Tasmania's Cost Indexation for Government Purchasing of Community Services

The purchasing of community services by governments is a challenging policy area. All parties—governments, the community services industry and the community—want governments to be efficient in the use of public funds as there is no advantage to anyone if governments are not so. However, in order to be efficient, the purchase price paid by governments for community services must support the sustainability of the industry.

To be sustainable, there are three components of resourcing that are important to maintain. These are reflected in figure 1 below and are:
1. The regular realignment of multi-year contracts with the real cost of delivering services.

2. The capitalisation of the service industry to allow timely and effective responses to economic, social and policy changes.

3. The establishment of a sound indexation calculation process that allows the industry to respond to iterative changes in the cost of production over the life of a multi-year contract (i.e. in between resetting the base through the re-contracting process identified in item 1 above).

Getting indexation right is critical to maintaining industry sustainability and reducing, as far as possible, the risk faced by people relying on these services.
However, the identification of the correct indexation rate can be difficult and it costs time and money to get right—impacting both the community services industry and the governments that purchase community services from that industry.