In today's competitive business landscape, many small and medium-sized enterprises (SMEs) need help to compete for large-scale tenders. One powerful strategy gaining traction is Cooperative Procurement Arrangements (CPA), where businesses join forces to bid on larger contracts or purchase goods and services collectively. These collaborative approaches can help unlock new opportunities, allowing companies to access tenders that would otherwise be out of reach due to resource limitations.
In this blog:
What are Cooperative Procurement Arrangements?
Cooperative Procurement, also known as ‘group purchasing’ or ‘multi-agency access (MAA)’, involves multiple entities joining forces to bid on larger contracts or purchase goods and services collectively.
The Australian Government encourages cooperative procurement through initiatives like the Commonwealth Procurement Rules (CPRs), which emphasise value for money and efficiency. While participation in coordinated procurement is mandatory for some entities, cooperative arrangements are voluntary and typically initiated by the entities involved.
Cooperative Procurement in Action: Clustering and Piggybacking
Cooperative procurement is common across Australian public sector organisations, where entities can opt to cluster or piggyback on existing contracts.
Clustering
Entities involved in clustering agree on shared procurement management processes. A lead entity often oversees the tendering process, but responsibilities, resources, and costs may be shared. This method enables participants to pool their purchasing power, negotiate better pricing, and share administrative duties. Moreover, clustering can be particularly useful when procuring products and services in high demand, as it allows for volume discounts and streamlines the supply chain.
Piggybacking
Piggybacking allows entities to access contracts that other organisations have already awarded. Here, one entity sets up a contract or standing offer arrangement, which other entities can "piggyback" on. This model is efficient when an existing arrangement offers favourable pricing and terms that meet the needs of additional entities. However, it is important to ensure that such arrangements still represent value for money and align with the current needs of the participants.
Benefits of Cooperative Procurement
The cooperative procurement model offers several benefits, particularly for smaller entities or those with niche procurement needs. These benefits include:
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Cost Savings
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Group purchasing allows entities to take advantage of bulk discounts and negotiate better terms. This leads to significant cost reductions in goods and services commonly used across sectors.
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Administrative Efficiency
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Sharing the procurement process reduces the administrative burden on individual entities. Fewer approaches to market mean less time spent on tender management and evaluation, resulting in quicker procurement cycles.
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Knowledge Sharing
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Entities engaged in cooperative procurement benefit from shared expertise and best practices. This is particularly valuable for organisations that may lack in-house procurement specialists.
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Reduced Risk
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By collaborating with others, entities can spread the risk associated with large procurements, reducing the financial and operational impact on individual organisations.
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Increased Competitiveness
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Smaller businesses that may struggle to win tenders on their own can gain access to larger contracts by forming alliances with other companies thereby boosting their competitiveness in the market.
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Key Considerations in Cooperative Procurement
Value for money is the core principle behind cooperative procurement in Australia. Entities must evaluate whether a collaborative approach offers a better outcome than going to market individually. This involves several steps:
Assessing existing arrangements
Entities should first determine if another entity's existing arrangement provides better value for money than starting a new procurement process.
Ensuring future access
Contracts or standing offer arrangements should include clauses allowing other entities to access the agreements in the future and supporting ongoing collaboration.
Successful Examples of Cooperative Procurement in Australia
Health Sector
In the healthcare industry, cooperative procurement is widely used to manage medical supplies and equipment purchases. Organisations like Health Share Victoria (formerly Health Purchasing Victoria) coordinate collective buying arrangements, saving millions of dollars for public health providers.
Local Government
Many local councils in Australia participate in group purchasing through organisations like Local Government Procurement (LGP), which helps councils secure better terms on goods and services. These arrangements not only save money but also streamline procurement across jurisdictions.
Construction and Infrastructure
Clustering is common in the construction industry, where entities pool resources to bid on large infrastructure projects. By working together, they can offer better pricing and share the risks and responsibilities of delivering complex projects. CPS Central is an example of a buying group helping independent retailers access preferential pricing for building, rural, hardware, and industrial supplies.
Getting Started with Cooperative Procurement
If you are considering cooperative procurement for your organisation, here are some steps to get started:
Identify Opportunities
Establish Agreements
Ensure clear agreements regarding roles, responsibilities, and profit-sharing among participating entities. This will avoid any confusion during the procurement process.
Include Flexibility in Contracts
Add clauses to procurement contracts allowing multi-agency access, ensuring other entities can join the arrangement later if needed.
A Deeper Dive: Additional Resources
Below are some additional recommended resources to help gain a better understanding of cooperative procurement by state: