Local Government Procurement (LGP) acknowledges that ongoing global events are placing upward pressure on supply chains, freight, energy, and other input costs across many industries. We recognise that these factors may be affecting some contractors’ costs to deliver goods and services under an LGP Standing Offer Deed (SOD). These increased costs are likely to be temporary in nature.
LGP’s role in supporting our partners
LGP supports a collaborative procurement ecosystem and recognises that both councils and contractors are valued partners. Our role is to balance contractor sustainability with councils’ need for transparency, value for money, legislative compliance, and budget certainty.
LGP will support both councils and contractors by:
- Facilitating open and constructive engagement
- Providing guidance on appropriate approaches to managing cost pressures
- Ensuring alignment with contract obligations and procurement principles
Contract pricing vs. temporary surcharge
The Standing Offer Deed (SOD) your business has executed with LGP includes provisions for routine pricing updates to the deliverables offered under the SOD. However, these routine pricing update provisions are not intended to address temporary cost escalations that your business may currently be experiencing.
Accordingly, this letter outlines the process for contractors seeking to apply a temporary surcharge under an LGP SOD.
Any discussion about a temporary surcharge should be approached cautiously, transparently, and in good faith. The focus should remain on maintaining contractual integrity, minimising impacts on both councils and contractors, and avoiding ongoing pricing arrangements where temporary measures are more appropriate.
Pathway for a temporary surcharge
Where exceptional and short-term cost pressures cannot be mitigated, and a discussion about a temporary surcharge may be warranted, contractors are encouraged to adopt the following approach:
1. Existing council projects or engagements
If a material cost risk exists for an existing project or engagement with a council customer, contractors should contact the relevant council customer(s) directly. LGP encourages constructive dialogue between councils and contractors, focusing on shared problem-solving and minimising cost impacts wherever possible.
Contractors should:
- Engage early with council customers
- Work collaborativel5y with each council to mitigate cost increases (for example, through operational efficiencies, scope adjustments, alternative delivery methods, or timing changes) before proposing any price impacts
2. Standing Offer Deed pricing risks
If a material cost risk affects pricing under a Standing Offer Deed, contractors should initially contact LGP.
Contractors are expected to:
- Engage early with LGP to discuss the cost pressures and the potential need for a temporary surcharge. If implementation of a surcharge is agreed, VendorPanel (Unimarket) will be updated accordingly
- Engage with council customers during quotation processes to discuss any proposed temporary surcharge. These discussions must be transparent and collaborative, and clearly distinguish between contract pricing and any temporary surcharge arrangement
- Reach agreement directly with the relevant council before implementing any temporary surcharge. Councils are under no obligation to accept a surcharge and may consider alternative options where appropriate
3. Ongoing review of surcharges
Contractors are expected to regularly review any approved surcharge and promptly notify both LGP and councils when conditions change, or when the surcharge can be reduced or removed.
Please note that the maximum period for any temporary surcharge is six (6) months. If cost escalations continue beyond this period, contractors must re-engage with LGP to discuss renewal of the temporary surcharge.
Evidence required to support a request for a temporary surcharge
Any proposed temporary surcharge must:
- Apply only to affected products or services
- Clearly state a commencement and end date (noting the maximum six (6) month period)
- Include a commitment to remove the surcharge once cost pressures ease
- Be supported by clear evidence outlining:
- The underlying cost drivers
- Why the increase is unavoidable
- Why the costs cannot reasonably be absorbed
- Why the surcharge is temporary
Contractors experiencing cost pressures that may affect performance under an LGP SOD are encouraged to contact the LGP Contracts Team on (02) 8270 8717 or [email protected] in the first instance.
We appreciate your continued partnership and commitment to working collaboratively with councils during this period.
Yours sincerely,
Nik Auzins
Director, Procurement
