A GUIDE TO
GOOD PROCUREMENT
IN HEALTH
Good procurement practices in health
consider the big picture and are:
1. Owned by a senior role in your
health service
The senior role is a Chief Procurement
Officer (CPO) who applies their influence
and expertise in your health service to:
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Set up, monitor and assess their health
service’s good procurement practices.
>
Work closely with the CEO who approves
the approach.
>
Support executives and managers who
manage good procurement.
>
Ensure that their approach is compliant
with government policy.
2. Easy to understand
Good procurement should be as simple as
possible. Processes should make it easy and
clear for everyone to understand how they
best work with each other in a procurement
context. Without a clearly defined process,
your ability to achieve ongoing value and
better outcomes will be compromised.
WHAT IS GOOD PROCUREMENT?
WHO IS HEALTH
PURCHASING
VICTORIA?
HPV was established in 2001 to
improve the collective purchasing
power of Victorian hospitals and
health services. HPV helps public
health care services deliver high
quality patient care by ensuring they
have a reliable and agile supply chain.
About Procurement
Reform
Following Victorian Government reforms
to procurement policies across government
departments in 2013, the Victorian
Government Purchasing Board issued
new purchasing policies to move beyond
previous value-based thresholds.
HPV adapted this framework to develop its
own Health Purchasing Policies that were
gazetted into Parliament in June 2014 with
mandatory compliance for public health
services to take effect from June 2016.
HPV is working closely with health services’
staff to implement these policies in their
own health services.
Visit https://www.hpv.org.au/resources/
health-purchasing-policies/ for more
detail on the Health Purchasing Policies.
Probity in Procurement
A core part of HPV’s function as included
under the Health Services Act 1988 is the
function to maintain and ensure probity
in health services.
It does this through supporting health
services to identify and manage probity
risks in their procurement process.
Good probity in procurement practice ensures:
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Fair and transparent treatment of all
suppliers interested in supplying the
health service a particular good or service
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Good stewardship of public funds
expended by health services
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Confidence in the market place that bids
will be treated fairly and evaluated on
their merits
>
Good procurement outcomes through
encouraging market participation and
competitiveness
High performing supply
chains are good for
public health
HPV helps public health care services
deliver high quality patient care by
ensuring they have a reliable and agile
supply chain.
The Health Services Act 1988 mandates
that public hospitals (as defined in
Schedule 1 of the Act) and public health
services (as defined in Schedule 5 of the
Act) purchase from HPV contracts and
comply with HPV’s policies.
However, HPV may also grant the
following organisations access to
HPV contracts:
>
public denominational hospitals
(as defined in Schedule 2 of the
Health Services Act 1988)
>
health or related services (as defined
in Sections 3(1) and 131(a) of the
Health Services Act 1988) which may
include publicly funded multi-purpose,
community health, women’s health,
pharmaceutical, ambulance, aged
care, residential care, correctional,
disability or palliative care services.
Nationally and globally, the costs of a
hospital’s supply chain are a significant
part of the operational budget. With
these increasing costs, HPV’s role in
managing collective procurement and
driving future supply chain reform with
support from health services.
HPV’s Field
Support team
Trish Boschin
Metropolitan and Gippsland regions
t.boschin@hpv.org.au
Sergio Lacchiana
Metropolitan and Hume regions
s.lacchiana@hpv.org.au
David Ray
Loddon Mallee region
d.ray@hpv.org.au
Dean Knights
Grampians and Barwon
South Western regions
d.knights@hpv.org.au
For each milestone of the procurement lifecycle (see diagram overleaf), HPV provides
guides, templates and resources to assist health services with their own contract
management activities.
To access these resources, you need to have a HPV website log-in (simply go to ‘Register’
on our homepage), then navigate to Resources > Procurement Reform.
https://www.hpv.org.au/resources/
See below for an overview of the templates and tools that HPV provides for health services
corresponding to each procurement milestone.
Good procurement no longer just picks the cheapest product or service, but
chooses the product or service that demonstrates the best value across its entire
life cycle. For example, best value in the health context can mean that a product
or service produces better clinical outcomes, lasts longer, or is of better quality.
3. Measurable
You should be able to measure easily
what you did and what you need!
Good procurement should offer everyone
clarity on how the procurement strategy
is measuring against its SMART objectives.
With this knowledge, you can review
and improve your procurement practices.
4. Beneficial to the health and the
financial wellbeing of all Victorians by
creating health services that:
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Can provide better care with high quality
outcomes.
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Are more financially efficient.
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Can deliver better health services and
better patient outcomes for the money
that’s invested.
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Free up resources allowing clinical staff
to spend more time with patients.
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Allow patients to receive the care they
need because vital equipment and goods
are available.
5. Considers all the contestable spend
of a health service
One of the most vital aspects to purchasing
performance improvement is understanding
the categories of spend in the organisation.
There is no doubt that while spend analysis
is likely to be time consuming, the collection
and systematic assessment of actual
procurement data allows you to identify
the areas in which focused negotiations
and standardised processes are likely to
yield the best results. Surveys* suggest
that organisations that have the ability to
classify and cleanse their spend data and
understand it, subsequently identified
23% more savings than organisations
that did not go through the process of
understanding their spend.
Other research has also found that
spend analysis can directly improve
corporate innovation – particularly the
inter-departmental collaboration that
the spend analysis process encourages.
6. Fair, equitable and transparent
High standards of probity and ethics are
essential to a good procurement outcome
and the confidence of participants in the
process. (see below)
HPV’S GUIDELINES AND RESOURCES
2 A GUIDE TO GOOD PROCUREMENT IN HEALTH 3A GUIDE TO GOOD PROCUREMENT IN HEALTH
* Aberdeen Group survey, February 2011
HPV POLICIES SUMMARY GUIDELINES, TOOLS AND TEMPLATES
Opportunity
Assessment
Identify, evaluate and select
procurement opportunities.
Develop procurement categories
and a procurement plan.
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Guide to procurement strategic analysis
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Guide to opportunity assessment
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Guide to completing spend analysis
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Guide to procurement categorisation
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Guide to developing a procurement activity plan
>
Procurement Activity Plan Template
Engagement
Engage the market and identify
relevant stakeholders to participate
in the procurement process. Ensure
businesses of all sizes are able to
access suitable opportunities.
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Change management activity plan
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Communication register
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Guide to improving access to health sector
procurement by SMEs
Analysis
Understand the business needs,
market dynamic and risks
associated with a procurement
category and/or activity, aligning
internal capability and resources
with the complexity.
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Guide to complexity assessment
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Market analysis tool
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Complexity analysis tool
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Guide to assessing capability
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Capability Assessment Template
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Risk analysis tool
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Risk Register Template
Sourcing
Strategy
Plan the project timeline, sourcing
strategy and approach to market,
and gain approval from the
appropriate authority.
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Guide to accessing alternative approaches
to market
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Guide to environmental procurement
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Creating a business case template
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Contract management template (complex)
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Contract management template (simple)
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Guide to benefits realisation
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Guide to maintain or enhance value for money
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Guide to ethical and social procurement
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Guide to sustainable procurement
Invitation
to supply
Execute the approach to market
ensuring all potential suppliers are
treated equitably and value for
money outcome is achieved.
>
Guide to specifications writing/statement
of requirements
>
Guide to market approach
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Guide to insurance and liability considerations
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Common Use (Transition) Clause
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Invitation to supply and contract templates
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Guide to ensuring probity in procurement practice
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Probity compliance checklist template
Negotiation
Ensure the successful bid(s) are
translated into a suitable contract
agreement, so that the outcomes
are realised though the contract.
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Guide to evaluation, negotiation and selection
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Guide to managing unsolicited proposals
Contract
Transition
Ensure a smooth transition to the
new contract by engaging suppliers
and stakeholders to clarify the
contract terms.
>
Guide to developing a contract
management strategy
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Contract Management Strategy Tool
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Guide to contract management
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Guide to Exemptions from HPV
Collective Contracts
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Guide to complaints management
Contract
Management
Appropriate controls and structure
are in place to ensure the
procurement outcomes are realised
through the life of the contract
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Supplier Engagement Plan Template
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Guide to contract management
Sourcing Strategy
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Strategy development
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Evaluation team liaison and management
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Sourcing strategy proposal
Analysis
>
Market analysis
>
Business needs analysis
Contract Management
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Contract deliverables management
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Contract variations
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Novations (e.g. managing the process when
a contract is transferred to a new supplier)
6
7
8
2
3
4
5
1
Opportunity
Assessment
Engagement
Analysis
Contract
Transition
Contract
Management
Category
Management
Invitation to
Supply
Negotiation
Sourcing
Strategy
1
2
3
4
WHAT ARE YOUR COST DRIVERS?
This is perhaps one of the fundamental questions for any
procurement organisation.
Knowing what drives the cost of a particular product or service is
critical to ensuring true efficiency from your procurement efforts.
When the cost driver is identified, the impact on the total price
from respective drivers becomes transparent.
Material 65%
Profit 9%
SG&A 5%
Burden/Overhead 15%
Labour 5%
Legislative requirements will vary between states. Pharmaceuticals may vary due to patent products; the percentages are indicative and may vary.
Labour 69%
Margin 7%
Overheads 12%
Payroll tax 4.9%
Workers Compensation 1%
Superannuation 6.2%
Example of Cost Drivers for Services Example of Cost Drivers for Products
The objective of a cost driver analysis is to break down the costs of
a purchased product/service. Cost types can vary depending on the
product/service in question and the applicable State legislation.
When the cost drivers of a category are identified, the impact on
the total price from respective drivers becomes transparent.
Contract Transition
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Preparation and execution of a contract
>
Contract handover to business as usual
Negotiation
>
Negotiation of contract terms
with preferred supplier
Invitation to supply
>
Market approach – Invitation to Supply (tender) or similar
>
Evaluation and selection of preferred supplier
Engagement
>
Preparation and research
>
Stakeholder consultation
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Evaluation team establishment
Opportunity Assessment
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Opportunity identification
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Opportunity research
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Preliminary business case development
4 A GUIDE TO GOOD PROCUREMENT IN HEALTH 5A GUIDE TO GOOD PROCUREMENT IN HEALTH
THE PROCUREMENT LIFECYCLE
Strategic procurement is a dynamic and end-to-end process that is
underpinned by strong category management throughout each
milestone of the process.
Numbers
1
to
4
represent key decision gateways.
PROCUREMENT ESSENTIALS
THE PROCUREMENT PROFESSIONAL’S SKILL SET
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Do you have an appropriate
statement of requirements
(specification or SoR) which is vendor
neutral and clear about ‘must haves’
vs. ‘nice to haves’? See HPV’s Guide
to Writing SoR’s, available on the HPV
website under Resources > Procurement
(note you need a log-in to the website
to access).
>
Do you have an evaluation plan, with
clear criteria, weighted appropriately
and a methodology to compare the
capability of respondents against
the price of their offer? e.g. vendor
capability, capacity, quality and safety
systems, customer service etc.
>
How will you manage responses to
ensure the integrity of the process:
security, confidentially and
impartiality in the evaluation
process? e.g. a sealed bidding process,
document security and access controls,
independent scoring, evaluation based
on bids presented, not the evaluators
experience of the supplier, separate
financial and technical evaluations.
>
Do you have a well-articulated and
objectively defendable proposal for
your selection of the successful
supplier(s)? i.e. based on objective
evaluation and scoring of bids, risk
assessment of bidders, and value for
money principles.
>
Has their offer been translated
successfully into the terms of the
contract? Including any additional
commitments over and above the
statement of requirements and any
variation to the draft agreement terms.
>
Has the supplier selection been
approved by the appropriate
authority, and contract been correctly
executed? Ensure the signatories have
the appropriate legal authority
The agreement with
the supplier is in place –
now what?
Financial Tracking
>
Has a financial health check been
completed? And scheduled for
review? A financial health check on an
agreement typically covers a review of
the company’s balance sheet, P&L over
three years and any adverse financial
events or judgments.
>
Has the payment schedule been
aligned to supplier performance
and/or aligned with delivery of
contract milestones and deliverables?
>
Has a review process been
implemented to confirm invoices are
consistent with contract schedules
and contract terms and conditions?
Contract Insurance
>
Has the contractor provided necessary
insurance certificates of currency, as
specified in the contract?
>
Are contractor certificates of currency
up to date?
>
Contractor certificates of currency
expiry dates are recorded and
monitored to ensure that certificates
are updated four weeks prior
to expiry?
Contract Governance
>
Have key agency and supplier
personnel been identified and
appointed in relation to the contract
e.g. general manager level, contract
manager, supplier account manager,
technical leads?
>
Is it clear who is accountable for
the contract outcomes?
>
Do the skills of the department’s
personnel match the capability
required for the complexity of this
category/procurement activity?
>
Are appropriate performance
management and reporting
requirements established for
this contract?
>
Has the approval/audit and
accountability been identified
and established?
The capability assessment process can be used to assess capability at the
organisational, business unit, or individual procurement personnel level.
It identifies current procurement capability as well as capability gaps to drive
continuous improvement in your organisation. Investing in Learning and
Development (L&D) is essential for an organisation’s sustainability.
Upgrading the skills and competencies of
your personnel is a critical component to
successful business growth and change.
Capitalising on the work of individuals
within their specific environments, by
focusing on developing and reinforcing the
knowledge, skills and abilities, will not only
increase the expertise in your organisation
but the benefits will also be in the form of
A key part of the new Health Purchasing Policies requires public
health services to establish a Chief Procurement Officer (CPO) role
that has visibility and oversight of the entire non-salary spend
profile of their health service. Essentially, the CPO provides expert
advice and guidance to the Executive, CEO and their health
service’s board regarding procurement governance.
In line with best practice, the CPO must be a senior executive
or the role may be incorporated into the role of an existing senior
executive such as a CFO or the CEO. The CPO must have
procurement qualifications, or equivalent experience, or have
access to advice from someone with these qualifications,
commensurate with the health services’ spend profile.
This strategic oversight is critical to the effective governance
of procurement within a health service – a key recommendation
of procurement reform.
Ensuring you have
the fundamentals
covered as part of your
procurement process
is part of a sound
procurement strategy.
The following checklists can be used as
general guides when preparing for a
market release or managing a current
agreement. By going through a guided
process, it helps to ensure that probity
concerns are addressed up-front and
integrated into the ongoing plan.
Preparing for an
Invitation to Supply
>
Is the approach to market and
funding approved by the appropriate
authority(ies)/delegates?
>
Have you developed a realistic and
achievable project plan? Identify major
task, timelines and resources required,
and an allowance for unforeseen delays.
>
Have you ensured the right
stakeholders are involved and
understand their responsibilities
particularly with regard to the
probity of the process? e.g.
operational/business unit managers,
finance, technical experts, logistics etc
e.g. balance of commercial, operational
and technical expertise.
>
How will you ensure all suitable,
potential suppliers are (i.e. the
market is) aware of, and can respond
to, the Invitation to Supply? e.g.
market analysis, pre-registration, advance
public notice, website, newsletters,
advertising etc.
increased motivation and improved morale
as staff will feel they are truly contributing
to the success of the organisation. Investing
in your employees by providing training
and development helps employees to
prosper and develop their careers by not
only giving your business a highly skilled
workforce but it also demonstrates your
loyalty and commitment to your staff.
It is also an important element for “Employers
of Choice”. Various organisational and HR
research supports the fact that employers
who invest in staff development and training
also have much lower staff turnover.
As part of the planning process, capabilities
are mapped against each role. This is a
dynamic process that changes as the
professional development needs change.
THE ROLE OF THE CPO
7A GUIDE TO GOOD PROCUREMENT IN HEALTH6 A GUIDE TO GOOD PROCUREMENT IN HEALTH
Key Skills for a Procurement Professional
CAPABILITY DESCRIPTION
Contract Negotiation
and Management
Able to develop relationships with suppliers and stakeholders to deliver solutions which optimise the
organisation’s outcomes. Able to build on relationships based on credibility and trust to influence stakeholders
using relevant information, analysis and evidence.
Market Analysis
Able to draw on market knowledge, expertise and relevant information and research to develop and evaluate
solutions with consideration for likely business and market impacts. Familiar with common analysis tools and
concepts, and able to synthesise information to develop appropriate sourcing and contract/category
management strategies.
Procurement
Knowledge of supply chain, financial analysis, procurement policies and procedures and application of probity
to procurement. Able to take a strategic approach to procurement and allocate resources to plan effectively
and deliver value for money outcomes.
Commercial
Possesses strong commercial and business acumen with knowledge and understanding of the financial,
accounting, marketing and operational functions of an organisation. Understanding of business processes to
deliver effective solutions to meet business needs and demonstrate the value of procurement.
Managing Procurement
Projects
Able to plan and execute large and complex procurement projects effectively, within time and resource
constraints. Address issues strategically, managing resources and delegating effectively to ensure project
success. Ensures stakeholders are actively engaged in the problem solving process to broker solutions and
encourage joint ownership.
CONTACTING US
FAQs
www.hpv.org.au/faqs
Procurement Reform resources and templates
www.hpv.org.au/resources/health-purchasing-policies/
procurement-guidelines-tools-and-templates
Note, to proceed to this page, you will need to log in to the HPV website –
if you don’t have a log-in, you can register via the homepage.
Health Purchasing Victoria
ABN 28 087 208 309
Level 34, Casselden Place
2 Lonsdale Street
Melbourne Victoria 3000
Phone 03 9947 3700
Fax 03 9947 3701
Copyright: Health Purchasing Victoria, June 2015
Accessing HPV’s website
HPV’s website is the central source
of communication for all HPV contracts
via customised portals. Contracted
suppliers can access all information
and files relevant to the HPV categories
that they supply, such as their agreement
with HPV.
Are you a prospective
supplier?
If you are not currently supplying a HPV
contract, you can apply for a HPV website
log-in that will allow you to access publicly
available information and provide you
with the ability to ‘favourite’ or ‘subscribe’
categories of interest to receive direct
email updates.
To register for a log-in, you can go to
the homepage and enter your email
address. The system will automatically
recognise your email address and if your
organisation is already registered in the
system, it will be sent to the super-user
from that organisation.
Feedback and collaborative input is critical to the success of HPV’s sourcing program.
We encourage health services to provide us with real-time feedback on contract performance.
Contact us on one of these Zendesk emails to ensure that your query is tracked and allocated
to the appropriate contacts at HPV.
feedback@hpv.zendesk.com – for general queries
contracts@hpv.zendesk.com – for sourcing program and supplier performance management communication
