This direction deals with procurement of construction services by or for a government agency within the meaning of the Public Works and Procurement Act 1912.

This direction replaces PBD-2014-02 Access to government contracting opportunities by small and medium sized enterprises, PBD-2016-05-Procurement Innovation Stream and the Small Business Trial provisions in PBD-2012-02 Whole of government contracts. The provisions in these directions relating to the procurement of non-construction goods and services are superseded by the SME and Regional Procurement Policy.

Small business exemption

Agencies may purchase construction services valued up to $50,000 (excluding GST) directly from a small business, even where those goods or services are available on a whole-of-government arrangement, provided the supplier’s rates are reasonable and consistent with normal market rates.

A small business is a business with 1-19 full time equivalent (FTE) employees, including sole traders and start-ups.

Access to government construction contracting opportunities by SMEs

An SME is an Australian or New Zealand based enterprise with fewer than 200 FTE employees.

NSW Government agencies must make reasonable efforts to obtain a quotation from a small and medium sized enterprise (SME) when conducting a competitive process (ie seeking more than one quote) for the procurement of construction services valued up to $1 million (excluding GST) from the:

• Prequalification Scheme for Construction Consultant Services (SCM1191)

• Prequalification Scheme for General Construction Works (SCM0256).

As a matter of good practice, agencies are encouraged to apply the principle of this direction to all procurement sourcing activities for work valued up to $1 million, whenever two or more possible suppliers are invited to submit quotations.

Agencies are not obliged to apply this direction where, owing to the nature of the construction services being purchased, there is no reasonable prospect of an SME business feasibly delivering a competitive quotation.

For major construction activities an agency should encourage the principal contractor to implement this direction.

This requirement does not apply in emergency circumstances as per the Public Works and Procurement Regulation 2014.

Procurement innovation stream

Procurement accredited NSW Government agencies may engage a supplier through direct negotiation on short term contracts valued up to $1,000,000 (excluding GST) to conduct proof-of-concept testing or outcomes-based trials, subject to the following conditions:

• the supplier is an SME, as defined in this direction

• the supplier agrees that the agency is permitted to publish a report on the use of its products or services

• the agency publishes a report on the outcome of the trial within 21 days of its completion (see below)

• the procurement must be approved by the agency head or delegate.

Agencies are permitted to procure one or more goods or services as part of the test or trial, and should test all goods/services against a ‘control’ wherever possible. Where this is not possible, agencies should consider using data or information available about the same or similar products or services being used by other entities with the Australian public sector.

When assessing value for money prior to entering the trial, the agency should not assess the down-stream benefits of a successful trial as being greater than ten percent of the direct benefits of the trial.

Proof-of-concept testing should only be used to prove that a particular good or service can feasibly meet a business need and/or to identify costs with its (potential) wider use. Proof-of-concept testing cannot alone identify the preferred procurement solution. Guidance on conducting direct negotiations is available from the Independent Commission Against Corruption.

The allocation of intellectual property rights should be determined on a case by case basis. Unless agreed otherwise, any intellectual property created during the course of the test or trial is retained by the supplier, and the agency should not be licensed for its ongoing use.

Reporting requirements

The agency is to publish a report about the test or trial within 21 days of completion, including:

• a statement by the agency as to why the test or trial was undertaken

• the identity of the supplier(s) involved in the test or trial, and whether the agency or the supplier initiated negotiations leading to the test or trial

• the value and duration of the test or trial

• all data and findings associated with the trial

• the treatment of intellectual property created during the course of the trial

• whether the agency has any further procurements planned from the test or trial.

Commercially-sensitive information may be withheld from publication, including the supplier’s intellectual property.

Where an agency has conducted proof-of-concept testing or a trial, any subsequent procurement of goods or services must be through a competitive procurement process, which gives other potential suppliers scope to compete and confidence in the robustness of the procurement activity.

Application

This direction was approved by the NSW Procurement Board on 20 February 2019 and applies from 1 May 2019 until withdrawn.​

Context

The Government has released a new SME and Regional Procurement Policy that applies to goods and services procurement, excluding construction. The policy supersedes the existing SME procurement provisions as they apply to non-construction procurement.

Alongside the release of the new policy, Treasury, Infrastructure NSW and Transport for NSW are consulting with the construction sector regarding ways to improve support for SMEs in construction procurement. Pending the review, the existing SME procurement provisions that apply to construction procurement remain in place. These have been consolidated into this Direction to make compliance easier.