New South Wales Procurement Board
NSW Procurement Board Direction

PBD-2016-05-Procurement Innovation Stream


Procurement accredited NSW Government agencies can engage a supplier through direct negotiation on short term contracts valued up to $1,000,000 (including GST) in order to do proof-of-concept testing or outcomes-based trials.


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

The Procurement Board recognises that there is value in permitting agencies greater scope to test the capability of goods and services to meet current or emerging business needs through innovative solutions or outcomes-based trials.

Often these innovative solutions may require direct negotiations with a supplier. Existing procurement policies appropriately limit direct negotiations to low value, low risk and/or unique products. Agencies are also required to undertake a comprehensive market analysis demonstrating that a competitive process need not be conducted, assess the risk arising from the use of direct negotiation and have high level approval of the procurement activity. 

As proof-of-concept testing is to create evidence about the feasibility of a good and/or service to meet a business need under realistic operating conditions, accredited agencies are permitted to engage a supplier through direct negotiation on short term contracts valued up to $1,000,000 (including GST) in order to do proof-of-concept testing or outcomes-based trials, subject to meeting the following conditions:

  1. the supplier is a small or medium sized enterprise, as defined in the Board’s Small and Medium Enterprises Policy Framework
  2. the supplier agrees that the agency is permitted to publish a report on the use of its products or services
  3. the agency publishes a report on the outcome of the trial within 21 days of its completion (see below)
  4. the procurement must be approved by the agency’s Chief Procurement Officer or agency head.

Agencies are permitted to procure one or more goods or services as part of the one 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. 

In meeting its obligation under (3) above, the agency is to publish a full report on the ProcurePoint website about the test or trial, 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 arising 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.

This Direction takes effect from 1st October 2016.