Approach to categories and contracting
Navigate decisions around buying categories, rules and contracts, while remaining open to innovation.
Why adopt a staged approach
Within procurement strategies, buying teams generally indicate a buying category, show how they will follow category rules and identify which agreement (contract) will be used to manage delivery.
When the end solution is unknown, it may not be possible to identify the appropriate buying category, rules or contract. In fact, sticking to a single buying category could either lock out innovative solutions or increase the risk of the investment.
A staged approach to buying categories and contracts will help attract innovation and set the buying team up for adaptive risk management. Stakeholder buy-in to the staged approach will ensure the right balance between compliance and flexibility.
Who to involve and why
Information about categories and contracting is needed by two main stakeholder groups:
- Approvers – so they can assess compliance with procurement policies and management of risk through contractual controls.
- Suppliers – locks in information they will need to know to respond to a tender and negotiate contracting terms.
Because these two groups may not be familiar with staged approaches in this context, buying teams should plan communications carefully to be transparent and build confidence.
Involving the right expertise early will help avoid compliance issues arising later in the procurement. To set up for a staged approach to categories and contracts, buying teams should engage with:
- Procurement specialists – can advise the buying category rules that could apply, whether the procurement complies with those rules and any other related risks.
- Legal advisers – to identify critical contract positions and risks early, which can be addressed at the start, where competitive tension and leverage are greatest.
- Probity adviser – to ensure the way buying category rules are being planned for and communicated to potential suppliers is transparent and fair.
Principles to apply for categories and contracting
Although aiming to attract a wide range of solutions, innovation buying projects need to follow buying category rules and create leverage for future agreements. To achieve this balance, buying teams should:
- stay open to possibilities
- find the best starting point
- maximise leverage despite uncertainty
- refine iteratively at each stage.
The rest of this page helps buying teams work with each of these principles to navigate decisions around buying categories, rules and contracts.
Stay open to possibilities
When buying innovation, project teams should try to be open to a range of buying categories, buying rules and contracts. This does not mean avoiding the issue entirely, however. There is still planning that can and should be done to find the right starting point and maximise leverage from the market approach.
Expand the boxes to read about the benefits of keeping buying categories and contracts open.
Requirements associated with a buying category, such as membership of a scheme, could exclude suppliers who don’t meet those requirements at the time of submitting a proposal. The project could miss out on valuable, innovative solutions or capabilities.
Adhering to a single buying category may also exclude innovative solutions that don't neatly fit into one category. Some innovative solutions might span multiple buying categories, making a flexible approach essential.
For example, a project may initially assume that a new digital platform is the solution to a problem. However the best solution might be to get professional services advice on optimising existing business processes.
Buying teams should avoid setting restrictive requirements upfront. Even where strict mandates exist for a buying category, such as scheme membership or technical certifications, they usually aren't needed initially. Buying teams can flag these requirements and ask suppliers to acknowledge them. They can then ask for more evidence from a smaller number of suppliers after shortlisting.
This approach lowers the barriers for responding to a tender, making it easier for a diverse range of suppliers to participate. This way, buying teams can explore the full range of solutions and improve confidence in their shortlisting at each stage.
With a staged approach, buying teams can understand what the market can offer and whether key government requirements can be met. If initial proposals show a lack of compliant solutions, and promising solutions might struggle to meet requirements, there is flexibility to consider compliance support options. This includes offering education, access to expertise or funding to help suppliers meet requirements.
Contract templates and default positions help manage certain delivery risks. Thus, contracts should reflect the risk and complexity of the solution being delivered. For innovation, buying teams should not lock in a simple form of contract until they know enough about the preferred solution(s) to be confident that contractual positions will effectively mitigate risks.
Agile procurement means adjusting and refining contract templates and specific terms as more is learned about the solution during each stage of the process. This ensures that agreements are always aligned with the evolving understanding of the project.
For example, the ICT Purchasing Framework can help manage the unique risks associated with ICT, such as cyber security. However, it may not effectively manage risks associated with other buying categories. Contractual clauses should be tailored to mitigate specific risks, even if it means borrowing clauses from other buying categories.
Examples of cross-category purchasing
Buying teams can get an idea of whether potential solutions might cross over multiple buying categories through market research and looking out for the examples of non-ICT or cross-category goods and services listed below. Each combination of goods and services might need different contractual approaches. This depends on the nature of the work and the extent to which technology is integrated.
This covers situations where a project is primarily non-ICT, but certain elements fall under ICT. For example, a construction project that involves installation of network or audio-visual equipment, including connected or 'smart' infrastructure.
Other examples include lockers at stations operated via an app or professional services facilitated by a platform, bringing ICT-related risks.
Innovative solutions may not involve technology or fall under non-ICT purchasing arrangements. For example, professional services developing policy, strategy or engagements to solve problems that might enable technology implementation in the future.
Often there are policy, process or information barriers that prevent the successful implementation of technology. Solving for these may be a valid outcome for a project.
Solutions related to financial technology that may involve payments or interaction with schemes or other banking processes could require unique contractual terms. Contracting approaches might treat either banking agreements or ICT agreements as the primary template, depending on the best fit. Specific terms from the secondary agreement could be introduced to manage risks not covered by the primary template.
Engaging temporary or contract workers may be governed by different contractual agreements. This might occur to support the implementation of non-technology solutions. Or supplement internal resources to build a technology solution where outsourcing is not the preferred approach following market research.
Find the best starting point
Buying teams should have a robust starting position on buying categories and contracts based on an understanding of the types of proposals that are likely to come in. This becomes a hypothesis which buying teams can validate or test at each stage of procurement, adjusting as needed.
For a strong hypothesis, buying teams should consider:
- likely buying categories
- any applicable schemes or panel arrangements and their membership requirements
- buying thresholds, requirements relating to number of quotes and relevant approvals
- any other buying rules associated with a category
- form of agreement for stages vs end solution
- whether reseller arrangements could be proposed.
Expand the boxes to read how market research and proactive communication can inform a starting position that can flexibly adjust to potential changes.
As with a scientific hypothesis, the starting position should be an informed one, based on the best information available at the time. Buying teams need some insight into the current state of the market and the types of solutions that could emerge. Market research helps identify suitable buying categories and plan for a range of scenarios, including whether reseller arrangements could be proposed.
Buying teams should clearly communicate the chosen approach to buying categories and contracting, as well as any uncertainties and how changes will be managed. This applies to all procurement documentation, whether for internal approvals or market facing.
Proactive communication may use standard/pro-forma content directly or tailor it to:
- identify the likely forms of agreement and the level of confidence
- communicate any known contractual risks
- explain the role of different stages in refining assumptions
- identify which information might change and why
- explain how changes will be governed and/or communicated.
Being transparent about potential changes and the rationale behind decisions helps build trust with suppliers and other stakeholders.
It is important to show how testing and feedback from suppliers will be used and how decisions will evolve with new evidence. This will improve cooperation and alignment throughout the procurement process.
Maximise leverage despite uncertainty
To have a smooth contract negotiation experience, it is good practice to include contract terms in the initial market approach. It is also important to ask for any proposed variations to those terms as early as possible.
When the solution is known, this is usually done by attaching the entire agreement to be used to the tender documentation. Since the solution is not known for innovation, buying teams need to alter this approach in a way that sets clear expectations around contracting terms as much as possible.
Expand the boxes to read how to create leverage when the solution is not known.
Based on the starting hypothesis about potential solutions, buying teams can work with legal teams on expected key contract terms. Identifying these clauses early helps set clear expectations, minimises surprises, ensures potential risks are managed from the outset and supports smoother contract negotiations.
These can be identified through one or more forms of agreement that might apply to the final purchase, based on the expected range of possibilities. Some contractual clauses are common and equally important across buying categories, such as:
- indemnities and liability
- insurance
- intellectual property
- confidentiality
- early termination.
For ICT-related projects, additional clauses from the ICT Purchasing Framework may be considered high-risk and worth managing proactively. These might include:
- customer data handling
- privacy requirements
- security and security incidents
- reseller arrangements (e.g., End User License Agreements or step-in provisions)
- artificial intelligence assessments.
For solutions that cross over other buying categories, like professional services or banking services, there might be additional clauses that are considered high-risk or critical.
Buying teams can retain flexibility while communicating contractual expectations up front. This transparency benefits buying teams just as much as suppliers, who want to make an informed decision to participate in a tender.
Transparency, in this case, means informing suppliers of contractual terms that will need to be agreed to later in the process. This helps suppliers understand future obligations without imposing restrictive requirements or unnecessary barriers.
Procurement teams can seek acknowledgment from suppliers that they would be willing to meet key contractual terms. Or they could ask for proposed variations to critical terms. This allows for clarification of supplier positions when competition is at its highest, even if the final form of agreement hasn’t been determined.
Early engagement on key terms can reveal any strong opposition or concerns so buying teams can plan and adjust if needed. By addressing these potential issues early on, procurement teams can reduce the likelihood of unexpected last-minute contract negotiations, minimising delays.
Buying teams should indicate in tender documents which forms of agreement are likely to be used. This enables suppliers to prepare and align their proposals accordingly. It’s important to clarify that agreements might be revisited and adjusted as more information about the solutions becomes available. This helps manage supplier expectations.
Buying teams should also confirm how suppliers will be notified of any decisions or changes to the contract terms or forms of agreement. This ensures ensuring ongoing transparency and trust. For example, buying teams could inform suppliers that the final form of agreement for a stage will always be confirmed before suppliers are invited to participate.
Buying teams should inform suppliers about any specific requirements related to likely buying categories. These can include scheme memberships, insurance levels, or certifications. It’s not recommended to make these requirements mandatory in the first stage. However, understanding suppliers' capability to meet requirements helps plan and adjust for future stages.
This proactive approach allows buying teams to identify potential gaps early. This enables them to support suppliers in meeting necessary standards if compliant options are not available. It helps build a more inclusive, diverse and competitive environment.
Refine iteratively at each stage
In agile procurement, each stage is an opportunity to learn more about potential solutions. This can help refine the understanding of which buying categories apply and which contracting approach fits the risk profile.
While planning for each stage, buying teams should consider:
- Have you gathered enough information from the previous stage to refine the buying categories and/or contracts for the end solution?
- Is the contract you planned to use for the next stage still appropriate, or does it need adjusting?
- Who needs to contribute to, verify and/or approve a change in the contract type?
- Are you in a position to ask suppliers for more detail on contract terms or other requirements associated with the buying category?
- How will you communicate changes from the original intent to suppliers?
- How will what you've learned impact the negotiation of agreements for future stages or end solution?
- Do you expect any variations to contract terms & conditions and could you ask about these at the next stage?
- Are any other steps needed to ease the pressure on negotiations at the final stage?
A note on compliance pathways
If it becomes clear through the proposals that certain requirements can't be met by the majority of suppliers, buying teams can consider compliance pathways. There is a range of pathways that might help suppliers meet requirements. These include education, targeted support, access to expertise, linking requirements to the award of the final contract or providing funding to meet requirements. This is equally important when setting evaluation criteria. It ensures promising solutions aren't dismissed due to initial non-compliance.
Buying teams should consider any pathways that can help achieve business outcomes while managing risk exposure for the NSW Government, based on market research findings and early stage tender responses. Asking suppliers to indicate intention or ability to comply, rather than demonstrate compliance, in early stages, helps contribute to market insights.
Some examples of compliance pathways are listed below.
The level of insurance (including cyber security insurance) required to do business with the NSW Government may not be feasible for a small business to obtain before responding to a tender. At this stage there is no guarantee of success or revenue. It may, however, become feasible if the supplier can account for the costs of the insurance in their pricing model. In such cases, they would usually be willing to commit to obtaining the relevant insurance before entering into a contract.
Smaller businesses, particularly those who have not dealt with the NSW Government before, may not understand modern slavery requirements. This may also be the case for other social procurement policies. These suppliers might not be able to meet these sorts of requirements when submitting a proposal. However, they may still be able to meet them eventually, with enough support.