Promoting competition

Fair and open competition improves outcomes for NSW by broadening access to government procurement, especially for small and medium enterprises (SMEs) and regional businesses.

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Government procurement can affect market competition

The scale and scope of government procurement means government purchasing decisions may influence competition within goods and services markets, in positive and negative ways.

An agency’s choice of sourcing strategy, contractual arrangement and approach to risk management can open government supply opportunities to emerging industries, new suppliers and SMEs, or alternatively lock out new suppliers and limit the range of prospective suppliers and service options.

By ensuring its procurement processes facilitate competition, the government can support local industries and new market entrants, help to improve efficiency and encourage innovation. Greater efficiency produces tangible outcomes such as lower prices, improved quality, innovation and sustainable markets.

Competition in the context of government procurement:

  • encourages new entrants to apply for government work and expands the number of prospective suppliers where possible
  • improves whole of government procurement outcomes while encouraging competitive markets for goods or services
  • ensures government can be flexible, agile and adapt as service delivery priorities change
  • promotes innovative market solutions to government service delivery needs.

Unquestioningly maintaining the status quo may limit competition, regardless of the quality or outcomes being achieved under existing procurement arrangements.

Fostering competition through category management

Category management considers the requirements, opportunities and risks of both the supply and buy side of the category market/s.

A critical issue to consider is the nature competition in the market, the government’s purchasing power, and the impact of government procurement on how the market operates, including on competition.

Category management plans articulate the priorities and strategies for managing the category across a defined period, and guide the procurement strategies adopted for category-related market approaches. The procurement strategy for each procurement activity should identify and justify the preferred procurement approach based on a robust needs and market assessment.

Category management plans and procurement strategies should consider:

  • the nature of the market(s) in which the goods or services are to be sourced, and the current and emerging market conditions
  • how the size, nature and scope of a category or contract could impact on competition
  • whether or not the size, nature and scope of a category or contract is justified having regard to the impact on value for money
  • what opportunities exist for innovation to redefine the business need
  • both the short and long term impacts on competition of the category management approach and procurement strategy. 

Actions that promote competition

Actions promoting competition

Actions limiting competition

Ensuring procurement staff are aware of the importance of promoting competition.

Unquestioningly accepting the status quo in supplier arrangements.

Ensuring that procurement decisions are outcomes-focused and consider quality and service, as well as price.

Rolling-over contracts or exercising options to extend contracts without a strategic assessment of market impacts and value for money, or without considering the impact on continuing barriers to new suppliers.

Understanding the prevailing market conditions when planning and undertaking procurement activities.

Not considering the long term impacts on competition when planning procurement activities.

Adopting the most appropriate procurement approach for the goods and services being procured, based on rigorous needs and market analysis.

Being overly prescriptive when describing requirements, in such a way as to limit diversity of responses, or prescribing requirements which are not essential to the supply and/or use of the goods and services.

Considering ways to encourage new suppliers to apply for government work, and structure procurement arrangements to make them accessible for new or smaller suppliers.

Over-estimating the ‘switching costs’ of moving to new suppliers.

Using prequalification schemes for purchasing goods and services where appropriate and they are available.

Over-estimating the actual costs to the agency of dealing with more suppliers.

Structuring commercial approaches in contracts to ensure risk and liability is fairly and appropriately managed.

Onerous contract terms and conditions which constrain competition, and excessive insurance requirements.

Restricting the number of potential suppliers only where the benefits outweigh the potential costs and risks.

Preferring to deal with fewer suppliers without showing there is a real benefit from this restriction. 

Considering ways to broaden the number or type of suppliers when developing agency-level procurement plans.

Mandating requirements for prospective suppliers to have experience in providing goods or services to the NSW Government or a government agency.

Informing the market at the earliest possible stage about intended procurement activities.

Surprising the market with complex and/or large procurement requests, or allowing insufficient time for tenderers to prepare submissions.

Using simpler and standard documents for low value, low risk procurements.

Structuring contract requirements so as to limit competition to larger suppliers, or which may exclude SMEs unfairly.

Applying consistent contractual terms across contracts wherever possible.