Question 3: Outsourcing and Supplier Assessment (30 marks) The creation of LGP effectively outsources the procurement functions of existing council operations, into the new body, LGP. In addition, you expect that your team will explore further opportunities to outsource other areas of council operations that are currently performed internally. You can't help but think of the efficiencies to be gained from outsourcing IT support and council customer service call centres. One of your new recruits ask of you the following questions: a. What is outsourcing? What do you find are the THREE greatest benefits of outsourcing for LGP? b. The idea of outsourcing means making their existing employees may be made redundant, which would cause great personal conflict within their close-knit community. Briefly discuss TWO significant risks that the Council could face as it outsources its IT function. How can this be avoided when the outsourcing contracts are executed? c. Describe the elements that need to exist in order for a legally binding contract to be established. d. What contractual matters would need consideration in relation to the outsourcing initiative?

CASE STUDY LOCAL GOVERNMENT PROCUREMENT CONSORTIUM {LGP} Local Government Procurement (LGP) is a new initiative, which has been developed to create procurement efciencies, saving councils signicantly in time and dollars. Four Sydney Local Council's have combined their procurement functions to achieve better value for money and to ensure that the resources available are used as efciently as possible. LGP's governing body believes that there will be opportunities for the consolidation of orders, bulk buying discounts and economies of scale. It is anticipated that LGP will establish contract panels, provide procurement consultancy services (including strategic sourcing, category management, contract management services) as well as ensuring compliance and providing governance and probity advice. LGP has recently appointed a new procurement director, Nash Gaffney, whose previous experience was not in the public sector. but had been in the private sector. Nash previously worked for two public limited companies in the pharmaceutical industry, where he had been successful in improving and streamlining procurement functions. Nash has decided that his priorities in his new role are to embed the new procurement structure, develop a sourcing plan for selecting appropriate suppliers and to engage with LGP's stakeholders, to ensure that the new procurement operations will meet their needs. Nash is aware that a serious problem faced by the four Local Council's, before LGP was developed, was supplier failure. A number of key suppliers, who had been awarded three-year contracts, experienced nancial problems because of a lack of liquidity and they were unable to complete the contracts. Nash is determined that this will not happen in future and he intends to ensure that the nancial status of all potential suppliers is vetted rigorously before a contract is awarded. Nash is in the process of recruiting a small team of procurement specialists to assist him with sourcing the supplies needed by the four Local Council's. He is keen to recruit procurement specialists who have public sector and preferably Local Council experience, given his private sector background. Once the team has been put in place, one of its rst tasks will be to undertake analysis of the markets and suppliers. He is particularly keen that the team gathers, analyses and evaluates as much relevant data as possible about potential suppliers and markets. After his team has completed this process. Nash intends to use the data to start the supplier selection process. Shortly after taking up his new post, Nash was informed that the roads maintenance contracts of all four Local Council's would come to an end within the next four months. The values of the four current contracts vary between $1.8 and $2.7 million, with the total value being $9.5 million. Nash has decided that a new single contract to provide roads maintenance services should cover all four Local Council's and his aim is to achieve a saving of 10%, compared to the cost of the current contracts. The new contract will be for a three-year period and, as required by the Local Council Procurement Guidelines, a tendering process will be used. Having previously worked 2022 October 0.95.911, Final, Trimester 3 2022 Page 2 of 5 only in the private sector, where he relied heavily on in-house legal counsel, Nash has a limited understanding of contract law and knows that he will need to refresh his understanding of procurement contracts prior to awarding a contract to a new supplier. He plans to ask his new team for advice on both the nature of the sourcing process to be used, the award criteria and the elements to create a binding contract