What is aggregated demand?
Aggregated purchasing demand is grouping together demand for commonly purchased goods and services to harness greater economies of scale when procuring from the market place.
Under the VGPB market analysis and review policy, an aggregated purchasing arrangement may take the form of a state purchase contract (SPC) or a sole entity purchase contract (SEPC).
- A state purchase contract (SPC) is an aggregated arrangement for use by mandated Victorian government departments and agencies
- A sole entity purchase contract (SEPC) is established for one department or a business unit/group of business units within an organisation.
The Market analysis and review policy details the mandatory requirements for establishing, managing and operating aggregated arrangements. SPCs and SEPCs must detail the rules of use for buyers intending to purchase under the arrangement.
Terminology: Pre-qualified supplier arrangements, also known as multi-use lists, a register, or multiple supplier arrangements where individual suppliers satisfy the conditions for inclusion but are not formally contracted to provide goods and or services.
When to set up an SPC or SEPC
The analysis of spend data and a complexity assessment of your procurement categories will identify opportunities to aggregate demand. SPCs and SEPCs should be established where there is clear justification benefits can be achieved through consolidating procurement needs.
Benefits can be both financial and non-financial and these benefits should be monitored through the life of the contract.
What does an SPC/SEPC look like?
SPC/SEPCs can be structured in a number of ways including, but not limited to:
- an open or closed arrangement
- mandated or non-mandated
- a sole or multiple supplier arrangement
These procurement models are explained in more detail in the following section.
SPC and SEPC procurement models
SPC and SEPC may be:
- Open or closed
- Mandated or non-mandated
Sole supplier arrangement may be provided by:
- brokerage service model
- master vendor
- software enterprise license agreement (ELA)
Multi supplier arrangement may be provided through:
- Prequalified arrangement (multi use list or register
A master vendor is a single supplier with pre-defined contractual rates responsible for developing partnerships with second tier suppliers for the purpose of engaging specialists to provide services. This model can be used to reduce complexity and administration in managing contracts while ensuring broader access to supply (e.g. staffing services).
A broker is where an individual or group is engaged to source services from a third party (typically various manufacturers) and provide quotations based on pre-defined statements of work. This model is used where market expertise and buying power may be low to deliver better value for money (e/g. print services).
A software ELA is an agreement to supply multiple software licenses and associated services on a whole of government or entity basis.
Panels allow contracted suppliers access to government business through a detailed tender process typically used where products and services sought are generic and where further savings and administrative efficiencies can be generated through aggregation of spend within a limited supply base. Panels can be either open or closed (see guidance below).
Open arrangements or closed arrangement
Open arrangements allow new suppliers to be added during the term of the arrangement. The arrangements for adding/removing suppliers should be included in the information provided to the market when establishing the arrangement. Open arrangements may be appropriate when:
- prices or rates are indicative and may fluctuate
- there is diverse expertise or a large number of suppliers in the marketplace
- the requirement is broad
- the market is emerging or immature, and there is a likelihood of new entrants and changes over time, or
- the period of the arrangement is particularly long.
Closed arrangements generally have a set number of suppliers for a given period of time. Such arrangements may be appropriate when:
- fixed prices, fees or rates apply
- there are specific requirements such as specialised skills and knowledge, intellectual property, technology platforms etc.
- regional or area-based suppliers are needed to ensure responsiveness
- product differentiation exists in the marketplace
- new products, providers and technologies are constantly emerging
- there is a strong potential for government purchasing power to influence the market, which would be restricted if the arrangement was closed to new entrants, and
- demand is not well understood at the start of the arrangement.
Deciding on the number of suppliers on a closed arrangement is a balanced judgement between:
- optimal number of suppliers who can satisfy the requirements of the procurement and the scope of potential work
- generating a level of contestability and competition between suppliers, and
- the cost to the organisation in maintaining and refreshing the database in relation to the value derived from the procurement.
Mandated versus non mandated
An aggregated demand can be mandated or nonmandated:
- mandated: Covers all general government mandated organisations. These are used where there is strong and ongoing demand for common use goods and services that can be easily defined in advance.
- nonmandated: Set up for all general government mandated organisations to use as required. Nonmandated SPCs are used where future demand cannot be adequately defined in advance.
Note: For mandated aggregated arrangements, where an organisation becomes party to an agreement they must be party to the arrangement for the full term of the agreement.
Number of suppliers
The number of suppliers in an arrangement should take into account the scope of work to be allocated among suppliers and the ability to achieve continuous improvement through effective contract management. In establishing an arrangement, consideration should be given to the following:
- market dynamics
- the anticipated amount of work
- offering participating parties a choice of suppliers
- the type and breadth of goods and services and whether individual suppliers can fulfil all requirements
- the cost to the suppliers participating in relation to the estimated work obtained and
- the cost to managing the panel arrangement.
The indicative number of suppliers should be considered when developing the business case and noted in the information provided to the market.
Sole supplier arrangement
A sole supplier arrangement is generally a fixed rate for service over a set period of time. Generally it is a closed arrangement. It can take the form of a master vendor arrangement, a brokerage or a Software ELA. Generally the arrangement has established boundaries around rate for services, time and performance levels.
Multiple supplier arrangements
A multiple supplier arrangement may vary in complexity and scope. They can be a panel or a prequalification arrangement. They can be open or closed arrangements.
A panel arrangement establishes a contract/head agreement with suppliers through a more detailed market approach to prequalified supplier arrangements.
Rules of use
All SPCs and SEPCs must detail the rules of use for buyers intending to purchase from the arrangement.
All multiple supplier arrangements are to have rules of use that determine how buyers invite, select and manage suppliers from the arrangement.
Rules of use can be consistent across the whole arrangement or segmented to reflect the different goods and services available from the arrangement.
Segmenting the rules of use should occur under common core requirements to deliver a high degree of process consistency. Segmenting the rules of use has particular relevance where:
- the complexity of supply across the arrangement is varied;
- suppliers on the arrangement have different skill sets and competencies;
- supplier risk is not consistent across the whole arrangement;
- there is diversity in the capability of suppliers; and
- where the requirement to supply is associated with different geographic regions.
Rules of use can provide consistency in the management of suppliers:
- where a multi supplier arrangement does not have a head agreement in place, the rules of use should stipulate that procurement from the arrangement valued at equal to or above $100 000 (incl. GST) must be published on the Contracts Publishing System; and
- the rules of use may also stipulate information to be included on the purchase order to assist with record management practices.
Social benefit suppliers are organisations or businesses whose missions are centred on a social purpose and/ or owned by groups or people who are considered disadvantaged. By their ownership structure, social benefit suppliers channel economic and social resources into marginalised communities. Social benefit suppliers may include aboriginal businesses, social enterprises, such as disability firms, social firms that generate employment or deliver other social impacts.
Rules of use for an aggregated arrangement may consider social procurement benefits.
Contract management of SPCs and SEPCs
Sound contract management should be undertaken for all SPCs and SEPCs. This includes but is not limited to:
- managing access to the agreement;
- maintaining a record of parties to the agreement;
- monitoring performance, analysis of spend, usage levels and usage patterns;
- identifying and mitigating risk
- reporting on benefits; and
- ensuring the arrangement meets the VGBP's directives of accountability, scalability, probity and value for money at all times.
Role of a Lead Agency
A lead agency is government organisation that manages one or more SPCs. Lead agencies are to report to the VGPB on the ongoing use of SPCs including spend and savings generated.
This information will be used by the VGPB to report on the overall benefits of aggregated arrangements for the Victorian government
Changing contract arrangements
Extending or replacing an SPC must be undertaken in consultation with the VGPB and approval must be obtained from the relevant Minister.
The SPC/SEPC contract manager is usually responsible for approving administrative variations. Financial commitments or changes in estimated costs in relation to an individual purchase should be approved by a person with the appropriate financial delegation.
Access to an SPC for non-mandated government entities
Access to SPCs:
- SPCs are established primarily for use by State government bodies.
- Certain non-government bodies may also be permitted to access a SPC on application to the lead agency.
Non-government bodies are entities that are not consolidated, for financial reporting purposes, into the State of Victoria's Annual Financial Report. The following types of non-government bodies may apply to access a SPC:
- Victorian local government councils, and federal, state or territory governments;
- Universities; and
- Charities and not-for-profit organisations that are funded, managed or sponsored by a State government body.
As part of the business case development stage of a SPC, the lead agency should consider who should be permitted to access the SPC. Where it is considered that non-Government bodies should not be permitted to utilise a specific SPC, the reason for this should be incorporated into the business case itself.
All requests for access to a specific SPC must be made to the lead agency, using the Application to access a SPC template.
The lead agency, at its absolute discretion, may assign access after reviewing the information provided in the access template and taking account of the following factors:
- the relationship of the body seeking access to the Victorian government;
- the benefit that would be gained by the body seeking access;
- whether there is any disadvantage to existing users of the SPC;
- any impact on supplier resources, or the supplier's ability to supply the market;
- any impact on the lead agency's sourcing program or resources; and
- whether any risk is increased as a result of granting access.
The onus of providing evidence of any benefit to be gained remains with the body seeking access.
Any decision on whether to grant a body access to a particular SPC is made on an individual case by case basis and will not set a precedent. The approval of access to one SPC has no bearing on access to any other SPC.
Access to a particular SPC may be at the discretion of the contracted supplier in circumstances where granting access is considered to pose a risk to the confidentiality of supplier information.
Where access to a non-government body is granted, this is for the duration of the particular SPC and is not guaranteed to be permitted for the next SPC of this same category. However, in the case that an option period is realised, access is deemed to be continual.
If the terms of an existing SPC are in conflict with this guidance, the SPC terms take precedence.
Exemptions from a SPC
Exemption of a general government mandated organisation (organisation) prior to establishing an SPC:
- An organisation can only be exempted from the SPC if it can demonstrate that it is unable to obtain value for money under the proposed SPC.
- The exemption sought can encompass the whole organisation, or a business unit within the organisation.
- The case for exemption is to be included in the business case for establishing the SPC to be approved by the Minister.
Exemption of a participating party from a mandated SPC:
- A participating party may seek an exemption from using a mandated SPC where it can demonstrate that special circumstances have arisen in relation to sourcing from the SPC. Factors that may justify granting an exemption could relate but not be limited to:
- a supplier on an SPC arrangement is no longer able to service an area
- regional suppliers can now offer the same or better value for money
- machinery of government changes alter the relevance of the supply arrangement for the participating party
- The exemption sought may be for:
- the whole or part of the organisation
- the whole or part of the SPC supply agreement
- a fixed period of the supply arrangement
- A case for granting the exemption is subject to the approval of the accountable officer of the lead agency.
Exemption for a one-off purchase
- A participating party may seek exemption from using an SPC for a one-off purchase where its procurement needs cannot be met by the SPC.
- A case for granting the exemption is subject to the approval of the category manager for the SPC.
Using this guide
This guide accompanies the goods and services supply policies. There are 5 supplies policies:
- Governance policy
- Complexity and capability assessment policy
- Market analysis and review policy
- Market approach policy
- Contract management and disclosure policy
This guide supports the market analysis and review policy.
Tools and support
Access a document version of this guide in the Toolkit and library.
For more information about procurement complexity and how to assess it, please contact the goods and services policy team.