Procurement of consultancy services

The Department of Finance, Services and Innovation (DFSI) has developed prequalification schemes for business-related services, which provide for a more efficient and flexible process for engagement, based on service provider’s ability to perform services against specific capabilities under such schemes. 

The Performance and management services scheme is the main scheme and covers several of the capabilities typically sourced by the NSW Government (eg performance review, organisational capacity etc). Other schemes focus on particular services (eg ICT Services). These schemes have been developed in the expectation that agencies will use them unless they do not meet agency requirements in specific procurement situations. 

In relation to the procurement of probity advisors and auditors, agencies are also referred to Board Direction 2013-05: Engagement of probity advisers and probity auditors and accompanying guidelines

Consultancy services

The NSW Government expects that the professional expertise of public employees will be used in preference to engaging external service providers. External consultancy services should be engaged only when the required professional expertise is not available internally or cannot be provided in a cost effective manner.

When an agency can justify the engagement and use of external expertise under its own delegations and guidelines, preference should be given to prequalified service providers for whom a capability assessment has been conducted and who have agreed a standard set of Government terms and conditions.  Agencies should refer to the prequalification schemes page for more information. 

However, on occasion, there may be consultancy services that are not covered by these schemes or service providers who are not prequalified but whose expertise is warranted for an effective engagement.  In these cases, agencies may engage the appropriate service provider, but must ensure compliance with their internal procurement guidelines, the Procurement Policy Framework and any other applicable procurement policies, such as Procurement Board Direction 2013-03 and specific guidance relating to the use of probity advisors and auditors (Board Direction 2013-05).  The Guidelines for the Engagement and Use of Consultants issued by the Department of Premier and Cabinet is being withdrawn.

Agencies must use their approved standard form of agreement for engaging a consultancy service provider, where a prequalification scheme is not suitable. A template is currently available for any agency that does not have its own agreement.

View or download the short form consultancy agreement template.(DOCX,62KB)

Outlined below are some particular issues that agencies need to consider, when procuring consultancy services, whether under a pre-qualification scheme or outside such a scheme.

Engagement of consultants

The engagement of a consultant requires consideration by an informed and senior decision-maker owing to the nature of the engagement.  For this reason there are special requirements and delegations for the engagement of consultancy services (refer to your agency’s delegations and policies).  Obligations also exist for reporting related expenditure, so it is important that consultancy services be distinguished from other services, which are procured from the private sector.

Delegations of authority to engage consultancy services must be distinguished from delegations to incur expenditure generally.

Distinguishing between consultancy services and other contractors

Many of the service providers engaged will provide consultancy services (as ‘consultants’), but others will be contractors.

Consultancy services are engaged under contract on a temporary basis to provide recommendations or high level specialist or professional advice to assist decision-making by management. Generally, it is the advisory nature of the work that differentiates it from other tasks commonly performed by contractors.

Consultancy services may be distinguished from:

  • skill hire contractors: when an organisation engages (usually through a third party service provider) an individual to replace or augment the workforce in the core service delivery of a business unit, where the contractor will be under line manager direction and supervision
  • professional or specialist contractors: where an organisation is engaged to provide a contractor with specialist skills or capability to enhance the service delivery of a business unit.

Skill hire contractors should be sourced from the Contingent workforce prequalification scheme.

The definition does not apply to casual or temporary staff employed under any Act (such as the Government Sector Employment Act 2013) or engaged by an agency.

In practice, the difference between consultancy services and services provided by other contractors is not always clear-cut, and judgements will need to be made based on the particular circumstances for the purposes of identifying the relevant delegation to be used. The examples below are offered as illustrations.

Type of services

Consultancy services

Contractor

Training

Provider of advice on training needs and to develop training programs

Provider of the actual training

ICT services

Assisting the development of an IT strategic plan

Undertaking implementation in accordance with the specifications (eg supplying or writing the software and constructing systems)

Finance and Accounting

Advising on the financial viability of a government business activity

Routine auditing or routine accounting services

Some other examples of consultancy projects are as follows:

  • provision of advice regarding new technology and ideas
  • development of performance standards
  • evaluation of activities and programs
  • preparation of marketing strategies
  • conduct of environmental scans and advice on planning
  • development of feasibility studies.

Variations after the engagement has commenced

Variations to the scope of the work requiring increased payments to the consultancy service provider can, at times, be appropriate as a result of unforeseen circumstances.  Particular care should be taken  to avoid variations:

  • being used by a successful low bidder to increase the value of the job
  • being used to avoid the application of threshold values for competitive bidding
  •  which significantly increase or modify the original scope of the engagement.

In general, all proposals for variations require careful consideration, applying the principles of value for money, probity and accountability. Approvals for changes in work or cost should not be given by employees directly involved in the supervision of the service provider and should be considered and determined by an independent senior officer.

Material variations to the engagement during the progress of the project must be reported without delay in line with an agency’s procurement delegations with prior approval obtained for any proposed significant changes in work or cost.  Materiality will depend on the project but as a guide, in terms of cost, a material variation would be where the overall value is over $150,000 and the variation exceeds the lesser of $500,000 or three times the original engagement.

Annual reporting requirements

Public disclosure of consultancy engagements is to be made in annual reports in accordance with the Annual Reports (Departments) Regulation 2010 and the Annual Reports (Statutory Bodies) Regulation 2010 (note: service providers are referred to as “consultants” in the above Regulations).  These requirements are in addition to the contract disclosure requirements identified in the Policy Framework. 

To comply with the regulations, agencies must include the following information concerning the engagement of consultant services during the financial year in their annual reports.

For consultancy services costing equal to or more than $50,000 (excluding GST), the following details relating to the provider must be provided:

  • the name of the provider
  • the title of the project, if the provider has been engaged for a particular project
  • the actual cost of engaging the provider.

For consultancy services costing less than $50,000 (excluding GST), the following details relating to the services must be provided:

  • the total number of engagements costing less than $50,000 (excluding GST)
  • the total cost of all such engagements.

If no providers of consultancy services were engaged during the year, a statement to that effect must be included in the annual report. If expenditure runs over more than one financial year, the amount spent in the year being reported should be stated.

In fulfilling the above requirements, agencies should also group/categorise services according to the nature of expenditure, and clearly describe the purpose of the service.

Costs must be reported against and classified as follows: 

  • finance and accounting/tax
  • information technology
  • management services
  • environmental
  • engineering
  • organisational review
  • training

Ensuring contractors are not deemed to be employees

Agencies must be careful to avoid inadvertently establishing circumstances whereby a service provider (usually described as a contractor) can be considered to be an employee and be eligible for employee benefits, such as worker's compensation, despite a contract which suggests the person is not an employee. This could arise, for example, by the person being subject to the routine direction and control of the agency.  Agencies should obtain their own advice to clarify the distinction between employee and contractor.

Notwithstanding the above, it should be noted that, even though a person may be an independent contractor at law, the law will in some cases grant the contractor rights that would normally only accrue to an employee.  Depending on the length of the engagement, the engaging agency may be required to pay payroll tax or superannuation contributions.  Engaging agencies should seek their own advice about these types of obligations.