the contract on the basis of

untrue fact either implied to induce the party to agree to the contract, or written into the

contract (where this occurs the contract may be found void and damages payable).

Mistake – where the parties have taken reasonable precautions when entering into the

contract, a mistake of fact may render the contract void (if reasonable precautions (such

as reading the contract) have not been taken the defence of ‘mistake’ will not be allowed).

If a person is induced into entering into a contract because of a misrepresentation or because

of an unconscionable dealing, the contract may be set aside and not be binding on the parties.

Such actions may include deliberate or unintentional actions that are false, misleading, or

fraudulent and which have been relied upon by the other party when agreeing to the contract.



Other Legal Issues The contract manager should have a basic understanding of a number of other legal issues in

order to recognise that their words and actions may have an impact on the agreed contract

provisions, to support effective contract management – namely, the principle of estoppels, the

law of agency, the doctrine of waiver, and the difference between contract terms and contract

conditions.

Estoppel

Important legal issue contract managers should be aware of is the principle of estoppel.

Estoppel is a legal doctrine based in equity law which prevents a person from denying that

their words or conduct, which have been relied upon by another to their detriment, are true.

Generally speaking, if you are acting as a Contract Manager for the government, then it may

be reasonable for a provider to believe that you have the authority to bind the government in

relation to contracts. The principle of estoppel means that you cannot later deny the

contractor’s right to believe that you had authority to act on behalf of the government. For

example, as the government Contract Manager if you fail to act on the late delivery of a

contract deliverable (such as monthly reports). Your failure to enforce the contract provisions

may indicate to the contractor that late delivery of the reports is acceptable.

If, after a period of time and ongoing late deliveries, you decided to take action and claim

damages or seek to terminate the contract because of the late reports (an action which is

detrimental to the contractor), you may be ‘estopped’ (prevented) from doing so, as your

conduct has supported the assumption (and reliance) by the contractor that the delivered

services were acceptable. Simply put, estoppel prevents you from denying the truth of your

words or actions (you must accept liability for your words and conduct).

This has significant implications for:

the formation of verbal contracts and contract amendments;

acceptance of property and services;

toleration of minor breaches of the contract and the establishment of a pattern of allowing

contractor default;

dispute resolution; and

the right to later pursue breaches of contract through the courts.

Example 1

Even though you were unhappy with property supplied by the contractor, you did

not formally reject the property in accordance with the contract or contact them to

advise of your dissatisfaction and their invoice was paid. It is likely you will now

be ‘estopped’ from claiming they have not met their contractual obligations as

your behaviour (or lack of action) gave every indication that you regarded their

obligations as having been met.



Example 2

You have had a great relationship with a contractor on a major IT purchase,

which is now nearly complete. The contractor comes to you and advises that

they are having difficulty in finding the resources to complete the technical

documentation associated with what you see as a minor and insignificant part of

the system. Being so pleased with their performance and excited that the project

is finishing, you tell them not to worry about it. You then have to deal with a very

irate internal stakeholder who says that technical documentation is in fact critical

to the operation of the system. The doctrine of estoppel may mean you no longer

have any legal recourse to get the provider to complete the documentation as

you will be ‘estopped’ from denying that you verbally released them from this

contractual obligation.

Agency

The law of agency deals with contractual, quasi-contractual and non-contractual relationships

in commercial law, where a person (the agent), is authorised to act on behalf of another

person, to create a legal relationship with a third party.

Government employees may have the ‘actual’ authority to act as an agent for the original

authority holder (such as a delegate acting as an agent for the Chief Executive) and therefore

bind the government with their decisions.

Apparent or ostensible authority exists where a person’s statements or actions would lead a

reasonable person in the third party’s position (such as a supplier or potential supplier) to

believe that the person was authorised to act in the way they did. If the supplier reasonably

believes that you, as the contract manager, have the authority to commit to, or change the

contract, the decision is likely to be binding. This raises the related concept of estoppel,

preventing the person who acted as if they had proper authority, from denying that to the

detriment of the third party.

Waiver

The operation of waiver in Australian Law is not settled and is therefore vague and imprecise.

Waiver applies when a party to a contract forgoes legal rights that they are entitled to exercise

against the other party. As a contract manager it is important to understand the government’s

rights under the contract and ensure that they are acted upon appropriately. Failure to

exercise a right may inadvertently waive that right.

The doctrine of estoppel may also operate to prevent insistence on a right that has been

waived, where a third party (such as the supplier) relies on such representation to their

detriment. Contract managers should take great care in their decision making, not to

inadvertently waive rights that are valuable to the government.



Contract Managers should be aware that the inclusion of these two clauses in a

contract will not prevent the application of estoppel or waiver:

Entire Agreement Clause – designed to limit the parties to the express terms of

the contract:

“The contract represents the parties’ entire agreement in relation to the subject

matter and supersedes all tendered offers and prior representations,

communications, agreements, statements and understandings, whether oral or in

writing.”

Waiver Clause – designed to protect against the damage caused by failing to

enforce provisions under the contract, and preserve the rights of the parties:

A waiver by either party in respect of any breach of a condition or provision of

this Contract will not be deemed to be a waiver in respect of any continuing or

subsequent breach of that provision, or breach of any other provision. The

failure of either party to enforce at any time any of the provisions of this Contract

will in no way be interpreted as a waiver of such provision.

Contract managers must clearly understand and act according to the provisions

of the contract so that their actions are consistent with and not seen to replace

the provisions of the contract.

Contract Terms and Conditions

Contracts consist of clauses that are either terms (also known as warranties as a breach may

result in financial recompense) or conditions.

A term, if breached, gives rise to damages for the party who is wronged whereas a condition

is fundamental to the performance of the contract, and if breached may give the other party

the right to terminate the contract.

For example, a nominated delivery date in a contract is a term of the contract. If delivery is

late the goods and services will still have to be accepted and paid for, but the buyer may be

able to claim financial recompense (damages) if they are able to prove that as a result of late

delivery, they suffered economic loss. However, if the delivery date is supplemented with the

statement that ‘time is of the essence to the contract’ this has the effect of making the

delivery date a condition of the contract. Failure to meet the condition would affect the need

for the contract.

Express and Implied Terms

Express terms are those which are agreed and clearly stated in writing in the contract. The

parties have usually discussed and reached agreement over the content of the contract

documents and the courts will generally hold that the parties are bound by express terms.

Implied terms are not written into the contract and therefore are terms that have not expressly

been agreed to, either orally or in writing. Implied terms may be deemed by the courts in the



event of a dispute where express terms have not covered all contingencies. The court may

imply terms:

as a matter of law (for example, a contract for professional services contains an implied

term that the professional person will carry out their duties without negligence);

as a matter of fact (including as a result of past dealings, as a result of custom or trade

usage, or to give business efficacy to the contract); and

by statutes (such as the Competition and Consumer Act 2010).

The meaning of ‘Chicken’

Custom or trade usage must be well known and widespread for it to be relied

upon as an implied term.

BNS International Sales Corp. entered into contract with Frigaliment Importing

Co. for chicken. On delivery of the chickens, Frigaliment brought a lawsuit for

the breach of warranty against BNS on the grounds that the delivered goods did

not meet the specification.

Frigaliment believed that ‘chicken’ meant young chickens suitable for broiling and

frying, BNS believed that the term ‘chicken’ included stewing chickens.

The case was rejected as Frigaliment failed to meet the burden of proof on the

meaning of the word ‘chicken’ (an ambiguous word) and interpreted the contracts

ordinary terms in a narrower sense than was used in everyday trade.

Frigaliment Importing Co. v. B.N.S. International Sales Corp

Standard Terms and Conditions

Most government agencies utilise contracting templates with standard terms and conditions,

which represent the coverage of key issues such as:

the confidentiality of Australian Government information;

indemnity;

insurance;

the need for variation of contract terms to be in writing;

dispute resolution; and

the Auditor-General’s access to the contractor’s records.

Standard templates support the process of contract development and represent the entity’s

chosen risk profile for that type of contract (i.e., goods, services, consultancy etc.). Therefore,

care must be exercised if altering or adapting these documents to meet the requirements of a

particular procurement requirement. Legal advice should be sought if departure from the

standard terms and conditions is proposed.

More complex and strategic procurements may require standard terms and conditions to be

altered to ensure adequate protection for the government, particularly with regard to high

value, high risk projects.



It is always preferable that the Australian Government retains responsibility for drafting the

contract as supplier contract arrangements will nearly always seek to mitigate their risks by

transferring them to the other party.

It is strongly recommended that any amendments or additions to standard

conditions are developed or agreed to by legal experts.

Other Supply Arrangements

Apart from legally binding contracts, other arrangements for the supply of goods and services

may need to be managed. These could include Memoranda of Understanding (or Memoranda

of Agreement), Standing Offers and Letters of Intent.

Memoranda of Understanding (MOUs)

Memoranda of Understanding are generally intended to not be legally binding and therefore

provide a mechanism for parties to detail complex agreements, when they are unable to

contract with each other, either from necessity or where politically desirable. The MOU

specifies the obligations of each party and may detail the services or deliverables required,

including any specifications, measures, or timeframes.

MOUs are often used between Commonwealth government agencies, which are unable to

contract with each other as part of the same legal entity. MOUs may also be used with other

governments (State, Territory, and foreign governments). MOUs must be managed carefully

to ensure all obligations and requirements are met by each party to the agreement.

Standing Offers

A Standing Offer is an arrangement for the ongoing offer, by a supplier (or suppliers where

multiple suppliers sign up to a Standing Offer to create a Panel of providers), to provide goods

and/or services for a specified period of time. The provisions of the Standing Offer may include

price. A Standing Offer is not a contract as neither party has an obligation to purchase or

supply the goods or services until an order is placed by the buyer. When an order is placed a

legally binding contract is formed and the terms and conditions in the Standing Offer are

‘drawn down’ to apply to the purchase.

A Deed of Standing Offer operates under the same general premise as a Standing Offer but

is a legally enforceable agreement executed under a Head Agreement. The arrangement is

legally binding, but until the order is placed, a valid contract does not exist. Standing offers

are established to facilitate repetitive acquisition of goods and services over a specific period

on agreed or set terms and conditions, as the need arises.

Letters of Intent

A letter of intent (sometimes known as a letter of comfort) is a way of making a commitment

to a supplier, either in lieu of a contract or prior to contract execution (issuing a letter of intent

prior to reaching full agreement may greatly reduce negotiating power). As letters of intent

can have legally binding consequences it is strongly recommended that legal advice is sought,

and a risk assessment conducted prior to their issue.



Planning to Manage the Contract



Careful planning to manage the contract is essential. Planning identifies the information

critical to managing both the legal requirements and the working relationship necessary to

support a successful contract outcome.

A carefully managed contract, and the associated relationships, can reduce the risk exposure

associated with the contract and improve the level of performance. This means that it is critical

to have the correct resources allocated to the management task, encompassing the

management of both the contract and the contractor’s performance. Planning to manage and

monitor the contract should commence early in the procurement process to ensure the

necessary systems and processes are in place when the contract commences.

The extent of contract management activities will be subject to the nature and complexity of

the contract but are likely to include administrative functions (such as processing claims for

payment and variations to the contract), and contract specific requirements related to the

deliverables and communication requirements of the contract.

Understanding the Background to the Contract It is important that the contract manager fully understands the background to the contract (why

is the contract necessary, what have the major issues been throughout the procurement

process so far, including any potential flow on issues stemming from the negotiation process).

This may be straightforward if the contract manager has been involved in the whole

procurement process to date, but this often not the case. The contract manager should be

fully briefed by those who have been responsible for selecting the contractor and running the

procurement process. The contract manager should also take the time to examine the records

relating to the selection of the contractor as well as any files from previous relevant contracts.

Analysing and Understanding the Contract The next step in the contract management function is to carefully read, analyse and

understand the contract with the view to developing a comprehensive contract management

plan.

Proper analysis and understanding of a contract requires that each contract clause should be

read, and the following issues determined:

what does the clause require to be done?

is it an ‘active’ clause requiring action, or a ‘background’ clause establishing rights or the

legal framework?

who is required to perform the action?

who is responsible for checking that everything the clause requires is being done?

What are the consequences if a required action is not done or not done properly?

Active clauses include those dealing with issues such as payment, delivery, acceptance, and

reporting. Background clauses include intellectual property, confidentiality, severability,

applicable law, and survivorship. There may also be overlap between active and background



clauses - for example, confidentiality clauses that require the action of confidentiality deeds to

be executed.

Careful reading and analysis of the contract should facilitate the development of a contract

management plan.

It is important to understand what is in the contract – you cannot manage issues

if you don’t know about them or do not understand them. Seek advice and

assistance from the relevant subject matter experts (i.e., legal or technical

experts) to enhance your understanding and facilitate the contract management

task.

The Contract Management Plan A contract management plan should contain all of the key issues associated with the

performance of the contract and therefore provides an invaluable reference for the contract

manager when undertaking the contract management task. Essentially, the plan outlines how

the contract manager will manage the contract over its life. The plan should be a dynamic

document that evolves over time and reflects any changes over the life of the contract.

The level of detail contained in a contract management plan should be commensurate with

the complexity of the contract. Your organisation may have a template available to assist with

developing a contract management plan. A contract management plan should be documented

and appropriately disseminated to the contract management stakeholders.

The typical content of a contract management plan should address:

Background to the Procurement

- a summary of the procurement process that has led to the contract, including any

other options that were considered to satisfy the need (also the term of the contract

– the commencement date, cessation date and any options within the contract);

- information on previous contracts or projects leading to the contract requirement;

and

- documents that are relevant to the creation and management of the contract (e.g.,

planning and evaluation documents, approvals, file numbers, relevant reference

material, related contracts etc.). It is useful to note location, version number etc.

when noting relevant documents or references.

Contract Scope

- Scope Statement - what is included in the contract, what isn’t (for example, delivery,

but not installation, whether disposal forms part of the contract deliverable etc.)?

- Objectives – what are the agreed objectives and when they are to be achieved

(consider why the contract is important and what it is aiming to achieve)?

- Key Deliverables – what will actually occur (what are the key milestones or

deliverables that will be met, what will be produced or delivered over the life of the

contract, what will the contract deliver to the customer)?



Stakeholders (this information could be tabled, or if particularly complex it may be useful

to map the relationships)

- who are the stakeholders to the contract, what roles or responsibilities do they have

(who is affected by the contract and needs to know it is operating, who will assist in

delivery of the contract, who will assist to manage performance, who needs to know

what is happening and who is interested in what is happening, and will they need to

be managed)?

- what will be the best way to communicate with each key stakeholder (meetings –

internal, contractor? Reports – from and to whom? Informal strategies vs. formal

strategies?). Don’t forget about the communication strategies with the contractor.

Roles and Responsibilities (RACI Matrix) is a straightforward tool used for identifying

roles and responsibilities and avoiding confusion over those roles and responsibilities

during a procurement or within the Contract relationship.

The acronym RACI stands for:

Responsible: The person who does the work to achieve the task. Accountable: The person who is accountable for the correct and thorough completion

of the task. Consulted: The people who provide information for the project and with whom there is

two-way communication. Informed: The people kept informed of progress and with whom there is one-way

communication.

How to create a RACI Matrix.

1. Identify all the tasks involved in delivering the procurement and/or contract and list them on the left-hand side of the chart in completion order.

2. Identify all the key roles and list them along the top of the chart. 3. Complete the cells of the chart identifying who has the responsibility, the accountability

and who will be consulted and informed for each task. 4. Ensure every task has a role responsible and a role accountable for it. 5. No tasks should have more than one role accountable. Resolve any conflicts where

there is more than one for a particular task. 6. Share, discuss and agree on the RACI Matrix with your stakeholders before your

procurement and/or contract starts.

Step Contract Planning Delegate Contract Manager Vendor SME Finance

1 Task 1 C A/R C I I

2 Task 2 A I R C I

3 Task 3 A I R C I

4 Task 4 C A I R I

TABLE 1: EXAMPLE OF A SIMPLE RACI MATRIX

Benefits of a RACI chart

Within Procurement and contract management the RACI matrix helps you set clear expectations about key roles and responsibilities. This reduces the likelihood of having multiple people working on the same task or against one another because tasks weren’t clearly defined at the start or updated as the lifecycle progressed. A RACI matrix also encourages team members to take responsibility for their work within the team or defer to someone else when needed.



When to use a RACI matrix

A RACI chart provides benefits in any procurement or contract, however, can be especially useful when tasks require multiple resources, run concurrently, or depend on other tasks and people. Here are a few scenarios when a RACI chart comes in handy:

The decision-making or approval process could hold up the process. There’s conflict about task ownership or decision-making. Turnover in the team and need to have a stable baseline to work from.

1. Streamlining Communication

Having a RACI in place can be useful to refer to throughout the life cycle. Rather than involving every single person in every single decision, you can streamline the communication, involve the right people at the right time and speed up signoffs and decision making.

2. Avoiding People Overload

You know what it’s like when you get opinions from everyone and it becomes a nightmare trying to incorporate everyone’s point of view? Yep, this is where a RACI can be useful. The great thing about having the distinction between Consulted and Informed is that you can separate those involved in feedback, and those that are only updated on progress on the task.

3. Avoiding Work Overload and Silos

We all know how often a Manager wears many hats, taking on a lot of responsibility and often covering multiple roles. The RACI chart can be a useful tool to help delegate and avoid team burn-out. It also helps mitigate having a single point of failure, where all knowledge and responsibility for a task rests on one person, therefore creating silos.

4. Setting Clear Expectations

You can create a lot of efficiencies using a RACI chart on your activities. When you create a RACI at the beginning of a procurement or contract, it can be useful to help set expectations for who is managing or responsible for work going forward. People involved in the project should be able to clearly see where they need to be involved, and with which tasks. It can also help eliminate confusion by knowing who is ultimately accountable for a task completion. It’s particularly useful to set expectations with more senior stakeholders who are informed on the procurement or contract as it will allow them to know what information they will receive as part of the communications.

When Should I Use A RACI Chart?

Is a RACI chart useful across all procurement or contract? The short answer is no. Throwing in too much complexity and process to some small and fast-moving procurement or contract can actually slow things down and create blockers. If your procurement or contract team is small, roles are already very clearly defined, or a similar structure has been used successfully previously, then consider just assigning tasks to people. You don’t necessarily need to define everyone’s involvement in every deliverable.

However, on larger procurement or contract with multiple stakeholders, not using a RACI and clearly defining responsibility upfront can lead to difficulties further down the line, when people ask why they weren’t involved, or you find out there’s another layer of approval needed. It’s a great way to help avoid unexpected surprises and too much involvement from stakeholders along the course of the procurement or contract, slowing down decisions and work, and the procurement or contract as a whole. Primarily, if there is any confusion or questions around who is doing or involved in what, use a RACI to agree roles and responsibilities upfront.



Common RACI Pitfalls and How to Avoid Them

There are disadvantages with using a RACI chart: It can add confusion by a lack of understanding of differences between the terms. It can be time-consuming to create. It’s often ignored after approval. It can add unnecessary complexity to a project. It doesn’t account for the approvals on tasks or deliverables.

Common pitfalls to be careful of when creating a RACI matrix.

1. Project Manager as The Catch All

Often the default can be to think the procurement or contract Manager is the person or role Responsible for everything. Since they are delivering the procurement or contract, they are ultimately delivering everything within it. Try and move away from this line of thought. Think where the producers of work should be responsible.

2. Confusing Responsible and Accountable

These terms are quite close in definition which can lead to confusion, because Accountable is the role who’s ultimately responsible for the task or deliverable, whilst Responsible is the role doing the task.

3. Tension Between Consulted and Informed

Since Consulted has positive connotations where people assigned this role will feel more included, and that their feedback will be incorporated, this can sometimes cause tensions when people are assigned Informed. They can feel that they are out of the loop or that their feedback is not being heard. The Informed people or groups will see the deliverable once it’s been completed. Make sure this is clearly communicated upfront and feedback on this assignment of roles is agreed to, to avoid problems down the line.

Quick Tips to Make Your RACI Chart Succeed

1. Make sure having a RACI is going to be beneficial for the procurement or contract, think about how the RACI will be used and why.

2. Pick your model, and make sure you understand the terms. Make sure you have a definition for these terms to hand as you work through, or to share alongside the chart.

3. Make sure that only one role should be marked as Accountable, and not a full group to make sure that a sole person is the owner rather than multiple people which can lead to confusion and slower decision making.

4. Informed isn’t necessarily everyone on the project, it’s those that the task or deliverable will have an impact on, or those with a vested interest.

5. Even if you create the draft of the RACI, don’t do it in isolation. Get core stakeholders to review and provide feedback.

Alternative to the RACI is a RASCI

RASCI matrix stands for: Responsible, Accountable, Support/Supportive, Consulted, Informed. Support/Supportive accounts for the support available to the team involved in completing the task.

Support/Supportive roles are different to the Consulted roles, people Consulted will provide information, where the support/Supportive roles will actively participate on the tasks.



Transition Arrangements (in and out of the contract)

- Transition in – what actions need to occur for the contract to commence (who do you

need to meet with, what information may need to be checked to accord with the

contract obligations, are the right systems and processes in place for the

administrative functions of the contract, as well as access/delivery of contract

outputs, who will be impacted and do they need to be notified of contract

commencement, does the provider need any government furnished material etc.)?

- Transition out – what actions need to occur to determine that all obligations under

the contract have been met by all parties (has any government furnished material

been returned, has the contractor completed all obligations under the contract, has

access been terminated, has an invoice been provided, has it been paid, are all

administrative functions being finalised (financial management systems, files etc.),

has the contract been reviewed/evaluated and lessons learnt documented, analysed

and disseminated etc.)?

Performance Measurement and Monitoring

- Describe how performance will be measured (what performance indicators have

been agreed in the contract – what will successful performance of the contract look

like (meeting agreed milestones, meeting sustainability objectives, customer

satisfaction with the services etc.), against what measure/s e.g. against a standard

that is agreed in the contract (e.g. ISO, timeliness, volume, agreed targets etc.) and

monitored, that is, how will we know that the contractor is meeting that standard,

through reports, meetings, third party feedback, established benchmarks)?

- Performance incentives and disincentives – are any incentives used to support

effective contract performance (such as bonus payments) or are there disincentives

that will be used in certain circumstances (such as rebates or discounts for late

delivery, liquidated damages, performance/financial guarantees etc.)?

Risk Planning and Management – consideration should be given to earlier risk plans

conducted as part of the procurement process; many issues identified at that point will

continue to be relevant but can now be considered in light of the ‘contractual solution’ to

the need and incorporated in the contract risk management plan. Risk planning must

consider:

- Potential risks to the expected successful performance of the contract (for example,

price variation, failure to fulfil the requirements of the contract, unauthorised scope

increase etc.). Depending on the complexity and level of risk associated with the

contract this could be a risk log – showing identified risks and mitigation strategies,

cost benefit analysis etc. or a separate, detailed risk plan.

- Management of risks if they arise (for example, how any issues that arise under the

contract will be addressed, which may include the creation of an issues log to

manage any occurrences through to resolution).

Administrative and financial arrangements

- Payment - Detail the circumstances in which payment will be due to the contractor

e.g., on completion, milestones, advance payments etc and in what timeframe e.g.,

30 days, 14 days etc.

- Invoicing Arrangements - Detail the invoicing requirements for the contract e.g.,

format and content requirements, how do the invoices have to be processed e.g.,



who will authorise the payment, who is in the best position to confirm that the

deliverables have been received according to the claims on the invoice, what is the

entity process (is there a procedural instruction that should be referenced), who

should the approved invoice be forwarded to for payment etc.

- Administrative Arrangements - any other administrative arrangements relative to the

contract e.g., access arrangements for contractor personnel, lodging of performance

or financial guarantees, maintaining currency on insurances required for the

contract, the safe keeping and return of any government furnished material,

arrangements for giving form to any IP rights developed under the contract etc.

Inspection and audit requirements - detail any inspection or audit requirements relevant

to the contract. If required to be conducted by the government, detail what resources will

be required and when.

Dispute resolution procedures - detail the dispute resolution procedures in the contract

(including any internal processes or protocols that need to be followed if a dispute arises

e.g., advising the delegate or legal expert.

Variation processes and approval requirements - detail the contract variation process

specified in the contract. Outline the approvals that will be needed (financial or other) to

execute any variations, and any internal protocols or processes that must be followed to

execute the variation or report it (e.g., report to procurement area and/or enter details on

the financial management system).

Reporting requirements - detail any reports that will be produced during the contract.

Consider both reports to be delivered by the contractor (when, who needs to see them and

any actions that need to occur as a result of the reported information) and any internal

reporting e.g., to clients or senior management, how often they need to occur, and about

what?).

Contract Closure - detail the tasks that must be undertaken to successfully complete and

close the contract. Consider developing a checklist to assist with this task (e.g.,

management of transition out issues, notification of stakeholders, final invoice, and

payment etc.).

Contract Review and Evaluation - describe methods to be used to evaluate the contract

and the contract management processes, where or who the information could be gathered

from, how it will be analysed and assessed (e.g. did we meet all of the benchmarks,

milestones, what level of satisfaction, did we get what we paid for, did we use the right

contract terms and conditions to achieve the best outcome, did we have the right resources

to manage the contract etc.) to determine if we achieved a value for money outcome.

Disposal- planning for disposal should have occurred at the commencement of the

procurement process. Disposal will be covered in greater detail in the training course

PSPPCM002 – Dispose of Assets.

When completing a contract management plan it is important to remember that

often, a template will not cater to all circumstances perfectly (one size may not fit

all). You may need to adjust the template by adding or removing ‘content topics’

to best suit and reflect the needs of the particular contract.



Building Professional Networks



Networking Networking can be defined as “a supportive system of sharing information and services among

individuals and groups having a common interest.” From a procurement and contract

management perspective, this can mean either expanding an existing network to have people

better understand the contract or utilising existing networks to draw on experience and

knowledge to assist in the procurement process.

The process of procuring and managing a contract may involve a large number of different

networks that need to be accessed and utilised to gain the level of support and approval

necessary for the procurement to be successful. These networks could be:

political (e.g., accessing ministers, other parliamentarians, ministerial advisers).

public sector senior management (departmental secretaries and deputy secretaries,

CFOs, CIOs, other SES level officers).

community (non-government organisations, community and lobby groups, other members

of the public impacted by the contract activity).

industry (e.g., suppliers, industry associations, marketing specialists).

public relations (e.g., communications advisers, PR and marketing specialists, journalists);

and

procurement/contract managers (procurement officers/contract managers in your own and

other organisations).

Different Levels of Networks

There following levels of networking can be developed and accessed in the workplace:

Personal networking – this will enhance a person’s personal and professional

development. The power of a strong personal network is its potential for referral – to

quickly reach the person or information that is needed.

Operational networking – this will help build strong working relationships to work done

efficiently. This type of networking is relatively straightforward as the task or contract

usually dictates who is required as a member of the network. Operational networks may

include people internal to the organisation as well as key external stakeholders such as

suppliers and customers.

Strategic networking – this is future-oriented and involves both internal and external

contacts in identifying future challenges, opportunities and priorities and getting

stakeholder support for them.

These different levels of networks will not always be mutually exclusive and in conducting

strategic procurement it is likely that all three will need to be accessed.

Provide, seek and verify information to the network

There are many ways to give, receive and verify information to a professional network, and

the effectiveness of these methods will depend on the type of network and the purpose of the

relationship.



In an existing network of people where everyone has established a personal or working

relationship with one another, only minimal effort is required to maintain the relationship. On

the other hand, when establishing a new network, additional work is required to establish and

maintain the relationship.

Keeping in regular contact

Maintain regular contact with your existing networks. Keep in touch in structured ways such

as scheduling when to contact certain people or arranging a lunch meeting every three

months.

Develop a reputation for offering support to your contacts when needed. Send information or

business ideas that might be useful to them. By becoming known as a resource for others,

people will remember to turn to you for ideas and contact names. This shows your commitment

to two-way networking and increases your own chances of being offered help and

opportunities.

Joining social groups

Be clear about your networking goals so that the groups you choose help you find what you

are looking for. Most social groups are based more on learning, making friends, or volunteering

rather than on strictly making business connections.

Visit as many groups as possible that spark your interest. Many groups will allow you to attend

as a visitor before joining. Note the tone and attitude of the group. Do the people sound

supportive of one another? Does leadership appear competent?

Take an active part in any groups you are a member of. Go to events, get to know people, and

consider holding volunteer positions - this is a great way to stay visible and give back to groups

that have helped you.

Making the most of conferences, seminars and other functions

When you go to a conference or other gathering, view it as a networking opportunity. Think

about who is likely to be there and any connections you might have with them. If you can get

a copy of the attendance list beforehand you can purposefully seek out specific people. Make

an effort to mingle with different people, not just those you already know. If you are not

confident at first, approach someone who is standing on their own. As your confidence

develops you will be able to approach groups of people.

Be sincere and listen actively. Read people's name badges and ask open-ended questions.

This means questions that ask who, what, where, when and how, for example 'What does

your work involve?', as opposed to those that can be answered with a simple yes or no. This

technique opens up your discussion and shows people you are interested in them. Allow

people time to respond fully and don't get distracted by other people in the room. Also

recognise the value of information that is available at conferences and expos. Seize the

opportunity to learn about new developments and the work that other organisations or internal

departments are doing.



After attending a conference on behalf of your organisation, prepare a brief report and list the

names of people who might be useful to your organisation. Or make your own notes about

who you met, their contact details, information you gained or ideas that occurred to you.

Make sure you follow up. Call those you meet, say that you enjoyed meeting them and ask if

you could get together and share ideas. Or choose the names of conference delegates who

may benefit from what you do and vice versa, make contact with them and mention where you

found their name. Set yourself reminders for future dates, such as 'contact all warehouse

managers listed in the conference attendance list when we release our new range of...'

Actively represent your organisation

Have a clear understanding of your organisation's and your own work and how others may be

able to help you. You should be able to easily explain what you do and the purpose of your

organisation. You can practise this by role-playing with colleagues or writing down what you'd

like to say. Have a brief script ready, such as 'I'm Kim from XYZ Company; we install computer

equipment in offices; I head up a unit that's responsible for the equipment maintenance ...'

Monitor the value of your networks on a regular basis. You might decide to discontinue your

involvement in some groups or partnerships that are not providing identifiable benefits to you

and your organisation and focus your energies in another direction.

Following through

Act quickly and efficiently on any referrals you are given. Remember that when people give

you names of others to contact, your actions are a reflection on them. Make sure you don't act

in a way that will reflect negatively on the person referring you. When following up, choose

an appropriate strategy depending on the needs of the people you are contacting, the

resources available to you, and your expectations from the process. For example, if you want

to contact a large number of people at once a group email will be appropriate as long as people

do not prefer to receive individual attention.

For individuals, you will need to decide whether to communicate by telephone, email, letter, in

person through an informal chat or a more formal meeting. A face-to-face meeting is often

more productive because there are less distractions and you can plan more carefully what you

would like to discuss. It's important to pick a time and place that suits the person you are

approaching, and to respect their time by being well prepared for the discussion. However,

your contact may be very busy or at a distance. If you are unsure of how to approach them

send a polite email enquiring about their preferences.

Some strategies may yield immediate results while others may take longer to produce real

benefits for you and your organisation. It may take months or years for your relationship to

turn into a valuable two-way partnership. Don't expect immediate results and work on

maintaining your networks for their possible future benefits.

Sharing information about networking

Sharing information about new networks is an important part of the networking process and

should be included in workplace discussion and planning. Work colleagues can provide

feedback and ideas for how your contacts can offer support. The information you have



collected can be combined with material others have gathered to create a resource used for

a range of purposes to benefit the team and the organisation.

Information about new networks can be shared in a variety of ways to suit different needs and

situations, such as informally, at a team meeting, in a short, written report, as part of an oral

presentation, or by entering details in a database that others can access. Be sure not to restrict

the number of people you share your information with—your colleagues may all have different

ideas about how the information can be used.

As a manager, you have a responsibility for encouraging your team members to network for

both organisational purposes and to support their own career progress and skills development.

You can do this by:

sharing with the team details of what you have gained from your networking activities;

communicating the benefits of networking to your team members;

encouraging team members to keep in regular contact with other people and departments

within the organisation;

circulating details of networking opportunities such as conferences to attend and

associations to join;

introducing team members to people who could be useful contacts for their work or their

career development;

giving the team scope to attend conferences and events, and asking members to give a

verbal report when they return;

involving team members in any relevant meetings you have with your contacts; and

coordinating a short session on how to network.

Build and maintain networks

The key to establishing beneficial networks lies not so much in being 'well connected' but in

understanding the way professional relationships work and knowing how to build and use a

network. The contacts you form will not only benefit your organisation; they also have the

potential to enhance your personal career prospects. The ability to build and maintain

productive relationships is vital in the business world.

Networking means 'developing and maintaining connections for mutual benefit'. It is the

process of making and using a number of contacts—whether for business, professional

development, personal or social purposes—and is founded on the human instinct to connect

with people, share what you know and find strength in numbers. Whenever you ask others for

advice or suggestions, such as the name of a good accountant or whether a film is worth going

to see, or when you make friends through other people you are networking.

The process of building networks is a little like a series of spiders' webs, with ever-increasing

circles of interconnected threads. Each thread is an existing contact, and through that thread

you can connect with other threads and other webs.



The following diagram illustrates this concept. Each person has a unique circle of people they

are connected with in some way. By communicating with a person within that circle, you can

use them as a source of information, support, ideas, and further referrals. The person you

network with has their own circle of contacts that you can connect with through the mutual

contact.

When you network, you are building a relationship with another person to enable you both to

benefit by exchanging ideas and information, products, and services, promoting each other's

interests and gaining further contacts. Networking should not be confined to only those

moments when you want something from someone but continually developed to share

information and widen your knowledge base.

Before looking at how to network, be aware of the value of networking, and also its limitations.

Benefits to the Business/ Organisation;

Used effectively, networking has a significant impact on almost every aspect of business

operation. The benefits of networking are illustrated in the following examples:

Networks provide sources of information about developments in the industry, marketplace,

wider community, and general business world - both nationally and globally.

Networks offer opportunities to do business with a broader circle of clients, in new regions

and in different ways.

Networks tap into ideas about new services, products, and ways of doing things.

Networks grant access to industry expertise, new contacts and information not easily

obtained.

Networks provide support and assistance on issues you or the organisation are grappling

with.



Networks present opportunities for beneficial partnerships and supply arrangements with

other organisations or groups.

Taking advantage of networking benefits

Derek met up with some former colleagues to keep in touch. They talked about

the work they were currently involved in and Derek found out about a tender for

work in South-East Asia before it was advertised in the media.

Gill manages a small business. Through a mutual contact, she is introduced to a

member of an exclusive business networking group who invites her to attend a

breakfast function. She exchanges business cards with several people and is

able to follow up and arrange some meetings to discuss future business

opportunities.

Dimitriou, an engineer, attends an industry conference. He learns about a new

financial management software program that is very cost-efficient and can save

many hours of work. He tells his employer about it, obtains more details, and

they investigate further. They eventually purchase the program and are very

happy with the results.

Aisha's company needs to fill a vacancy in its busy call centre before the holiday

season. Aisha was recently approached by a friend seeking employment in

client service. She encouraged her friend to call the call centre manager.

Without having to advertise, Aisha's company gains a skilled employee, and her

friend gets a job.

Heather's organisation is involved in a contractual dispute with a supplier. They

have not encountered this problem before, but Heather's former employee has

been through a similar process. She contacts him and he provides useful

advice, eventually referring Heather's employer to an appropriate legal adviser.

A group of food processors who met through an industry association decided to

form a cooperative group for purchasing fresh produce direct from farmers. they

used their networks to purchase collectively, saving valuable time and money.

Benefits to the individual

Networking can assist you personally by:

Introducing you to a wide range of people with different skills, knowledge, and links to

further contacts.

Extending your circle of business and personal acquaintances

Providing you with sources of information and a forum for sharing ideas.

Giving you access to advice on a wide range of subjects.

Revealing new career opportunities.

Supporting you in professional and personal challenges and goals.



Participate in business associations

Many people feel they have little capacity for networking because they don't have enough

time, they don’t know many people, don't know the 'right' people or find approaching

'professional' people/ peers difficult. In fact, you probably know more people than you realise,

and the people you do know may be more valuable than you think.

Once you get talking to people, you may be surprised what you find out more about what they

do and who they are connected with. For example, you might discover that your neighbours

have a printing business and can give you discounted rates when you are preparing some

brochures. Or you might be introduced to someone who works as a receptionist for a company

you want to do business with. They could give you advice about the right person to contact

and the best way to contact them.

Anyone within or connected to an organisation or industry can give you valuable pointers about

operational problems and solutions, industry trends, business methods, occupational health

and safety or other regulatory requirements and a wealth of other advice. They can also

introduce you to people who might be decision-makers within their organisation or industry.

Developing a list of contacts

Begin by compiling a list of the people you already know. The list might include:

People within your workplace.

Clients, suppliers, contractors, and other business contacts.

Previous work contacts, colleagues, and supervisors.

People you know within the local community.

Family, friends, and acquaintances.

Members of any club or special interest group you belong to.

Current or former students, tutors, trainers, and teachers.

Service providers such as your accountant, lawyer, doctor, or tradespeople.

All these people have their own range of contacts, similar to yours but including a lot of people

you don't already know. These other people have their individual lists of contacts, and so on.

Whenever you ask one of your contacts to help you your request may reach more people than

you imagine. Once you make contact with one of these people you gain access to their list

and can make yourself valuable by providing access to yours.

There are many simple ways of building and extending your contact circle, as in the previous

example.

Ask your friends if they can refer you to any relevant people.

Get to know your colleagues more closely.

Reach out to more people within your workplace by going along to company functions,

taking part in working groups, committees, and training sessions.

Develop lists, databases or other records of contact names and details for easy reference.



Ask your supervisor or colleagues if they can share their contact lists with you for a

particular purpose.

Develop a broad range of activities in your personal and professional life.

Make a concerted effort to remember people's names and details such as where they work

and what their interests are.

Collect business cards and write key information on the back of the card, such as where

you met the person and who they are connected with.

Adopt the habit of talking to people you come into contact with, anywhere, anytime, and take

a genuine interest in their work and activities. Every time you meet someone, you are provided

with a networking opportunity, so make the most of it. Chat to people at sports games, at your

gym, at the library or at stores you frequent and get to know more about them and their

acquaintances.

Networking strategies

Your networks can be:

internal or external to your workplace

informal or formal

structured or unstructured

individuals or groups of people

The following are some formal networking strategies you can use:

Join a professional or trade association

Professional and trade groups are formed to promote the particular profession and represent

the interests of members. Individuals pay a membership fee and in return receive benefits

including journals, access to industry information, opportunities to attend seminars or training,

and contact names. Professional associations provide an ideal forum for networking, so it pays

to become a member if there is an association in your field. Or you might be able to go along

to events as a guest.

Examples of the vast range of professional associations include the:

Society of Automotive Engineers

Australian Human Resources Institute

Australian Library & Information Association

Australian Institute of Office Professionals

Association of Australian Rural Nurses

Master Builders Association.



Become involved in a special interest group

A range of networking and lobby groups has been formed to support those in similar social

and professional situations. These groups provide excellent opportunities for networking with

like-minded people in a supportive environment. They usually hold regular functions and offer

assistance by way of mentoring, advice, and information. You can find out about these groups

by talking to people or doing some research in trade journals or on the Internet. Be alert to the

networking opportunities different groups provide.

Examples include:

Women in Insurance.

Newcomers Network (for migrants and other visitors to Australia).

Westend Business Association (a Melbourne-based networking group for small

businesses).

Over 50s Association.

Attend conferences, trade fairs, seminars or business functions

Thousands of events are held every year representing many industries and hundreds of

professions. Conferences and trade fairs are an opportunity for people working in related fields

to gather and share information about their current work and latest developments. They range

from half-day forums through to large-scale, week-long events. The presentations and trade

displays provide an avenue for keeping informed about developments in your field, while

workshops and social activities provide opportunities for networking with people at all levels

in other organisations.

Business functions and seminars are smaller events, lasting from an hour to a full day. One

or more speakers present their ideas or research findings and usually invite the audience to

ask questions. They might also include debates or small group sessions, and are often held

over breakfast, dinner, or drinks. Other functions can be designed around award presentations

or a product launch. These events are often held directly for networking purposes, so people

are expected to make contacts and discuss their work. Approach them with an open mind and

flexible expectations and you may be pleasantly surprised by who you meet and what you find

out.

Target individuals

If you come across the name of someone who has the potential to become a good client or

help you with a particular project, you might like to approach them 'cold'. This means

contacting them without prior introduction or warning. You should think carefully about the

reason you are approaching them, how they can help you and how you can help them. Plan

what you are going to say and prepare some questions. Think about the most appropriate way

of approaching them such as at a function, by email or telephoning to arrange a short meeting

at a convenient time.



Take advantage of online networking opportunities

Online networks include newsgroups, email discussion lists and online forums. Online

networking can provide you with a lot of new contacts, but you need to be aware of the

authenticity of these contacts, as well as the 'netiquette' that dictates how you should

communicate within the group. Check the FAQs (Frequently Asked Questions) to determine

what is appropriate within the site. Be very careful also about confidentiality. Never reveal

private information or speak about your organisation's confidential operations online.

The Our Community website offers practical resources and linkages between community

networks and the general public, business, and government. You can access the site at:

www.ourcommunity.com.au

Develop partnerships with other stakeholders

Some organisations seek to establish organised and productive relationships or alliances with

other organisations and groups to achieve common goals. The purpose of these relationships

might be to

Strengthen links with community sectors or cultural groups.

Provide more accessible services for mutual clients.

Deal with particular clients in different ways.

Establish cooperative buying or supply arrangements.

Share facilities, expertise, or knowledge.

Obtain access to overseas markets.

Work in a business partnership for mutual benefit.

Provide for people with special needs.

Support the local community.

Provide assistance to others for philanthropic or social development reasons.



Communication Principles and Skills



Communication Principles and Skills Communication is any behaviour, verbal or nonverbal, that is perceived by another. Good

communication skills and an understanding of communication principles are critical to

successful contracts.

Plan your communication

The goal of communication is to effectively convey information and the understanding of that

information from one person or group to another person or group. The process of effective

communication can be structured in a communication plan with the following:

Identify the purpose and the messages that need to be sent;

Determine your target audience for communication;

Timeline;

Consider your resources;

Plan and design your message format;

Draft your message and gain approval, where required;

Communicate your message, through appropriate communications methods; and

Decide how you’ll evaluate your plan and adjust it, based on the results of carrying it out.

E.g., gather feedback and improve your communication processes.

Identify the purpose

The purpose of the communication may be to achieve one or a combination of the following:

Becoming known, or better known.

Promote your products and/or services.

Inform your audience of promotions, etc.

Announcing events.

Educating the clients on necessary information.

Rallying supporters or the general

public to action for a cause.

Celebrating honours or victories;

and

Raising money to fund your work.

PURPOSE OF COMMUNICATING



Identify your Audience

Who are you trying to reach? With whom do you want to share information about your

offering?

These people are your target audience. Most times, you will be communicating with a variety

of audiences, both internally and externally. Also, some audiences may be more important

than others, so you will need to make that distinction (e.g., primary audience, other audiences).

Think broadly, but realistically. Who can you inform and influence? Knowing who your

audience makes it possible to plan your communication logically and effectively. You’ll need

different messages for different client groups, and you’ll need different channels and methods

to reach each of those groups.

Timeline

Every communication plan needs a detailed timeline focusing on two important areas:

Production timetable for communication materials.

Roll-out timetable for communication tactics; and

Microsoft Project, Excel, or Word programs are all useful formats for communication plan

timelines.

Some helpful tips for constructing your timeline:

If external vendors are producing outcomes, work with them to develop time estimates.

Don't set a due date and inform them after the fact – be sure a deadline is agreed upon in

the first instance; and

Be sure to include time for internal approvals of your plan and individual deliverables.

The message

When creating your message, consider content, mood, language, and design. Remember,

your messages should be simple, direct, clear, benefit-oriented, and written in language that

your target audience can understand and relate to.

Mood

The mood of your message will do a good deal to determine how people react to it. In general,

if the mood is too extreme – too negative, too frightening, trying to make your audience feel

too guilty – people won’t pay much attention to it. It may take some experience to learn how

to strike the right balance. Keeping your tone positive will usually reach more people than

evoking negative feelings such as fear, anger, or guilt.

Language

There are two aspects to language here: one is the actual language – English, Spanish,

Korean, Arabic – that your intended audience speaks; the other is the kind of language you

use – formal or informal, simple, or complex.



You can address the language people speak by presenting any printed material in both the

official language and the language(s) of the population(s) you’re hoping to reach, and by

providing translation for spoken or broadcast messages.

The second language issue is more complicated. If your message is too informal, your

audience might feel you’re talking down to them, or worse, that you’re making an insincere

attempt to get close to them by communicating in a way that’s clearly not normal for you. If

your message is too formal, your audience might feel you’re not really talking to them at all.

You should use plain, straightforward language that expresses what you want to say simply

and clearly.

Design/Draft Message

Think about what you want your communications/messages to achieve. If, for example, you

are launching a new offering, you will first need to make your audience aware of it, then

educate them about its many benefits. If you are introducing a series of smaller offerings, you

will need to explain how they work together and their combined benefits.

Resources and Costs

What do you have the money to do? Do you have the people and/or recourses to make it

possible? Your plan should include careful determinations of how much you can spend and

how much staff time it’s reasonable to use. You may also be able to get materials, airtime, and

other goods and services from individuals, businesses, other organisations, and institutions.

If you’re going to spend money, what are the chances that the results will be worth the

expense? What will potentially be lost, and what will potentially be gained by your use of

financial and human resources?

As you develop the tactics for your communications plan, be sure to also develop cost

estimates, especially if external vendors are involved in the production of materials. Include

these estimates in Excel spreadsheet or Word format with your main plan. It is wise to include

a mix of tactics at varying price levels in your communications plan. That way, if budgets are

cut, you will still be able to communicate effectively with key audiences.



Channels of Communication

What does your intended audience prefer based on the feedback you have previously

obtained? You have to reach them by placing your message where they’ll be receiving of it.

Posters.

Flyers and brochures – These can be more compelling in places where the issue is already

in people’s minds (doctors’ offices for health issues, health food stores for nutrition, etc.).

Newsletters via post or e-mail.

Promotional materials – Items such as caps, T-shirts, and mugs can serve as effective

channels for your message.

Reading matter that is intrinsically interesting to the target audience can be used to deliver

a message through a story that readers are eager to follow.

Internet sites – In addition to your organization's website, interactive sites like Facebook,

Twitter, and YouTube are effective mediums for communication.

Letters to the Editor.

News stories, columns, and reports.

Press releases and press conferences.

Presentations or presence at local industry events and local and national conferences,

fairs, and other gatherings.

Public demonstrations.

Word of mouth.

TV - TV can both carry straightforward messages – ads and Public Service

Announcements (PSAs).

How you communicate with your customers can make or break your relationships with them.

It’s important that you take advantage of every interaction and opportunity to build trust and

increase loyalty. Delivering personalised, relevant communications helps you strengthening

those relationships, leading to increased revenue. Efficient Customer Communications

Management allows you to:

Create more personally relevant content at every customer touchpoint, from one-on-one

mobile messages to high-volume mailed documents.

Allow customers to set preferences for how they would like to receive information from

you, ensuring that your messages reach them on their terms; and

Leverage every appropriate communication to reinforce your brand or promote cross-sell/

up-sell offers.

In order for your communication with clients to be effective and mutually beneficial, you must

first ascertain the why, what, who and how?

There are several aspects to you need to determine.

Identify the messages that need to be sent.

Determine your target audience for communication.



Decide on your message format and timing.

Draft your message and gain approval where required.

Communicate your message, through communications events.

Gather feedback and improve your communication processes.

Now, which method will suit your clients’ needs, considering the advantages and

disadvantages of each method available to you and your clients.

Advantages and disadvantages of communication methods

While your choice of communication method largely depends on the particular characteristics

of your purpose, your audience and your audience's needs, there are some consistent

advantages and disadvantages to some methods that you should be noted, as in the figure

below.

Verbal, Individual Method

Examples

Face-to-face contact, telephone conversations

Advantages

Clear, tailored message; direct and instant; opportunity for interaction

Disadvantages

Inconsistency of message across similar exchanges; message may be

misunderstood if communication skills are poor; time-consuming

Verbal, Group Method

Examples

Meetings, discussion groups

Advantages

Consistent message; opportunity for questioning and sharing; chance for agreed

approach

Disadvantages

Time-consuming; cumbersome; different personality types can

dominate/withdraw



Written, electronic Method

Examples

Emails; intranet postings

Advantages

Quick and efficient; consistent message; visually effective

Disadvantages

Cannot be sure message is read; not interactive; message is often

misinterpreted

Written, Open Method

Examples

Displayed notices; instruction sheets; system documentation; broadcast reports

or minutes; newsletters

Advantages

Consistent message, clear wording and record, wide audience

Disadvantages

No opportunity for response; impersonal; cannot be sure message is read;

production time and costs involved

Written, Targeted Method

Examples

Memos; letters

Advantages

Usually carefully worded; direct; confidential; clear records

Disadvantages

May be viewed as too formal and impersonal; doesn't encourage discussion

Presentation Method

Examples

Exhibition, public address

Advantages

Visual as well as verbal; captures interest

Disadvantages

One-way communication only; not always correctly interpreted; no clear record;

uncertain whether message is accepted by all parties



Potential barriers to effective communication

Approximately 85% of our success in life is directly attributed to our communication skills. That

means, that no matter how ambitious, how committed, or how highly educated someone is,

they still have a low probability of success unless they develop the right communication skills.

Many leaders develop difficulties within their organisation due to communication issues. These

barriers to communication are specific items that can damage or prevent communication and

growth within an organisation. The ability for a company to recognise these communication

issues and come to a resolution can drastically improve working conditions, sales, and

organisational culture.

The most common types of barriers to effective communication are:

Physical barriers

Perceptual barriers

Emotional barriers

Cultural barriers

Language barriers

Gender barriers, and

Interpersonal barriers

Poor listening



Emotional barriers and taboos

Some people may find it difficult to express their emotions and some topics may be completely

'off-limits' or taboo. The psychological and/or emotional state of the communicators will

influence how the message is sent, received, and perceived. For example, if someone is

stressed, they may be preoccupied by personal concerns and not as receptive to the message

as if they were not stressed.

Lack of attention

You can’t communicate or listen effectively when you’re multitasking. If you’re planning what

you’re going to say next, daydreaming, checking text messages, or thinking about something

else, you’re almost certain to miss verbal contact and nonverbal cues in the conversation. You

need to stay focused on the moment-to-moment experience. Equally as important is making

sure you have your clients’ attention.

Differences in perception and viewpoint

People from different countries and cultures tend to use different nonverbal communication

gestures, so it’s important to take age, culture, religion, gender, and emotional state into

account when reading body language signals.

Physical

There are a host of physical factors that can prevent individuals from having an effective

communication. Physical barriers relate to disturbance in the immediate milieu, which can

interfere in the course of an effective communication.

Physical disability can also prove to be a barrier for effective communication.

People with physical disabilities generally are at a disadvantage when it comes to gaining

employment. They have been marginalised over the ages, and this can cause them to have

a low self-esteem and social anxiety. It can cause a physically challenged person to have

face difficulties in self-disclosure and can hamper their interpersonal skills.

Environment

Weather

If you are standing in adverse weather conditions, your conversation would be hampered,

because you would not be able to pay full attention to what the other person is saying.

The ambience in which you are having a conversation also plays an important part in the

quality of a conversation. If the place is too noisy, or two crowded, you may not be able to

clearly listen to the speaker.

For example, if you are having a conversation with someone along the roadside, the noise of

the passing vehicles can make it difficult for you to concentrate on what you are saying, apart

from interfering in effective listening. Similarly, if you are talking to someone in scorching heat,

then the physical discomfort can easily cause you to be disinterested in the conversation.



Distance

Distance also plays an important part in determining the course of a conversation. For

example, if the staff in an organisation are made to sit in different buildings or different floors,

they might have to substitute face to face communication with phone calls or emails.

This can prevent the employees from having effective communication with each other.

Language Differences

Differences in languages and difficulty in understanding unfamiliar accents can be a barrier to

effectively communicating with clients. Using words, the client cannot understand will certainly

stop your message from being conveyed. This not only applies to actual languages, but that

of expressions, ‘buzz’ words, and other jargon. If one is not familiar with your language,

misinterpretation will occur.

Expectations and Prejudices

These issues can lead to false assumptions or stereotyping. People can often hear what they

expect to hear rather than what is actually being said and jump to incorrect conclusions.

Cultural differences

The norms of social interaction vary greatly in different cultures, as do the way in which

emotions are expressed. For example, the concept of personal space varies between cultures

and between different social settings. Each culture has its own rules about proper behaviour

which affect verbal and nonverbal communication.

Whether one looks the other person in the eye-or not; whether one says what one means

overtly or talks around the issue; how close the people stand to each other when they are

talking - All of these and many more are rules of politeness which differ from culture to culture.

Awareness is key to overcoming these problems and communicating effectively across

cultures.

Gender Barriers

Variation exists among masculine and feminine styles of communication. While women often

emphasise politeness, empathy, and rapport building, male communication can is often more

direct. These differences can cause misunderstandings and miscommunication. Meshing

these two styles without awareness could be a potential barrier.

Perceptual

One of the most common problems faced these days is that of the difference in opinion

between two people. Perception's effect on the communication process is all about how the

same message can be interpreted differently by different people. Distortions, such as

stereotypes, projections, and halo effects, all affect worker relationships and productivity. It is

not helpful to judge an individual just by a first impression. The varied perceptions of every

individual give rise to a need for effective communication.

Understand others see things differently to you. Try to predict the feelings and attitude of the

receiver. What will their expectation be? What about their state of mind when you are



communicating? What prejudices might they have? If you know these things before

communicating, you reduce the risk of issues arising or misinterpretation. Have integrity and

honesty in your communications. If you are seen as being someone who lacks integrity, this

will immediately be noticed, and even more barriers will be built up between you and the

listener.

A successful leader must be aware of these barriers and try to reduce their impact by

continually checking understanding and by offering appropriate feedback.

Listening

Most of us think that we are good listeners. Most of us aren’t! Evelyn Waugh once noted that

“Americans do not so much listen, as they stand around and wait for their turn to talk”.

One of the causes of poor listening is the difference between the relatively slow rate at which

we speak (estimated at 125-150 words per minute - Wisinski 1993) and the much faster rate

at which we hear and process information (estimated at over 500 words per minute -

Donaldson 1996). We can process much faster than someone else can talk. This leaves us

with a lot of free time to drift off and think about other things whilst someone else is speaking.

Every now and then we give the impression of listening by comments such as “uh-huh” or

“mmm”.

Once we are aware of a tendency to tune out for at least some of the time whilst others are

speaking, we can take steps to counteract this tendency by using active listening techniques.

Active listening involves all the senses and a number of techniques which are aimed at

encouraging the other party to relax and communicate more information. The techniques of

active listening include:

Basic Acknowledgments

These could be verbal acknowledgments such as “I see” or “that’s interesting” or non-

verbal responses such as head nodding, making eye contact, folding, or unfolding arms,

leaning forward or backward etc.

Although these responses are basic, they are very useful in letting the speaker know that

you are still listening and in encouraging the other party to keep talking. These responses

are useful in negotiations in keeping the discussion going and in encouraging the

interchange of ideas, proposals, and possible solutions to mutual advantage.

Silence

Silence is not easy for most of us. However, when we are able to remain silent, we usually

obtain more information from the speaker. Reflect on your own experiences as a speaker.

When you reach a natural pause in what you are saying, you usually expect the listener to

make some kind of response to what you said. If there is silence, you will probably tend

to add more information to fill the silence in an effort to ensure that the listener understands

your message.

This is a useful technique in negotiations as it may led to the other party providing

information they did not originally intend to reveal. Use silence to think about and organise



what the other party is saying - main ideas and key words. Analyse what is being said and

compare it with what you think or know. Use the silence to hear feelings or emotions

behind the words - often there will be a contradiction between the words and the apparent

emotions.

Paraphrasing

Paraphrasing is a response tool used to verify understanding on the part of the listener. It

involves focusing on the content of the message, interpreting the meaning of the message,

and then getting confirmation from the speaker that your interpretation of the message

reflects what the speaker intended to convey. Be careful not to overuse paraphrasing as

it can become annoying for the speaker to have to keep restating their position.

Paraphrasing is best used sparingly in three main situations:

- to summarise what has been said;

- to clarify a critical issue; or

- to confirm your understanding of the issues presented.

The following approach to paraphrasing during a negotiation may be useful:

- Let the other party finish speaking before attempting to paraphrase their position.

Very occasionally a courteous interruption may be necessary if you really cannot

follow the substance of the message at all.

- Restate what you think the other party said. You should use your own words rather

than simply restating in the exact words used by the other party. This provides the

opportunity to confirm meaning and avoids possible misunderstanding or

misinterpretation of particular words or phrases. This is particularly important when

dealing with negotiators from another cultural background or when dealing with

technical matters which are outside your personal area of expertise. Examples

would be “As I understand it then, your proposal is....” and “the key ideas you

expressed were...”, or in a more relaxed situation “now let me see if I got that right...”

- If the speaker confirms your understanding, continue the conversation.

- If the speaker indicates that you misunderstood, ask the speaker to repeat what they

said. It is important to use neutral, no- blaming language when seeking to resolve

misunderstandings. For example, “I’m not following along with you. Could you say

it again?” is likely to be more productive than “You’re not making yourself clear.

Could you say it again?”

Reflective Listening

Whilst paraphrasing focuses on the speaker’s content, reflective listening focuses on

identifying and responding to the speaker’s apparent emotion. Reflective listening has real

value in letting the other party know that you are not only listening to what they are saying, but

that you are hearing them as well. It is a way to demonstrate that you understand how the

other party feels about the topic.



Reflective listening takes practice to master, and the phrasing of your statements is critical to

successful use of the technique. It is easy to sound accusatory rather than concerned with

this technique. Some examples of reflective listening would be:

“so, you’re saying that you feel....”

“that seems to indicate that you felt really (emotion) about....”

Other Active Listening Techniques

Other possible techniques to employ to improve the quality of your listening include:

put the speaker at ease by creating an environment where they feel free to talk;

minimise distractions. Don’t doodle, tap your pen, stare into the distance, shuffle papers,

check your diary. Turn off your mobile phone. Look and act interested in what is being

said;

be patient, allow plenty of time and do not interrupt;

take notes when appropriate; and

control your emotions and do not let your feelings cause you to misinterpret what is said.

Questioning Techniques

Skilful question asking and answering techniques are very useful negotiation tools. No one

ever says everything that you need to know in exactly the right order, depth, and detail.

Questions are a way of coaxing out additional information that you need. You should never

hesitate to ask a question to clarify a statement, an unfamiliar phrase, abbreviation, or piece

of jargon.

Sometimes you may not fully utilise your questioning opportunities because of a fear of

appearing ignorant, in anticipation of a defensive or long-winded response from the other

party, or because you do not really want to have to hear the answer. Please reflect on these

issues and decide to use questions when appropriate.

Thoughtful questions can be used to

obtain appropriate information from the party

display an active interest in the party’s position

keep the negotiation process moving along

How to Use Questions

When using questions in a dispute resolution process you should:

Plan your questions in outline in advance. Although there is an important place for a

checklist of standard questions in gathering initial information, it is not advisable to tightly

script all your questions. This will sound artificial, does not give the party enough freedom

to express their position and may possibly make the party suspicious of your willingness

to hear what they want to tell you.



Ask questions with a purpose – for example to obtain new information, to check facts or to

understand opinions, emotions, feelings etc.

Tailor the question to the listener. Use references and examples that have relevance to

the listener. Use words and phrases that the listener will understand.

Start with general questions and then narrow down to more specific questions.

Keep questions short and clear. Avoid long winded, double barrelled questions.

Remember that questions are just a way of encouraging the party to tell you what you want

to know and so keep it simple. You are not trying to win a prize for asking the hardest

question.

Use part of the answer to a question to help frame the next question. This helps to make

questions sound more conversational and less threatening.

Let the other party answer - don’t interrupt.

Ask the question again if the party does not fully answer your question. However, be

aware of the futility of endlessly repeating the same question over and over. The party

can easily become irritated and defensive if you persist beyond a reasonable level of

questioning. Another approach is to remain silent until you get an answer or a clear

acknowledgment that the question will not be answered. You may also choose to bide

your time and ask for the information again later in the process. If the party does not

answer the question or diverts you by making a joke instead of an answer, make a note to

use other resources to find out the information you need. Recognise that their refusal to

answer a particular question probably tells you something that may be useful in

understanding their position.

Types of Questions

There are many types of questions that can be used in negotiation. Some of these are:

Closed Questions

These are questions of fact that can be answered with a statement of a fact or a simple

“yes/no” response.

Examples of closed questions are “What is your name?”, “How many times has this

happened?”, “How many staff work in your area?” and “When is the project due to be

finalised?”.

Closed questions are the most frequently used questions. They are especially suitable for

gathering information and getting to the facts of a matter. However, they have the tendency

to cut off developing an understanding of the reasons behind an action, or the feelings,

thoughts, responses, and emotions of the parties. They are therefore best used only for

gathering of basic information and should be supported by other types of questioning before

forming any firm opinions about a negotiation.

Open Questions

These questions encourage open lines of communication between the parties. They

encourage the parties to talk more and to provide you with information and opinions. They

encourage active listening in order to broaden common ground. The party responding to an



open question must be allowed time to answer fully or the interest implied in asking the open

question will appear insincere.

Examples of open questions are “How do you think it should be handled?”, “What makes you

say that?” and “Could you explain more about...?”.

Sometimes an open question can be expressed as a statement. This approach can be useful

in dealing with a party who is reluctant to answer questions. An example of an open question

expressed as a statement might be “I’d like to know more about that” or “I’d like to know why

you feel that way”.

Reflective Questions

The key with a reflective question is to show that the listener understands what the other party

has said, and that the listener can empathise with their position.

Examples of reflective questions are “So you think we should...?”,…“You seem to be

saying...?” and “Do I understand you to mean...?”.

Reflective questioning is useful in building trust. It can be used to guide the discussion away

from areas of disagreement by reflecting only areas that have common ground. The other

issues can be raised again later, when the relationship has developed a history of finding and

building on common ground.

Hypothetical Questions

This technique is very important at the stage where issues and possible solutions are being

explored together. Hypothetical questions elicit information on the parties’ interests and can

identify possible concessions that could be made as well as those issues that are crucial to

either or both party/ies. Because the questions are hypothetical, they do not lock the parties

into a position, as could be the case by making a statement.

Examples of hypothetical questions are “What if...?”, and “If that’s the case, what do you think

about...?”.

Leading Questions

A leading question is one where any answer at all tends to be incriminating. There is no “good”

answer to a leading question. This category of questions is best avoided in a negotiation

because they are often perceived as hostile, blaming, and aggressive.

An example of a leading question is “Why does your section constantly fail to meet its

performance benchmarks?”

To obtain the answer to this question objectively and without getting into an argument or

escalation of emotion requires a sequence of emotionally neutral, logical questions such as:

“What are your section’s results for meeting performance benchmarks?” -closed question.

“What results have other sections achieved?” (you may have to tell them if they say they

don’t know) - closed question.



“Why do you think there is such a discrepancy in the results from other sections and the

results in your section?” - open question. You may have to be ready with some

suggestions (non-accusatory) to kick off the discussion e.g., “have you maybe suffered

from some long staff absences this quarter?”

Questions that are not answered

Sometimes you are patient and ask thoughtful, careful questions to seek information from the

other party, but you still don’t get the information you need. There are a number of possible

reasons for this situation:

the other party is deliberately withholding information.

the person is simply not good at answering questions.

the person neglects to respond to your question because it is too much trouble to find out

the information you have asked for.

the person simply does not want to answer your question perhaps because they are

uncomfortable dealing with the question or an underlying issue.

the answer to the question will paint them in a bad light.

Your options when faced with a refusal to answer are rather limited, but include:

making a note and finding out the information elsewhere.

quietly but firmly insisting on an answer. Explain the consequences of a continued refusal

to answer.

focusing on the details in an attempt to actually get an answer. An example of this

technique is to specify a date on which the party will give you an answer if they have said

they will “look into” something. Do not accept the response that “they” or “management”

are looking into it. Ask exactly who is handling the matter and if it is not satisfactorily

resolved, approach that person for an answer. You may need to be persistent.

recognise that their refusal to answer a particular question probably tells you something that

may be useful in understanding their position.

Communication Strategies Good communication is a key component of successful contract management and appropriate

communication strategies and protocols should be established. Contract managers should

ensure that communication strategies are in place to both distribute information to interested

parties and to gather relevant information from stakeholders that may impact on the

management of the contract.

Communication with Stakeholders

Throughout the process of contract management, communication should be maintained with

stakeholders – both to inform them of contract performance and any contract changes or

developments, and to effectively gather any relevant information that stakeholders may have.

Such information may include contractor performance issues and problems, changes in the

marketplace, government and organisational policy changes and user satisfaction levels.



As well as the contractor, contract stakeholders may include:

end users and customers;

organisational management;

contract administration and technical support staff; and

finance and accounts staff.

Very complex and/or high-profile contracts may also entail a number of external stakeholders

such as:

other government agencies;

unions;

government (federal, state, territory and local);

community interest or lobby groups;

industry bodies; and

the media.

Strategies for communication with these stakeholders should be contemplated in the contract

management planning phase and updated, as necessary. Informal strategies might be based

upon establishing and maintaining good relations with stakeholders and assuring them that

their informal feedback and advice is welcome.

Any informal communication methods should always be supported by formal and documented

communication strategies. Some of these strategies, such as contract management meetings

and performance reporting, may even be articulated in the contract terms and conditions.

The following strategies may assist in developing trust and strengthening communication

between contracting parties and contract stakeholders:

publish guidance on communication protocols;

document contract communication requirements;

key stakeholder workshops at the commencement of the contract;

stakeholder representation at regular contract management meetings;

regular measurement and reporting;

regular (e.g., monthly) contract management meetings;

regular reviews (e.g., quarterly) attended by senior management from both the purchaser

and the contractor;

regular user and customer satisfaction surveys;

the distribution of contract performance reports;

a documented procedure for effecting contract changes (e.g., with a Contract Change

Proposal);

the appropriate distribution of contract amendments and variations;



press releases;

prompt action on any performance or other problems; and

skilled, open, and frank negotiation.

The supplier is of course one of the most important stakeholders in the contract.

Communication strategies should include consideration of how to provide them with feedback

on their performance and other developments that may affect the success of the contract.

Feedback to Suppliers

Feedback can be given in various forms and will largely depend on the complexity of the

contract. Regular meetings and reviews are the norm for more complex contracts while in

less complex contracts feedback may be handled with ad hoc phone calls. Suppliers will

generally welcome feedback and close involvement with the entity, particularly if the feedback

is provided promptly and constructively.

Management and Review Meetings Both management and review meetings are common mechanisms for providing feedback to

providers.

Management Meetings

Management meetings are the regular working level meeting between the on-site

representatives of the Australian Government and the contractor. They are intended to

provide for day-to-day feedback on the operation of the contract and to highlight any issues or

emerging problems before they have a negative impact on the contract.

The contract or service level agreement should provide a regular schedule for management

meetings along with the facility to hold additional meetings if any emergency situations arise.

The meetings may be more frequent (e.g., weekly as opposed to fortnightly or monthly) in the

transition phase of the contract.

Minutes should be taken at all contract management meetings and include a record of all

agreements reached and who will be responsible for undertaking any required actions.

Review Meetings

Review meetings are generally held on a quarterly basis and serve to provide a management

overview of contract performance and outcomes and provide an opportunity for the parties to

focus on any important issues and trends.

Review meetings may often be attended by senior managers from the respective

organisations, as well as the personnel responsible for the ongoing operational management

of the contract. In the interests of developing and maintaining a healthy contract relationship,

contract managers should ensure these meetings include feedback and review of positive

performance issues rather than just a litany of problems. Furthermore, the contractor should

not receive any surprises at these meetings. The contractor should be aware of any issues

that are to be raised and have been given the opportunity to address them at a working level.



Risk Management



This topic will step you through the risk process outlined in the Australian Risk Management

Standard. Please ensure you become familiar with the risk policies and processes in your

organisation to ensure you apply your process consistently with requirements.

Overview of Risk Management Risk is a fact of life! It is something that we deal with every day, although in our day-to-day

life we may not formally document its management. Personal risk management is often

performed as an on-the-spot decision to prevent or reduce the impact of an undesirable

outcome, or it may be a planned sequence of activities to support a certain outcome. It is a

bit like servicing your car before a long trip to avoid the unnecessary cost, delays, and

consequences of a breakdown, and to increase the certainty that you will arrive at your

destination when you planned to.

As government officials, we undertake the same decision forming processes in relation to

potential risks that may create uncertainty on our business objectives, but we need to manage

the process in a transparent and accountable manner.

This means, identifying and understanding organisational requirements for the assessment of

risk, clearly documenting the process, and justifying the cost of applying treatments to reduce

the likelihood of the risk occurring and where possible, any consequences.

Why is Risk Management Important to Procurement?

Risk management needs to be embedded in work activities at all levels as part of day-to-day

business activities. The intent of risk management in the workplace is to reduce uncertainty

in the way we undertake the business of government, with the intention of minimising loss and

maximising opportunity.

The identification and management of risk is fundamental to the procurement process to

ensure that we meet local government objectives when spending money. Failure to identify

risks and manage them where possible, and to do this cost effectively, may result in increased

costs, delays, poor outcomes, and complaints.

The aim is to try and prevent the occurrence of risks that can hurt us, and maximise the

opportunities that may exist, where it is appropriate to do so.

Therefore, we need to consider the risks that may impact at all planning stages in the

procurement process and monitor and adjust them throughout the procurement lifecycle to

identify where we may need to change or alter our approach.

Risk Management is the identification, assessment and prioritisation of risks

followed by coordinated and economical application of resources to minimise,

monitor, and control the probability and/or impact of unfortunate events or to

maximise the realisation of opportunities.



Risk management should be entrenched in everyday work practices, rather than be seen as

a separate, and possibly onerous, task. Within your organisation, staff work at different levels

and therefore consideration of different aspects of the organisation’s business should be

explored. For example, senior staff may consider overall risks to the organisation and

reputation of local government but will not necessarily be focused on the impacts of day-to-

day operational projects. Therefore, risk should be managed by all staff, at all levels, with

effective communication and reporting between the strategic and operational levels.

The best time to undertake risk management planning is when you are planning any activity.

This means you can be proactive in your approach, rather than reacting to possible disasters.

Risk Definition

Under the Australian Risk Management Standard, (AS/NZS ISO 31000:2018) risk is defined

as the “effect of uncertainty on objectives” and is measured in terms of the likelihood of that

risk occurring and the consequences if it did.

The Standard assumes that:

The ‘effect’ is something other than that which is expected to occur;

The ‘objective’ may have different aspects (e.g., financial, health and safety, etc.) and

can apply at different levels (strategic, project, etc.);

Risk is often characterised by reference to potential events and consequences, or a

combination of these;

Risk is often expressed in terms of a combination of the consequences of an event

(including changes in circumstances) and the associated likelihood of occurrence; and

Uncertainty is the state, even partial state, of deficiency of information related to

understanding or knowledge of an event, its consequence, or likelihood.

Definition of Risk

Uncertain – not able to be relied on, not known, definite or understood.

Uncertainty in terms of risk means we need to initially consider anything that is not definite, in

relation to our business objective. Further analysis then occurs to determine whether we need

to, or can, do anything about it. Well-managed risk management processes that are

embedded in our day-to-day functions provide many benefits to organisations and can

underpin the effective achievement of objectives.

Defining Risk

Hazard: a source of danger, a possibility of incurring loss or misfortune, probability or threat

of a damage, injury, liability, loss, or other negative occurrence, caused by external or internal

vulnerabilities.



No amount of planning can overcome risk, or the inability to control chance events. In the

context of procurement, risk is an uncertain event or condition that, if it occurs, has a positive

or negative effect on procurement objectives. A risk has a cause and, if it occurs, a

consequence. Risk refers to any factor (or threat) that may affect adversely the successful

completion of the procurement in terms of delivery of its outputs or adverse effects on

resourcing, time, cost, and quality. These factors/threats include risks to the procurement’s

business environment that may prevent the procurement’s outcomes/benefits from being

realised fully.

Risk planning is the process of defining potential risks and the ways in which the procurement

team will both mitigate their occurrence and respond if they actually occur. The result of this

work is called a risk management plan: the comprehensive manner in which the procurement

team will identify and plan for how to deal with risk. The objectives of risk management are to

increase the probability and impact of positive events and decrease the probability and impact

of negative events in the procurement.

Organisational Policies and Processes

Most agencies have a pre-defined approach to risk management. The policies can define the

activities to initiate, plan, and respond to risk. The procurement team must map the

procurement risk management to these policies to conform to an organisation’s requirements.

In addition, there may also be predefined roles and responsibilities within an organisation.

These roles could impact on risk management planning, the decisions relevant to the risks,

and the involvement of the procurement participants. These roles and responsibilities and the

policies associated with working with these individuals should be identified and considered

early in the procurement process to save time and frustration. The last component for the

procurement team to understand within the context of their organisation is the limit of power

and autonomy they have on the procurement.

Defining Risk Management

The Risk Management Standard AS/NZS ISO 31000:2018 defines risk management as:

“coordinated activities to direct and control an organization with regard to risk”.

What this means is that the risk management process is the systematic application of

management policies, procedures, and practices to the tasks of communicating, consulting,

establishing the context, identifying, analysing, evaluating, treating, monitoring, and reviewing

risk.

The standard also identifies that risk management is not a stand-alone activity. It is part of the

responsibilities of management and an integral part of all organisational processes, including

strategic planning and all project and change management processes.

Risk Management Benefits You don’t have to look far to see evidence of the consequences of poor risk management

practices. Media sources and audit and investigation findings demonstrate some of the effects

for government at all levels.



Typical benefits resulting from effective risk management processes may include, but are not

limited to:

Regulatory and legislative compliance;

Improved organisational financial performance;

Improved or sustained reputation;

Better planning and decision-making;

Better use of resources;

More efficient work processes – reduced disruptions due to risks occurring; and

Safer workplaces.

An additional benefit that may come out of effective risk management may also be a reduction

in organisational insurance premiums.

It is important that the risk management process adds value to what you are doing. This

means it needs to be clearly linked to decision-making processes and be applied in a

systematic and structured way. The process itself needs to accord with your organisation’s

requirements and be appropriate to the business function being undertaken, that is, as

appropriately simple as circumstances allow and conducted on an appropriate cost-benefit

basis.

Important Note

Section 16 of the PGPA Act requires a duty to establish and maintain systems

that relates to risk control. This duty places an obligation on the accountable

authority to implement systems, policies and processes designed to identify and

manage risks associated with the Commonwealth entity, including fraud control.

Internal systems will need to be designed to ensure compliance with the PGPA

Act and other relevant law.

Consequences of Poor Risk Management Failure to identify and properly manage risk can have a serious impact on the procurement

and contract management functions. Some of the possible consequences of inadequate risk

management include:

failure of a contract to meet its objectives;

unfavourable publicity;

client/end user dissatisfaction;

complaints from the contractor;

a threat to physical safety of staff or clients;

failure of equipment/services and the related disruption to an organisation’s

operations;

breach of legal or contractual responsibilities leading to legal action;



opportunities for fraud against the Australian Government;

deficiencies in financial controls and reporting;

increased audit scrutiny and potentially negative audit findings;

a perception on the part of politicians that they need to take a close interest in certain

procurement and contract management activities;

inefficient use of resources;

lack of project/contract control and audit trail;

delivery slippages;

costly schedule recovery exercises;

cost overrun;

inability to track sub-plans or individual activities, and therefore uncertainty about

making payment;

costly rework of deliverables or requirements during the contract; and

poor relationships and communication with the contractor.

The Risk Management Process AS/NZS ISO 31000:2018 is an International Standard that provides principles and generic

guidelines on risk management. It is designed for use by any public, private or community

enterprise, association, group or individual.

AS/NZS ISO 31000:2018 details a standard risk management process. The following figure

shows the basic steps in the risk management process and each step is described on the

following pages.



Sourced: Standards Australia, Risk Management – Guidelines (ISO 31000:2018)



Step 1. Communication and Consultation

Communication and consultation should be the first issue that you consider when commencing

any risk management process. Early and effective consultation ensures that the right people

have input to the risk management process. Communication and consultation aims to identify

who should be involved in assessment of risk (including identification, analysis and evaluation)

and it should engage those who will be involved in the treatment, monitoring and review of

risk.

Communication and consultation requires dialogue between the procurement team and its

stakeholders. This dialogue is both continual and iterative and so will be reflected in each step

of the Risk Management process. It is a two–way process that involves both sharing and

receiving information about the management of risk, but it does not involve joint decision

making. Once communication and consultation are finished, decisions are made and

directions are established by the procurement team, not by stakeholders.

Different stakeholders will have different knowledge of the organisation, subject matter

expertise about the objective in question, and corporate knowledge about similar activities.

Effective consultation means we can obtain these different perspectives and enabling

stakeholders to influence the risk management process in a more meaningful way.



This does not mean asking everyone their opinion about everything! It is important to plan

your approach to ensure that you access the right stakeholders at the right times in the

process. You should also plan to communicate to stakeholders the reason for the risk process

and identify the benefits and opportunities of undertaking it.

Stakeholders may include:

Employees;

Managers;

Volunteers;

Unions;

Financial managers;

Self-insurers;

Clients;

Suppliers;

Contractors;

Service providers;

Community organisations; and

The general public.

A well-structured approach that supports the organisation’s risk management approach can

create a positive ‘risk culture’, improve stakeholder relationships and ensure that all parties

involved in the risk management process clearly understand the benefits and opportunities.

This results in better management of the risk process through clearer understanding of what

the process entails and why it is necessary.

The communication strategy should include the following considerations:

Identify the aim or purpose of involving relevant stakeholders in the process.

- What information and support may be needed?

Determining the most appropriate stakeholders for each step of the process and

anticipating the issues that they may bring to the process.

- It is important to listen and value the input irrespective of any pre-conceived ideas

you may have.

Determine the best method to consult with each stakeholder or group of stakeholders.

By carefully planning your communication strategy will increase the likelihood of a successful

outcome. A well-managed communication process will encourage input by stakeholders and

ownership of the risk management process.

Example Tables

The following examples of tables have completed versions attached to illustrate their use in a

practical scenario.



Scenario

As a result of staff complaints in your organisation, plus a couple of near-miss accidents

involving staff using equipment, your senior management requires something to be done.

Ella Mentry is a Senior Manager who has been tasked with doing something to improve the

safety in the workplace and to improve the organisation’s compliance with workplace health

and safety requirements. She has tasked her offsider Bea Sting with undertaking a preliminary

risk assessment of issues to help ensure that the organisation approaches the task correctly

(see attached documentation).

Ella has approved the preliminary documentation and will use the information to seek

necessary funding and staff resources to continue the project. In the early stages of seeking

approval, an unforeseen risk (an Issue) has occurred. The Senior Operations Manager, who

was a valuable source of information on some of the issues facing the organisation, including

providing ‘workarounds’ to support safety in line areas, has resigned unexpectedly.

Step 2. Establish the Context

By establishing the context, the organisation articulates its objectives, defines the external and

internal parameters to be taken into account when managing risk, and sets the scope and risk

criteria for the remaining process.



A Five-Step process can assist with establishing the context within which risk will be identified.

1. Establish the internal context.

2. Establish the external context.

3. Establish the risk management context.

4. Develop risk criteria.

5. Define the structure for risk analysis.

Establishing the internal context

The internal context is the internal environment in which the organisation seeks to achieve its

objectives. The risk management process should be aligned with the organisation’s culture,

processes, structure, and strategy. The internal context can include, but is not limited to:

governance, organisation structure, roles and accountabilities;

policies, objectives, and the strategies that are in place to achieve them;

capabilities, understood in terms of resources and knowledge;

the relationships with and perceptions and values of internal stakeholders;

the organisation’s culture;

information systems, information flows and decision-making processes;

standards, guidelines, and models adopted by the organisation; and

form and extent of contractual relationships.

Establishing the context for procurement risk means understanding how the work activity being

undertaken fits within the organisational context and helps to ensure that risk decisions always

support the broader goals and objectives of the business. This involves identifying and

considering the intended objectives and the current environment – internal and external to the

organisation.

Essentially, what could occur that may create uncertainty in achieving the intended objective

or outcome?

It is important that the organisational context covers both the strategic and operational

environments:

Strategic – the overall organisation context; and

Operational – the activity being undertaken.

Establishing the Strategic Context

Consideration of the strategic context helps to provide a basis for the evaluation of the

acceptability of identified risks.

Strategic risks are generally risks that may impact core organisational objectives and are

normally determined at the senior management level.



Examples of strategic risks may include:

failure of a core project;

poor management practices;

breach of security;

breach of contract – resulting in legal action; and

poor work health and safety management – resulting in death, injury, or illness.

Establishing the Operational Context

Operational risks will be subject to the nature and type of the activity being undertaken, the

link to organisational objectives, internal issues such as restructure or policy changes, and

external issues such as government change or other influences including market or

demographics, that exist at the time.

When establishing the risk context, it is important to understand:

the intended outcome or objectives of the activity;

any critical success factors, such as linked systems;

the relationship between the activity and organisational objectives – Is the activity

critical to achieving a core organisational outcome? How does the activity fit with

organisational objectives? Who or what will be affected?

internal and external factors that may impact – What is happening in the environment

at the moment? Social, political, legal, financial, or technological factors? What

governance measures or standards apply within the organisation?

any constraints associated with the activity, such as linked projects, time, budget.

Establishing the External Context

The external context is the external environment in which the organisation seeks to achieve

its objectives. Understanding the external context is important in ensuring that the objectives

and concerns of external stakeholders are considered when developing risk criteria.

The external context can include, but is not limited to:

the social and cultural, political, legal, regulatory, financial technical, economic, natural,

and competitive environment, whether international, national, regional or local;

key drivers and trends having impact on the objectives of the organisation; and

relationships with perceptions and values of external stakeholders (clients or

customers).

The market in which the business operates and competitors in that market.

An analysis of these factors will identify the strengths, weaknesses, opportunities, and threats

to the business in the external environment.



Examples of legislation and policies might include:

Commonwealth and state/territory legislation including equal employment opportunity

and anti-discrimination law;

Council rules and by-laws;

National and international codes of practice and risk management standards;

Government policy; and

National competition policy.

Establish the risk management context

Before beginning a risk identification exercise, it is important to define the limits, objectives

and scope of the activity or issue under examination.

For example, in conducting a risk analysis for a new project, such as the introduction of a new

piece of equipment or a new product line, it is important to clearly identify the parameters for

this activity to ensure that all significant risks are identified.

To establish the risk management context, it may be necessary to undertake the following

steps:

• Define the objectives of the activity, task, or function.

• Identify any legislation, regulations, policies, standards, and operating procedures that

need to be complied with.

• Decide on the depth of analysis required and allocate resources accordingly.

• Decide what the output of the process will be, e.g., a risk assessment, job safety analysis

or a board presentation. The output will determine the most appropriate structure and type

of documentation.

Develop Risk Criteria

Evaluation Criteria

Evaluation criteria, sometimes referred to as risk criteria, may be set at the strategic level in

the organisation. They allow the organisation to clearly define the level of risk that the

organisation is prepared to accept for the activity in question. These criteria are then used as

the basis for the evaluation of individually identified risks later in the risk analysis process.

Risk evaluation criteria may be created for different areas of impact. Areas that may be

considered could include:

Legislative compliance – Will this risk potentially cause us to break the law?

Policy compliance – What internal policies need to be upheld?

Stakeholder perception – What are their interests? Will we lose their confidence or

support? Could our reputation be damaged?



Budget management – Will we be able to cover financial loss?

Safety – this may link to legislative and policy compliance; and

Environment – this may link to legislative and policy compliance.

Evaluation criteria may be set more ‘generally’ at the strategic level but should then be

considered for the activity in question during the step ‘Establish the Risk Context’. This may

be further refined later as new risks are identified and analysed.

Example:

If your organisation was undertaking a project to develop a community centre in

a remote rural location, areas that may need evaluation criteria set will link to the

activity objectives.

This could include safety that:

Must meet legislative requirements; and

Must be upheld at all times;

and could also include environmental issues that:

Must operate to support organisational commitment to environmental issues;

and

Must comply with legislative requirements for environmental protection.

This table shows what level of risk the organisation is exposed to and what action is required

once a risk is identified.

Level of risk Evaluation criteria Management action required

Very high risk

Almost certain to threaten the event.

Financial threat to survival of

organisation body or stakeholders

Involvement of senior management of stakeholder organisation

Eliminate risk or curtail activity

High risk

May threaten the event. Likely to

threaten ongoing financial security of

stakeholders

Involvement of senior management of stakeholder organisation

Planning required and responsibilities specified

Risk must be reduced or activity

modified

Medium risk

Unlikely to threaten the event.

Stakeholder organisations may suffer

some threat to financial security

Manage by specific monitoring and response to risk

Risk should be reduced as far as

possible

Low risk

Unlikely to threaten the event.

Stakeholder organisations may suffer

some threat to financial security

Monitor and manage as part of routine procedures

Reduce risk if possible

Negligible risk Negligible impact Accept risk

https://sielearning.tafensw.edu.au



To develop risk criteria for the risk activity, it will be necessary to:

• Decide or define the acceptable level of risk for each activity

• Determine what is unacceptable

• Clearly identify who is responsible for accepting risk and at what level.

It will also be necessary at this stage to understand the difference between,

Risk Appetite

Risk appetite is the level of risk that an organisation is willing to pursue or be exposed to in

order to achieve an outcome. All organisations will determine their risk capacity, i.e., the

amount of risk they can absorb, and it is essential that appetite does not exceed the

organisation’s capacity to bear risk. A high-risk appetite indicates that an organisation would

accept more uncertainty for a higher reward, and conversely, a low-risk appetite suggests the

organisation is seeking less uncertainty and likely, as part of this, a lower return.

Risk Tolerance

Risk tolerance is the level of risk the organisation can tolerate or endure and represents the

variation from the stated appetite. Risk tolerance draws a line in the sand, beyond which the

organisation does not wish to proceed. There are often triggers that alert the organisation to

the breach of a tolerable risk. For example, you may have heard the statement ‘We have zero

tolerance for health and safety incidents in the workplace.’

Example:

A company that says it is does not accept risks that could result in a significant

loss of its revenue base is expressing appetite. When the same company says

that it does not wish to accept risks that would cause revenue from its top 10

customers to decline by more than 10%, it is expressing tolerance.

Operating within risk tolerances provides management with greater assurance

that the company remains within its risk appetite, which in turn, provides a higher

degree of comfort that the company will achieve its objectives.

Define the structure for risk analysis

Isolate the categories of risk that you want to manage. This will provide greater depth and

accuracy in identifying significant risks.

The chosen structure for risk analysis will depend upon the type of activity or issue, its

complexity, and the context of the risks.

Critical Success Factors

A critical success factor is the term for an element that is necessary for the procurement to

achieve its original goals. The concept of “success factors” was first developed in 1961. This

process was refined by John F. Rockart. In his March-April 1979 seed paper, published in



Harvard Business Review, in which he introduced Critical Success Factor theory, John

Rockart defined Critical Success Factors as:

(a) "The limited number of areas in which results, if they are satisfactory, will ensure

successful competitive performance for the organisation. They are the few key areas

where things must go right for the business to flourish. If results in these areas are not

adequate, the organisation's efforts for the period will be less than desired."

(b) "Areas of activity that should receive constant and careful attention from management."

Critical success factors are activities, not goals. They are therefore activities, all of which are

critical to overall success of the procurement. They are the things to which the procurement

team must give personal attention. Failure to accomplish the CSF successfully will be a major

deterrent to overall success of the procurement. Activities should be tracked and measured,

and this allows the procurement team to determine if the CSF(s) are being accomplished

successfully. If a critical success factor is not achieved, then the project or activity will usually

fail.

Critical success factors should receive constant and careful attention to ensure they are being

properly managed and achieved. If there is any chance that a particular success factor may

not be met, then steps should be taken to support the achievement of the CSF.

A fundamental premise of CSF theory is that if an activity is identified as critical to procurement

success--and the team’s time is focused on this activity, and resources are expended to

execute, evaluate, and measure this activity--the procurement is at reduced risk. Conversely,

if an activity being given significant attention by a team is in fact not critical to success--and

precious activity and attention is thereby being drawn away from items that actually are critical

to success, and therefore do require the team’s attention--the procurement is at increased

risk.

CSFs should be prominently identified in any risk management plan so that appropriate

attention is given to them.

Example:

If the activity were to procure training services to improve a standard of service in

your organisation, a critical success factor may be the identification of the correct

level or standard of training required. If the correct standard of training is not

identified, the outcome will be a failure even though the process of procurement

and training proceeded satisfactorily. The critical failure is that the ‘improved

service level’ will not be achieved.



Risk Identification

The risk identification process begins by trying to generate a list of all possible risks that could

affect the procurement. It is a proactive approach rather than reactive strategy. This means

that time should be taken BEFORE the activity commences to identify and manage risk, rather

than wait until a risk occurs and then working out what to do about it. The procurement team

should identify sources of risk, areas of impact, events (including changes in circumstances)

and their causes and potential consequences. The aim of this step is to generate a

comprehensive list of risks based on those events that might create, enhance, prevent,

degrade, accelerate, or delay the achievement of the procurement objectives. It is also

important to identify the risks associated with not pursuing an opportunity. Comprehensive

identification is critical, because a risk that is not identified at this stage will not be included in

further analysis.

It is important that all stakeholders involved in the conduct of the procurement provide some

level of input into the risk identification process. Participants in risk identification activities can

include the following: procurement team, procurement experts, customers, end users,

stakeholders, and risk management experts. Their involvement assists with the detailed

identification of the inherent risks involved in the procurement and develops a sense of

ownership and responsibility towards the Risk Management Plan. The identification of risk is

an iterative process because new risks may evolve or become known to the procurement team

as the process progresses through to contract signature. The frequency of iteration and who

participates in each cycle will vary according to the situation.



Successful risk management depends on how accurately risks are identified, so it is important

to consult with relevant stakeholders and use a structured and systematic approach when

identifying and analysing risks. Unidentified risks cannot be managed and therefore pose a

serious threat to the successful achievement of any activity.

Risk is about events that when they occur, could cause problems, or create benefits:

Risk Sources – may be internal or external and could include stakeholders, employees

or any other thing that could influence the certainty of meeting our objectives.

Risk Events – events may be triggered by a source, e.g., the experienced contract

manager may leave the organisation; a major flood (weather) could prevent a project

from continuing causing delays.

It is important that the risk is not confused with the source of the risk, the event that causes

the risk to occur, or its consequence/outcome. A way to achieve this is to state risk in the

following manner:

It is a risk that X could occur, causing Y consequence.

Alternatively, if you include the source, the statement could read:

Because of W, it is a risk that X could occur, causing Y consequence.

Example 1:

As untrained staff are undertaking procurement activities (source), it is a risk that

we will fail to comply with policy (the risk), causing incorrect process, potential

audit findings, industry complaints and loss of reputation (possible

consequences)

Example 2:

If staff do not understand health and safety requirements (source), it is a risk that

they will not comply with health and safety requirements (risk), which could lead

to their, or another staff member’s, injury or death (consequence).

When identifying risk, a good starting point is to consider the factors identified when

establishing the context. What events may occur? What could go wrong? What opportunities

exist? What source of risk exists?

Consideration should be given to:

who may be affected (staff, customers, government)

what is the actual impact (financial loss, damage to reputation)

why could the risk occur (lack of skills, lack of training)

how could the risk occur (poor communication, system failure)

when could the risk occur (short, medium, or long-term)



Example:

A key activity in successfully completing the project may be monitoring the

contractor’s performance to ensure accurate and timely completion of the

contracted work to meet the core agency objective.

The critical success factor is resourcing, that is those who will do the monitoring.

The source is also insufficient resources to undertake the necessary work, the

risk is failure to monitor contractor progress, and the consequence may be failure

to meet the objective or loss of value for money.

Identifying retrospective risks

Retrospective risks are those that have previously occurred, such as incidents or accidents.

Retrospective risk identification is often the most common way to identify risk, and the easiest.

It’s easier to believe something if it has happened before. It is also easier to quantify its impact

and to see the damage it has caused.

Identifying prospective risks

Prospective risks are often harder to identify. These are things that have not yet happened but

might happen sometime in the future.

Identification should include all risks, whether or not they are currently being managed. The

rationale here is to record all significant risks and monitor or review the effectiveness of their

control.

Tools and Techniques

Below are some techniques for identifying risk:

Brainstorming – goal is to obtain a comprehensive list of procurement risks;

Checklist Analysis – risk identification checklist can be developed based on historical

information and knowledge from similar procurements.

SWOT Analysis – examines the procurement from each of the SWOT (strengths,

weaknesses, opportunities, and threats) perspectives.

Expert Judgement – risks can be identified by experts with relevant experience of

similar procurements.

Procurement Team - personal experience of project team members.

Other Procurements - examining local or overseas experience in similar

procurements.

Historical Information - if the organisation has done similar procurements in the past,

the information should be able to shed light on the risks identified early in the

procurement, as well as the risks identified throughout the procurement and provide

information for the final contract reports.



Risks can be identified or classified in in two main ways. They could be retrospective - those

that have previously occurred, such as incidents or accidents, or prospective – risks that have

not yet happened, but might happen in the future.

Procurement risks might include:

risk identified during market research;

criticality of the procurement activity to the organisation;

supplier related risk;

product related risk;

market related risk;

national security risk;

political risks;

corruption risks;

probity risks;

contextual/environmental factors;

too many potential suppliers;

too few potential suppliers;

unsophisticated marketplace;

timeframes for procurement too short;

inappropriate method of procurement used;

inadequate budget and other resources;

inappropriate form of contract selected;

suppliers’ inability to meet obligations;

end users’ or buyers’ inability to meet obligations;

unclear contract terms and conditions;

contractual disputes;

factors outside the control of either party such as global health pandemic, failure of

third-party businesses, natural disasters; and

changes to government policy.

Risk Examples

The following table provides examples of risks, consequences and possible actions that may

occur in any organisation.



Risk Category Risk Possible Consequences

Risk Mitigation Action

Financial Misappropriation of funds

Damage to

reputation

Loss of budget

Train staff about their obligations

Clear policy and procedures

Clear ‘check points’ in processes

Health and Safety

Poor safety management

Injury

Illness

Death

Train staff about their obligations

Ensure correct safety measures

signposted are used

Involve relevant expertise when

needed (internal or external)

Environmental Ergonomic hazards Staff injuries

Buy equipment and furniture to

approved standards

Train staff in use

Security Misappropriation of information

Staff use to own

gain or benefit

Government

information is

inappropriately

leaked

Staff are trained in ethics and

information management

Staff and contractors sign

appropriate confidentiality

agreements

Information is kept secure

Risks can occur at any time in the process and risk registers should be reviewed and

updated regularly to ensure it remains current and effective.

Examples of common risks that may occur in procurement:

Incorrectly stated procurement need, causing unsuitable purchases –

mitigation could include better stakeholder consultation and SOW advice.

Breach of confidentiality (actual or perceived), causing complaints from

tenderers and damage to reputation – mitigation could include training and

informing staff about their obligations and establishing clear tender

management procedures.

Failure to complete a contracted requirement, causing delays, disputes,

failure to achieve the outcome, litigation – mitigation could include managing

contractor performance, ensuring that stakeholders understand their roles and

responsibilities, and maintenance of clear documentation.

Incorrect disposal method chosen, causing breach of legislation or poor value

for money outcome – mitigation could include training staff and planning for

disposal.

Identify existing risk controls

Many of the risks that are identified will have risk control strategies already in place. It is

necessary to understand what controls may already exist and whether they adequately control

the risk before proceeding any further.

Existing controls will typically be higher level legislation, policies or procedures that are

intended to broadly address commonly identified risks.



Once existing risk control strategies have been identified an assessment of their overall

effectiveness is required in order to determine if they provide adequate management of the

risk or if further risk treatment might be required. Just because there are existing control

strategies for an identified risk does not mean they provide adequate management of the risk

for your activity. Conversely, if existing controls are inadequate you will need to further treat

the risk with new or additional risk controls.

Examples of existing risk controls:

The threat of fraud occurring during a procurement activity is always present.

Existing controls for this risk include fraud policies and procedures, staff

training, spending approvals, reconciliation of receipts and separation of

duties.

Budget management is always a risk for procurement activities and through

contract management. Controls that exist to manage budget include

organisational polices and process with regard to monthly budget reporting,

financial controls for budget allocation to activities and strategies for

requesting additional funding if and when required.

It is also important to remember that not all risks have existing risk controls to manage them.

Risk Analysis



During the risk identification step, many risks may have identified, and it is often not possible

to address all those identified. The risk analysis step will assist in determining which risks have

a greater consequence or impact than others.

Risk analysis involves developing an understanding of the risk. Risk analysis provides an input

to risk evaluation and to decisions on whether risks need to be treated, and on the most

appropriate risk treatment strategies and methods. It allows the project team to separate the

minor acceptable risks from the major unacceptable risks and to provide information to assist

in the evaluation and treatment of risks. Factors that affect consequences and likelihood

should be identified. The analysis should consider the range of potential consequences and

how likely these consequences are to occur during the management of the procurement.

Consequence and likelihood may be combined to give an estimated level of risk or Risk

Rating. This is often performed by using a risk assessment matrix (see below). A

consequence is defined as ‘the outcome of an event expressed qualitatively or quantitatively,

being a loss, injury, disadvantage or gain. There may be a range of possible outcomes

associated with the event.’ The term likelihood is used as a ‘qualitative description of

probability or frequency’.

It is important that determination of likelihood and consequence is not downplayed to avoid

further actions, such as more detailed planning needs. The aim of risk management is to

proactively prevent loss and maximise benefit, therefore the outcome is dependent on the

process being appropriately robust and considered. The matrix is typically divided into red,

yellow, and green zones representing major, moderate, and minor risks. The red zone is

centred on the top right corner of the matrix (high likelihood/high consequence) while green is

centred on the bottom left corner (low likelihood/low consequence). Since consequence is

generally considered more important than likelihood, the red zone extends further down the

consequence column.

The risk assessment matrix provides a basis for prioritising which risks to address. Red risks

receive first priority followed by the yellow risks and the green risks last. The risk assessment

matrix is one of many approaches to risk assessment. Basically, assessments are either

subjective or quantitative. “Expert opinion” or “gut feeling” estimates are used frequently, but

they can carry serious errors depending on the skill of the person(s) making the judgement

call. Quantitative methods usually require more detailed analysis of fact and tend to be more

reliable. Whether a subjective or quantitative approach is used depends on the source of risk,

possible outcomes, effects of a risk event, and the attitude of the procurement team, and

organisation generally, to risk assessment.

Risk may cover several areas of impact including, but is not limited to:

Cost;

Schedule;

Performance;

Safety;

Supportability;

Environmental impact;

Security; and

Reputation.



Identification methods may include:

reviewing previous projects or records;

using the expertise of stakeholders; and

researching industry practice and standards.

Risk Tools

A number of tools and techniques are available to help analyse and manage the risk process.

You should research the tools available within your organisations risk management

framework. It is important that you understand how to use the tools and how to manage and

communicate the resulting information. Remember – risk affects your organisation, and it is

important that the information is communicated to the best effect. One of the most common

qualitative models is described below.

Types of Risk Analysis

Risk analysis may be undertaken to various levels of precision depending on the risk

information and data available. Analysis may be qualitative or quantitative or a combination of

these, depending on circumstances. The order of complexity and cost of these analyses

increases from qualitative to quantitative. Partly for this reason, qualitative analysis is usually

used first in practice to obtain a general indication of the level of risk. Later more specific and

detailed quantitative analysis may be used.

Qualitative Risk Analysis

Qualitative methods use descriptive terms to identify and record consequences and

likelihoods of events and resultant risk – examples of descriptive terms are provided in the

tables below.

How likely is the risk to occur?

Determining the likelihood or probability of an event occurring and giving rise to an

unacceptable risk is an important step in risk analysis. The public sector has generally

adopted a qualitative approach to this step and organisations have developed standard tools

to help users adopt a consistent approach. The following is an example of a qualitative tool.

MEASURES OF LIKELIHOOD OF OCCURENCE

Descriptor Description

Almost certain Is expected to occur in most circumstances

Likely Will probably occur in most circumstances

Possible Might occur at some time

Unlikely Not expected to occur, but could occur

Rare May only occur in exceptional circumstances

For each risk, the likelihood will need to be considered and recorded in the Risk Register.



Likelihood is a key factor in decisions on risk but must always be considered together with the

impact, or consequence, of risk on the activity in order to reach an assessment of the level of

risk associated with a particular activity.

What are the Likely Consequences?

The consequence, or impact, of risk can be defined and quantified in terms of:

financial impact, such as:

- increased costs;

- value of insurance payouts; or

non-financial impact, such as:

- disruption to service delivery;

- lack of service continuity;

- poor user acceptance;

- negative publicity;

- political fallout;

- accountability concerns;

- flow-on effects to other agency programs; and

- electoral consequences for government.

Understanding the potential consequences and the possible financial and non-financial

outcomes is essential to managing those risks. The following table below provides some

guidance in determining and describing the severity of consequences.

QUALITATIVE CONSEQUENCES TABLE

Descriptor Description

Catastrophic

Death, huge financial loss, failure to achieve corporate or project objectives, extreme damage to the agency’s reputation, extreme political and/or community sensitivity, public outrage, likely to attract intense media and/or Ministerial interest or Agency Head interest

Major

Extensive injuries, loss of capacity to perform organisational functions, major financial loss, significant impact on strategic/operational objectives, serious damage to the agency’s reputation, significant political and/or community sensitivity, likely to attract persistent media and/or Ministerial interest or Agency Head interest

Moderate

Medical treatment required, would not threaten the program or project, but would mean that the program could be subject to significant review of or changed ways of operating, high financial loss, moderate impact on strategic and/or operational objectives, damage to the agency’s reputation, a moderate political and/or community sensitivity, likely to attract some media interest and/or interest from the Ministerial Office or from senior executives

Minor

First aid required, threatens the efficiency or effectiveness of some aspect of the program or project, but would be dealt with internally, low financial loss, minimal impact on agency strategic/operational objectives, low political and/or community sensitivity, likely to attract interest of relevant managers

Insignificant No injuries, low financial loss, consequences are dealt with by routine procedures



Qualitative risk assessments are readily used and rely on experience and judgement. In a

qualitative ranking, the likelihood of an event is assigned a qualitative measure such as L =

Low, M = medium, H = High, and E = Extreme. For consequences qualitative methods use

words or descriptive scales to describe the consequences of each event. This method does

not require extensive time or resources. It is often used when resources are limited, or

extensive quantitative data are not available or not required.

For this reason, it is the easiest, quickest, and most common form of risk assessment and is

used:

as a preliminary study to determine further action;

when quick results are required;

for coarse ranking or filtering results;

to justify further action;

when there is no numerical data, such as new processes and new environments; and

on low risk areas that do not justify further detailed risk assessment.

Outputs from qualitative risk analyses are usually evaluated using a risk matrix format (see

table below). The risk matrix incorporates the pre-determined risk acceptance threshold and

is used to determine which risks require treatment and the priorities that should be applied.

Using the matrix, a risk rating for a given risk event can be selected by reading across and

down the matrix using the assigned likelihood and consequence descriptors.

What is the Level of Risk?

The approach most readily used in making decisions about the level of risk in the workplace

tends to be qualitative. The level of risk is determined from the relationship between likelihood

and consequence, which is normally set out in a table such as the table below.

In this model, the level of risk to be determined should include the degree of controls already

in place and how effective they are. It uses descriptive words or scales to rank the potential

likelihood and consequences of the event occurring, as shown in the example table:

LIKELIHOOD CONSEQUENCES

Catastrophic Major Moderate Minor Insignificant

Almost Certain High High High Medium Low

Likely High High Medium Medium Low

Possible High High Low Low Insignificant

Unlikely High Medium Low Insignificant Insignificant

Rare Medium Medium Insignificant Insignificant Insignificant



Example of a Qualitative Risk Analysis

In the example matrix, there are 25 potential risk combinations, and the risk outcomes have

been divided into four risk levels (ratings). This type of matrix is typically used to compare risk

levels for different events, and to set priorities for risk treatment actions. However, qualitative

approaches have some shortcomings compared with more quantitative approaches.

Key criticisms are that qualitative methods are imprecise, it is difficult to compare events on a

common basis, there is rarely clear justification of weightings placed on severity of

consequences and the use of emotive labels makes it difficult for risk communicators to openly

present risk findings to stakeholders.

Ranking the risk helps guide actions in relation to managing the risk, for example:

High Risk – requires detailed research and management planning at senior levels;

Medium Risk – requires specified management responsibility, usually by senior

management;

Low Risk – management is likely by following routine or set procedures; and

Insignificant Risk – generally will not need managing.

Qualitative Analysis is useful to identify insignificant risks, therefore saving resources, such as

time and effort, is necessary or to highlight important risks that may require further analysis.

In some cases, it may be useful to re-analyse the risks and taking into account the intended

treatments to determine whether they are sufficient. Any remaining or residual risks that may

still represent any concerns to the organisation and require additional treatment, should be

addressed quickly and appropriately.

Semi-Quantitative Risk Analysis

Semi-quantitative approaches to risk assessment are currently widely used to overcome some

of the shortcomings associated with qualitative approaches. Semi-quantitative risk

assessments provide a more detailed, prioritised ranking of risks than the outcome of

qualitative risk assessments.

Semi-quantitative risk assessment takes the qualitative approach a step further by attributing

values or multipliers to the likelihood and consequence groupings. Semi-quantitative risk

assessment methods may involve multiplication of frequency levels with a numerical ranking

of consequence. Several combinations of scale are possible.



Below is an example of a semi-quantitative risk matrix where the likelihoods and

consequences (impacts) have been assigned numbered levels that have been then multiplied

to generate a numeric description of risk ratings. The values that have been assigned to the

likelihoods and consequences are not related to their actual magnitudes, but the numeric

values that are derived for risk, and can be grouped to generate the indicated risk ratings.

High risk events have risk ratings greater than 8, medium risks are between 5 and 8, and so

on.

Example of a basic semi-quantitative risk rating matrix

Semi-quantitative risk assessment methods are quick and relatively easy to use, clearly

identify consequences and likelihoods, usually provide a general understanding of

comparative risk between risk events and are useful for comprehensive risk assessments.

Semi-quantitative approaches, however, do share some shortcomings with qualitative

approaches, in particular, in circumstances when it is difficult to compare events on an even

basis, it is difficult to justify weightings placed on the severity of consequences and the use of

emotive labels.



Risk Evaluation

Risk evaluation involves comparing the level of risk found during the analysis process with

previously established risk criteria and deciding whether these risks require treatment.

The result of a risk evaluation is a prioritized list of risks that require further action.

Acceptable

This step is about deciding whether risks are acceptable or unacceptable, and the order or

priority of treatment needed. Acceptable risks generally do not require treatment; however,

this does not mean that the risk is an insignificant risk. Some risks may need to be accepted

even though they are significant because the alternative is not viable.

Consider the risks associated with running a Police Force. Acceptance of the

associated risks and endeavouring to manage them through the provision of

specialised training and equipment is a much better option than the alternative of

not having a police force.

The evaluation of risks is achieved by considering the earlier identified ‘Evaluation Criteria’.

This helps us to determine whether the risk is acceptable or not.



Example:

If a risk was ‘poor safety management’ and our evaluation criteria was ‘Must

meet our legislative obligations’, then this risk would be unacceptable. If the risk

does occur, the organisation would not be meeting its duty of care under

Workplace Health and Safety legislation. This risk would need to be treated to

ensure that appropriate safety management followed.

If the risk was ‘inadequate safety awareness amongst staff’ and the organisation

had mandatory WHS training annually, mandatory WHS induction training, and

clear procedures in place that were observed from the top-down, the controls in

place are effective and the risk could be considered acceptable as the likelihood

of the agency not meeting its duty of care in relation to the Act would not be

expected to occur.

Reason for acceptance

Part of the evaluation process is to consider the importance of the activity and its outcome to

the organisation. Risks that are considered unacceptable will need to be treated to make them

more acceptable to the organisation.

Approval should always be sought from the correct authority, and in accordance with the

agency’s risk management policy, regarding the acceptability (or otherwise) of evaluated risks.

A risk may be accepted for the following reasons:

• The cost of treatment far exceeds the benefit, so that acceptance is the only option (applies

particularly to lower ranked risks).

• The level of the risk is so low that specific treatment is not appropriate with available

resources.

• The opportunities presented outweigh the threats to such a degree that the risk is justified.

• The risk is such that there is no treatment available, for example the risk that the business

may suffer storm damage.

Stakeholder Tolerance

An important factor to consider in evaluating risk is what level of tolerance for risks do key

stakeholders have? Depending on the procurement, the conditions, and the potential for loss

or reward, stakeholders will have differing tolerances for risk. A person’s willingness to accept

risk is known as the utility function. The time and money costs required to eliminate the chance

of failure is in proportion to the stakeholders’ tolerance of risk. The cost of assuring there are

no threats must be balanced with the confidence that the procurement can be completed

without extraordinary costs.



Risk Treatment

Once a risk has been identified and assessed, a decision must be made concerning which

response is appropriate for the specific risk. This is ultimately about enhancing opportunities

and reducing threats to procurement objectives.

Risk treatment involves a cyclical process of:

assessing a risk treatment;

deciding whether residual risk levels are tolerable;

if not tolerable, generate a new risk treatment; and

assessing the effectiveness of that treatment.

Risk treatments must be appropriate to the significance of the risk, cost effective in meeting

the challenge, realistic within the procurement context, agreed upon by all parties involved,

and owned by a responsible person. They must also be timely. Selecting the best risk

response from several options is often required. Alternatively, a number of treatment options

can be considered and applied either individually or in combination. When selecting risk

treatment options, the procurement team should consider the values and perceptions of

stakeholders and the most appropriate ways to communicate with them. Where risk treatment

options can impact on risk elsewhere in the organisation, or with stakeholders, they should be

involved in the decision.



Risks are ‘treated’ to improve existing controls and/or to implement new controls to modify the

risk, with the aim of reducing the likelihood of the risk occurring and the magnitude of the

consequence if the risk does occur. What exposure can be tolerated? This may determine

the costs or effort associated with treating risk. As risk may be positive or negative, treatments

should aim to reduce the exposure of risks that are of concern to an organisation and increase

exposure to those that offer some benefit to the organisation.

The choices of risk treatment should be made on a cost-benefit basis by balancing the costs

of implementing the treatment against the benefits derived. A treatment option may appear to

be the best option from the risk management point-of-view, but the cost may be unreasonable

or unaffordable.

Treat

Some risks will need to be treated while others will not. Risks that require treatment should be

identified to reduce workload and to focus effort on those items that need more attention. Any

risk with a risk level of High or above (depending on the matrix used) must be treated. Medium

level risks might require treatment to reduce impacts or likelihood of the risk occurring

according to organisational policies and risk management framework.

Prioritising Risks

Once risks are identified, they should be prioritised to determine the order of treatment. Your

organisation does not have unlimited resources, so it is important that we focus attention on

the risks that pose the most harm.

Effective prioritisation of risk will:

assist with planning immediate activities and future action;

help with the effective allocation of resources;

focus attention on the high-risk items; and

provide an overview of the level of risk facing the procurement activity.

The process of ranking the risk and determining acceptability or otherwise will help to prioritise

the order in which they need to be treated. For example, a moderate risk that requires

treatment will normally be prioritised above a low-rate risk that is considered to be acceptable.

How to prioritise:

In practical terms, each risk may not be so neatly ‘ranked’. For example, which

of the two ‘major’ risks identified should take priority?

Where two risks are rated at the same level, severity of the consequences

should be considered as a way to differentiate between them.

If both risks carry the same consequence rating, then the risk that has been

determined as most ‘likely’ to occur should take priority.

If all ‘ratings’ are the same in level, consequence, and likelihood, then the

experience and judgement will need to be applied to determine which risk will

take priority.



Benefits and Opportunities

Risk Management is not just concerned with the identification and management of negative

risks, otherwise known as threats, it can also be used to identify opportunities for additional

gain. These opportunities can be in areas such as:

• Cost savings

• Increased or additional benefits

Can also provide benefits beyond immediate management of risk:

• Increased compliance

• Staff training or upskilling

Failing to identify these opportunities and take advantage of them could be expensive

mistakes.

Risk Register

Once identified, risks must be recorded. The outputs from the identification of risk are the

initial entries in the risk register. The risk register ultimately contains the outcomes of the other

risk management processes as they are conducted, resulting in an increase in the level and

type of information contained in the risk register over time. This record should be continually

reviewed as part of the ongoing risk management process.

Generally this will be in a risk register that provides evidence of:

identified risks (causes and impacts);

existing controls or existing measures that help to mitigate the risks;

likelihood of occurrence;

consequences;

rating; and

the responsible owner.



Review timeframe

The timeframe for review of the risk is used to identify when to revisit the risk item for treatment

implementation progress and/or effectiveness of the treatment method chosen. Review

timeframes will be influenced by such factors as the importance of the activity, the assessed

impact of the risk on the activity outcomes and the organisations risk management processes.

Timeframes for review of risks could also be determined by stakeholders with appropriate

authority.

Risk Treatment Options Several risk treatment options are available. The option or mix of options most likely to be

effective should be selected for each risk.

Specific actions are developed to implement that option. A fall-back plan can be developed for

implementation if the selected option is not fully effective or if an accepted risk occurs.

Typical options for treating risks include:

avoid the risk;

reduce the likelihood that it will occur;

reduce the seriousness of the consequences if it does occur;

transfer or share the risk;

accept and retain the risk; and

manage residual risk.

Avoiding Risk

Risk avoidance is changing the procurement plan to eliminate the risk entirely. The

procurement team may also isolate the procurement objectives from the risk’s impact or

RISK REGISTER (Adapted from AS/NZS 4360:2004 Companion Guidelines)

Ref No.Risk

(What can happen? How can it happen?)Adequancy of Existing Controls?

Likelihood

Rating

Consequence

RatingRisk Rating

Acceptable or

unacceptable?

Reason for

acceptanceTreat? (Y/N) Risk Priority

Review

Timeframe

R1

Example

Lack of staff skills and knowledge in contract

management leads to poor contract and

contract management outcomes

Inadequate:

Existing organisational policies and processes,

as well as contract management plans assume

contract managers already have background

knowledge and skills in managing contracts,

and familiar with contract management

principles and requirements.

Possible Major High Unacceptable

High risk level =

unacceptable to

organisation.

Treatment

strategies MUST

be

implemented.

Yes Yes 6 months

R2

R3

R4

R5

R6

R7

R8

R9

R10



change the objective that is in jeopardy, for example, adopting proven technology instead of

experimental technology can eliminate technical failure. Another example is to shift planned

outdoor work during the cyclone season to another time of year. The most radical avoidance

strategy is to shut down the procurement entirely.

Examples could include:

ignoring the risk;

leaving critical decisions to other parties or avoiding making them;

inappropriately reducing the risk to avoid taking action; or

selecting a different option without due consideration of the issues because it

represents a lower potential risk.

Reduce the likelihood that it will occur

Treatment options that may reduce the likelihood that a risk will occur could include:

adherence to appropriate standards;

implement and follow quality assurance requirements or processes;

undertake audits and checks on technical compliance;

appropriate contract conditions in all contracts;

preventative maintenance on equipment;

testing, where appropriate;

training staff; and/or

ensuring all stakeholders, particularly suppliers, are clear on the requirements.

Reduce the seriousness of the consequence if it does occur

Treatment options that may reduce the seriousness of the consequences, such as cost,

damage, etc., may include:

contractual arrangements, terms, and conditions (e.g., insurance and indemnity

clauses) where appropriate;

warranties and guarantees on purchases;

disaster recovery plans;

fraud control plans; and/or

contingency plans.

Transferring Risk

Risk transfer requires shifting some or all of the negative impact of a threat, along with

ownership of the resource, to another party. Transferring the risk simply gives another party

responsibility for its management - it does not eliminate the risk. The use of insurance, where

it is applicable may be an appropriate method of risk transfer. Another method is to transfer

the risk through some contractual obligation. It must be remembered however, that no-one will

willingly accept a risk without some form of compensation for doing so. While it is obvious that



insurance carries a cost, the transference of risk through a contractual option will also

inevitably increase the cost of a contract. Common examples of risk transfer include:

Insurance;

Warranties;

Guarantees; and

Fixed-price contracts.

Sharing Risk

Risk sharing allocates proportions of risk to different parties. Sharing risk has drawn more

attention in recent years as a motivation for reducing risk and, in some cases, cutting project

costs. An example is the Southern Cross Station project in Melbourne, which experienced

significant cost over - runs. The private sector, however, met most of these costs while the

Victorian Government met costs related to additional work requested and contamination

clean-up, which was stated as a shared risk in the contract.

Avoid the Risk

There are two main types of risk avoidance that should be considered when deciding on risk

treatment strategies to be used. There are appropriate risk avoidance strategies and there are

inappropriate risk avoidance strategies.

Appropriate risk avoidance is when we choose a course of action that does not expose us to

the identified risk and includes:

• Termination of the contract, policy, or program

• Choose an alternative means of achieving the desired outcome

Inappropriate risk avoidance includes:

• Ignoring risks

• Failing to appropriately treat a risk.

• Deferring decisions or assuming someone else will take responsibility.

• Selecting the lowest risk option without properly considering all costs, benefits,

and opportunities of other options

Accept and Retain the Risk

If other methods fail to treat the risk adequately or fully, the organisation will be faced with

accepting the entire risk, or any residual risk remaining after some initial treatment. Some risks

are so large it is not feasible to consider transferring or reducing the risk (such as an

earthquake or flood). The organisation assumes the risk because the chance of such an event

occurring is very low. In other cases, should the risk occur, the organisation will be exposed

to some degree of impact which it must manage.



Cost Benefit Analysis

Cost-benefit analysis enables comparisons of different risk treatment options by expressing

outcomes (benefits) and inputs (costs). In some tools, this may be expressed in dollar terms.

Although identified costs to implement treatments are likely to be ‘ballpark’ costs, they will still

help to provide some guidance on the feasibility of the proposed options.

There is an element of subjectivity and guesswork when analysing costs and benefits, so skill

and experience must be part of the judgement process. Analysing cost-benefit data using a

framework supports structured and logical comparison of the different risk treatment options

that may be available.

If consideration relies on a past similar project, carefully consideration should be made on

whether it was of the same size with the same functionality and whether the same skills are

available or present in the existing team. It is important that enough accurate detail is used to

determine costs and benefits, and that consideration of issues occurs on a common basis.

For example, is the currency or timeframe the same? Cost-benefit analysis can only be of

benefit if ‘apples’ are being compared with ‘apples’. The following scenario provides an

example of this:

Cost Benefit Analysis Scenario

A need has been identified for administrative work for the next year. The options

are:

A contractor, at $28 per hour, for 37.5 hours per week over 48 weeks, will cost

a total sum of $50,400 (GST inclusive) – the contract contains no other

charges; or

Engage an appropriate level employee at a salary of $35,000 for the year.

At face value, with the assumption that both have the same capability to

undertake the work, the employee appears to represent the best cost option with

a saving of $15,400. However, employee payroll costs must be taken into

consideration. For this exercise, payroll costs are 59.8%. The contractor works

48 weeks and the employee 52 weeks.

The cost of the employee to the organisation is $35,000 plus 59.8% with a total

sum of $55,930 and the difference in working weeks (that is, 48 as oppose to 52)

should also be considered to determine the true costs of the options. The actual

cost for an employee to undertake the work would be ((48/52) x 55,930) =

$51,628. When compared to the contractor cost of $50,400, the employee will

cost $51,628 and no longer represents the earlier suggested savings.

Cost benefit analysis tools can be as simple as creating two columns and listing the costs in

one column and the benefits in the other.

Costs and benefits that may be considered could include:

Financial – acquisition, operating (energy requirements, user operating costs,

replacement, or upgrade), revenue.



Human Resource – training, health and safety, employee retention; and

Environmental – waste management, resale, destruction/dumping.

This simple tool described above with the two columns listing the costs and benefits can be

adjusted to score and rank options as shown in the table below.

For example, if the identified risk was that ‘contracts are not managed’ causing a loss of value

for money, the treatment options would be aimed at improving contract management. If the

treatment options were to train all contract managers, or to set up a helpdesk, a quick

consideration of potential costs and benefits provide the following:

How to use the table:

Option – a description of the options to treat the identified risk. All possible options

should be listed with one option per row) for this column.

Option Benefit (Description) – describes all potential benefits that could arise as a

result of implementing the associated treatment option.

Benefit Score – sometimes it is difficult to assign a numerical score to a cost or benefit,

e.g., reputational damage is hard to score without a descriptor. In this tool, 3 has the

descriptor of High, 2 is Medium and 1 is Low. After determining the benefit outcomes

using the descriptor, simply record the relevant value as the benefit score. In the first

line of this example, the benefits were considered to be ‘High’ so the score ‘3’ has been

recorded.

Option Cost (Description) - describes all potential costs that could be incurred as a

result of implementing the associated treatment option.

Cost Score – After determining the potential cost outcomes using the descriptor,

simply record the value associated with the appropriate descriptor as the cost score.

In the first line of this example, the costs were considered to be ‘Low’ so the score ‘1’

has been recorded.

Benefits/Costs – to assist in determining the best benefit for the least cost, the ‘Benefit

Score’ is divided by the ‘Cost Score’ – in line 1 of the table, 3 ÷ 1 = 3.



Ranking – Once all possible treatments have been analysed in terms of cost and

benefits, and the final score has been tallied under the ‘Benefits/Costs’ column, the

treatment options are then ranked from highest Benefit/Cost score through to the

lowest. In this tool, the highest score is preferred as it demonstrates the most benefit

for the least cost.

This type of analysis tool can also help with consideration of those issues that are difficult to

quantify, such as reputational damage and environmental or social responsibility issues. You

should investigate the tools available to you in your organisation.

Care must be taken when using cost benefit analysis to carefully consider those items which

are difficult to quantify. The following is an example of where a cost benefit analysis tool can

be disastrously misused.

Case Study

The Ford Pinto was one of the best-selling cars of the 1970s in America, but it

had a defective gas tank which burst into flames in rear-end collisions. Ford

lobbied against proposed federal regulation on fuel tank safety and as part of

their effort they prepared a cost benefit analysis (CBA):

Costs - $11 per car (in 1977) or $137M per year for industry as a whole to

meet the standard; and

Benefits - the avoidance of an estimated 180 deaths, plus an equal number of

serious burn injuries and a few thousand wrecked cars per year. Each life

was valued at $200K, calculated by the National Highway and Traffic

Administration on the basis of lost wages, medical and legal costs and a small

amount for pain and suffering.

Ford’s analysis showed at $200K per head, the 180 deaths were “worth” $36Mil,

which was not enough to “justify” $137M expenditure.

The outcome of the analysis is to adopt a gas-tank safety regulation. Ford

immediately, and inexpensively, made the 1977 Pinto safer, but the damage to

the company's image had been done. The public realised that Ford had

knowingly produced a dangerous car, leading to hundreds, perhaps thousands,

of preventable deaths. The model was discontinued in 1980.

Source: Ford Pinto Car Club of America Website



Manage residual Risk

After risks have been reduced or transferred, there may be residual risks that must be

identified and managed. Contingency plans must be made to manage these risks.

Risk Treatment is an ongoing cycle of:

assessment of risk treatments;

understanding residual risk in relation to the organisation’s ‘risk tolerance’ – Is it at an

appropriate level or does it require further treatment?

assessment of treatment effectiveness – after implementing a risk treatment you need

to ensure that the treatment is effective, if it is not then you need to review and adjust

the treatment.

An ‘owner’ should be assigned to implement and monitor the risk treatment to ensure an

effective outcome.

Implementing Risk Treatments

Staff that are involved in implementing risk treatments will need to be clear on what the plan

is and what their role is. This may mean that for successful implementation of risk treatments,

additional resources, or changes to staffing functions may be required. These may need to

be negotiated with relevant stakeholders and may require changes to policy or procedure,

subject to the treatment to be implemented.

Resources may be human or physical and will need to be coordinated well to ensure the risk

plan and treatments are implemented effectively. Insufficient resourcing may result in the

realisation of risks.

Benefits and Opportunities presented by Risks

Risk management activities may provide additional benefits beyond mitigating the identified

risk. For example, if training of staff is required as part of the risk management, this could

provide a further upskilling opportunity for those staff who undertake the training. Staff training

could be linked back to organisational goals like staff professionalism, continuous

improvement and so on.

It is also important to remember that not all risks are negative and that positive risks, otherwise

known as opportunities, need to be identified. Identifying opportunities means the people

involved in the activity are made aware of the opportunity and can seek to take advantage of

it if the opportunity arises.



Monitoring and Review of Risk

Not many risks remain static. New risks may emerge, or existing risks may change as the

environment (internal and external) in which the organisation operates, changes. Risks must

be monitored to ensure that risk treatments remain effective.

Risk management is a continual process that supports organisational objectives, yet it is often

the most neglected phase of the risk process.

Monitoring is the ongoing observation of both internal and external environments.

Review is a more cyclical process of looking at the status of risks at a point in time.

Risk in Procurement and Contracting

Risks in procurement and contracting may change depending on the phase of

the process, so review should occur according to the phases, any milestones or

changes in the environment that may impact on the objectives from being

successfully attained.



Risk registers and treatment plans should be reviewed in accordance with the planned

timetable. Some risks may need to be reviewed daily, others may need to be reviewed

quarterly, half-yearly, or annually.

Consideration should be given to issues that are specific to the particular risk assessment

activity as well as the broader application of risk management process across the entire

agency.

Issues specific to the risk activity may include:

The context:

- Has the environment changed?

Risks and controls:

- Are they the same?

- Are controls still effective?

Treatments:

- Are they being implemented correctly?

- Are they effective?

- Do they need to be changed, strengthened, or discontinued?

Monitoring and the review of risks should be integrated into standard business processes.

Communication and consultation is an important element of this process and ensures a

comprehensive understanding of the environment and changes to the risk profile of the

particular activity.

Where stakeholders are assisting with the monitoring of treatment implementation, it is

essential that the necessary roles and responsibilities are clearly understood, and relevant

processes are implemented, and feedback mechanisms or methods agreed upon.

Ongoing communication with stakeholders is essential to gather data about the effectiveness

of risk treatments for actual management of risks and to improve the risk management

process. The monitoring and review of risks should be documented to support transparency

and accountability to record and contribute to agency lessons learned.

Feedback into formal reviews and audits is important to support organisational risk

management improvement. Feedback on organisational risk management may result in

changes to existing risk management processes, changes to the requirements for particular

objective activities, or changes to the timings of risk-related processes.



Risk Documentation

Each stage of the risk management process must be documented and reported with the

intent of:



• Providing information to stakeholders to assist with decision making

• Improving risk management

• Assisting interaction with stakeholders

Documentation should include details of any assumptions made, risk assessment methods

applied, data sources used and the results of the risk assessment stage. Proper

documentation of the risk assessment is an essential part of the risk management process

and must accord with your organisation’s Risk Management Framework requirements.

Clear documentation allows an organisation to:

demonstrate that the process has been conducted properly;

provide evidence of a systematic approach to risk identification and analysis;

provide a record of risks and develop the organisation’s knowledge database;

provide relevant decision-makers with a risk management plan for approval and

implementation;

provide an accountability tool;

facilitate continuing monitoring and review;

provide an audit trail; and

share and communicate information about risks and risk management.

A comprehensive risk plan should have been developed at the start of the activity and should

be updated and maintained throughout the lifecycle of the activity.

The risk management plan should also provide the following details:

Who is responsible for the implementation of the plan?

What resources are to be utilised?

Budget allocation.

Timetable for implementation.

Details of the mechanism and frequency of review for compliance with the treatment

plan.

Plans that encompasses high-risks will need to be more comprehensive and specific than

those for low-risk. Decisions regarding the nature and extent of documentation to be created

and kept should also be based on cost benefit principles.

Recording Risks and Issues

Risk management is a pro-active process rather than a reactive one, in that risk management

aims to consider the likelihood that an event will occur and the consequences, if it does occur

– before the event actually occurs.

Rather than reacting after the event, risk management seeks to improve outcomes through

proper planning, by tackling problems before they emerge, or by minimising their impact.



Risk Register

A risk register facilitates the ongoing recording and updates of risk. Example plans are

provided at the end of this section.

A risk register is a comprehensive list of risks based on those events that might

create, enhance, prevent, degrade, accelerate, or delay the achievement of

objectives.

A dynamic and evolving risk register can be used to track and monitor the

successful management of risks as part of the activity to deliver the required and

anticipated benefits. Comprehensively, identifying and recording risks is an

essential component of the risk management process.

Any risks which are not captured and reported within the risk register will not be

considered in the analysis and ongoing monitoring.

It will provide a written record, for each identified risk, of the following information:

nature of the risk;

existing controls;

assessment of likelihood and consequences; and

initial assessment of level of risk.



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Even with good risk management, it is still likely that ‘issues’ will occur. Issues are risks that

have already been realised, irrespective of whether or not they have been identified or

predicted.

Issues Register

Issues registers support their effective management of the issues and provides an excellent

audit trail and a source of lessons learned.

Issues registers should contain:

details of the incident;

the date it occurred;

the impact or cost;

recommendations to address the issue;

a priority rating;

the actual action to be taken; and

progress, including resolution, and the date resolved.

By maintaining risk management and issue records on a regular basis, it becomes possible to

review different exposures to risk that may help to accumulate information that contributes to

effective response strategies for identified risks over time. Clear documentation and records

can facilitate the monitoring and review of risks, supporting effective management and assists

with meeting accountability obligations and the maintenance of a proper audit trail.

Risk Action Plan

Risk Action Plans describes how you will implement your organisation’s preferred treatment

options for managing the higher-level risks identified. Commonly used tools are Risk Plans,

Risk Issue Logs, Risk Treatment Plans and Risk Action Plans.

Simple examples of these tools, along with completed examples, can be adapted to include

any additional information needs.

Risk Treatment Plan

Risk Treatment Plans outline the treatment options identified, the acceptance or rejection of

the treatment on a cost-benefit basis and assigns ownership and schedules the review of the

intended treatment. They provide the rationale for selected treatment options and the

implementation strategy.

Risk Treatment Plans typically identify:

Risk item - including Risk Register reference for tracking.

Overview of treatment – What and Why.

Required actions – What needs to be done to make this happen.

Resources to implement the treatment option – time, money, people, equipment etc.

Accountability and responsibilities for treatment options.



Timeframe for implementation and review.

Performance measures (if required).

Monitoring and reporting requirements – based on policy and reflected in risk register.

Contingency plan details may also be included.

Overall, Risk Plans can help to convey critical information to senior management.

RISK TREATMENT PLAN (Adapted from AS/NZS 4360:2004 Companion Guidelines)

Item of Risk: Lack of staff skills and knowledge in contract management leads to poor contract and contract management outcomes

Reference: R1 (From Risk Register)

Summary – Recommended response and impact

Staff to undergo contract management training at minimum Certificate IV level.

This will improve staff knowledge of contract management processes and requirements leading to overall better

contract management and contract value for money outcomes.

ACTION PLAN

1. Proposed Actions (This should be a summary of what needs to be done to implement this treatment plan for the identified risk)

A new procurement activity will need to be undertaken to find a training provider able to deliver a nationally

recognised Certificate IV qualification in contract management.

2. Resource Requirements (This should be a summary of the resources required to implement the treatment plan)

Time to conduct procurement activity

Time for contract management staff to undergo training Budget to pay for training

Procurement staff to conduct procurement activity

Training rooms and equipment (for in-house training)

3. Responsibilities (This should be a reflection of your Risk Register (if included))

Training Manager in coordination with Contract Management Executive. Procurement Manager is responsible for ensuring procurement activity is conducted.

Contract Management Executive is responsible for ensuring contract staff attend training.

4. Timing (This covers implementation and should be a reflection of your Risk Register (if included))

Contract to be in place within 5 months and a review of training effectiveness and contract management outcomes to conducted quarterly after first staff members complete training for first 12 months.

5. Reporting and Monitoring Required (This should be a reflection of your Organisation’s Risk Management framework or Risk

Register (if included))

This risk treatment will be monitored quarterly after implementation, in line with risk management framework and policy. Monitoring is to include assessment of any changes to the risk environment or context, whether the risk is still active, effectiveness of the risk treatment and whether any changes need to be made to the risk treatment.

All treatment activities including implementation and monitoring will be recorded and reported as per organisation and activity guidelines.

6. Other Remarks (Any other information relevant to this risk treatment plan that has not been addressed above)

Implementing this risk treatment has additional benefits of staff development, improved auditability and accountability, and complies with organisational directive of continuous improvement. It is recommended that this risk treatment be given high priority and attention to maximise potential organisational benefits.

Compiler: John Doe Date: 29 Feb 2020

Compiler: Date:



Closing Risks

Upon assessing that a risk is no longer active or needs no further active management, the

following steps should be taken:

The individual risk record is marked as closed; and

Where appropriate, detailed information is captured in lessons learned.



Set-up and Transition Arrangements



Transition In Arrangements Transitioning to a new contract arrangement can be risky requiring careful attention. The

transition phase can set the tenor for the continuing relationships and attitudes throughout the

contract. It may be necessary to draft a separate transition plan for major contracts identifying

all relevant tasks, responsibilities, resources, and procedures. Transition planning may need

to encompass transitioning out from the previous contract arrangements.

The aim of the transition in phase is to manage the requirements that take the contract from

being an agreement on paper, to the delivery of the actual outcomes agreed in the contract.

Subject to the contract requirements, this may be more complex, such as staged phases to

support a gradual ‘ramp up’ of services or the ‘bedding in’ of equipment or systems, potentially

requiring close monitoring and attention, or it may be as simple as monitoring and managing

the receipt of agreed goods and/or services. Either way, effective planning should aim to

manage the introduction of the contract deliverable with minimal disruption to the organisation

or recipients of the goods or services.

When starting up a new contract, the following key issues need to be considered.

Resource Identification and Allocation – considerable resources may be necessary to

manage the contract during the transition in phase. An aspect of management during this

phase will be to ensure that the contractor has the appropriate resources to deliver the

contract requirements. The Commonwealth contract manager may need to utilise

considerable negotiation and influencing skills to obtain the internal resources required to

support this phase of contract management.

Achieving Open Communications – open and effective communication is a cornerstone

of good contract relationships. The transition phase will indicate whether this has been

achieved through the tendering and negotiation stages of the procurement process. It may

be necessary to adjust communication strategies to create and maintain an effective

relationship.

Establishing Contract Processes and Protocols - various contract processes and

protocols will need to be tested and potentially adjusted during the transition phase. These

could include things such as invoicing and payment processes, communication protocols,

reporting processes, inspection and acceptance processes and problem resolution

processes.

Clarification and Management of Expectations - different stakeholders may have vastly

different, and sometimes unrealistic, expectations of how the contract will operate and

what level of service will be provided. Those stakeholders could include the contractor

and sub-contractors, customer and end users, entity management and internal support

staff. The transition phase will be the time to ensure that all expectations are either being

met or managed and adjusted to what the contract is supposed to deliver.

Transition Phase Timeframes - in many kinds of contracts it will be unreasonable to

expect the contractor to deliver the required level of contract service from day one. The

transition phase for many complex contracts will support the ‘ramping up’ of the contract

services and set a timeframe with the expectation that the contract will be running smoothly

at the point that deadline is reached. The complexity and term of the contract will

determine the length of any nominated timeframe.



Customer Related Issues - great care needs to be taken to ensure that the transition to

new contractual/provider arrangements does not adversely impact the quality and

continuity of services to customers.

It may be necessary to consult with customers to determine if they have any special needs

and to inform them of any changes to service arrangements. Providing customers with

timely information will greatly reduce the risk of confusion and dissatisfaction with the new

contract arrangements.

Customers should be a major consideration when developing a contract communication

strategy (to be discussed in more detail later).

Staff Related Issues - new contractual arrangements may impact considerably on the

staff of both the buying and selling organisations. Issues that may need to be considered

for risk management or changes to resourcing include:

- changes to workloads;

- industrial relations issues;

- job description changes;

- training;

- organisational restructuring; and

- redundancy and redeployment.

Performance Monitoring and Reporting - Special performance monitoring and reporting

requirements may need to be established for the transition phase. These may be either

to ensure specific tasks related to the implementation of the new arrangements are

properly performed or to more frequently monitor performance to ensure service delivery

is running smoothly. Early and frequent performance monitoring and reporting can assist

in the prompt detection and resolution of any unforeseen problems.

The transition plan should include consideration of the type of reports that will be required,

who will receive performance reports, what aspects of the service will be monitored, what

allowances and adjustments may be tolerated for the transition period and what milestones

must be met.

Often payment of fees or disincentives may be linked to the achievement of milestones

and performance standards in the transition period.

Asset Issues - major contracts, particularly those involving the outsourcing of services

may entail a need to transfer assets to the new service provider or dispose of surplus

assets. Tasks that should be considered for asset management in the transition phase

include:

- identifying assets to be transferred;

- valuing assets to be transferred and agreeing on the value with the service provider;

- determining assets required short term by the provider;

- identifying surplus assets and when they will become surplus;

- negotiating an assignment of any leased assets (where involved) or a return and

repayment; and

- disposing or transferring entity owned assets in accordance with asset disposal

policies and procedures.



Transitioning Out Planning to manage the contract should also take into account what will happen when the

contract comes to an end - either through due performance or early termination, and whether

those obligations are in the control of the contractor.

It is essential to determine the transition out issues early in the procurement process to ensure

that any obligations that rest with the contractor are reflected in the contract.

Some complex contracts will require the contractor to submit a transition out plan within a

specified period of time after contract execution to ensure all aspects of the ‘services are

returned to the government’ to enable continued delivery of those services by government, or

the next successful contractor.

Failure to manage this aspect of the contract can have significant consequences to the

success of the contract (it may be impossible to get the contractor to create such a plan if the

contract is terminated or they are not successful after the next tender round).

Issues that should be considered in developing a transition out plan include:

whether there are alternative means to perform the activity, e.g., fostering of a competitive

environment during and after the contract;

how to ensure that the entity retains the knowledge and capacity to re-specify

requirements and manage contracts;

how to maintain the flexibility to respond to changes in policy direction;

ownership and transfer of assets (is additional funding required?); and

how to incorporate the lessons learned from previous processes that would improve future

contract management practices.



Transition Checklist For complex contracts, a transition task checklist should be created and used to ensure that

all obligations are met by both parties. The following is a sample transition checklist adapted

from the Western Australia State Supply Commission’s Contract Process Guidelines (see next

page).

Transition Checklist

Has a transition plan been developed during the business and procurement

planning stages?

Has the impact of the contract on public authority staff and customers been

assessed?

Have strategies and timelines to manage staff and customer impacts been

developed?

Have staff transition strategies been implemented and any problems

resolved?

Has a customer communication strategy been developed and implemented?

Has the impact of the contract on public authority assets been assessed?

Have strategies and schedules to manage these contract impacts been

developed?

Have asset transition strategies been implemented and any problems

resolved?

Are information management systems (including exchange systems and

protocols) in place?

Have adequate risk management strategies been developed?

Have the risk management strategies been implemented, and any problems

addressed?

Have adequate performance monitoring and reporting procedures for the

transition been developed?

Have the performance monitoring and reporting procedures been

implemented and any problems addressed?

Has the contract management plan been reviewed and finalised?

Have all transition tasks as identified in the contract management plan been

implemented?

Has a formal handover from the public authority to the contractor of all

necessary assets, stock, and staff been planned and completed?

Have appropriate arrangements been made for the transfer and future

custody of all necessary files, financial and operational data by the incoming

contractor?

Have the ‘lessons learnt’ during transition been documented and

recommendations for the future been prepared?



Measure and Monitor Performance of a Contract



Good contract management requires a sound regime of ongoing performance measurement

and monitoring to assist with and determine the achievement of value for money. The

performance measurement and monitoring systems should be identified in the procurement

planning phase and finalised during the contract negotiation phase (providing the supplier with

the opportunity to contribute to the performance measuring and monitoring regime), clearly

documented in the contract terms and conditions and further detailed in any contract planning

documentation.

Performance Measurement It is essential that the performance measurement approach be finalised before the contract

price is agreed and the contract signed. This allows providers a fair opportunity to accurately

cost the performance requirements for a particular job. If providers have been able to

adequately consider appropriate performance measurement processes and costs associated

with meeting these standards, they will be more likely to comply with performance

measurement and monitoring arrangements. The Commonwealth may unintentionally cause

contract management difficulties for itself by naively expecting providers to accept

performance measurement and monitoring arrangements which were not previously agreed

and costed into the contract.

Developing a System for Performance Measurement

There are some fundamental qualities associated with good performance measures. When

deciding how a provider’s performance should be measured, the buying entity should ensure

that the indicators and measures chosen meet the following considerations:

Completeness – include all major features of the service;

Clarity – both the purchaser and provider should be clear on the measures applied;

Measurability – ensure all performance obligations are effectively measurable (value for

money could be eroded where the ability to monitor the agreed measures is unnecessarily

costly); and

Focus on outcomes – measures should be linked to the intended contract achievement

(or results within the contract that contribute to the overall contracted outcome) not on the

methods applied.

Performance Indicators

The contract performance framework should be underpinned by performance indicators

against which the performance of the contractor will be measured.

Performance indicators should be selected on the basis that they measure something that is

important in achieving contract deliverables or outcomes – not just because they are easy to

measure. They can be accorded different levels of importance both in the way they are

designated and possibly by the level of remuneration linked to them. Those that are most

important are generally known as Key Performance Indicators (KPIs). Achievement beyond

expectations on KPIs may result in bonus payments being made and/or not achieving required

levels of performance may result in rebates or other disincentives such as liquidated damages.



Performance indicators may be based on any of the following broad categories:

cost/price;

schedule;

quality;

quantity;

sustainability;

relationship management; and

user satisfaction.

Some examples of performance aspects that may be measured include:

has the requirement been delivered according to the agreed schedule and to the correct

location?

has the requirement been delivered to the correct (minimum) standard or specification?

has the requirement been delivered within the agreed budget?

has the provider attended, and actively and effectively contributed to required meetings

(consider the quality of stakeholder and contract management meetings)?

has the provider addressed customer complaints or service issues (such as failures or

outages) effectively and in a timely manner (some contracts may have agreed timeframes

that must be met)?

has the provider met and maintained all administrative obligations (this aspect could range

from lodging financial guarantees and maintaining insurance to submitting correctly

rendered invoices)?

Targets

To assist the management and measurement of performance under the contract, performance

targets or standards should be set. This helps the contractor to know and understand the

level of performance they should be achieving and assists the monitoring process by providing

a clear benchmark to assess against.

While performance targets must be realistic and achievable, ambitious targets can create an

environment of continuous improvement. Subject to the contracted requirement, the terms

may be drafted to allow adjustment to the standards as delivery improves.



The ANAO’s better practice guide on Developing and Managing Contracts

provides the following examples as ways targets can be expressed:

a specific number of clients assisted;

the percentage of clients satisfied with the service provided;

the number of interviews conducted with clients that met certain time and

content requirements and resulted in an agreed percentage of clients moving

to the next step in the process;

resolution of client enquiries being above an agreed percentage of all callers

on a daily basis; and

response time for IT services being between an agreed time span.

Performance Incentives and Disincentives

Performance measurement may be established to provide incentives for the improvement

upon required standards, or sanctions for failure to perform, or poor performance, such as a

percentage fee to the provider for failure to meet agreed response timeframes.

Disincentives should not be expressed in the contract as ‘penalties’. Legally, only the courts

have the right to impose penalties. Another acceptable form of disincentive is liquidated

damages which will be discussed in more detail later in the manual. Heavy and unnecessary

use of disincentives may help to create an adversarial relationship between the contracting

parties.

Incentives that can be used to motivate suppliers to improve their performance include:

contract extensions;

bonus payments for completion ahead of schedule (but only where it would be of benefit);

shared savings if target costs are achieved;

use of performance guarantees; and

a reward at the discretion of the buyer.

Service Level Agreements

Service Level Agreements (SLAs) are sometimes used on very complex contracts to help

define the service standards required and measure performance against those standards.

Depending on the nature of the goods and services, SLAs can be a legally binding part of the

contract or a non-legally binding working agreement to assist in assessing contractor

performance. They can provide a mechanism for familiarising managers and contractors with

the specifics of the work required.

If the Statement of Requirement is defined as the ‘architect’s plan’ then the SLA becomes the

‘foreman’s brief’ - co-ordinating the activities and performance of all involved.



If SLAs are used, then they should have the following characteristics:

be linked to and support the Statement of Requirements;

be a workplace-oriented document;

include definitions of the work in measurable terms;

describe the required standards such as quality, quantity and timeliness;

allocate roles and responsibilities and define outcomes at a task level;

define relationships between stakeholders and their need for service and information.

The benefits of using an SLA include:

facilitation of clear and open communication to resolve problems at the lowest appropriate

level;

suppliers, clients, and contract managers have a consistent understanding of performance

expectations, procedures, roles and responsibilities for monitoring performance;

lower administrative costs and better resource utilisation focussed on achieving contract

outcomes;

lower contract management effort in maintaining the required level of service delivery;

development of a sense of commitment and pride resulting from recognition of consistent

high performance and customer satisfaction; and

SLAs should be regularly reviewed to ensure consistency is maintained with the Statement

of Requirements.

Stakeholder Involvement

A final point to remember in establishing a performance measurement regime is to consult

with stakeholders – particularly in the setting of performance targets. This will help ensure

that there is clear understanding and acknowledgement of stakeholder needs and

expectations and provide stakeholders with a sense of ownership or at least some participation

in the definition of requirements of the contracted service.

Monitoring the Performance of the Contract After deciding what to measure the next step in a performance management regime is

deciding how to monitor performance. The extent of monitoring which is applied to a provider’s

performance should be determined by:

the nature of the work;

the type of contract arrangements;

the costs versus benefits of the monitoring regime; and

the level of risk involved with the goods or services being provided.

Good monitoring of contractor performance progressively identifies, anticipates, and facilitates

the correction of shortcomings before the relationship is adversely affected.



The provider’s performance must be assessed objectively using techniques and against

criteria which are pre-determined, clearly understood and agreed by both parties. Monitoring

may include direct monitoring by the purchaser, regular reporting by the provider, monitoring

by customers, independent monitoring, or some combination of these. The advantages of

each approach are discussed below.

Who Does the Monitoring?

An important issue is to decide who is best placed to actually monitor the provider’s

performance.

Direct Monitoring by the Purchaser

This approach ensures that the purchaser is in control of the monitoring process. The

advantages of purchaser monitoring are that any problems can be quickly detected and

resolved and that a high level of purchaser control is maintained. The disadvantages are that

it will most probably increase the cost to the purchaser, internal resources may not be available

and the contractor’s responsibility for contract outcomes will be decreased.

Monitoring Devolved to the Provider

Monitoring by the contractor is suitable when required data is embedded in its operating

systems and the need for independent assurance is low. Even if the responsibility for

monitoring performance is devolved to the provider, a level of accountability for contract

outcomes will still remain with the purchaser. Information that is supplied by the provider

should be regularly audited to ensure its accuracy and reliability. It may be necessary to test

the accuracy of provider reports through client follow-up.

Monitoring by Customers

In this approach, provider performance is monitored by regular follow-up with customers using

the services provided – for example, regular customer satisfaction surveys. This approach

can be most effective in gaining an accurate perception of the real quality of performance of a

provider under actual service delivery conditions. However, it can be costly and time-

consuming to apply.

Independent Third Party Monitoring

Independent third-party monitoring can be performed directly, by handing the responsibility

over to an external monitoring body, or indirectly through an accreditation process. In an

accreditation process, service standards are set, reviewed, and monitored through an

accredited body. This body is normally independent. However, accreditation programs can

be expensive for the purchaser to implement. Potential costs incurred would need to be

weighed against the potential benefits of accreditation to determine if this method of monitoring

is the most appropriate for a contract.

Combination of Monitoring Entities

A combination of monitoring entities can be used effectively to ensure that contract outcomes

are achieved. For example, accreditation may be used to provide a front-end quality screening

of potential providers, but further ongoing monitoring by the purchaser may be required. This



ongoing monitoring may include input from stakeholders such as client representatives and

purchaser and provider representatives.

Cost Effectiveness of Performance Monitoring

Excessive monitoring can also be costly and can, in worst case scenarios,

restrict provider innovation. The key to a successful monitoring regime is to

collect the minimum amount of information, by the cheapest means possible, that

will allow managers to adequately assess the performance (in outputs and

outcomes) of the provider. The information should be functional and not place

an unnecessary and costly burden on the provider.”

MAB/MIAC, Before you sign on the dotted line, 1997

While a little dated, the above quote still encapsulates the importance of ensuring that efforts

devoted to performance monitoring are cost effective and commensurate with the nature of

the goods and/or services and level of risk involved. Many organisations do not adequately

cost their own resources when determining performance monitoring regimes and are therefore

ignorant of the true cost of the contract. Also, it is common for entities to give little regard to

the cost and effort they may be imposing on providers to comply with ‘over the top’

performance monitoring.

Performance Monitoring Techniques and Tools

Performance monitoring techniques can include:

regularly checking progress to ensure that programmed milestones are met;

conducting regular random inspections of the supplied goods and/or services during the

contract period;

checking that all conditions and clauses are acted upon and taking action if non-

conformance with the contract occurs;

advising the provider in writing if dissatisfied with any aspect of performance or product;

acting immediately if a problem occurs;

developing effective mechanisms for obtaining feedback from stakeholders;

keeping adequate, written records of all dealings with the provider concerning

administration of the contract

performing regular inspections of work to ensure compliance with any applicable

legislation, contract conditions, quality provisions, or OH&S requirements; and

maintaining comprehensive performance documentation on the results of inspections and

the outcomes from complaints handling systems, where applicable.



Common performance monitoring tools a Contract Manager could be expected to apply

include:

Contract Management Meetings;

Progress review meetings;

Technical review meetings;

Expediting;

Inspections/Visits; and

Review and audits.

Contract Reporting

The contract manager should establish a reporting system that provides the information

necessary to ensure risks are managed and successful outcomes are maximised. Contract

reports must be relevant, succinct, and timely. The types of reporting may include:

financial reporting requirements to cover the needs of the contract manager,

financial/budgeting staff, and the entity executive;

technical reporting requirements to cover the technical aspects of the service delivery,

including standards of reliability, safety, availability of service, equity and access,

standardisation, compatibility, and other technical performance criteria; and

contractual reporting requirements to cover reports on performance against specifications,

allocation of resources, costs for work performed and other provider evaluation matters.

Managing WHS, Environmental and Sustainability and Corporate Social Responsibility Requirements WHS, environmental and sustainability requirements and Corporate Social Responsibility

principles may be managed through the creation of key performance indicators and

performance indicators. These requirements should have been considered in the

procurement planning phase, with relevant measures and indicators finalised during contract

negotiation.

At this point the contract manager must have a clear understanding of how those indicators

will be monitored against the measures (for example, a cleaning contract may require a

percentage increase in the use of eco-friendly cleaning products, structured against

milestones over the life of the contract, which may be verified by auditing supplier purchasing

records and spot checks or physical audits of cleaning supplies in use).

Indicators may be broad (such as ‘the contractor shall encourage sustainability improvements

over the life of the contract’), or they may be specific, for example, requiring a specific increase

in identified sustainability goals such as ‘targets may be set for specific percentage increases

by specific milestones over the life of the contract’, or the introduction of specific sustainable

‘systems’ by the contractor. Where such targets are set, the contract should contain clear

links to incentives or disincentives for actual performance outcomes.



It is important to monitor for adherence to standards or requirements (such as maintaining an

appropriate workplace where government staff need to attend the premises, for example in an

EAP contract) and continuous improvement where these requirements are included. For

example, historically not all sustainable products have maintained the performance reputation

of their less environmentally friendly counterparts. Any issues with performance must be

addressed immediately with the supplier. If concerns about product performance are identified

early in the planning phase, a ‘trial’ approach may be suitable to obtain the right mix between

performance and sustainability targets.

Sustainability requirements in contracts generally benefit from an open and communicative

relationship between the parties, where a stated intent to work together to progress

sustainability outcomes is in place. Reporting against sustainability requirements should be

built into the contract and demonstrate the achievements and benefits resulting from the

contract. It is essential that consideration is given to these requirements as they apply to the

contract. Monitoring of any stated requirement is essential and may require additional

resources and effort to support effective outcomes.

Meeting Obligations to the Contractor While the focus of performance monitoring and measurement systems is generally on the

performance of the supplier, it is also important to consider and fulfil the obligations the buying

organisation has to the contractor. These should also be specified in the contract terms and

conditions. Failure to perform these obligations promptly and efficiently may give rise to the

contractor having an excuse or counter argument to their own performance problems.

Such obligations may include:

timely payment of moneys owing;

the provision of Australian Government equipment, intellectual property or other

information;

provision of contact details;

timely responses to contractor queries;

timely acceptance testing and inspections;

attendance at contract management meetings;

feedback on contractor performance; and

quick resolution of any problems or disputes.

Making Contract Payments

Payments may be due to a supplier on contract signing, the achievement of milestones or

upon delivery of goods and/or services.

The contract should clearly set out the payment schedule, clearly defining the circumstances

under which money will be due to the contractor. The contract should also clearly define the

requirement for and format of invoices and any other conditions of payment such as supporting

documentation and payment terms.



A payment summary record should be created for every invoice billed for a contract and the

details on that record should include:

delivery date/invoice date;

date the invoice was received;

date the payment was made;

amount of payment;

invoice number;

reason for over or under payments;

payment approvals; and

cumulative expenditure against the contract.

Invoices and payments are often not directly administered by the contract manager. In these

circumstances it is important to ensure that an effective communication channel is established

with Certifying Officers, FMA delegates and the Finance area. This will give the contract

manager some confidence that invoices are being paid promptly and unacceptable or not

received goods and services are not being paid for.

Window of Opportunity

A company had excellent password security on its payments system but

unfortunately, the payments clerk was a smoker. His assistant raised bogus

invoices and authorised them when his colleague left the terminal unattended for

a three-minute nicotine break.

Gerry Robinson’s Risk Thinkers Guide – Second Edition

In circumstances where the actual manager responsible for the receipt of deliverables is not

the contract manager, it is essential that a clear understanding of responsibilities associated

with certifying receipt is conveyed to them.

For example, in service contracts the provider’s timesheet may be required to be signed off

by the officer supervising service delivery, this ‘approved’ timesheet is then submitted to the

contract manager with an invoice for payment by the supplier. It is vital that the officer

understands the link to payment, monitors carefully and ensures that claims match output.

In Report 379 - Contract Management in the APS, the Joint Committee of Public

Accounts and Audit identified a number of cases where considerable payments

have been made to contractors without an appropriate return on the work

completed:

in the New Submarine Project, the Auditor General calculated that in

December 1997, 95.7% of the contract sum had been spent yet only three of

the six submarines had been launched.

in the Plasma Fractionation Agreement, payments made by the Department of

Health and Aged Care between January 1994 and April 1999 had reached



over $400 million without a formal process in place to confirm the products it

was invoiced for had actually been received.

ANAO reported that ‘one agency selected a service provider and provided

advanced funding of 80% of the contract fee to a contractor without

undertaking any financial viability checks on the contractor’.

A proper payment schedule linked to completion of work rather than just time-based

milestones can ensure that contract payments reflect the work done and outcomes achieved.

30-Day Payment Policy

Non-Corporate Commonwealth Entities should also be aware of the Supplier Pay On-Time or

Pay Interest Policy, which has been issued by the Department of Finance in Resource

Management Guide (RMG) 417.

For payments up to and including AUD$1 million (GST inclusive) to any supplier, the maximum

payment period that may be agreed to is 30 days after the receipt of a properly rendered

invoice. Shorter payment periods may be agreed to.

Non-corporate Commonwealth entities must, where they do not pay a correctly rendered

invoice in full and the amount of interest is more than A$10, make a self-generated interest

payment to the supplier for any outstanding simple interest accrued. This would incur an

additional expense as a result of failing to comply with Commonwealth Policy. RMG 417

includes information on how interest is to be calculated.

Resolving Performance Problems Effective contract management processes and performance monitoring will assist with the

early identification of contract problems. Generally, the earlier problems are identified, the

easier it will be to resolve them.

Late Deliveries

Late deliveries are one of the most common contract management problems. The Contract

Manager should be pro-active enough to identify the possibility of late deliveries before the

actual delivery date arrives. When a delayed delivery is anticipated, the Contract Manager

should determine what impact the late delivery will have, who or what is at fault for the delay,

how long the delay will be and implement a course of action to resolve any problems created

by the late delivery.

The legal or other options available for dealing with late deliveries will be dependent on reason

for the delay. Those reasons can be categorised as:

excusable – where the contractor is not at fault for the delay (e.g., bad weather, strikes,

the buying organisation failing to meet its obligations, variations to the scope of work etc);

non-excusable – where the contractor is a fault for the delay; and

co-mingled – where both parties are at fault for the delay.



Generally, the contractor would only be entitled to seek reimbursement for excusable or co-

mingled delays, but this depends on the nature of the contractual relationship. For example,

an alliancing or other form of shared risk and reward arrangement may require the contractor

to bear or at least share some of the risks and costs associated with delays outside of the

control of both parties.

Dealing with Changes Changes to the contracting environment can occur in a number of ways. Some of these

include:

Changes in technology - may result in goods or services becoming obsolete or require

changes to the specification. Such changes usually involve amendments to the contract

and a price adjustment. Significant technology changes may also result in the termination

of the contract.

Changes in legislation - may result in changes to the contract and price amendments.

Areas where legislative changes may occur and impact on contracts include OH&S,

taxation, environment, privacy, and free trade agreements.

Policy changes - government policy changes can have a significant impact on contracts

and such changes in recent times have included policy on industry development,

information, and communication technology and the Commonwealth Procurement Rules.

Organisational changes - such as changes in entity functions, relocation of premises,

reduction in staffing levels, mergers with other departments. Such changes may result in

significant changes to the scope of the contract or invalidate the requirement leading to

the possible termination of the contract.

Given the wide scope of possible changes that may impact on the contract it is important that

the contract allows scope for dealing with such changes. Contracts should have provision for

amendments and variations setting out the process for how they will be administratively

managed. Good negotiation skills may be needed to obtain supplier agreement for any

changes and supplier acceptance will be facilitated if a good, non-adversarial relationship has

been established.

‘Termination for Convenience’ clauses should also be included in the contract. While such

clauses are often not well accepted by suppliers, they are necessary for dealing with such

changes as amendments to legislation or significant government and organisational policy

changes.

Poor Performance There are a number of suitable strategies designed to deal with poor performance. These

may include the introduction of progress meetings and reviews, agreed problem-solving

mechanisms and dispute resolution processes, legal enforcement of the contract terms, or as

a last resort, terminating the contract. Effective monitoring of a provider’s contract performance

will provide managers with a timely warning if the provider’s performance is declining or failing

to reach the agreed standards. Prompt action must be taken if monitoring reveals that a

provider’s performance does not meet the agreed standards.



Early intervention may prevent a potential problem from escalating into a full-blown dispute.

The potential for disputes can also be minimised by ensuring that the contract explicitly states

the requirements and obligations of both parties and lays down a dispute resolution procedure.

Providers should be made aware of any shortcomings as soon they occur. Ensure that small

performance problems are dealt with immediately and not tolerated, or you may inadvertently

encourage escalation of default (either in number or instances or the issue under default).

Smaller problems will typically escalate, and the provider has often formed an expectation,

based on previous dealings, that these will also be tolerated. The doctrine of estoppel may

reduce your remedies if you have apparently tolerated poor performance in the past. Serious

or recurring problems should be addressed with a formal warning that the current level of

performance is not satisfactory. This enables issues to be identified clearly and addressed by

all parties and provides an opportunity for the provider to improve performance to a

satisfactory level.

Following a formal warning, increased communication, more frequent milestones, and closer

monitoring should occur. It may be necessary to renegotiate some elements of the contract.

The provider should be informed, if appropriate, that termination of the contract may be

considered and must be made fully aware of any changes required to avoid termination. This

process also produces records which act as a verification of performance, which can be

referred to when a contract is up for extension or renewal and can be used in extreme cases

as evidence for termination of a contract due to provider’s continued failure to perform.

Contract termination should be treated as the last resort considering there are a number of

significant costs and risks associated with termination such as:

potential court and legal costs;

cost of re-tendering;

problems and costs with maintaining continuity of service provision; and

damage to entity and government reputation for failing to meet contracting objectives.



Managing Contract Relationships



Managing the Contract Relationship One of the most important factors in the successful performance of a contract is a co-operative

relationship between the buyer and the contractor. With more and more public sector buying

focused on the acquisition of services, successful contract management requires the ability to

develop and maintain a co-operative and non-adversarial relationship with suppliers.

Factors that will help develop a good relationship between parties include:

ensuring good information flows between both parties;

ensuring that all parties have a clear understanding of each other’s responsibilities,

capabilities and expectations;

ensuring that standards are being met by the regular and formal monitoring of the

provider’s performance; and

having the relationship underpinned by agreed provisions in the contract covering provider

non-performance, dispute resolution, termination and smooth hand-over of the activity to

another provider.

The effort to build a good relationship with the contractor is not a ‘soft’ approach to contract

management. It is much more complex than relying entirely on legalistic contact interpretation

and monitoring (the traditional approach to contract management).

Relationship management still means performance. It is a different approach to performance

management, not an approach that doesn’t value performance. To be effective the

relationship management approach to performance management must very clearly defined

with a clear understanding of the following issues:

where responsibility lies for performance;

what the performance standards are;

how they are to be reported;

what the sanctions are for lack of performance; and

mechanisms for developing strategies to overcome poor performance.

In this context, performance is defined as the ability of each organisation in the partnership to

deliver what is required of it by government, as well as what is required of it through its

contractual arrangements.

Maintaining a good relationship can be very difficult when there are performance problems.

Strategies to maintain the relationship when the going gets rough include:

Acknowledge and look at the problem together to work out how to fix it.

Don’t be overly concerned with assigning blame or assume that any problems are

automatically the fault of the contractor (fault could lie in service design or difficulty with

implementing a legislative requirement).

Any such performance problems should be addressed by the party in the best position to

do so and this may well be the buyer rather than the contractor.



If no improvement is noted after the earlier interventions, aim to impose a sanction that is

an incentive to change and improve, not to punish. Punitive sanctions could be

considered, but only as a last resort after incentive sanctions fail to work.

Key factors in creating a good contract relationship are:

o a good, solid contract that both parties have been willing to sign, which sets clear

framework for the parties to operate within;

o clear and frequent communication (discussed in more detail shortly); and

o a ‘partner’ approach rather than the master/servant approach of a more traditional

contract management style.

While building and maintaining a good relationship is always encouraged, it may occasionally

be appropriate to adopt aspects of the traditional (master/servant) approach. On the other

hand, some unique kinds of contract can be suitable for a more partnering or alliancing

approach. Application of the most appropriate relationship can deliver significant performance

improvement and savings in the baseline cost.

Traditional Contract Relationships

The traditional contract relationship is marked by a strong compliance and control outlook that

requires extensive checking and verifying of the contract terms and conditions against the

goods or service delivery received. This focus on checking off against contractual

relationships has a strong potential to create an adversarial (or us and them) outlook to the

management of the contract.

While no longer the most ‘fashionable’ approach, traditional contract relationships are still valid

for certain types of contracts – where the scope is narrow, the services to be provided can be

very accurately described and the risk of failure is relatively low. Examples of service contracts

which may fall into this category include cleaning, catering and grass cutting.

Partnering

Partnering is a process characterised by both a legally binding contract and a moral

commitment by the contracting parties to act in the best interests of each other. It is based on

the fundamental concepts of common sense, trust, and commitment.

Partnering can promote contract effectiveness and efficiencies through:

commitment by both parties based on common objectives;

equity and trust;

implementation of joint strategies for developing mutual goals; and

continuous and joint evaluation.

Typically, in a partnering arrangement, the level of actual control by the purchaser will diminish

even though accountability for service provision remains the same. The risks associated with

a partnering approach need to be assessed to ensure that accountability obligations are still

met.



While a partnering arrangement should still be underpinned by a contract, the arrangement is

often also supported by a partnering charter document that sets out the intention of the parties

to act in each other’s best interests to achieve mutual gain. This charter may also include

additional protocols such as the intended communication and relationship management

strategies. A partnering charter is not a legally binding document. A partnering relationship

is a working relationship – not a legal relationship.

However, in accordance with the legal principle of estoppel, any actions that contract

managers take in a partnering arrangement which is outside the scope of the contract, may

have legal implications and supersede parts of the contract if providers argue they came to

rely on that action.

The benefits of a well-run partnering arrangement typically include:

reduced exposure to litigation through open communication and resolution strategies;

better outcomes given that energies are focused on goals and not adversarial concerns;

lower administrative costs and increased productivity due to consistently applied

processes and recognition of common goals;

increased opportunity for innovation through open communications and an element of

trust; and

increased opportunity for a financially successful project due to non-adversarial and co-

operative attitudes.

Alliancing

Alliance relationships are the ultimate in co-operation and collaboration. Alliancing takes

partnering to the next step by having a complete risk/reward sharing philosophy as well as a

transparent or open book approach towards all financial matters, including cost and profit.

Some of the key elements of alliance relationship include:

a no-blame, no disputes concept;

open book accountability;

detailed performance or outcome terms with incentive-based remuneration generally

linked to measurable key performance indicators;

co-located project premises for purchaser and provider to facilitate the building of unified

team and the sharing of information, knowledge and skills;

trust and alignment of objectives of all parties to the contract;

use of regularly reviewed Service Level Agreements;

the identification and appropriate allocation of risks; and

a risk/reward sharing philosophy that shares losses and profits.

Alliance relationships require an extremely high level of management effort and are best suited

for services that are difficult to define, likely to change over time and/or require innovative

solutions. Due to the flexibility they provide, alliancing relationships are also useful for



requirements where industry only has limited experience or for long term strategic contracts

where the parties are heavily reliant on each other.

Some of the types of service arrangements for which alliancing should be considered include:

program delivery;

strategic and policy advice; and

large and complex projects with significant scope for innovation.

The construction of the National Museum of Australia and Australian Institute of

Aboriginal and Torres Strait Islander Studies was performed under an alliancing

arrangement.

In October 1999 the project had an unfavourable cost variance of $1.5 million

due largely to earthworks in the site where the extent of contaminated fill and

unfavourable geological formations were underestimated at the time the budget

was agreed.

Unlike traditional contracting methods where the project owner would have borne

the increase in costs, all Alliance partners share in such a cost increase.

Furthermore, the ANAO determined that the Alliance’s risk/reward regime,

coupled with the limitations on contractual scope variations and ‘no blame, no

disputes’ ethos provided an incentive to the Alliance to identify and effectively

manage costs variances as early as possible.



Negotiation and Conflict Resolution



Negotiation Once a preferred tenderer has been selected, a number of activities will need to be conducted

before an agreed contract can be signed and the successful supplier can commence work.

These activities may include post-tender negotiation, gaining appropriate approvals,

developing an agreed contract document, and formally executing the contract.

Negotiation with Preferred Tenderer/s

Negotiation has the potential to improve the procurement outcome by reducing uncertainties,

risks and costs. Normally, the focus of negotiations is post-tender so that agreement can be

reached before a contract is formed. During post-tender negotiations, the Australian

Government seeks to improve tenders through a structured and ethical process. The

procurement outcome must be fair to, and achievable by, providers, and government

negotiators should ensure that their actions during negotiations supports this principle.

While a negotiation may be used to improve the government’s position and the associated

value for money, it is unethical and unconscionable to take unfair advantage of a supplier’s

desire to contract with government and cause detriment to them, e.g. through forcing

unsustainable pricing, performance requirements or terms and conditions.

Post-tender negotiation is required for most complex procurement activities. This negotiation

may be very simple, e.g. sorting out a few minor sticking points over the telephone or via email

or may be complex with multiple face-to-face negotiation sessions attended by large teams

representing each of the parties. Either way, the negotiation process should be well-planned

and documented.

Contract Negotiation Plan

Even the simplest purchasing negotiation can become extremely complicated and difficult if

you are not adequately prepared. Prior planning and preparation provides a distinct

advantage in these and much more complex purchasing circumstances. It is common place

for negotiating teams to greatly underestimate the amount of time needed to adequately

prepare for and research the background to a negotiation.

The typical issues that should be considered are:

the aims, objectives and constraints of the negotiation;

the issues to be negotiated;

the authority of the negotiation teams;

an understanding of the likely objectives and approaches of the prospective suppliers

with whom the negotiation takes place;

definition and commitment of the resources available including financial and technical

advice;

clearly defined optimum, acceptable and fall-back positions;

clearly defined roles for each negotiation team member; and

negotiation techniques.



There are a number of ways to approach a negotiation and the most suitable will largely

depend on circumstances such as the importance and profile of the procurement activity, the

level of risk, the negotiating power of the parties, the nature of the goods and/or services, the

lead time available, and competitiveness of the market.

In every one of these circumstances, it is important that negotiation team members are

appropriately skilled and prepared. It is strongly recommended that officers who will be

involved in complex negotiations should undertake specific negotiation training, preferably on

a course that includes a number of negotiation role plays. In negotiation, experience is a great

teacher.

It is prudent to obtain delegate sign-off to the negotiation plan from the responsible or

accountable delegate. Your words and actions during negotiations could commit or bind the

organisation, so it is important that the negotiating party only represent their actual authority

to do so. Sign-off by the delegate essentially grants their power to you for the agreed points

in the negotiation plan. Any other points that are to be considered will need to be referred to

the delegate for agreement before any consent to them is finalised.

Principled Negotiation

There is a great body of literature on negotiation. One of the most popular is known as

‘Principled Negotiation’ which was developed by Fisher, Ury and Patton as part of a major

Harvard Business School project to investigate the nature of negotiation. Some of the key

components of the Principled Negotiation theory are discussed below.

Separate the People from the Problem

Do not attack the other party personally but focus on the problems or issues which have

emerged during the negotiation. Allow for feelings to be expressed, use “I” statements to

avoid laying blame and aim towards building a strong continuing relationship with the other

party, e.g. ‘I do not understand your approach’ as opposed to ‘your document is so poorly

written, I cannot understand your approach’.

Focus on Interests not Positions

Positions are what you want, interests are why you want those things. Interests are the factors

which motivate you in a negotiation. Your position is something you decided upon: your

interests are what made you decide on that position. Behind opposed positions lies shared

interests, compatible interests and conflicting interests. Focus on identifying the shared or

compatible interests by asking “why” and “why not” questions. Uncovering mutual or

complementary interests increases the chance of reaching agreement.

Recognise that each party has more than one interest to satisfy in most purchasing

negotiations. Fisher, Ury & Patton believe that the most powerful interests, and those which

tend to motivate people, are those which addresses basic human needs. They identify these

as security, economic wellbeing, a sense of belonging, recognition and control over one’s life.



Generate Options for Mutual Gain

Even if the parties’ interests differ, there may be negotiated solutions which advance the

interests of both parties. These solutions may require creative thinking and a willingness to

listen to and explore ideas.

The greatest obstacles, at this stage, are:

premature judgement, preconceptions and assumptions;

searching for the single right answer;

assuming a fixed pie to be shared; and

thinking that “solving their problem is their problem”.

Know and Develop Your BATNA

Knowing your Best Alternative to a Negotiated Agreement (BATNA) is an essential part of the

planning phase of any principled negotiation. Your BATNA is basically the best position/s you

could achieve if you cannot reach agreement through negotiation – what alternatives exist that

could be acceptable?

Developing your BATNA is simply exploring the alternatives that are attractive if you are

unable to reach agreement when you negotiate. The practical steps to developing a BATNA

include generating a list of actions you might take if no agreement is able to be reached during

the negotiation, improving on some of the more promising ideas, converting them into practical

alternatives, and tentatively selecting the option that seems best. The resulting BATNA

provides you with a ‘benchmark’ to judge all offers against. This approach provides more

flexibility than adopting a ‘bottom line’ approach where you may have to accept a deal that is

not in your best interests or walk away. As proposals are generated during negotiations, you

can compare them to your BATNA and decide whether the proposal offers a better solution or

whether the BATNA represents the better solution.

One of the main reasons for entering into a negotiation is to achieve better results than would

be possible without negotiating. The stronger your BATNA, the greater the range of alternative

courses of action you have, and the greater your ability to walk away from an unsatisfactory

negotiation. Paradoxically, one of the greatest dangers in a negotiation is being too committed

to reaching agreement without sufficient consideration of your BATNA!

If you are unaware of your BATNA, you are in danger of entering into an agreement that you

would be better off without. You may have a range of BATNAs to represent the best outcomes

that are available to you that you can consider offers against (first BATNA, second BATNA

etc.). You should also consider the likely BATNA of the other party. The more you know of

their options, the better prepared you are for the negotiation. You can more realistically

estimate what you can expect to gain from the negotiation.

In tendering and contract negotiation, if you have run a competitive process and have a

suitable second-ranked supplier, then you have a strong BATNA – that is, if negotiations with

your first ranked supplier are unsuccessful, your BATNA is to negotiate with number two.

However, if you have run a sole source process with a monopoly provider, then your BATNA



is much weaker. Nevertheless, you still must determine what it is – for example, do without

the goods or services, develop in-house provision, influence and develop the market to attract

other providers or re-tender with a different SOR that others may be able to respond to.

While the latter situation is likely to be a much weaker BATNA, it is arguably even more

important to research and know what it is to ensure you are not being unreasonably taken

advantage of by the monopoly provider.

Optimum, Acceptable and Fall-back positions

The BATNA should not be confused with the bottom line or fall-back position which is the point

at which you would walk away from the negotiation. A bottom line helps to protect against

entering into an agreement during the negotiation that would contravene policy or undermine

the value for money outcome by providing a point that you cannot go below. Generally, you

would advise the other party that you are approaching your bottom line so that they are aware

that negotiations may fail. Care should be taken in setting the bottom line, if that point was

created artificially and you are forced to go below it, your credibility would be damaged, and

the negotiation will be further undermined.

The ‘optimum’ position is what you would really like to have in an ideal world. This is the aim

of the negotiation and likely to be your starting position.

The ‘acceptable’ position is what you are realistically likely to get, noting that the party you are

negotiating with may want the opposite position to you. This is where a well-developed

BATNA, or BATNAs, will help provide the best position for the comparison of offers.

Timing

Choosing the time for negotiation can be important. Sometimes having ample time available

is an advantage. Having a genuine time deadline may enhance the likelihood of a negotiated

agreement. It can be difficult to accurately assess the amount of time required to complete a

negotiation, because you are not in control of the other party. Generally, it is better to allocate

too much time rather than too little. You may also need to be sensitive to cultural attitudes to

time and punctuality.

You should also consider what time of day is more appropriate to your style. If you are a

‘morning person’ then you should obviously try to program any tricky or complex negotiations

as early in the day as you can.

The Negotiating Environment

The location and physical characteristics of the negotiation session should always be

considered. Some issues with the environment may include:

Facilities

Issues that may arise include the type of facility required and whether the location should be

yours, theirs or neutral territory. You may also need to consider access to office facilities such

as phone, fax, computer and photocopier.



Negotiating in your own facilities can provide a powerful psychological advantage, as well as

the practical advantages of having data, files, support staff and other items easily to hand.

Your comfort level is likely to be higher when you negotiate in your own facilities.

Negotiating in the other party’s facilities can also offer advantages. Sometimes you need to

be close to their documents or production area to negotiate properly. You are not likely to be

distracted by minor disasters occurring in your office or be called out to answer phone calls.

You can create natural opportunities to break from the negotiations by needing to return to or

call your office for information, decisions etc. It is also easier to walk away when you are

meeting at the other party’s premises.

If both parties are busy and subject to constant interruptions or if adequate facilities are

unavailable, neutral premises may be the only practical solution.

Seating Arrangements

Although seating arrangements have been the butt of many jokes (no puns intended), the

importance of seating should not be underestimated. For example, you might want to consider:

sitting next to the person you will need to consult with most often;

sitting opposite the person with whom you have conflicts with – you can reduce the

appearance of confrontation by offsetting this with a chair or two;

sitting on the same side of the table as the other party;

who should sit closest to the door or phone - these can be positions of power, as the

person closest to the phone usually controls its use, and the person nearest the door

controls physical access to the room;

windows, views, glare, heat; and

noise levels.

If the negotiating environment includes constant interruptions or overwhelming noise, listening

may be impossible. If listening is not possible, then reaching agreement will be very difficult.

This is a real consideration if the negotiation is to occur or continue over a lunch meeting or

business breakfast. Mobile phones and pagers can also be a source of noise and distraction.

Break Out Rooms

In formal negotiations, it is very likely that one or more of the parties will want to break to

privately discuss proceedings and their position. It will be much easier to facilitate these

events if a break out room has been provided, rather than having to stand around whispering

in corridors.

To ensure the comfort of all parties, you should also consider whether appropriate kitchen and

toilet facilitates are available.

Gathering Information

Information is at the heart of a negotiation. It affects our appraisal of reality, the options

available to us and the other party, and affects the decisions we make. Failure to obtain

necessary information will often result with the view of negotiation as an event rather than a



process. Adequate attention to gathering information during the preparation phase of a

negotiation can significantly enhance the likelihood of a mutually satisfactory agreement being

reached during the formal phase of the negotiation.

You should aim to gather information about:

the issue under negotiation – it is useful if you know at least as much, and preferably

more than, the other party does; and

the person, or people, with whom you are negotiating – What motivates them? Who

are they answerable to? – and gather information about them - Are there other

stakeholders and what are their interests?

The more information you have about the other party’s financial situation, real priorities and

needs, deadlines, costs and organisational pressures, the easier it will be to develop

negotiating proposals which address these issues.

Setting an Agenda

Although agenda construction can sometimes be a difficult process, agendas are useful in

controlling a negotiation. An agenda suggests the order of discussion of various points,

ensures that all points are covered and provides an easy framework for taking notes or

keeping a record of the negotiation. The process of setting the agenda can reveal items that

are of real concern to the other party and thus help to identify interests and priorities. A good

position is when you set the agenda with the help of the other party.

Preparing Yourself

You are more likely to perform at your best if you are well rested, alert, and confident, informed

about the issues, and dressed appropriately. Invest some time and paying attention to these

areas of preparation. If jet lag will be an issue, insist on enough rest time before commencing

a negotiation.

Ethical Negotiations

Negotiations must always be conducted in an ethical manner. Some issues that must be

considered include:

negotiations should not be conducted in ways which put tenderers at a disadvantage,

distorts competition, or adversely affect trust in the process;

negotiations must not involve unfairly trading one tenderer off against another;

tenderers should be treated fairly; and

confidentiality should be maintained.

Parallel Negotiations

Conducting parallel negotiations with two or more tenderers is not common practice and

creates a number of probity risks which will need to be carefully managed.

It may be appropriate in cases of extremely competitive tender responses where two or more

tenderers meet the requirements of the proposed contract and cannot be clearly separated on



the basis of the offers they have provided. This is likely to happen on more complex activities

where negotiations can explore those offers more fully until a clearly preferred tenderer can

be identified.

Parallel negotiations should not be used as a ploy to apply pressure to the tenderers. They

should be used to explore each offer independently and not degenerate into a “Dutch Auction”

situation. For example, “Tenderer X has just offered us this, can you do any better?” This is

an unethical approach which is likely to result in an unfair and unsustainable deal for the

winning tenderer. Such practices will also make a very poor start for the ensuing contract

relationship.

Coverage of all Requirements

When undertaking negotiations, it is important to ensure that all contract requirements are

considered, agreed and documented in the contract. Often, negotiations focus on major or

critical issues that can lead to other lesser issues being overlooked – especially if you are

working to a tight timeframe.

It is important to methodically work through the entire contract, including the Statement of

Requirement, to ensure that parties have the same understanding of the requirements. A

structured and methodical approach will also ensure that all requirements are considered –

for example, those relating to whole-of-life and integrated logistics support.

Negotiation Tactics

Tactics are a way that the other party may try to manipulate you, without you realising, and

are designed to elicit a predictable response. When faced with a party using tactics, whether

legitimate or unethical, identifying the tactic will support successful negotiation. Identifying the

tactic means you will be less likely to respond to it in the way that the other party hoped, giving

you a degree of control over the situation.

There are many tactics that may be employed by either party. Some tactics are obvious and

easily recognisable, and others may be more difficult to identify. In any case, when you

recognise the tactics being employed by the other party, you are in a position to develop

counter-arguments and strategies to deal with these tactics. Listed below are some examples

of possible negotiating tactics.

Positive Tactics

These tactics are generally recognised as legitimate and ethical because they aim at

improving understanding and for reaching agreement, rather than being specifically targeted

at manipulating and damaging the other party.

Patience – Patience, persistence and determination are powerful tools in a negotiation.

Ensure that time is on your side and take the time to consider your negotiation needs, including

waiting patiently until the time is right for your side of the negotiation.

Recessing – allows time to consolidate and review the progress of the negotiation, and

potentially to recalculate aspects of the deal, consider any new options proposed or to

generate new proposals to put to the other party. Recessing may also provide the opportunity



to advise key stakeholders of progress and to seek any approvals which may be required

before proceeding. Negotiators can also take the opportunity to ‘refresh’ and take a break

from the intense concentration which is involved in negotiations.

Setting Deadlines – A genuine deadline that both parties agree to can help keep negotiations

on track by keeping a focus on time and attention on reaching solutions. Deadlines can be

set for the whole negotiation to reach a final agreement and/or the stages along the way.

However, a “fake” deadline can be seen as a threat by one party and may destroy the

atmosphere of trust in a negotiation.

Keeping Things Flexible - What If? – Using hypothetical questions may help parties to

identify and explore options for mutual advantage. Ask questions like:

“What if we buy 20 computers?”

“What if we also wanted a maintenance agreement with that?”

“What if we offered a larger up-front deposit?”

Disclosure - Your negotiation strategy will inform how you release information to the other

party. You would generally release information over the period of the negotiation and subject

to how you read the other party’s signals, rather than all at once. At times it may be appropriate

to reveal more information to assist the creation of a solution. If the other party is only

interested is their exclusive advantage, releasing too much or critical information may be

detrimental to reaching an appropriate outcome.

Why? / Why Not? - Asking the reason for a statement, assertion or calculation requires the

other party to justify their position and may help them to empathise with your position. It is a

useful tactic to help identify issues of importance.

Blanketing - Cover as many issues and subjects as possible when you are not sure where

the other party places value or has limitations. The aim is to elicit information from the other

party about their negotiating interests which helps to develop mutually satisfactory solutions.

Negative Tactics

These tactics are ways of manipulating the other party and damaging their negotiation

position. Depending on when and how they are used they may be legitimate but will not

necessarily accord with the requirement for ethical behaviour. Public sector negotiators

should also be able to identify when the other party may be using them.

Fait Accompli - This is where one of the parties attempts to place a completed and apparently

irreversible action on the table and move forward from that point. For example, “well our

insurance company has said no to any increase in the coverage so seeing we can’t do

anything about that one I suggest we move straight onto the intellectual property issue.” Take

great care not to fall for this ploy that when firmly and confidently presented, often works.

Take it or Leave It - Exactly as the name implies this tactic is an ultimatum issued by one of

the parties to the negotiation. This tactic is high risk and does not encourage further



negotiation and often results in the other party walking away at this point (accepting could

represent a loss of face or appearing weak). This is a tactic of last resort.

Withdrawal - Withdrawal could be physical (leaving the room without explanation and often

with demonstrated emotion) or mental (ignoring the issues presented and introducing new

topic/s). This tactic can have the effect of further weakening the other party’s negotiating

power when used by the party with greater negotiating power. The remaining party may need

to try and get them to return to the table (and fear appearing weak) or it may be difficult for the

party to return to the table without losing face.

Attacks - These are pressure tactics designed to intimidate and make the other party feel so

uncomfortable that they give in to demands. This may include threats of dire consequences,

insults, attack on the proposal, attack on credibility, status etc.

Surprise - One party tries to upset the other’s sense of what is “right” by suddenly shifting

approach, moving to a new area of the negotiation without achieving closure on the previous

area or unexpectedly conceding a point of negotiation.

Humiliation - Some negotiators make disparaging or insulting remarks about the other party

in an attempt to intimidate. Humiliation can be non-verbal as well, including taking phone calls

during negotiations, reading, texting or talking whilst someone else is talking, closing eyes and

drifting off to sleep, disparaging laughter, interruptions etc.

Silence - Silence can be a very frustrating tactic in a negotiation. The best solution to the silent

treatment is to try to get the other party to talk about something that is relevant to them. Be

careful that you do not fill the silence by excessive talking yourself or reveal information that

you had not intended to reveal.

Tricks

These are tactics that dupe you into giving in. These tactics take advantage of the fact that

you believe the other party is negotiating truthfully and in good faith.

Crying Poor - As an example, one party tells the other that they would love to buy their

fantastic product, but unfortunately it is 20% more expensive that they have in their budget.

The negotiation moves away from a competition to a collaboration in how you can package

the product to meet their requirements.

Feints – Feints, sometimes known as a ‘Red Herring’, rely on directing attention to issues

which are not important or critical, but treating them as though they are. The aim is to distract

or mislead the other party into thinking that these issues are critical, thus improving the value

of offering the non-critical item to the other party as a concession. It also draws attention away

from the true key issues. Often this tactic is accompanied by an apparently ‘major’ concession

to the issue at the last moment and another more critical introduced with the aim of rushing it

through and to the other party’s advantage.

Constant Change of Position - The other party constantly changes its position on what is

important, possible or already agreed. Dealing with this tactic is as simple as document any

agreement as you go and use the written evidence to encourage the other party to adhere to



previously agreed positions. It may also be necessary to revisit previously agreed points if

there has been a genuine change in negotiating circumstances.

Hawk and Dove - Often known as “good guy, bad guy”, one negotiator enters the negotiation

with very high demands and extracts as many concessions as possible from the other party.

When no more concessions will be offered to this person, another negotiator takes the lead

role, with a much more reasonable approach and works from the position negotiated by the

first negotiator (an example of the fait accompli tactic).

Snow Job - The other party introduces as many alternatives and options as possible in an

attempt to confuse and create information overload so that you are bogged down in trivia and

details. They will then home in on the options they wish to pursue.

Cherry Picking - This involves comparing quotes line by line and choosing the most

favourable item from each bid to produce a composite bid / offer which is comprised of the

cheapest price for every item.

Gazumping - After the two parties have reached an agreement, but not formally entered into

a contract, one of them raises their demand (gazumping). This is often justified by asserting

that a better offer has been received, that a genuine mistake in calculating costs has occurred

or that some change in the market place makes it impossible to confirm the negotiated

arrangement.

Add-on or Nibble - Similar to gazumping but occurs after the contract has been signed. The

buyer may attempt to get additional goods/services on the basis that they “assumed they were

included in the price”. Sellers will often avoid supplying something that was agreed on but not

specifically written into the contract on the basis that “it isn’t in the contract”. This tactic

highlights the importance of detailed documentation of the exact terms of the agreement.

Invisible Partner - The person with the final authority to approve the deal suddenly becomes

unavailable just as the parties reach agreement. Nothing can be done until this person is

available and has been consulted. This tactic is used to buy time or to stall the final agreement

so that an opportunity for gazumping exists.

Splitting the Difference - This is one of the most apparently reasonable approaches to

closing a negotiation. However, splitting the difference is not necessarily equitable, and you

should not accept an unsatisfactory result in the interest of quick closure. However, splitting

the difference may be a fair and practical solution in some circumstances.

Switching or Adding a Negotiator - This tactic is often used when things are dead-locked or

one party feels that the other has reached their limit on concessions. This tactic usually

favours the new party for several reasons. The change is disconcerting to the other party. The

new party may tend to ignore concessions already made and terms already agreed. This is a

commonly used tactic in some Asian and Middle Eastern situations.

Dealing with Tactics

Once you have recognised the tactic being employed you might:



Pause and say nothing, using this time to think about the tactic and your response.

This helps prevent you from making an emotional reaction. This may also make the

other party feel uncomfortable as they suspect that you have seen through their tactic.

Follow the advice to be “quick to hear, slow to speak and slower to act”.

Review the discussion to this point. This also gives you time to stop and think.

Don’t be afraid to admit to having too much information to process, or not fully

understanding a point the other party has made.

Take time out. If you need more time to think, take a break. You may care to invent a

natural sounding excuse such as a coffee break or getting more information, or you

may want to announce a need to caucus with colleagues.

Important decisions should not be made in the heat of the moment, so do not allow yourself

to be hurried. It can be especially useful to get away from the negotiation table to make a

decision, as the psychological pressure is considerably less away from the table.

Conducting Negotiations

Climate Formation

It is desirable to establish control and set the tone from the opening moment of the negotiation.

It is important to enter the room confidently and to exchange pleasantries in a relaxed and

confident manner. Turn off your mobile phone. Have your right hand free for shaking hands,

and your business cards ready to exchange. If you are hosting the session, ensure that the

other party has had the opportunity to use the toilets. Offer coffee or other refreshments. You

are aiming to start the negotiations off in a positive climate.

Exploration of Issues

This is the stage where the parties form an understanding of each other’s positions and the

interests behind those positions, encouraging the identification of mutually compatible

interests and helping both parties develop a basic ‘joint sense’ of the sort of agreement they

might be able to negotiate. Issues which will need to be settled during the bargaining phase

become evident.

Identifying and exploring interests is an essential skill in negotiation. There are several

techniques for attempting to identify the other party’s negotiating interests. These include:

empathising with the other party - put yourself in their shoes and try to imagine the

issues from their perspective;

asking questions that demonstrate your interest in understanding their position;

asking “why” and “why not” questions about each position that is put forward;

considering possible reasons for why the other party has not made a decision along

the lines that you would like; and

analysing the short and long-term consequences for them of agreeing to the type of

decision that you are asking them to agree to.



The choice and sequence of issues for discussion is an important element of the negotiation

planning and process. It is usually wise to start with an issue which is not too important so

that you can afford to make a concession and thereby show readiness to compromise.

The next issue should also be not too important. This gives you the opportunity to see whether

the other party will offer a reciprocal concession or is interested in playing a hard negotiating

position. Next, it is the best time deal with major issues where you are looking for serious

concessions from the other party. By this stage, both parties have made an investment of

time, effort and money in the negotiation and will feel some commitment to thrashing out the

issues until an agreement is reached.

Follow the major issues with minor ones and finish with a minor issue on which you can afford

to give a concession as a final gesture towards closing the deal.

Making Concessions

A concession is a revision of a previous position you have held and justified publicly. Making

concessions can sometimes be necessary in reaching a mutually satisfying negotiated

agreement. The challenge when making a concession is to concede on a particular point

without creating the perception that you are weak and developing the expectation that you will

cave in on other points. Making a concession raises the following issues:

Should I offer the concession now? - Perhaps offer a very minor concession sufficient to show

willingness to move, but without giving the impression that you will cave in. If the other party

makes the first concession, you will probably need to offer a concession in return. Do not offer

a concession without specific pressure from the other party.

How much should I offer? - The concession you make need not match the one offered to you,

but it must not be disproportionately small. If you make miserly offers you will appear

unreasonable. Always value the concession from the other party’s point of view. Try to identify

items that are easy for you to give but are of real value to the other party. This relies on having

an understanding of the true negotiation interests of the other party.

What will I get in return? - Concessions should be traded and should not be made without

return. Do not give concessions lightly. Equal concessions are not necessary, but you should

aim to extract matching concessions from the other party. The important point is that one

party has given something and that something has been given in return, rather than the relative

value of the concessions.

Whenever a concession is contemplated, it should be carefully analysed to ensure that the

outcome remains consistent with the key objectives of the negotiation plan and the

procurement activity.

Maintaining Communication Channels

If negotiations stall or are delayed for any reason, it is important to ensure that the

communication channels that have been established are maintained. For example, at the end

of a face-to-face negotiation that has not yet been able to reach agreement, ensure that



arrangements for continuing the negotiations have been clearly agreed by both parties. Make

sure that such arrangements are followed up!

Even if negotiations have been difficult and agreement appears to be some way off, each

negotiation session should be ended on a positive note. Thank the other party for their efforts,

emphasise what has been achieved so far, and clearly state what will happen next to move

the process along.

Communicating with Stakeholders

Communication channels also need to be established with stakeholders who will be impacted

by the outcomes of negotiations.

These stakeholders and their interests might include:

management and delegates who may be required to approve the agreement reached

in negotiation;

end-users who will have to comply with the arrangements of the agreement;

legal/contractual staff who may be required to take effect the agreement in resultant

contracts; and

contract managers and administrators who may have to establish contract

management systems and monitor performance.

If these stakeholders have not been directly involved in the negotiations, they will need to be

formally notified of the negotiation outcomes and consulted on how best to implement the

agreement.

Documenting the Agreement

Staff turnover and memory and perception differences make documentation of the negotiation

process essential. The documentation must represent an accurate reproduction of all

significant considerations and agreements.

Funds Availability Check

Before a contract is signed it is important to conduct a final funds availability check. Even

though, theoretically, funds should have been allocated very early in the procurement process,

these were based on the market research figures, which may be ‘ballpark’ based figures, and

circumstances may have changed.

This may be the first time in the process that specific and/or concrete figures for the actual

contract amount are available and it is essential that funds availability check occurs now on

the basis of that information.

As an example, the final negotiated contract amount may be significantly higher than the

estimate determined in the procurement planning stage.



Contract Approval and Execution

A legally binding contract should not be executed until all the preceding issues have been

addressed. The exercise of the relevant delegation is important as contract signature is where

a legal liability is established, requiring a future payment of public moneys by the Australian

Government.

The contract document must be signed by both the supplier and the entity to reflect the final

agreement reached between the parties and create legally binding obligations on the parties.

It is a good idea to check that the supplier’s representative has been properly authorised by

the company to sign legally binding contracts.



Managing Contract Disputes



Contract Disputes Contract disputes are the formalising of contract problems when a party decides that informal

problem-solving mechanisms are not going to work or are insufficient for the issue at hand.

One of the contract parties will issue a notice, in accordance with the terms of the contract,

notifying the other party that they wish to instigate the dispute resolution mechanisms

contained in the contract.

Disputes may arise for many different reasons, but common reasons include:

disagreements on the interpretation of contract specifications;

dissatisfaction with performance measures and the performance monitoring regime;

misunderstandings over roles and responsibilities of the respective parties; and

difficulties in dealing with unexpected events not explicitly covered in the contract terms

and conditions.

Reducing the Likelihood of a Dispute

The chance of a dispute can usually be reduced by:

identifying the matters likely to give rise to dispute during the planning stages so that they

can be specifically addressed in the contract;

stating the requirements clearly and using simple, plain and clear language in all contract

documents;

regularly reviewing performance and dealing with problems as soon as they arise, before

they escalate;

maintaining a close relationship with the provider to assist in dealing with problems when

they become apparent;

not allowing a pattern of contractor default to develop - this makes it harder to resolve later

disputes as well as potentially reducing the Australian Government’s remedies at law.

Managing Disputes

It is very important to include a dispute resolution clause in contracts to provide direction to

each of the parties in the event of a breakdown in the relationship. If a contract provides for a

dispute resolution mechanism, then these procedures must be followed before litigation can

be considered. It is a good characteristic of Australian Government contracts that they

routinely include clauses outlining a dispute resolution process.

The rationale underlying the wide range of dispute resolution provisions available

is the desire to resolve problems, where possible, without the use of costly, time-

consuming court conflicts and other formal legal processes. The Australian

Commercial Disputes Centre argued that non-court dispute resolution is able to

provide solutions 90 per cent cheaper and 95 per cent quicker than through

available court mechanisms.



There are numerous mechanisms that can be used to assist both parties to resolve their

differences. The most commonly used procedures are detailed below and any or all of these

can be explicitly included in a contract.

Negotiation

This is the most commonly used method of resolving disputes. This is usually the first step in

any dispute resolution process, and it involves negotiation at the lowest levels between the

contract manager and the provider’s appointed representative.

If negotiations at this level are unsuccessful, they can be upgraded to include more senior

representatives of the disputing parties. Most contractual disputes are resolved by

negotiation.

Mediation

The next level of intervention in dispute resolution processes usually involves mediation.

Mediation is a voluntary dispute resolution process in which a neutral third party assists the

parties involved to agree on their own solution to the dispute. The mediator can assist the

parties to isolate the issues in the dispute, develop options for their resolution and reach

agreement. The mediator does not impose solutions or terms of settlement, but helps the

parties explore options and reach their own solution. The mediator may also oversee the

implementation of the solution, if the parties request this.

Expert appraisal/determination

An independent third-party expert can also be appointed by the parties to give an appraisal.

This expert examines the documentation, discusses the dispute and advises as to the optimal

resolution of the dispute. The appraisal can be used as a basis for negotiation of a solution

between the parties and is commonly used in technical disputes.

A similar mechanism is referred to as "expert determination". This involves an independent

expert examining the documentation, meeting with the parties and then making a formal

determination. The parties mutually agree on the expert and usually agree by contract to be

bound by the decision, although the parties may also decide by mutual agreement to use the

determination as a basis for negotiating a settlement.

Arbitration

Arbitration involves the referral of a dispute to an arbitrator selected by both parties to make a

decision that the parties have agreed to accept as binding upon them, instead of pursuing the

matter in the courts. Parties to a dispute may agree to arbitration either in accordance with

an arbitration clause in the contract or at the time the dispute arises.

Arbitration is a more formal, expensive, and adversarial process whereby the parties submit

their dispute to an independent third party who makes a binding decision. The arbitration

process is regulated by the uniform Commercial Arbitration Acts in each State.



Litigation

Litigation involves formal court proceedings which can be an extremely unsatisfactory, costly

and slow method of dispute resolution. Litigation should only be used as a last resort. In

Australian Government purchasing, there is an increasing emphasis on alternative methods

of dispute resolution, including those listed above. The Australian Government strongly

prefers to work through performance difficulties with providers to support them in meeting

contract obligations without resorting to litigation.

However, rare circumstances may arise where the Australian Government has no option but

to initiate litigation in order to protect its interests. This is not a decision to be taken lightly and

the contract manager should ensure that they have received detailed legal advice and have

pursued all reasonable alternative methods of resolving the dispute before initiating litigation.



Managing Contract Variations



Contract Variations After a contract has been formed with a provider, it may become necessary to vary the

obligations between the parties. Contract variations may be sought by the Australian

Government or the contractor but must be agreed by both parties to be legally binding.

Before initiating or agreeing to any variation the contract manager should determine:

what effect the proposed variations will have on contract price;

whether the proposed variations will delay delivery;

the effect of the proposed variations on other terms and conditions of the contract; and

whether the variation may amount to unfair treatment of unsuccessful tenderers who are

denied an opportunity to tender for the changed requirement.

Minor Variations

Factors that indicate that a variation is reasonably minor and within the scope of the contract

include:

the function of the item or service does not change;

the basic contract purpose has not changed;

the increase in the contract is not out of proportion to the original contract price;

specification changes are not extensive; and

the basis of the originating tender is not significantly altered.

Typical examples of minor issues which might require a contract variation within the scope of

the current contract include:

the need to purchase small additional quantities of supplies or services;

allowing minor concessions to the contractor (for example, minor latitude allowed in

meeting the details of the specification);

minor design changes to the goods or services required;

changes to specified personnel;

changes to delivery times;

novation or assignment of the contract.

This agreement can be verbal, and in the day-to-day operation of a contract, it is not unusual

for small variations in performance expectations or respective obligations of the parties to be

informally agreed and implemented between the parties.

It is good practice to record in writing all changes to a contract, even the minor ones. Written

records substantially minimise the potential for later dispute about the terms of the amendment

to the contract. This is particularly important in long-term contracts when purchaser or provider

staff may turn over during the period of the contract, consequently increasing the risk of

misunderstanding as a result of changes not being formally recorded.



Major Variations

Whilst some variations are insignificant and can readily be agreed, others are much wider in

their application and/or consequences. When considering a significant variation to the original

scope of work of a contract, it is especially important to consider the impact on fair process

and probity of making that variation.

Where a variation (or series of variations) amounts to a significant change in the scope of work

to be performed under a contract, it may be appropriate to call fresh tenders for the additional

requirement. Many Ministerial and court actions have been initiated because of an aggrieved

unsuccessful tenderer’s view that a variation to the scope of work of a contract was so

significant that fresh tenders should have been called.

Important Note

The Additional Rules for Procurements at or Above the Relevant Procurement

Threshold contained in the Commonwealth Procurement Rules must be taken

into account when considering any significant contract variation. For example, a

variation exceeding $80,000 may instead require a public RFT process to be run.

Formalising the Variation

Once the parties have reached agreement on the details of the contract amendment, then a

formal contract amendment document should be prepared. This should address in detail what

has been agreed and should explain the specific changes required to the clauses of the

contract.

The contract should include details of the procedure to be followed if the contract requires

variation. This will normally require that an agreed variation must be in writing and signed by

the parties. A clause of this type protects the Australian Government from claims by the

contractor that there was a verbal agreement which differs from the written amendment.

However, that protection is not iron clad as the doctrine of estoppel may override the written

clause in the contract. Sound contract management and quick written follow up on any

verbally agreed variations can help mitigate the risk of liability under the estoppel principle.

Whatever the contract variation procedure is, it must be followed to ensure it is legally binding

on the parties. The formal document detailing the contract amendments should be signed and

retained by both parties. Adopting this type of written amendment process facilitates the audit

trail should the contract ever be subjected to further scrutiny.

Approvals

Contract variations must be approved by the appropriate financial delegate/s. If an increase

in funding required as a result of the variation, then it may be necessary to again seek approval

under section 23(3) the PGPA Act 2013.



Each government agency is likely to have its own approval requirements for

authorising contract variations included in its Accountable Authority Instructions

(AAIs). You need to check your organisations requirements for approving

contract variations.

Number of Variations

In addition to considering each individual variation carefully, contract managers should

consider the cumulative effect of multiple variations and the extent to which they collectively

can alter the original scope of work. A large number of minor variations can add up to a major

change to the original contract.

A high number of contract variations could also be indicative of general problems with the

contract arrangements. For example, the type of contracting relationship established may be

inappropriate, the requirements have been poorly specified, the underlying causes of the

problems have not been correctly identified or the terms and conditions of the contract are

inadequate.

Publishing the Variation

Contract variations have similar publishing requirements to the original contract. Any

variations resulting in a financial increase of $10,000 or more (or where the original contract

value is varied to meet or exceed $10,000) must be published on AusTender.

While contract variations must accord with the requirements as they are stated in

the contract, it is important to ensure that agency variation policies and

procedures are followed with regard to administrative management.



Dispose of Assets



The final stage in the procurement process may be the disposal of the assets procured, that

are no longer required.

The government, as a major acquirer of assets is also a major vendor of the assets it no longer

requires. Therefore, the disposal of these assets must achieve value for money (that is, the

efficient and effective use of resources, providing for accountability and transparency, the use

of competitive processes as practicable, and to accord with legislation and policy). Officers

undertaking disposal activities must be aware of the relevant legislation and policies, must aim

to achieve value for money for the particular circumstance, and be able to justify the decisions

made and actions taken.

What is an Asset?

An asset is defined as an item possessing the following characteristics:

It is an item (physical or non-physical) of significant value;

It possesses service potential or future economic benefit; and

It originates as a result of a past transaction or event.

There is an almost endless variety of assets, ranging from small assets such as office supplies

to large purpose-built assets such as ships, buildings and infrastructure assets.

Assets can also be divided into ‘current’ and ‘non-current’ or ‘fixed’. Current assets are usually

those that are expected to be consumed within 12 months e.g. office supplies and consumable

stores.

Assets that are expected to have extended periods of benefit (i.e. beyond 12 months and often

several years) are normally referred to as fixed assets. Policy and procedures relating to the

disposal of assets generally refer to the disposal of fixed assets.

Legislation and Policy As with other aspects of the procurement process, the disposal of assets is subject to a range

of legislation and government and organisational policy.

Public Governance, Performance and Accountability Act 2013

The Public Governance, Performance and Accountability Act 2013 (PGPA Act) requires that

government entities should be accountable for their financial management. In some

circumstances, the PGPA Act allows for entity-based discretion in the management of financial

and procurement functions by means of Accountable Authority Instructions (AAIs) which are

issued under the authority of this Act.

The PGPA Act is supplemented by the PGPA Rule. The authority drawn from the PGPA Act

and PGPA Rule will usually be used to guide the development of agency asset disposal policy

and procedures.



Other Legislation

There is a wide variety of legislation that may impact on asset disposal activities, depending

on the nature of the asset. Examples of such legislation may include:

Environment Protection (Sea Dumping) Act 1981;

Archives Act 1983;

Protection of Movable Cultural Heritage Act 1986;

Australian Heritage Council Act 2003; and

Lands Acquisition Act 1989.

Commonwealth Procurement Rules

Like all stages of the procurement cycle, processes to dispose of assets should consider the

Commonwealth Procurement Rules (CPRs). The purpose of the CPRs is to provide a policy

framework to assist and ensure that Government agencies achieve Value for Money in their

procurement activities.

The CPRs are issued by the Minister for Finance under section 105B(1) of the PGPA Act

2013. They apply to the procurement of all property and services and by outlining the

fundamental policies and principles that underpin procurement. The CPRs articulate the

expectations that exist on officials, or agents conducting procurement on behalf of the

Australian Government, in the design, conduct and management of all aspects of Government

procurement, including disposal.

Value for Money

Value for Money is the core principle governing Australian Government procurement, and

applies in the same manner when disposing of assets to be achieved by:

Encouraging competitive and non-discriminatory processes;

Efficient, effective, economic and ethical use of resources, consistent with other

Commonwealth policies;

Accountability and transparency;

Risk engagement and management;

Use of processes appropriate to the scope and scale of the procurement;

All of these elements will apply when disposing of assets; and

Disposal must also accord with entity probity requirements.

International Treaty Obligations and Trade Sanctions

The Australian Government is a signatory to numerous international agreements relating to

global environmental issues and international trade restrictions, which may affect the ability of

agencies to dispose of surplus stores.



Organisational Policy

Accountable Authority Instructions

Entities subject to the Public Governance, Performance and Accountability Act 2013 are

subject to Accountable Authority Instructions. These will usually include delegations that are

given to appropriate staff for disposal and stores write-offs. The authority to dispose of assets

can only be exercised by the owning department, so where an agent is engaged to sell surplus

assets for a department, instructions for the sale must be endorsed by an officer with the

proper authority.

Authorisations for disposal should also certify that assets are surplus to the needs of the

organisation and that reasonable efforts have been taken to ensure that there is no potential

use for the goods within the organisation. Accountable Authority Instructions will generally

outline the authorisations or delegations that are required for the disposal of entity assets.

Government Asset Disposal Principles

The overall goal of surplus asset disposal should be to achieve the best possible

outcome for the Australian Government.

This goal will be supported by the following aims:

To achieve the best available net return when selling.

To treat correctly goods requiring special consideration in their disposal.

To be even-handed, open and honest in all dealings.

Managers should be aware that:

Each government entity is responsible for managing the disposal of its surplus assets.

They are accountable for all decisions they take in the disposal process and they should

be attuned to the costs of undertaking disposal activities.

The Australian Government usually offers no warranty on the second-hand goods it sells.

In the interests of promoting probity, fair dealing and openness, government entities should

not sell surplus assets directly to staff outside a publicly competitive process.

Special consideration should be given to items of heritage and cultural value, as well as

hazardous and pollutant stores likely to have an impact on the environment.

Warranty and Liability Most government entities will not offer any warranty on the condition of assets they sell. To

ensure that this principle is maintained government officers should not:

discuss with a prospective buyer the suitability, quality or condition of goods as this may

result in a warranty being implied; and



discuss with a prospective buyer the purpose for which assets are required so as to show

that the buyer relies on the skill or judgement of the government officer.

Sales documentation should provide as full and factual a description of the assets as possible

and state that no warranty or representations have been made as to the quality or condition

of the assets. This can be achieved if the documentation provides that:

the Australian Government will not admit any claims on the grounds of defective goods,

incorrect description or error in quantity;

the buyer acknowledges that in entering into the contract that it has not relied on any

promise, representation, warranty or undertaking given by or on behalf of the Australian

Government in respect to the suitability, quality or condition of the goods and that the terms

of the contract comprise the whole of the agreement between the parties and that it is

expressly agreed that no further conditions are to be implied into the contract; and

it is the responsibility of the prospective buyers to examine goods prior to submitting their

offers.

Faulty goods or equipment must be advertised as such – failure to do so, or the provision of

misleading or inaccurate information could lead to a buyer seeking reimbursement or

potentially making a claim against the government.

End User Restrictions On occasions, assets purchased by the government are supplied subject to certain contractual

conditions regarding their disposal. It is therefore important that when arranging for the

disposal of these goods, contract conditions are not breached. To ensure that a breach does

not occur, contractual information should be kept so that any restrictions are taken into account

when planning a disposal action.

Identifying Assets for Disposal Assets are of value to any entity only if they continue to cost effectively support the delivery of

the entity’s services. Once they no longer play this role, their worth lies only in the benefits to

be gained from their disposal.

Many assets require significant resources for their maintenance and operation. Some of the

issues that should be considered in deciding whether to retain or dispose of assets include:

sustainability principles;

supportability;

shelf life;

replacement costs;

storage costs and facilities; and

the need to maintain or dispose of any associated equipment or spares.



Other costs that stem from ownership include opportunity costs on the residual value of the

asset and the cost of insurance. Property assets may also incur various local government

rates and charges as well as those levied by other rating authorities. Therefore, retaining such

assets in service when they no longer effectively support service delivery will expend

resources that could otherwise be used elsewhere and could effectively block the acquisition

of more suitable and economic assets.

As well as the cost of ownership, there are a number of other reasons why it may be

appropriate to dispose of surplus goods. It could be because they:

are considered obsolete due to changes to procedures, functions or usage patterns;

no longer comply with Work Health and Safety standards;

are beyond repair but can be sold for scrap;

are not expected to be used in the foreseeable future and occupy storage space; and

have reached their best-selling time to maximise returns.

Sometimes assets are perceived to be inferior in certain aspects (particularly when compared

to more recently acquired assets) yet may still provide acceptable service. Consideration must

be given to sustainability issues as to whether the ‘functional’ life of the asset has really been

reached, or whether the life can be extended (upgrade, repair, refurbishment or reuse). At

times the best option may be to delay disposal while the options are considered. However,

this course of action has the potential to impact on the disposal value.

Care must be taken to avoid replacing assets on superficial grounds such as improved but

unnecessary performance or higher prestige. This can be challenging, especially when

technical experts plead the case for disposal and replacement.

Methods for Identifying Assets for Disposal

Some of the methods for identifying assets that require disposal include:

review of the applicable Procurement Plan (which should identify the best time for disposal

of the procured assets with regard to the estimated market value, trade-in potential, any

on-selling and export limitations, and environmental considerations);

review of asset registers (which may identify assets for disposal);

review of asset holdings (such as annual stocktakes which may indicate assets that require

disposal as a result of their physical condition);

replacement of existing assets, or the introduction of new technology or equipment that

supersede existing assets; and

regular review of the market (market research and analysis) which may indicate the best

time or lifespan for asset disposal.

The advantages and disadvantages of disposal (such as sustainability benefits, premium

disposal times, value to be obtained and the costs associated with preparing assets and

undertaking disposal) must be weighed against the cost of continued ownership (storage,



efficiency etc). Not all surplus assets will have great residual value and in some cases, this

will be negative when the disposal costs are included, incurring cost to the entity.

Developing a Strategy for the Disposal of Assets Like any other aspect of procurement, disposal activities should be carefully planned to ensure

that desired outcomes are achieved. Issues concerning disposal should have been

considered early in the procurement process.

Many entities have a mandatory requirement for the development of disposal plans, especially

if the assets are high value or the process is likely to be high risk. For major items or items

having significant public interest, Ministerial approval of disposal plans may be required.

Does your entity have any mandatory requirements for the development of a

disposal plan?

The following is a list of issues that could be included in a disposal plan:

Background to the original purchase;

Details of each item;

Proposed method/s of disposal;

How assets will be valued and the estimated sale value of the goods;

Costs associated with the disposal process;

Any preparation and/or decommissioning action required;

Any special handling required for certain types of assets (e.g. hazardous materials);

Justification for any decisions taken;

Approvals that will be required;

Arrangements for collection and banking of any monies; and

Record keeping requirements.

Stakeholder input is essential throughout the planning process. Feedback should be

incorporated into the plan as, and where appropriate.

A disposal strategy/plan should consider all steps of the disposal process. These steps will be

discussed in more detail later in the manual.

Determining the Market Value of Assets

Valuations play an important role in asset disposal and can help managers select the most

appropriate selling option. The most accurate determination of value is always what the

competitive market is prepared to pay.

Agents can provide an estimate or arrange professional valuations to ensure that the seller’s

expectations from sale are realistic and avoid unnecessary conflict. However, it is



recommended that government entities engage the services of an agent only if the goods are

judged to be of sufficient value. That is, the cost of seeking agent valuations may outweigh

the benefits gained on low value items.

Be aware that in some cases, valuers may apportion a value on a good that is based on their

replacement cost (for insurance purposes). It should be recognised that this value will often

be considerably more than what will eventually be realised at sale.

Alternatively, valuers can claim that goods have nil book value after depreciation when in fact

they could realise a considerable sum at sale. It is therefore recommended that public

authorities identify an appropriate type of valuation and instruct the valuer accordingly.

Part of value maximisation is seeking to cultivate a market for disposed assets, especially if

there are many assets with short service lives or valuable items to be disposed of. For

example, if there is a large quantity of a particular asset, it may be better to release limited

quantities over a period of time rather than ‘flooding’ the market.

Some assets may have no value, but disposal can provide benefits such as avoidance of

maintenance or operating costs, staffing or insurance costs.

Valuations can be obtained from agents experienced in the type of goods for sale.

Methods of Disposal The method of disposal must be carefully chosen to ensure that the disposal of assets is

carried out to:

satisfy probity considerations;

provide adequate and equal opportunity to purchase, including clear stipulation of the

basis on which decisions will be made;

achieve the best return for the Australian Government; and

avoid any adverse environmental impacts.

Decisions about the method of disposal should result from common-sense consideration of

the following issues:

potential market value;

other intrinsic value (e.g. cultural, heritage etc);

location;

volume;

trade-in value;

ability to support wider government programs; and

environmental considerations.

Stakeholder input should be actively sought about the aspects associated with each disposal

activity.



Stakeholders could include:

technical or functional experts;

providers or suppliers;

other entity staff (State/Territory or Commonwealth);

special user groups; and

industry bodies.

Feedback should be obtained at the commencement of the disposal activity and incorporated

into the disposal plan and process.

The following section details some of the most commonly used asset disposal methods

including a summary of the advantages and disadvantages of each method, as well as some

of the key issues and risks that should be considered.

Auctions

Public auctions are considered a suitable method to dispose of goods in an efficient manner

and at relatively low cost to the public authority. To determine if auction is the most suitable

method, an assessment of auction costs (e.g. transportation, storage, auctioneer etc) should

be undertaken and compared with the estimated amount the goods will realise at auction.

When selecting an auctioneer consideration is given to a range of criteria such as:

past performance, reputation and integrity;

ability to achieve optimum returns;

commission rates;

facilities;

location;

ability to offer a range of auction services; and

viability of the business.

Advantages

Auctions are usually the most suitable outlet for high volume, low value goods.

Turnaround time, from delivery of goods to receipt of proceeds is fast.

Costs of service are known, including fixed commission and transport.

Fair and effective competition can be achieved.

Specialised auctions may be arranged for unusual and/or high-value goods with a wide potential market (for example, some seized or forfeited goods, information technology equipment or motor vehicles).

When there are a large variety of surplus goods in one location, on-site auctions may be arranged to avoid transport costs.

Auctions are often a convenient way to sell spare parts and scrap.

Public attendance at auctions of government assets is normally good.



Disadvantages

Auctioneers are not obliged to accept goods they believe to be unsaleable. Consequently,

refused goods may incur additional transportation costs and in some circumstances, tip

fees;

Lower returns may result where items in working order are not demonstrated as such;

Buyers may occasionally enter into collusive practices, such as auction rings, to contrive

to purchase goods at a price below the maximum possible in an otherwise open and

competitive forum; and

There is no control over who buys or uses the assets. It may be that these assets are used

in some illegal activity or in an activity contrary to government policy.

Issues

Ensure that all items are accounted for, receipt all goods delivered to the auction site and,

after the auction, cross-check against payment advice (note that sale price will include

GST).

Tenders

Government agencies can call tenders for a variety of goods and in a variety of circumstances.

The procedure is more resource intensive than selling by auction, but it is an effective way of

selling high-value and unusual goods, items located in remote or non-metropolitan areas and

assets that have a geographically dispersed potential market. Tender sales are appropriate

for goods with end-user or export restrictions attached to their sales.

Advantages

The selling procedure is seen to be open and competitive.

The market of the day is tested to ensure that the maximum available return is achieved.

Purchasers can be vetted where appropriate.

Post-tender negotiations may be undertaken where the highest tender falls short of the

market value or anticipated sale price of the item. Conditions attached to the sale may also

be negotiated during the process.

The process lends itself to proper documentation of decisions taken.

Government entity staff are able to bid for goods being disposed of through a publicly

competitive process.

Disadvantages

Lead times can be longer than other selling methods.

In-house arrangements can be resource-intensive, particularly for major projects.

There may be an appeal against the selection of a successful tenderer if there are

questionable procedures or decisions.

Significant delays can occur if the selected tenderer fails to finalise the purchase. Such

delays can lead to deterioration of the asset, additional storage costs to the owner

department and possibly the need to re-invite tenders.



Issues

As part of the tender evaluation, check bona fides of buyers and, if necessary, their

financial standing.

In certain circumstances it will be appropriate to vet tenderers to avoid possible

embarrassment to the government over the sale of equipment eventually used in some

illegal activity or contrary to government policy.

Case Study

Victorian Government policy states that all tender documentation for the disposal

of assets should carry a standard disclaimer that states:

The highest offer, or indeed any offer, will not necessarily be accepted;

The Department offers no warranty on the conditions of items for sale;

All items will generally be sold ‘as is, where is’; and

The Department will not admit any claims for rebates resulting from any error

in description or quantity.

Private Treaty

A private treaty is a sale negotiated directly between the vendor, or agent, and the buyer

outside the competitive process used in tenders and auctions. Private treaty sales may be

appropriate in circumstances where:

The market is limited and a single buyer who is willing to pay the agreed price has been

identified.

The broader interests of the Australian Government are served by selling to a particular

company, group or individual.

Goods are located on company premises on a hire or free-use basis and it would be

reasonable to give the company first option to buy the asset at market rates.

Advantages

Availability of a ready market, especially in the case of a buy back by the original supplier.

Selling time may be significantly reduced.

Only minor expenditure, if any, is necessary on advertising, commission and transport.

Government objectives can be supported at minimal additional cost.

Disadvantages

Direct selling usually removes the equity in access and openness of competition in a sale.

Public misconception about the probity of sales may cause additional work in defending

the process and the decisions.

Negotiations to reach a desirable sale price can be difficult, especially if government entity

staff have little relevant experience.



Issues

Ensure that the buyer is suitable and has the capacity to finance the purchase.

Avoid moral pressure to accept an unreasonably low price where the buyer exploits

preferred or sole purchaser circumstances.

Trade-in

The trade-in of surplus assets to offset the purchase price of new items provides a convenient

and efficient way to upgrade equipment. It is important to shop around and explore all disposal

options before accepting a trade-in option. In some cases, it is more cost effective to sell

goods and use the resultant revenue to offset the purchase price of new goods than to accept

what may appear to be an attractive trade-in arrangement.

Advantages

Surplus goods can be relocated in an environment that will reuse or recycle them.

Trade-in encourages better asset management while assets are in service, enhancing

their residual value and possibly realising a better implied return than if sold.

The costs associated with disposal are avoided.

Disadvantages

The purchase price may have been inflated to offset the trade-in value offered by the supplier.

The trade-in may not represent the best overall deal for the Australian Government. For

example, entities may be locking themselves into a sole-supplier arrangement for

consumables and maintenance by pursuing the highest trade-in offer.

Issues

Approval for trade-in and purchase transactions should be given by a person who is

authorised to make purchases to the gross value of the transaction.

Managers should shop around and consider all disposal options before accepting what

might first appear to be an attractive trade-in offer.

Entities must not establish credit account arrangements with brokers for acquittal

against future purchases.

Sale to Another Government entity

There is no major difference between this option and the way private treaty sales are

managed.

Sale to Another Government Entity

Advantages

The selling government entity should be paid the market price for its surplus assets.



The buying government entity should have more assurance of a fair and value for money

purchase.

Overall, budget outlays can be reduced.

The asset can see out its economic life.

Taxpayers can see conscientious use of resources.

Disadvantages

The sale price is generally at the expected market rate, which may not be the same as

actual achievement if the asset were sold by tender or auction.

Issues

Ensure that the negotiations are undertaken at a suitable level and that the principal

contact has appropriate authority to enter into the purchase arrangement;

If the item is valuable, an independent valuation should be obtained to ensure that the

transaction is made at the correct market rate; and

If the process becomes drawn out, it may no longer be a cost-effective method of disposal.

Donation

Generally, items disposed of by the Australian Government are sold with the aims of achieving

the best available net return. However, when offering items to the community or special-

interest groups, or to national and State museums, government agencies should consider an

organisation’s capacity to pay for the acquisition. It may be reasonable to accept an offer that

is less than the market value in order to ensure that items of genuine heritage significance are

preserved in an appropriate forum. Government entities may also consider lending the item

on a semi-permanent basis.

Community, charity or work creation organisations can be invited to submit proposals for the

removal of unserviceable goods on behalf of the Australian Government. Organisations of

this kind have in the past approached the Government for donations or concessional sales of

surplus assets. It is a matter for each government entity to decide how to handle the process,

but the following points should be considered:

Community organisations should receive equitable treatment to avoid claims of bias

against a government entity;

Donations, like private treaty sales, can be time consuming; the costs must therefore be

weighed against the benefits; and

Some so-called community service, non-profit organisations are in fact thinly veiled

business operations which provide substantial rewards or remuneration for their principals.

Government entities should be aware of the nature of the recipient’s business before giving

away government assets.

The rules governing the gifting of the Australian Government property are contained in

Section 66 of the Public Governance, Performance and Accountability Act and state:



“A Minister of an official of a non-corporate Commonwealth entity must not make a gift of

relevant property unless:

(a) the property was acquired or produced to use as a gift; or

(b) the making of the gift:

(i) is expressly authorised by law; or

(ii) is authorised by the Finance Minister in writing; or

(iii) is made in accordance with any requirements prescribed by the rules.”

In considering a donation, managers should take into account:

The heritage value of an item;

The costs involved;

Foregone revenue from sale; and/or

The likelihood of conservation and preservation of the item by an organisation not in a

position to meet the market price of purchase.

Note that most entities have a very limited number of high-level delegates authorised to

approve the donation of government property.

Recycling and Cannibalisation

Where surplus assets cannot be refurbished or reused and are not suitable for sale or other

method of disposal, it may be possible to recycle the material in them. The recycling option,

wherever possible, is preferable to dumping goods. Specific information on recycling facilities

in metropolitan and regional centres is available from the relevant State or Territory waste

management or conservation authorities.

Sales to Staff

In the interests of promoting probity, fair dealing and openness, disposal policy does not

generally allow for the direct sale of surplus or unserviceable assets to staff outside a public

process. Staff may not purchase surplus or unserviceable assets unless they submit an offer

in a public tender process or successfully bid at a public auction.

Only in rare cases where there is no infrastructure available for a competitive sale (such as in

remote locations), and transport and selling costs outweigh the potential sales revenue, should

a direct sale to staff be contemplated. Any such sales would be at the estimated market value

of the asset and would require approval at an appropriate level.

Destruction and Dumping

Destruction, dumping or burying of surplus stores is the least favoured option. Government

entities are advised to check on the possible scrap value of goods before considering disposal

in this manner.



Destruction or dumping may be considered when it is established that the goods:

Have no value;

Cannot be recycled;

Cannot be refurbished or reused; and

Cannot be disposed of in any other way, due to government policy or public safety, or

where they are of a hazardous or pollutant nature.

Dilution is the Solution

Attendees at an environmental training course in Darwin, NT admitted they washed their trucks

and dumped waste oil in the yard behind the factory. When asked about the environment run-

off, they explained that Darwin gets three metres of rain per year which should take care of it.

Gerry Robinson’s Risk Thinkers Guide – Second Edition

The costs associated with the disposal option may include transport and tip fees. As the

disposal may be subject to public scrutiny, officers managing the process need to ensure that

it is seen as an appropriate use of the agency’s resources.

Agents and Brokers

Professional services are available from the private sector to help government agencies

dispose of surplus assets. Services range from providing market advice and an estimate of

value to selecting appropriate selling methods for optimum returns and undertaking sales on

behalf of government entities.

A variety of agents and brokers offer specialist services that may be useful to government

entities with a special disposal project – for example, there are outlets specialising in vehicles,

marine vessels, defence equipment, information technology, antiques and art works. There

are also businesses that specialise in bringing together buyers and sellers regardless of the

assets being sold.

Advantages

Government entity overheads can be reduced;

Agents’ fees are usually based on a percentage of the sale price which encourages

maximising the sale price.

Agents have a professional knowledge of the marketplace, including overseas markets.

Marketing and buying networks established and maintained by agents will enhance sale

prospects.

Agents, if properly selected, should have a specialised knowledge about the goods to be

sold.

Agents are knowledgeable about the optimum selling time to enhance revenue.

Disadvantages

Turnaround time can be prolonged in comparison with tender sales which have a finite

closing date; and



Sales can be lost to another client of the agent or broker for reasons such as price, location

or commission earnings.

Issues

Ensure that selling instructions are properly documented, approved at the appropriate level

and clearly state the entity’s requirements for timeframe, revenue targets and any other

considerations.

Check that the agent selected has sufficient experience to undertake the project.

Monitor the time taken to progress the sale. Significant delays could indicate inadequate

performance by the agent.

Check that the ultimate buyer can finance the acquisition and meet relevant end-user

requirements.

It is important when determining the most appropriate method of disposal that the principles

of probity are adhered to. Disposal activities must, as per the preceding procurement process,

be conducted ethically, fairly and with integrity.

Officials involved in disposal activities must deal with potential buyers even-handedly without

compromising the reputation of the government, and comply with the requirements of the APS

Code of Conduct (as set out in the Public Service Act 1999), the information privacy principles

(as per the Privacy Act 1988), the security provisions of the Crimes Act 1914 (and the Criminal

Code Act 1995 [Commonwealth]) and entity AAIs.

Sensitive disposal processes may benefit from probity advice.



Special Categories of Assets Some types of assets require special consideration in the method of disposal used, apart from

the best commercial advantage that can be achieved. This may be due to specific government

or organisational policy, the hazardous or risky nature of the goods or particular community or

political sensitivities. Careful consideration must be given to the disposal method appropriate

to each disposal requirement. Different methods may have different outcomes with regard to

corporate social responsibility and environmental sustainability issues. It is essential that

these issues and their implications are considered for each disposal and contribute to the final

decision.

Some of those special categories of assets are briefly discussed below.

Information Communications and Technology Equipment

All sensitive and classified information and licensed software should be securely erased from

computers or destroyed before sale.

Hardware

As with other types of assets, there are a number of disposal options for hardware:

reuse the equipment elsewhere within government to extend its economic life;

earn the highest net revenue from sales (auction, inviting competitive offers);

trade-in to offset the purchase price of new equipment; and

recycle components when the equipment has no resale value.

Prior to disposing of an IT product, it is recommended that all files pertaining to the entity be

permanently erased. This will require the use of specialised software. If files containing

sensitive information cannot be erased, the hard disk drive should be destroyed.

Software

Software will either be owned by the Australian Government or licensed, an example of the

latter being most ‘shrink-wrapped’ products. Legal advice should be sought if ownership or

licensing situations are unclear. The resale of an Australian Government licence will depend

on the terms of the licence and must include the original disks and documentation. Where the

Australian Government cannot make available the original disks and documentation, the

software cannot be included in the disposal action and must be securely erased from hard-

disk drives or other memory.

Data and document files must be treated in accordance with the Archives Act 1983 before

removal from memory, and the disk areas must then be wiped, that is, securely erased. The

original software documentation and program disks will need to be made available to the new

owners where disposal is to include an operating system.

Heritage and Cultural Items

The Protection of Movable Cultural Heritage Act 1986 controls the export and import of the

most significant of Australia’s movable cultural heritage and provides for the return of the



cultural property of other nations that has been illegally imported into this country. There is

particular emphasis on the protection of Aboriginal and Torres Strait Islander cultural heritage.

When disposing of items with possible heritage or cultural value, government agencies need

to determine:

whether an item has heritage or cultural significance, as distinct from historical interest;

which organisations are suitable custodians;

whether to sell, donate or lend the item on a long-term basis.

Heritage or cultural value might be assessed against the following criteria:

significant in the evolution and pattern of Australia’s history;

significant in possessing rare or uncommon aspects of Australia’s cultural history;

significant in demonstrating the principal characteristics of a class of Australia’s cultural

places;

significant for a strong association with the life or works of a significant person or person

in the past;

significant in possessing high creative or technical accomplishment or outstanding design

or aesthetic qualities;

significant because of strong or special associations with a community for social, cultural

or spiritual reasons; and

significant for the potential to yield information which will contribute to an understanding of

Australia’s cultural history.

When undertaking certain actions such as alterations, additions and disposals, managers in

government entities have obligations regarding a place that has heritage value. Section 5 of

the Australian Heritage Council Act 2003 imposes certain obligations on government entities

to protect places included, or being considered for inclusion, in the National Heritage List or

Commonwealth Heritage List.

Arms and Controlled Defence and Related Goods

Should a government entity have a significant quantity of weapons or controlled defence and

related goods for disposal, sale to a foreign government – on a government to government

basis – may be considered. Such sales must comply with the Government’s policy on foreign

defence exports.

Automatic and semiautomatic small arms and other controlled defence and related goods may

not be sold domestically. It is also government policy that firearms and associated spare parts

and ammunition not be sold to private individuals or companies. Weapons of historical interest

(other than automatic and semiautomatic small arms) may be sold to licensed collectors or

private museums. Automatic and semiautomatic small arms may also be sold to museums

operated by Australian Government, State or Territory governments but must generally be

rendered inoperable before sale. The sale of such items must also comply fully with any

relevant State or Territory firearms regulations. All sales are subject to ministerial approval

and are considered on a case-by-case basis. Where small numbers of weapons, or weapons



of low realisable value are to be disposed of, they should be destroyed by mutilation or

breakdown and melting. Production tooling for the manufacture of controlled defence and

related goods should be rendered unusable prior to disposal by dumping or sale for scrap.

Dangerous and Hazardous Goods

From time to time government entities may have surplus stocks of hazardous or potentially

pollutant stores which require disposal. Because of the extensive and varied nature of such

stocks - which range from products containing polychlorinated biphenyls to contaminated fish

- it is not practical to provide comprehensive disposal advice to cover all circumstances.

Consequently, where advice is required on safe and environmentally responsible disposal

options, government entities should contact the relevant State or Territory government waste

management authority for advice and information on local regulations and facilities.

Government entities need to exercise care to ensure that there is no health risk to employees,

members of the public or the environment when disposing of hazardous and/or pollutant

stores; therefore, the method that government entities use must be assessed as the most

environmentally responsible in the circumstances.

Radioactive Materials

The only approved method of disposal of radioactive materials is by consignment to an

approved radioactive waste store.

Permission must be obtained from the Health Physics Branches of the appropriate State

Health Authority prior to the disposal of any radioactive material. The appropriate authority will

provide personnel to supervise the disposal operations. More information can be obtained

from the Australian Radiation Protection and Nuclear Safety Agency (ARPANSA).

Security Classified Material

Entities should establish whether the assets for disposal include any security classified

material and act in accordance with entity security instructions.

Intellectual Property

The term intellectual property refers to property rights which may, for example, enable the use

of material that is subject to patented inventions or copyright. A typical example is computer

software developed by Australian Government employees in the course of their official duty.

Often intellectual property rights may have considerable value. It is therefore important for

government entities to ensure that the Australian Government’s rights are properly protected

and that any financial benefit arising from these developments is optimised for the benefit of

the Australian Government. Accountable Authority Instructions might cover, amongst other

things, appropriate accounting treatment and the need for special care where Australian

Government intellectual property is made available to another party, to be sold to that party or

marketed under an agreement or through joint venture.



Buildings for Removal

Where the Australian Government is selling buildings or constructions that are intended for

demolition or removal, managers should advise potential buyers of the presence of any

hazardous materials (such as asbestos), access difficulties, time constraints and other factors

relevant to the sale. It is essential to have a clear written agreement with the purchaser,

outlining the conditions of sale. Adequate insurance and indemnity clauses to safeguard the

Australian Government’s interest must be incorporated into the sale documentation.

Where a manager believes a building may have heritage, cultural or social significance, the

government entity should contact the Australian Heritage Council.

Stores Located Overseas

When surplus assets located overseas are not intended to be returned to Australia, they may

be sold in the local market. Before undertaking any disposal however, it is important to

establish exactly who owns the equipment.

Although similar considerations are to be applied to the disposal process, local factors should

be taken into account. It may therefore be appropriate to approach the local government

disposal agency to gain a better understanding of local market factors. It may also be

beneficial to consider disposing of assets through their established channels.

Implementing a Disposal Strategy After a disposal strategy has been planned and the method of disposal decided, it is a relatively

simple matter to implement that strategy and ensure that all steps are acted upon and carefully

monitored.

The Disposal Process

The disposal process should be itemised on a step by step basis to ensure that all required

activities are properly undertaken. Such a process may be set out as follows:

1. Identify assets for disposal

2. Undertake valuation

3. Identify disposal options

4. Evaluate disposal options

5. Consider any special handling issues (e.g. heritage, hazardous materials etc)

6. Select preferred disposal option

7. Seek stakeholder feedback

8. Obtain approval to dispose of assets

9. Prepare assets for disposal

10. Dispose of goods

11. Treat revenue from disposal

12. Record and account for the disposal

13. Review disposal process



Steps 1 to 6 have already been discussed in the previous section. The remaining steps will

now be discussed in more detail.

Obtain Approval to Dispose of Assets

Entities are responsible for managing the disposal of surplus assets and are accountable for

all decisions they make in the disposal process. Each entity is therefore responsible for

determining the approval process that is required for the disposal of surplus assets, and for

nominating the officers with the authority for exercising that approval. Refer to the previous

notes on Accountable Authority Instructions and delegations that are required for asset

disposal.

It is prudent to obtain feedback on disposal plans from key stakeholders prior to submitting

the plan for approval. Feedback should be incorporated into the plan to support probity of

process.

Preparing Assets for Disposal

Assets for disposal may require some type of decommissioning action such as removing

Australian Government identification markers and removing potentially hazardous parts of the

assets.

Government entities should also check that assets for disposal do not contain material that is

not intended for disposal. By neglecting to make appropriate checks, government entities may

be embarrassed later by:

material being misused or used for fraudulent purposes;

classified information being leaked; and

privacy legislation being breached.

Examples of material that should clear from assets before disposal are:

stationery – particularly printed stationery, which could be misused, or used for fraudulent

purposes;

software, the unauthorised movement of which could breach licence agreements;

classified information contained in ICT equipment;

records, files, papers or whiteboards containing information which, if disclosed, could

breach privacy legislation, and/or cause embarrassment or problems for the disposing

government entity; and

hazardous stores, the transfer of which could create legal liabilities.

It may also be beneficial to clean or perform minor repairs on some goods prior to their disposal

to increase their attractiveness to buyers. This decision should be based on whether it will

make the goods more saleable and provide an increase in the return that is greater than the

cost required to perform the repairs.



Finally, it is important that goods are kept in a secure location and not used following

inspection. This will ensure that goods maintain their condition, reducing the likelihood of

complaints from bidders.

Dispose of Goods

Once a public authority has selected the preferred option and made all necessary

arrangements, the goods may be disposed of. It is important that the public authority manages

the disposal process effectively, ensuring that responsible officers or service providers

undertake the disposal in the manner prescribed. It is also important that the public authority

properly accounts for all disposals in the asset register.

Treat Revenue from Disposal

Proceeds from the disposal of goods by sale should be dealt with in accordance with relevant

financial instructions and regulations. This usually requires prompt collection and banking of

moneys received from the disposal process.

Entities are also responsible for the maintenance of proper accounting records and procedures

in the disposal of assets.

Record and Account for the Disposal

Asset disposal is an activity visible to all sections of the community. Decisions, and the

reasons for taking them, should be documented. Not only will this assist in audit and other

examinations, but it will highlight successes and problems for future reference.

It is important to recognise that the disposal of surplus assets is an activity that should be

accountable and transparent. For this reason, public authorities may be asked to justify

decisions they have taken and should therefore exercise sound judgement in making disposal

decisions. All decisions, and the reasons for taking them, should be documented. This will

create a thorough audit trail and enable strengths and weaknesses to be identified and

considered for future reference.

Asset Registers

Asset registers should be updated to reflect the disposal of assets. An asset register is simply

a document or computer file which records details of specific assets including:

a full description of the asset;

the date of acquisition;

cost price;

location of asset;

estimated service life;

expected disposal value at the end of the service life;

repairs and maintenance details;

additions;



depreciation charge per year;

written down value; and

details of disposal/trade-in.

As the asset register should provide a detailed history of each asset, the information it contains

will be very useful when disposal is being contemplated - particularly in determining the

potential disposal value.

Financial Records

The disposal of assets can have a number of financial implications that must be recorded in

the financial records of individual entities. These may include but are not limited to:

clearing balances in the relevant financial records relating to specific assets that are no

longer held;

clearing balances from relevant asset registers; and

recording and banking disposal proceeds in accordance with revenue from sale

procedures and recording details of trade-ins where relevant.

Evaluate Disposal Process

Evaluation of disposal processes will be discussed in the next section of the manual.

Evaluate Asset Disposal To ensure that disposal activities are undertaken in an efficient, consistent, and equitable

manner, it is important that public authorities evaluate the process and outcome of each

disposal.

This should always be undertaken at a level that is commensurate with the value and

complexity of the disposal.

Effective evaluation of disposal activities:

enables performance to be measured against government disposal goals;

identifies strengths and weaknesses;

identifies inefficiencies that need to be corrected for future disposal activities;

acknowledges strengths and achievements;

ensures evaluation findings and performance feedback are appropriately distributed;

provides for transparency and accountability of disposal processes; and

assists public authorities in seeking continuous improvement.

Sources of Evaluation Information

Effective evaluation of asset disposal activities requires the gathering of information from a

range of sources. The number of sources used, and the extent of the information will depend



on the nature and value of the activity. Some examples of sources of information include but

are not limited to:

project files;

interviews with disposal activity agency participants;

interviews with agents or brokers;

benchmarking of performance against other disposal activities;

benchmarking of performance against other government agencies;

independent evaluation agencies;

comparison of the actual process with the planned process; and

comparison of actual outcomes with planned goals and objectives.



Evaluation Checklist

Issue Response Comments and Recommended Action

Was the market research adequate? Yes / No

Was the asset valuation accurate? Yes / No

Was all relevant legislation and policy observed?

Yes / No

Was the process adequate in terms of openness and accessibility?

Yes / No

Was the process adequate in terms of probity?

Yes / No

Were the process risks adequately assessed and managed?

Yes / No

Was the most suitable disposal method selected?

Yes / No

Were all required approvals and authorisations gained in a timely and appropriate manner?

Yes / No

Was disposal revenue promptly collected and banked?

Yes / No / NA

Was the best value return or outcome achieved?

Yes / No



Contract Completion and Review



Completing Contracts Contract managers have a responsibility for ensuring that contracts are properly finalised

whether it is through due performance or early termination.

Review of Expiring Contracts

As a contract approaches its expiry date, the contract manager should conduct a review. This

review should be completed with sufficient time to implement appropriate actions that may be

identified during the review. For example, it may be desirable to call for new tenders. The

contract review should be carried out early enough for new tenders to be called, tender

responses be evaluated, a new provider selected, a new contract negotiated, and transition

arrangements put in place before the existing contract expires.

The purpose of the initial review of expiring contracts is to determine what future/ongoing

requirements exist and how these can best be met. At a minimum, this review should consider:

the future requirements of users/clients for the good/service under consideration;

any changes in entity approach, especially to service delivery models;

any changes to Government policy on service delivery, purchasing, outsourcing,

contracting and tendering;

developments in the marketplace;

the current provider’s performance levels;

the suitability of the current contract arrangements;

the competitiveness of the current provider compared with other providers; and

any costs associated with re-tendering the requirement and the transition to the new

contract.

Extending or Renewing Contracts

Arrangements for the extension or re-issue of a contract should be considered at an early

stage. Options that may be available at this point include:

exercising an option to extend the contract, where such an option was contained in the

original contract;

extending the current contract for a further fixed period or quantity of services;

allowing an existing contract to expire and calling for new tenders or expressions of interest

in the provision of similar goods and/or services; and/or

allowing an existing contract to expire with no further requirement for the good or service.

Contract with Option to Extend

Some contracts contain options for the Australian Government to extend the contract beyond

the originally agreed quantities, type or range of services and/or time frame. Where such an

option exists, extending the contract is merely a matter of following the process and conditions

described in the original contract for exercising the option to extend the contract.



Option to Extend clauses offer the Australian Government a degree of flexibility in the

management of delivery of contracted goods and services. However, the decision to exercise

such a clause should reflect an active decision by the contract manager that the contract is

providing value for money. The option to extend the contract must be exercised in accordance

with the requirements laid down in the original contract. These clauses typically require an

exchange of letters between the parties confirming that the extension clause is being

activated. There may be a requirement for a financial delegate to approve the exercise of the

extension.

Contract Without Option to Extend

Generally, it is not good practice to simply extend the term of an existing contract if the original

contract does not contain an option to extend. When the Australian Government simply

extends a contract (without an option clause) without approaching the market, it is extremely

difficult to justify the extension of the contract on the grounds of value for money, effective

competition and/or fair process. This is because other capable suppliers, outside the current

provider, are denied the opportunity to compete for the Australian Government’s work.

Sometimes, in exceptional circumstances, it may be necessary to extend the term of a

contract. These circumstances might include:

an extension of time to complete to work in progress which does not involve any additional

payment to the current provider;

an extension which is for such a short period that other suppliers are unlikely to make

offers for the work;

the expense and effort of an approach to the market cannot be justified on cost benefit

terms; and/or

it is essential that the work be performed by the existing provider for reasons of

consistency, special knowledge or pre-eminent expertise.

Failure to properly manage a contract or to recognise that a contract is due to expire with

sufficient time to implement new arrangements, are not acceptable reasons for extending a

contract without approaching the market. Inadequate planning is another unacceptable

reason.

Also, if there is no explicit extension option, a decision to extend the term of a contract may

be in breach of the Commonwealth Procurement Rules. They state that one of the

circumstances where a limited tender (e.g. extending an existing contract) is permitted is:

“for additional deliveries of goods and services by the original

supplier or authorised representative that are intended either

as replacement parts, extensions, or continuing services for

existing equipment, software, services, or installations, when

a change of supplier would compel the relevant entity to

procure goods and services that do not meet requirements for

compatibility with existing equipment or services”



In light of the CPRs and the Additional Rules for Procurement at or above the

relevant procurement threshold, correctly and appropriately extending contracts

can be very tricky. It is strongly recommended that you seek high level

procurement and/or legal advice and assistance when considering the extension

of contracts that do not have an option to extend.

Closure of a Successfully Completed Contract

After both parties have successfully completed their respective obligations under the contract,

and final payment has been affected, the contract comes to a natural close. This is the most

common reason for ending a commercial contract. A formal contract closure process should

be undertaken at the end of all contracts.

Some of the tasks that must be undertaken in contract closure include:

transferring responsibility and documentation;

verifying completion of all contractual obligations;

completing records;

post contract review, analysis and reporting;

documenting lessons learned; and

releasing or reassigning resources.

Contract closure typically has two main components. The first aspect of contract completion

occurs at the completion of the work itself. The second stage occurs when all warranty,

redevelopment, review or similar commitments have been finalised. It is important to

recognise that these latter tasks may not be met until sometime after the initial work has been

completed, and that the contract cannot be closed until such time as these continuing

obligations have been discharged.

Re-Tendering for a New Contract Re-tendering to establish fresh contract arrangements involves the timely initiation of the

purchasing cycle to ensure that a new contract is awarded prior to the completion of the current

contract. The contract renewal process will be undertaken where there is an ongoing need

for the goods or services, and the option of extending the existing contract is either unavailable

or has been deemed unsuitable. In calling for new tenders, the Australian Government should

be careful to:

avoid dependence on the existing supplier;

reflect changed community needs, organisational structuring, changed operational

processes, the impact of new technology and general process improvements etc; and

ensure that the new contract has flexibility to adapt to future needs.



Termination and Breaches of Contract Contracts may come to a close in a number of ways. A contract may end as a result of

performance, where the parties have completed all of their obligations, or by earlier

termination. Termination may be required where poor performance is unable to be resolved,

or if there has been a significant breach of contract.

Contract management and transition planning should take into account that a contract may be

terminated early, to ensure that agencies consider the range of issues that will result, such as

handover requirements and disruption to services. It is vitally important that termination of

contracts occurs according to the terms and conditions specified in the contract, and following

the processes outlined within the contract. If the correct procedure is not followed at the

correct time, the Australian Government may be unable to obtain the remedies available to

them, and as stated in the contract. There are a number of court cases where Governments

have been unable to terminate a clearly unacceptable provider because of their own failure to

follow due process.

In the Amman Aviation case, the Commonwealth terminated the contract after

Amman’s continuously failed to meet agreed contract milestones. However, the

Commonwealth was found wanting for not following the correct termination

procedure and substantial damages were awarded against the Commonwealth.

Termination options can be complex if termination impacts on ongoing service delivery to

clients. Termination resulting in significant financial hardship for contractors may also result

in litigation and damages claims. Entities should seek expert legal advice on the legal issues

associated with contract termination before commencing any such action.

Show Cause

Contract managers should have an understanding of the requirements for "show cause"

procedures. Some contracts require the Australian Government to participate in a "show

cause" procedure before any legal action can commence. Where the provider is in breach of

the contract the Australian Government must call upon the provider to "show cause" why the

contract should not be terminated.

Case law suggests that it may be prudent for contract managers to apply a "show cause"

procedure, even where this is not specifically required by the contract. This is consistent with

Government policies on fair process and ethical behaviour.

Breaches of Contract

There are a number of ways in which a contracting party may be in breach. For it to lead to

contract termination it must be a ‘serious’ breach. Where one party breaks a fundamental or

important obligation imposed by a contract, the injured party has the right to take action to

recover damages from the party in default. The injured party is also entitled to treat the

contract as terminated. This means that for some types of contracts, if the provider grossly

under performs, the Australian Government may be able to immediately treat the contract as

terminated - legally speaking.



In reality, this is a major step to take and the Australian Government rarely exercises this

option, especially with contracts for the provision of human services. The most common

example of this principle is where the Australian Government has made it plain to the provider

that time is of the essence and the provider is unable to meet deadlines by a wide margin.

Other Breaches of Contract

Where the breach does not amount to a major breach of the contract, the injured party may

sue for damages for any loss suffered but is not released from further performance of the

contractual obligations. This means that the Australian Government cannot walk away from

such a contract without the risk of itself being in breach of contract. An example of this might

be when a training facilitator is not well reported by a work group. The provider must be given

time to provide an alternative facilitator or to improve the performance of the existing facilitator.

The Australian Government prefers to litigate only as a last measure, when absolutely

necessary to preserve its interests. For this reason, unsatisfactory performance by a provider

should first be dealt with by normal contract management and performance management

methods.

Remedies for Breach of Contract

Liquidated Damages

Liquidated damages are one of the more common remedies for breach of contract. This refers

to a sum of money, agreed upon in advance between the parties to a contract as damages for

breach of contract, to be paid by the party at fault to the other party. The payment is triggered

by the occurrence of the relevant event (for example, a missed delivery date). It is an

automatic process and does not require litigation to implement.

The contract may provide for payment of agreed damages by the provider when completion

is not within the contract or extended contract time. The contractual arrangement will record

the amount to be paid for each day, week or other period for which the services are not

provided or are delayed. This amount must be a genuine pre-estimate of the Australian

Government’s losses. If the amount is not a genuine pre-estimate of damage it may be held

by the courts to be a penalty and therefore non-enforceable under Australian law.

General Damages

These are court ordered damages designed to compensate the injured party for their provable

economic losses. They are always calculated after the event causing the damage has

occurred and can only be ordered by a court. That is, they are not automatic in the way that

liquidated damages are and actual loss caused must be proved. It should be noted that the

innocent party must also take all reasonable steps to minimise their losses. If a loss could

have reasonably been avoided, it is likely that the loss will not be compensated.

Order for Specific Performance

In rare circumstances, where damages would be inadequate compensation for the breach of

an agreement, the provider may be compelled to perform what has been agreed in the

contract. This may be the case where the contractor is the only suitable provider of a particular



service, for example, in a contract for the sale of land the court may order the party to carry

out the contract and perform the sale.

Other Reasons for Termination of a Contract

For Convenience

Termination for convenience may be necessary as a result of ‘Executive necessity’ and is a

prerogative of the Australian Government. The clause is generally only used in circumstances

where the need for the contracted requirement no longer exists as a result of external

environment, government, legislative, policy or organisational changes.

Most providers are concerned about the operation of these clauses and will try to negotiate

them out of the contract. A useful approach is to explain the intent of the clause to the provider

and the fact that the clause may only be used in quite limited circumstances (noting that the

government is required to act as a model litigant). Termination for convenience clauses should

contain compensation for the provider’s loss (actual expenses incurred in performance of the

contract) but not for lost profit.

This clause offers strong protection to the government and is essential to supporting value for

money in all circumstances of government and should be included in all government contracts

where possible. The clause should not be negotiated (removed or altered) without expert legal

advice. Consideration should be given to the inclusion of the clause in any subcontractor

arrangements.

By Mutual Agreement

The contract may be terminated at any time where both parties agree to this action. If it is

intended to terminate a contract in this way, agreement must first be reached with the provider

to cancel on mutually acceptable terms, with both parties agreeing to release the other from

further responsibility under the contract. A formal written agreement or mutual release should

be obtained as part of the contract closure documentation.

By Frustration

Frustration arises when it becomes impossible to complete the contract as originally intended.

The causes of impossibility include matters such as the death of one party, the winding up of

one party, bankruptcy or the appointment of a receiver to one party, outbreak of war preventing

performance or by legislation. Mere unwillingness to perform or escalating costs of

performance do not amount to frustration.

By Repudiation

Repudiation of the contract occurs where a party, by either words or actions, indicates that

they are not willing to perform (or continue to perform) their contracted obligations (they

‘repudiate’ the contract). Repudiation may give the other party the right to terminate the

contract and seek damages.

Actions to terminate or commence termination of a contract must always be

subject to legal advice before any action is taken.



Review and Evaluation of Completed Contracts A crucial and often neglected step in contract management is the process for reviewing and

evaluating a contract. While regular evaluation of contract performance should be ongoing

throughout the duration of the contract, it is good practice to conduct a full and complete review

and evaluation when the contract has been completed. Evaluation can not only be used to

improve future contract management activities but can also be used to demonstrate a

commitment to accountability for contract outcomes.

As with the planning and management effort, the evaluation effort should be commensurate

with the value and complexity of the contract. The need to undertake a detailed evaluation

may also increase if the expected outcomes of the contract have not been achieved.

What to Evaluate?

Overall supplier performance is the obvious thing to evaluate once a contract has been

completed. However, the success or failure of the contract depends on more than the

performance of the supplier. Therefore, evaluation should also be focused on the performance

of the buying organisation, the adequacy of the contract management processes and whether

the intended contract outcomes have been achieved. Contract outcomes can generally be

divided into two broad groupings – the success in meeting customer needs and the extent to

which the management of the contract has achieved value for money.

Supplier Performance

Supplier performance should have been reviewed and evaluated throughout the performance

of the contract. Once the contract is completed, it should only be a matter of consolidating

this information to form an overall picture of the supplier’s performance. The issues which

should be addressed by the evaluation include:

Achievement in meeting delivery dates;

Compliance with other contractual requirements;

Relationship management and communication;

Performance of key personnel;

Acceptability of whole of life support arrangements;

Achievements in innovations and quality improvement programs; and

Success in resolving customer complaints and other ongoing customer problems.

The contractor should only be evaluated on those issues which were defined in the contract

or were agreed during the course of the contract management activity. Trying to measure a

contractor against criteria which they were not aware they were supposed to meet says more

about the shortfalls of the buying organisation in specifying requirements than the performance

of the contractor.



Organisational Performance and Procurement Processes

The performance of the organisation in its management of contracts is not often effectively

evaluated. Yet this is a crucial and straightforward way of ensuring that performance on future

contract management activities is improved.

Issues that should be examined in evaluating the buying organisation’s performance include:

Quality of the business case;

Value obtained in procurement processes;

Effectiveness of contract management plans;

Effectiveness of information and communication processes;

Effectiveness of supplier qualification processes;

Effectiveness of risk management;

Methods for controlling variations in time, cost, quality and performance;

Safeguards against fraud, error and impropriety;

Success in meeting government and organisational policy requirements; and

The performance of the organisation’s key personnel involved in managing the contract.

Customer Needs and User Satisfaction

Even if the performance of the supplier and the buying organisation has been sound, the

management of the contract has run smoothly, and the stated contract objectives have been

met, the contract cannot be regarded as successful if the needs of the customers have not

been met.

Customer satisfaction should be measured in some form for the duration of the contract as

well as when the contract is complete. Regular communication with the customer is required

to make the judgement on whether their needs have been met and the nature of that

communication will depend on the complexity of the contract. In the event that customer

needs have not been met, the reasons for the failure or shortfall should be identified and

documented. Remedial action should be undertaken to rectify the situation in some manner.

Value for Money

In determining whether value for money has been achieved in the contract management

process, the following are some of the issues that could be examined:

whole of life program benefits;

residual values;

cost of parts;

servicing and maintenance; and

industry benchmarks.



Evaluation Methods

After determining what needs to be evaluated, how to do that evaluation needs to be

considered.

Examining Contract Records and Files

Reviewing contract files and other written records is an effective way of gathering information

that can contribute to the evaluation. Documentary evidence will tend to be regarded as

having a high level of validity and examination of such evidence over time can be useful in

determining trends in the level of contract performance.

Consulting with Stakeholders

Even though it may be largely anecdotal, gathering evaluation information by consulting with

the contract stakeholders can be very effective. Some methods for doing so may include:

Surveys of customers and end users;

Customer focus groups;

Organisational workshops;

Interviewing or seeking evaluation information from the supplier; and

Review of customer complaints.

Benchmarking

The meaningfulness of evaluation information can be enhanced if it is benchmarked. This

may be against previous contracts run by the organisation, published industry standards or

other organisations managing similar contracts.

Capturing Lessons Learnt

Evaluation and review can identify weaknesses in the contract management process, and

strengths and lessons that can be applied to other contracts. The lessons learnt from these

reviews should be documented and reported to senior management and to contract

management staff.

Consideration should be given to how best to capture and communicate the lessons learned

from a contract evaluation so that can form part of the organisation’s corporate knowledge.

Depending on the nature of the organisation and its knowledge management processes, some

of the most effective methods may include:

Dissemination of hard copy evaluation reports to key stakeholders;

The creation and maintenance of an electronic database that can be accessed by staff

involved in the management of contracts;

Presentations and seminars; and

Web based publishing of evaluation reports.



Providing Feedback

The results of any evaluation should also be used to provide feedback to those who played a

role in achieving (or not achieving) the contract outcomes.

The supplier should be advised of the overall assessment of their performance and thoroughly

debriefed on any perceived or actual shortfalls in their service delivery. They should also be

given the opportunity to respond to any negative feedback.



Maintaining Contract Records



Maintaining Contract Information Careful documentation and record keeping is a key to successful contract management

outcomes. Records serve as both an audit trail and as a resource for making future

procurement and contract management decisions.

Documentation is also essential to demonstrate that ethical standards have been observed

and that public monies have been well spent.

Officials must maintain appropriate documentation for each procurement. The

appropriate detail of documentation should be commensurate with the scale,

scope and risk of the procurement. [...] Documentation must be retained in

accordance with the Archives Act 1983.

Quotes from the CPRs, July 2012 .

The Audit Trail

Contract managers should maintain comprehensive and accurate records in relation to:

responsibilities;

claims;

payments;

negotiations;

agreed changes;

incorrect deliveries;

poor performance; and

other significant activities.

These records are important in establishing and maintaining an audit trail. A good audit trail

will:

assist those responsible for monitoring and managing the contract to understand what

arrangements have been put in place and why;

provide information for problem and dispute resolution;

help identify strengths and weaknesses in procurement and contract management

processes;

provide information for review meetings;

help identify where corrective action is needed;

assist with planning any subsequent contracts; and

help determine whether contracts have achieved value for money.



For some contracts, access to the provider’s records may also be required to ensure that

contract requirements are being met. Contract documentation must specify the requirement

for the Australian Government to have access to such information. In addition, the contract

documentation should also require the provider to keep adequate records and may even

prescribe the format in which records should be kept and the frequency with which data should

be collected, for example. It may also be appropriate to require that the provider comply with

necessary privacy provisions.

What Documentation to Keep?

The Contract Manager should keep the following as a minimum requirement:

a complete set of contract documents;

the Contract Management Plan;

the risk management plan, including all updates;

the transition plan;

performance reports;

payment details;

records of meetings with the contractor and other key stakeholders;

all correspondence with the contractor;

all contract variations; and

any approvals sought and gained during the management of the contract.

Maintaining Files In the public sector environment, all procurement records should be properly filed. Internal

entity Records Management policy will guide the format, sorting and filing of information. This

policy will also determine how long different types of records need to be maintained.

Another consideration in file maintenance is the need to protect the confidentiality of certain

records. Files that contain confidential information should be marked accordingly and

prominently, and only accessed by authorised personnel.

All documents and files should be maintained with the view to the possibility of being used in

litigation. They can be ‘discovered’ by litigants or accessed through Freedom of Information

legislation.

A key finding in the ACT auditor-general’s investigation of the Bruce Stadium

redevelopment and also in the coroner’s report on the Canberra hospital

implosion were that many documents were incomplete, inadequate or missing

entirely.



Electronic Record Keeping

Most agencies routinely store a lot of contract information electronically – usually in the

organisation’s Financial Management Information System (FMIS) and often in other purpose

designed databases (e.g. project or payment tracking systems and contract registers). There

are three key issues to consider.

Firstly, it is important you are aware of and competent with the use of such systems to maintain

the integrity of your contract information and be able to provide valid information to other

contract stakeholders.

Secondly, as contract information may well be held on more than one system, reconciliation

of information may be an important contract administration task.

Thirdly, and most importantly, it is critical to ensure that any such systems meet Archives Act

and entity record keeping requirements. In some cases, it may also be prudent to keep hard

copies of contract records. It is strongly recommended that entity Records Management staff

are consulted as to whether records can be kept on paper or computer file.



Appendix A – Contract Management Checklist Adapted from the Contract Management Checklist, published in the ANAO’s Better Practice

Guide ‘Developing and Managing Contracts, February 2012’.

Contract

Commencement

Does the contract manager have the required level of skills and experience?

Does the contract manager have a satisfactory level of understanding of the contract and of the relevant subject matter?

Have risks to the contract and risk treatments been identified?

Is it clear who is responsible for actioning any necessary risk treatments?

Has responsibility for all aspects of managing the contract been clearly assigned?

Do delegations exist for the approval of contracts, contract variations and the approval of expenditure?

Have all stakeholders been identified and arrangements agreed to obtain feedback/input throughout the life of the contract?

Have the benefits of flow charting internal processes e.g. dispute escalation arrangements been considered?

Ongoing

Management

Are contract payments linked to satisfactory contract performance?

Have all invoices, and supporting documents, been checked to ensure they are in accordance with the contract requirements and are in order to pay?

Is timely action taken when contract performance is unsatisfactory?

Have all variations to the contract been agreed on value for money grounds?

Is a record maintained of all contract variations?

Where the contract has not met agreed levels of performance, have any action taken been adequately documented?

For longer term contracts, has the contract been subject to periodic review?

Have any disputes been addressed in a timely manner and satisfactory efforts made to resolve them?

Is the contract being actively managed so that there is reasonable assurance that contract outcomes are being achieved?

Contract

extension/

renewal

Do systems/procedures enable the timely consideration of the need for contracts to extended or renewed?

Are all contract extensions justified on value for money grounds?

Are there arrangements in place designed to ensure that probity issues are identified and addressed during contract extension and re-tender processes?

Ending the

contract

Has the contractor delivered all required contract outcomes?

Has the contractor met all their contract obligations?

Has the contractor returned all government material, equipment or other resources used or generated during the life of the contract?

Have all access arrangements been terminated?

Has an evaluation of the contract been undertaken and, where appropriate, lessons learned built into future contracting activities?

Has the contractor’s performance been evaluated, properly documented, and feedback provided to the contractor?



References and Bibliography

Publications Australian National Audit Office, Developing and Managing Contracts – Getting the Right

Outcome, Achieving Value for Money, Better Practice Guide, February 2012.

Australian National Audit Office, Contract Management Better Practice Guide, February

2001.

Australian National Audit Office, Management of Contracted Business Support

Processes, Report No. 12, 1999-2000.

Department of Finance, Commonwealth Procurement Rules, July 2014.

Supplier Pay On-Time or Pay Interest Policy, which has been issued by the Department

of Finance in Resource Management Guide (RMG) 417

Joint Committee of Public Accounts and Audit, Report 379 - Contract Management in the

Australian Public Service, 2000.

Standards Australia: ASNZS 4360:2004 Risk Management

Australian/New Zealand Standard TM AS/NZS ISO 31000:2009 Risk Management –

Principles and Guidelines

Australian Risk Round Table including Gerry Robinson’s Risk Thinkers Guide 2nd Edition

Department of Sustainability, Environment, Water, Population and Communities,

Environmental Purchasing Checklists –

http://www.environment.gov.au/sustainability/government/purchasing/index.html

Standards Australia, Risk Management – Guidelines (ISO 31000:2018)

Reference Internet Sites www.finance.gov.au/procurement/

www.anao.gov.au

www.dpws.nsw.gov.au

www.vgpb.vic.gov.au

www.ssc.wa.gov.au

www.procurement.act.gov.au

www.environment.gov.au

Contract Stream C - Pro Leaders

Documents