Public Procurement and Government Contracts 2018 Comparisons

Last Updated November 06, 2018

Contributed By Maddocks

Law and Practice

Authors



Maddocks was founded in Melbourne more than 130 years ago and provides legal services to corporations, businesses and governments throughout Australia and internationally, with offices in Canberra, Melbourne and Sydney. In recent years the firm has experienced rapid, client-driven growth and now has 76 partners and approximately 600 staff. It has a leading public sector procurement team, including around 12 partners, eight special counsel and over 20 other lawyers advising on the establishment and structuring of procurement processes and contracts; the conduct of procurement processes and contract negotiations, including probity and bid protest issues; and contract management and disputes. Its clients include many of the agencies of the Commonwealth government, most of the Australian state/territory governments and a large number of local authorities. Maddocks provides advice across the full range of public sector activities, including procurement, contracts and grants, and commercial matters; technology, telecommunications, defence and IP; and building and construction, infrastructure, planning and environmental law.

The key statute governing cost reimbursement and pricing issues for the Australian Government is the Public Governance, Performance and Accountability Act 2013 (PGPA Act), which establishes a system of governance and accountability for public resources, with an emphasis on planning, performance and reporting.

The PGPA Act (in accordance with its section 112) is currently subject to an independent review. A written report will be provided to the Finance Minister in early 2018 and will be tabled in the Federal Parliament.

While they do not have the force of statutes or regulations, the Department of Finance also issues Resource Management Guides (RMGs) as part of the Australian Government Financial Framework. There are a number of RMGs which are relevant to procurement, issues. They are accessible at the Department of Finance’s website (https://www.finance.gov.au/resource-management/index/rmg/).

The regulations governing cost reimbursement and pricing issues for Australian Government contracts are as follows:

  • the Commonwealth Procurement Rules (1 Jan 2018 is the most recent version) (CPRs), made under the PGPA Act, which establish the core set of rules for all Australian Government procurements and govern the way in which Australian Government entities undertake their own processes;
  • the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule), made under the PGPA Act, which establishes the requirements and procedures necessary to give effect to the governance, performance and accountability matters covered by the PGPA Act (which is currently subject to an independent review and a written report will be provided to the Finance Minister in early 2018 and will be tabled in the Federal Parliament); and
  • the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015, made under the PGPA Act, which sets out the financial reporting requirements for Australian Government agencies in preparing their financial statements.

While they do not have the force of statutes or regulations, the Department of Finance also issues Resource Management Guides (RMGs) as part of the Australian Government Financial Framework. There are a number of RMGs which are relevant to procurement, contracting, pricing and payment issues. They are accessible at the Department of Finance’s website (https://www.finance.gov.au/resource-management/index/rmg/) and include a series of guides, in particular of the following:

  • assurance and accounting;
  • enhanced Commonwealth performance framework;
  • managing risk and internal accountability;
  • managing relevant money;
  • using relevant money;
  • managing relevant property.

The guides principally apply to Australian Government agencies, but some of them have an impact on suppliers or on the way agencies construct their contracts with suppliers, so as to ensure that the agency is able to meet its own requirements.

In addition to the CPGs, there are separate rules and guidelines which apply to Commonwealth grants.

Australian Government Procurement Procedures

In order to conduct a public procurement, the Australian Government has two main processes for undertaking the solicitation process: open tender and limited tender. The approach taken is dictated by criteria in the CPRs. There are different requirements for the solicitation process depending on the approach taken and whether the agency is a corporate Commonwealth entity (CCE) or a non-corporate Commonwealth entity (NCCE).

Procurement can also be made from a standing offer arrangement which has been put in place by use of one of the above-mentioned methods.

The Australian Government also uses multi-stage procurements when appropriate (eg, commencing with a Request for Expressions of Interest (REOI) or Request for Proposals (RFP) stage).

The CPRs generally require Australian Government agencies to use a competitive process in respect of procurements by NCCEs valued at over AUD80,000, or by CCEs valued at over AUD400,000, or by either in respect of construction contracts valued at over AUD7.5 million. There are certain exemptions which can apply. 

The Australian Government generally notifies of, and releases its documents for, a public solicitation process through the AusTender website (www.tenders.gov.au) which provides centralised publication of Australian Government business opportunities, annual procurement plans and contracts awarded.

For procurement processes, Division 1 of the CPRs provides that in relation to all procurements, agencies must, amongst other things:

  • consider value for money (paragraphs 4.1-4.3);
  • achieve value for money (paragraphs 4.4-4.6);
  • encourage competition (paragraphs 5.1-5.2);
  • treat potential suppliers equitably (paragraph 5.3);
  • only engage in efficient, effective, economical and ethical procurement (paragraph 6); and
  • be accountable and transparent in their procurement (paragraph 7.1).

Division 2 of the CPRs applies to procurements with an expected value above the thresholds set out above (subject to stated exceptions). It sets out:

  • limitations on when a limited tender process can be conducted;
  • requirements for request documentation – such as specifications, conditions for participation, minimum content and format requirements, evaluation criteria;
  • minimum time limits for steps in the procurement process;
  • a requirement, for procurements worth over AUD4 million, to consider the overall economic benefit of the procurement to the Australian economy;
  • rules for receiving and opening submissions and awarding contracts; and
  • rules in relation to the application of standards.

Australian State and Territory Government Procurement Procedures

There are separate Acts, Regulations and rules applying to procurement by agencies of the six State and two Territory Governments in Australia. They can be summarised as follows:

New South Wales (NSW): In NSW, government procurement is governed by separate legislative requirements, including the Public Works and Procurement Act 1912 (NSW), the Public Finance and Audit Act 1983 (NSW), the Public Works and Procurement Regulation 2014 (NSW) and the NSW Government Procurement Policy Framework (July 2015 is the most recent version). The Procurement Board Direction PBD-2016-01-Approved procurement arrangements, from 1 July 2016, is the main direction with regard to procurement. There are separate guidelines and legislation governing specific types of procurement (for example, the Code of Practice for Procurement applies to construction procurements). The overarching requirements for procurement include:

  • ensuring that agencies achieve value for money in the exercise of their functions, and act in a manner which promotes competition principles;
  • encouraging sustainable procurement;
  • preventing corruption; and
  • encouraging fairness and probity.

Victoria: In Victoria, procurement of non-construction goods and services by departments and a select number of specified public bodies is undertaken in accordance with a series of binding supply policies issued by the Victorian Government Purchasing Board (VGPB) pursuant to powers under the Financial Management Act 1994 (Vic) (FMA).  The supply policies comprise the following five policies which cover the end-to-end procurement activity from planning through to contract disclosure and management:

  • governance;
  • complexity and capability assessment;
  • market analysis and review;
  • market approach; and
  • contract management and disclosure.

       At a high level, the supply policies require VGPB mandated entities to ensure that all procurement activity meets the following principles:

  • value for money;
  • accountability;
  • probity; and
  • scalability.

The supply policies apply a complexity and risk based approach to procurement activity rather than using financial thresholds to determine the type of procurement process that is required. 

Most major statutory authorities in Victoria are non VGPB mandated entities and are therefore not subject to the public sector procurement procedures set by the VGPB.  Such authorities will generally follow procurement procedures set out in policies determined by the Board of Management of the authority.

Queensland: the Queensland government conducts procurement under the Procurement Strategy 2017 and Queensland Procurement Policy 2017.

South Australia: the South Australia government conducts procurement under the State Procurement Act 2004 (SA), which sets up the State Procurement Board.

Western Australia: the Western Australia government conducts procurement under the Procurement Practice Guide (December 2017) activities.

Northern Territory: the Northern Territory government conducts procurement under the Procurement Governance Policy and Procurement Act 1995 (NT).

Tasmania: the Tasmanian government conducts procurement under the Probity Guidelines for Procurement (September 2017) and in accordance with the Financial Management and Audit Act 1990 (Tas).

In the following sections, summary information is provided in respect of NSW and Victoria. Information in respect of the other States and Territories can be provided on request.

See section 1.1 above for types of procurement by the Australian Government.

The most common types of contract mechanisms include:

  • standing offers, under which orders may be placed;
  • head agreements, under which contracts may be placed;
  • a one-off contract which is based on a standard template (eg, for construction, defence, ICT and property contracts);
  • a one-off contract which is based on an agency-specific template (each of the larger agencies and some of the smaller agencies have standard suites of template documents which cover a wider variety of types of procurements); or
  • a one-off contract which is based on a bespoke contract which has been created for the particular procurement (eg, a novel managed services arrangement).

New South Wales (NSW): In NSW:

  • agencies may procure for their own purposes or can ‘piggyback’ onto arrangements organised by another agency (known as multi-agency access contracts);
  • in some cases, agencies must use mandated whole-of-government arrangements. Such arrangements will only be created where the long-term benefits are demonstrated to outweigh the implementation costs;
  • standard suites of contract templates are available for agencies to use for certain types of procurements (e.g. the Procure IT Framework for the procurement of technology) and for certain types of procurements, agencies must only engage suppliers from a pre-defined list of suppliers (e.g. the ICT Services Scheme).

Victoria: Common market approaches used in Victoria are:

  • expression of interest (EOI) - used as a first step in a multi-step procurement process; and
  • invitation to supply (ITS) - can cover request for tender, request for quotation or be used as a later stage in a multi-stage procurement process.

In addition to the above, many significant goods and services are procured under State Purchase Contracts (SPCs).  SPCs are standing offer agreements established by the Department of Treasury and Finance under which departments and agencies may procure goods and services under agreed terms (except for the legal services SPC and all ICT related SPCs which are managed by different departments).  Mandated VGPB entities are generally required to use SPCs while non VGPB mandated entities may opt in or out depending on their needs. 

For procurement not covered by an SPC, the VGPB has released a suite of template market approach documents including EOI, ITS and goods and services contracts that departments and public bodies may use (non-mandatory). 

In general, there are no prerequisites for eligibility to bid on Australian Government procurement opportunities.

However in some cases there are pre-qualified panels of suppliers, either at an agency or a whole of government level. There are, for example, a number of whole of government arrangements in the ICT sector.

Solicitation processes may also specify prerequisites for eligibility to bid which are specific to that process and its requirements. For example, a request for tenders may specify the need for a particular type of accreditation or registration, particular insurances or presence in a specified location or range of locations.

There are also some factors which may disqualify a potential respondent, such as the prohibition on agencies contracting with: (i) companies from countries which are subject to UN sanctions, due to the Charter of the United Nations Act 1945 (Cth); or (ii) employers in breach of certain "workplace gender equality" requirements, due to the Workplace Gender Equality Act 2012 (Cth).

New South Wales (NSW): In NSW, in addition to mandated whole-of-government arrangements, there are non-mandatory prequalification schemes to which tenderers can seek acceptance. The schemes are broken down into categories (e.g. advertising services, office furniture etc.) and are designed to assist agencies to find prequalified suppliers suitable to work with government. In order to supply and bid on certain public sector opportunities, suppliers must have been appointed to a panel of prequalified suppliers (e.g. the ICT Services Scheme). 

Victoria: In Victoria, there are usually some prerequisites for eligibility to bid on public sector opportunities, as follows:

  • acceptance of ITS conditions of participation (conditions governing the ITS process);
  • there is a Supplier Code of Conduct which sets out minimum expectations for suppliers in areas such as integrity, ethics and labour and human rights.  The State expects suppliers to meet and exceed the minimum standards, and the Supplier Code of Conduct is a mandatory requirement in the VGPB ITS templates; and
  • high value procurement (exceeding $1 million in regional Victoria or $3 million in metropolitan Melbourne or for State-wide activities) is subject to the mandatory Victorian Industry Participation Policy (VIPP) which is aimed at improving opportunities for local suppliers and local jobs.  Where VIPP applies, there is a minimum 10% formal weighting system in the evaluation of tender bids for local content for contestable items.  A procurement that exceeds $50 million value is deemed to be a VIPP strategic project and the minimum local content requirement must be agreed in writing between the Minister responsible for VIPP and the Minister responsible for the procurement. 

There are no public sector unique compliance rules for Australian Government procurement. However, a public sector solicitation or contract may specify certain compliance requirements that apply to that particular procurement process or contract.

Further, the solicitation documents and/or the contract will commonly require the respondents and the contractor to comply with various Commonwealth acts, regulations and policies, such as the Privacy Act 1988 (Cth), and various requirements pertaining to audits and record-keeping. Agencies oblige their contractors to comply with such requirements so that the agency has oversight of the services being supplied and can adequately meet its own compliance obligations and manage associated risks.

There are specific rules in the CPGs relating to ensuring:

  • "efficient, economical and ethical procurement" (paragraphs 6.1-6.8); and
  • "accountability and transparency in procurement" (paragraphs 7.1-7.24). 

Whilst these rules specifically apply to and impose obligations on the agency (eg, regulating how it conducts the solicitation process and assesses offers), they also result in the agency imposing obligations on respondents in the conduct of a procurement process. For example, there will generally be strict requirements on respondents in relation to managing conflicts of interest and protection of confidential information. Some of these obligations will also be reflected in the contract with the successful respondent.

New South Wales (NSW): In NSW, as for the Australian Government, there are a number of requirements imposed on agencies which they may ‘flow down’ to contractors. Additionally, suppliers are subject to the requirements of the Independent Commission Against Corruption Act 1988 (NSW), which applies to conduct such as where a supplier influences, or tries to influence, a public official to use their position in a way that is dishonest, biased or breaches public trust.

In NSW respondents will also often be required to comply with various NSW acts, regulations and policies, such as the Privacy and Personal Information Protection Act 1998 (NSW) and the Health Records and Information Privacy Act 2002 (NSW).

Victoria: In Victoria, compliance and ethics rules are set out in the Supplier Code of Conduct referred to above. 

Many government contracts in Victoria will seek to contractually require suppliers to ensure that the supplier and its personnel:

  • comply with the Victorian Public Sector Commission Code of Conduct when undertaking work with or similar to public sector employees; and
  • do not engage in unethical work practices;
  • do not accept or offer anything of value in order to secure a reward or improper benefit in connection with the contract; and
  • comply with obligations to notify and manage perceived or actual conflicts of interest. 

In the first instance, a disappointed bidder in an Australian Government tender process can approach the relevant agency in an attempt to resolve its complaint. Paragraph 6.8 of the CPRs requires agencies to "apply equitable and non-discriminatory complaint-handling procedures" and to "aim to manage the complaint process internally, through communication and conciliation".

If the agency does not resolve the complaint to a bidder’s satisfaction, the bidder may make a complaint to the Commonwealth Ombudsman, noting that the Ombudsman does not deal with commercial disputes, simply disputes about procurement processes. The Ombudsman may make a finding, but has limited power to direct resolution of commercial issues. 

Finally, dependent on the misconduct alleged and the relevant procurement process, a bidder may be able seek legal review of a decision. This happens very infrequently in Australia, but actions have been taken (very occasionally successfully) against an agency based on:

  • breach of contract, based on the existence of a "tender process contract" which is said to be formed between the agency and each respondent (or potential respondent) in respect of the conduct of the solicitation process – the terms of which contract are said to be set out in the solicitation documentation;
  • misrepresentation at common law (ie, by the agency about how the solicitation process will be conducted) or the same claim formulated as a claim for "misleading and deceptive conduct" under section 18 of the Australian Consumer Law, set out in Schedule 2 of the Competition and Consumer Act 2010 (Cth);
  • breach of an obligation of confidentiality – for example, if one respondent’s confidential information has been provided to another respondent; and
  • breach of administrative law principles.

In addition to there being a very limited number of cases in Australia concerning challenges to public solicitation processes, and even fewer of them being successful, there is also uncertainty for respondents as to what remedy they may obtain or damages they may recover – the remedy may be a direction that the tender process be re-run, and the damages may be limited to the unsuccessful respondent’s costs of responding rather than any potential profit which has been lost.

On 24 May 2017, the Australian Government introduced the Government Procurement (Judicial Review) Bill 2017 (Bill) into the Australian Parliament. It has passed the lower house, but has not yet passed the Senate and so is not yet law.

The bill is intended to enable Australia to meet its obligations under the Trans-Pacific Partnership and the World Trade Organization Agreement on Government Procurement.  (NB Australia has not yet acceded to either treaty.)

The bill would, if passed, allow suppliers to seek injunctions or compensation in the Federal Court or Federal Circuit Court for conduct that breaches, or would breach, the CPRs which occurs after the bill is passed. It will apply to procurements that are subject to both Division 1 and Division 2 of the CPRs, and which are undertaken by either NCCEs, or CCEs which are designated under rule 30 of the PGPA Rule.

Suppliers would first need to make a complaint to the relevant agency. Importantly, this complaint would suspend the procurement until the complaint (or any subsequent legal claim) is resolved, unless the relevant Commonwealth entity issues a public interest certificate stating that it is not in the public interest for the procurement to be suspended. The agency must investigate the conduct of the subject of the complaint.

A supplier which has made a complaint can seek an injunction in the Federal Court or Federal Circuit Court.

The court will only grant the injunction if the supplier:

  • has made a complaint to the relevant entity;
  • has made a "reasonable attempt to resolve the complaint" if it would be reasonable for the supplier to do so; and
  • applied within time or obtained an extension of time.

A supplier may also claim compensation, being an amount not exceeding the supplier’s reasonable expenditure in preparing its response, making a complaint in relation to the alleged contravention of the CPRs, and seeking to resolve the complaint.

New South Wales (NSW): In NSW, disappointed bidders may lodge a complaint at the agency level if they believe that the procurement has not been conducted in accordance with the relevant legislation. Procuring agencies have a responsibility to resolve complaints in the first instance. Once the complainant has exhausted agency processes, they may submit a complaint to the NSW Procurement Board, which will decide whether or not to investigate the complaint. The NSW Ombudsman may also investigate complaints.

Victoria:  In Victoria, complaints about the procurement process need to be lodged directly with the department or public body managing the procurement process.  Mandated VGPB entities are required to have a complaints management system that sets out the entity’s process and procedures for addressing complaints. 

A complainant may refer a complaint to the VGPB for review if not satisfied with the findings and actions of the organisation involved.  This only applies to mandated VGPB entities. 

Other bodies that may assist in the resolution of a complaint about the procurement process in Victoria include the Small Business Commissioner and the Ombudsman.   

During contract performance, there are no special regulations for handing disputes with government customers, except as follows.

Some contracts impose specific dispute management rules. For example, they may have a mandatory dispute notification (Notice of Dispute) and escalation (governance) procedure. 

Some contracts also contain a requirement for expert determination of some matters, or for use of mediation, arbitration or some other form of alternate dispute resolution, before litigation is permitted. 

Contracts generally require the contractor to continue to perform the contract whilst the dispute is resolved, and for the customer to pay any amounts which are not in dispute.

In managing disputes with suppliers, Australian Government agencies are bound by specific rules in the Judiciary Act 1903 (Cth) (Judiciary Act) and the Legal Services Directions (LSDs) which are issued by the Attorney-General under section 55ZF of the Judiciary Act (https://www.legislation.gov.au/Details/F2017L00369).

The key requirement in the LSDs is for the Commonwealth, through its agencies, to act as a "model litigant". Obligations arise in respect of matters such as the settlement of claims against the Commonwealth and the use of alternative dispute resolution. The obligations are extended to third parties who act on behalf of the Commonwealth.

The Office of Legal Services Coordination (OLSC), which has responsibility for the administration of the LSDs, has produced a number of guidance notes to help agencies meet their obligations under the LSDs. The OLSC also provides guidelines in respect of litigation involving the Commonwealth (https://www.ag.gov.au/LegalSystem/LegalServicesCoordination/Pages/Legalservicesdirectionsandguidancenotes.aspx). 

New South Wales (NSW): In NSW, there are no special rules or regulations for handling disputes, except to the extent provided for in the terms of the relevant contract. The NSW Procurement Board’s guidelines state that mediation is the preferred method of dispute resolution. Regard should be had to the risk level and value of the goods or services being procured.

Victoria: Victoria has its own Model Litigant Guidelines which set standards for how the State and its departments and agencies should behave as a party to legal proceedings. 

There are no other rules or regulations applying, and disputes will therefore be managed in accordance with the dispute resolution mechanisms included in the relevant contract and the procedures otherwise determined by each department and agency. 

The Australian Government has two main processes for undertaking a public solicitation process: open tender and limited tender. The approach taken is dictated by criteria in the CPRs. There are different requirements for the solicitation process depending on the approach taken and whether the agency is a CCE or an NCCE.

Procurement can also be made from a standing offer arrangement which has been put in place by one of the above-mentioned methods.

The Australian Government also uses multi-stage procurements when appropriate (eg, commencing with a Request for Expressions of Interest (REOI) or Request for Proposals (RFP) stage).

The CPRs generally require Australian Government agencies to use a competitive process in respect of procurements by NCCEs valued at over AUD80,000, or by CCEs valued at over AUD400,000, or by either in respect of construction contracts valued at over AUD7.5 million. There are certain exemptions which can apply. 

The Australian Government generally notifies of, and releases the documents for, a public solicitation through the AusTender website (www.tenders.gov.au) which provides centralised publication of Australian Government business opportunities, annual procurement plans and contracts awarded.

New South Wales (NSW): In NSW, procurement processes will vary depending on the value and type of the procurement and whether or not an agency is accredited under the NSW Procurement Board’s Agency Accreditation Scheme for Goods and Services Procurement.

Accredited agencies may enter into arrangements on the terms of their accreditation.

Unaccredited agencies are required to comply with NSW Procurement Board Direction-2016-01-Approved procurement arrangements, from 1 July 2016, which sets out differing requirements depending on the value and risk profile of a particular procurement activity.

Competitive approaches may include a competitive dialogue process, requests for tender, requests for information/proposal where the agency wants to test the market and in certain cases, “reverse auctions” (i.e. where suppliers are pre-qualified and then bid for a piece of work), direct negotiations/sole source and managed services contract models may be adopted.

Victoria:  Mandated VGPB entities must comply with the market approach supply policy which includes mandatory requirements for market engagement.  The policy is not prescriptive in terms of the form of the approach to market, but requires entities to develop an appropriate market approach that encourages participation from the market segment relevant to the procurement. 

Whilst Australian Government procurement is primarily governed by the CPRs and the PGPA Act, referred to above, there are a range of other pieces of legislation that regulate or influence the parties with which Australian Government agencies can contract. These include:

  • Australian Jobs Act 2013 (Cth), which applies Australian industry participation policies;
  • Charter of the United Nations Act 1945 (Cth), by which Australia implements various United Nations Security Council sanctions;
  • Workplace Gender Equality Act 2012 (Cth), which provides that Australian Government agencies cannot contract with employers in breach of certain workplace gender equality requirements;
  • Disability Discrimination Act 1992 (Cth), which provides that Australian Government agencies, when contracting, cannot discriminate against a contractor because of their disability;
  • Racial Discrimination Act 1975 (Cth), which provides that Australian Government agencies when contracting, cannot discriminate against a contractor because of their race;
  • Sex Discrimination Act 1984 (Cth), which provides that Australian Government agencies, when contracting, cannot discriminate against a contractor because of their gender;
  • Age Discrimination Act 2004 (Cth), which provides that Australian Government agencies, when contracting, cannot discriminate against a contractor because of their age;
  • Work Health and Safety Act 2011 (Cth), which provides a national framework for Australian Government agencies to secure the health and safety of workers and workplaces; and
  • Criminal Code Act 1995 (Cth) (Criminal Code), which sets out criminal offences that may apply to Australian Government agencies and contractors.

There is also an Indigenous Procurement Policy, which provides that Australian Government agencies, in certain situations, must consider indigenous businesses as the potential contractor.

New South Wales (NSW): In NSW, a number of additional pieces of legislation apply, such as the:

  • Anti-Discrimination Act 1977 (NSW);
  • Work Health and Safety Act 2011 (NSW) and Work Health and Safety Regulations 2017 (NSW); and
  • Crimes Act 1990 (NSW).

Victoria: In Victoria additional legislation and regulations include:

  • FMA, Standing Directions and Instructions;
  • VGPB supply policies (mandated VGPB entities only); and
  • Public Administration Act 2004 (Vic) (PAA).

Australian Government agencies are able to, and do, negotiate on price. The intention of the Australian Government is to achieve a "value for money" outcome which factors in price, the quality of the goods and services offered and other factors such as risk and satisfying business requirements.

In NSW and Victoria, agencies are also able to, and do, negotiate on price.

Negotiations undertaken by Commonwealth, NSW and Victorian departments and agencies can be any of the above mentioned (ie price-based, cost-based, or competition-based).

The negotiation method in respect of price will depend on several factors, such as the type and scale of the procurement, the internal policies of a particular agency, the negotiation strategy, the appetite for risk, the complexity of the procurement, the specific technical requirements and so on.

In some circumstances agencies audit or otherwise verify pricing in proposals submitted by respondents. This is particularly common in large-scale, high-value and complex procurements such as defence and whole of government ICT-based procurements. They may also have in-contract audit and benchmarking.

The Department of Defence has its own Financial Investigation Service, which is used both before entry into, and during the term of, contracts to validate pricing.

There is no statutory basis for negotiating and auditing contractor proposals, other than the general rules in the PGPA Act and the CPRs.

New South Wales (NSW): In NSW, the Audit Office of New South Wales may from time to time conduct audits of NSW government agencies generally, including in-scope procurements and procurement processes. Such audits are principally undertaken under the Public Finance and Audit Act 1983 (NSW), the Corporations Act 2001 (Cth), the Local Government Act 1993 (NSW) and the Public Interest Disclosures Act 1994 (NSW).

Victoria: In Victoria, negotiating and auditing contractor proposals during the procurement process would be undertaken by the agency conducting the procurement.  The VGPB may provide oversight in some cases.  The Auditor-General may audit a procurement process after the fact (not during the process).

There is no overarching policy in regard to any particular accounting standards that must be used. Some procurements nominate a particular accounting standard to be used in the relevant solicitation documentation.

Many public solicitations require the offeror to submit a deed or statutory declaration stating that the information contained in its proposal is true and accurate. Some public solicitations may require a specific certification or declaration related to the basis of pricing. There is no statutory basis for this requirement. Furthermore, there is no standard language for the certification – any requirement for a certification would be determined in the circumstances of a particular solicitation which required it.

There is no overarching policy that prescribes the use of a particular accounting and/or estimating system. Some procurements nominate a particular accounting or estimating system to be used in the relevant solicitation documentation. There is no statutory basis for this requirement. Furthermore, there are no key standards or requirements for such systems – any standards or requirements would be determined in the circumstances of a particular solicitation which required it.

Offerors’ accounting and estimating systems will not generally be subject to any audit or inspection requirements, although this may be required in a particular public solicitation. It is not unusual for major Contracts (eg, ICT, outsourcing, defence, managed services) to have a general right of audit of financial and other systems.

The general process and terms and conditions for payment will depend on the nature of the contract, and of the goods or services being procured.

Payment methods include:

  • payment on the achievement of milestones, sometimes with an extra mobilisation or up-front payment, or a completion or retention payment (eg, for construction or major infrastructure projects);
  • payment on a time and materials basis or by a fixed daily or hourly rate (eg, for professional service providers);
  • time-based payments (eg, monthly payments for managed services); and
  • performance-based payments (eg, for material maintenance or ICT support contracts).

There is no legislative requirement on how a contract is paid, rather it is determined on what is deemed the most appropriate payment method for that particular contractual arrangement, having regard to matters such as risk management and best value for money. 

There is also policy requiring NCCEs to agree, in contracts valued at up to AUD1 million (GST inclusive), to payment terms that provide for payment within no more than 30 days. If payment is not made on time, interest must be paid to the supplier if it is worth more than AUD100 (GST inclusive). (See: https://www.finance.gov.au/sites/default/files/rmg-417-supplier-pay-on-time-policy_0.pdf)

In NSW and Victoria, similar payment methods are adopted in government contracts. For suppliers which are small businesses, NSW and Victorian government agencies must pay within 30 days of receiving a properly rendered invoice.

Whether the government pays based on actual costs depends on the nature of the contract. For example, if a contractor is paid on a time and materials basis, the materials component will be reimbursed based on actual costs, usually with an added margin.

There are no regulations that describe what costs the Commonwealth, NSW or Victorian Governments will reimburse. This is normally set out in the contract itself and may vary significantly between contracts. 

There are no prescribed rules governing how contractors must accumulate, record and report their costs. If the contractor is a company, it is required to keep financial records as part of its general corporate obligations as a company under the Corporations Act 2001 (Cth) (Corporations Act). These obligations are greater in respect of publicly listed companies. They are not specific to government procurement.

Contracts also may specify record keeping and other accounting requirements, including an obligation to comply with Australian accounting standards.

The Australian Securities and Investment Commission is Australia’s markets, integrated corporate, financial services and consumer credit regulator. It is responsible for ensuring that companies meet their obligations under the Corporations Act. This is an obligation imposed on all companies registered in Australia and not just limited to government contractors. Civil penalties can apply to companies which do not comply with accounting obligation in the Corporations Act.

Contract law remedies apply in respect of any accounting obligations imposed by the contract.

Foreign contractors are generally treated no differently to Australian companies and are subject to the same requirements as set out above.

For accounting and pricing specifically, depending on the status of the foreign contractor company in Australia (eg, the manner in which it is registered and whether it is carrying on an "enterprise" in Australia), it may be required to comply with aspects of the Corporations Act, particularly for reporting and auditing, and may need to register under the applicable taxation legislation.

Subcontractors will often be required to comply with all of the same requirements as the prime contractor, as the contract between the Australian Government agency and the prime contractor will require the prime contractor to flow down obligations to either all, or major, subcontractors. 

Paragraph 7.19 of the CPRs provides that:

  • procuring entities must make available, on request, the names of any subcontractor(s) engaged by a contractor in respect of a contract;
  • procuring entities must require contractors to agree to the public disclosure of the names of any subcontractors engaged to perform services in relation to a contract; and
  • the prime contractor must be required to inform relevant subcontractors that the subcontractor’s participation in fulfilling a contract may be publicly disclosed.

New South Wales (NSW): In NSW, similar requirements apply.

Victoria: In Victoria the contract with the prime contractor will usually contain an obligation to pass down all contract requirements to any subcontractor (local or foreign).

Under the Auditor-General Act 1997 (Cth) (Auditor-General Act), the Auditor-General has a limited right to conduct audits on entities that receive money from an Australian Government agency under a contract. The audit right is limited to an audit of how the entity is achieving the contract purpose.

Contractual rights to audit are also generally included in all major government contracts.

The Auditor-General is entitled to access any documents. Contractual rights may be subject to restrictions on either what can be accessed or who can have access.

The main functions and powers of the Auditor-General are set out in Part 4 of the Auditor-General Act. These powers relevantly include the conduct of performance audits and assurance reviews, which enable the Auditor-General to look at agency contracts and procurement practices.

New South Wales (NSW): In NSW, the government has rights to access records as they relate to the relevant NSW Government entity and/or the products or services being offered, but these rights are usually established under contract. For example, under the Government Information (Public Access) Act 2009 (NSW), when an agency enters into a contract with a service provider to deliver services to the public on its behalf, the agency must have a contractual right to immediately access certain information in the contractor's records.

In NSW, certain information is excluded from the scope of the Government Information (Public Access) Act 2009 (NSW), including information that discloses or would tend to disclose the contractor’s financing arrangements, financial modelling, cost structure or profit margin, information that the contractor is prohibited from disclosing to the agency by provision made by or under any Act, whether of any State or Territory, or of the Commonwealth; or information that, if disclosed to the agency, could reasonably be expected to place the contractor at a substantial commercial disadvantage in relation to the agency, whether at present or in the future.

The Auditor-General in NSW also has a right under section 36(3) of the Public Finance and Audit Act 1983 (NSW) to require a person to appear personally and produce such books, records, documents or papers as appear to the Auditor-General to be necessary for the purposes of an audit authorised or required to be made by the Auditor-General at law.

The Auditor-General’s broad access rights are subject to secrecy requirements.

Victoria: A government purchaser’s right to access contractor records is only as set out in the relevant contract.

The Victorian Auditor-General has broad rights under the Audit Act 1994 (Vic) to compel persons to appear or produce documents relevant to the performance of the Auditor-General’s functions or powers.

Unless an Australian Government agency has sought specific audit rights in its solicitation documents or the contract, or the potential contractor consents to being audited, the government has no specific audit rights in respect of a contract before it is entered into, other than those referred to above.

The same applies in NSW and Victoria.

In terms of the time it takes for the government to perform an audit, the Auditor-General Act does not contain a limitation period.

If an Australian Government agency has a contractual right to conduct audits, this typically is specified to last for a period of up to seven years after the end of the contract. The period of seven years is consistent with a company’s obligation to keep financial records for seven years under the Corporations Act. 

The same applies in NSW and Victoria.

The office of the Auditor-General is created by the Auditor-General Act. It also creates the Australian National Audit Office, which assists the Auditor-General to perform audits.

New South Wales (NSW): In NSW, the relevant authority is the Audit Office of New South Wales, which is established under the Public Finance and Audit Act 1983 (NSW).

Victoria: In Victoria, the relevant authority is the Auditor-General of Victoria who is an independent officer of the Victorian Parliament.  The Auditor-General has powers and functions under the Audit Act 1994 (Vic).

The definition of "allowable" or "unallowable" costs, and any rights an Australian Government agency might have to recover unallowable costs, would be as set out in the relevant contract. The contract will set out which costs may be claimed and which are unallowable. Recovery would be pursuant to mechanisms contained in the contract or general law remedies for breach of contract. 

In some cases action might be taken for misrepresentation. In extreme cases, action might be taken under the Criminal Code – for example, for fraudulent conduct or claiming money from the Commonwealth under false or misleading pretences (Parts 7.3 and 7.4 of the Criminal Code).

New South Wales (NSW): The same applies in NSW, although the Crimes Act 1900 (NSW) will apply.

Victoria: The same applies in Victoria, although the Crimes Act 1958 (Vic) will apply.

As stated above, any right to recover unallowable costs, and any specific penalties for claiming them, will depend on the terms of the contract and general contract law remedies. If the claim was a crime, criminal sanctions may apply.

There are limitation periods which depend on matters such as the nature of the claim (eg, breach of contract or misrepresentation), the tribunal in which the claim is brought (eg, Federal Court or State or Territory Supreme or lower court), and the nature of the contract (agreement or deed).

Claims for breach of contract are generally subject to limitation periods of six years (see, for example, section 82(2) of the Competition and Consumer Act 2010 (Cth) and section 1325(4) of the Corporations Act). 

Depending on the offence and the circumstances around the offence, a claim under the Criminal Code can be made at any time for a serious offence and at any time within one year after the commission of the offence for a lesser offence – see section 15B of the Crimes Act 1995 (Cth).

New South Wales (NSW): In NSW, section 14 of the Limitation Act 1969 (NSW) requires a cause of action founded on a contract to be brought within 6 years from the date on which the cause of action first accrues to the plaintiff. The limitation period for a deed is 12 years (section 16). Other limitation periods apply to other civil matters.

In relation to criminal matters, there is no limitation period in NSW for indictable offices and for summary offences, the time period is generally six months after the offence was allegedly committed, in accordance with section 179 of the Criminal Procedure Act 1986 (NSW).

Victoria: In Victoria, actions founded in simple contract must generally be brought within 6 years of the cause of action, per the Limitation of Actions Act 1958 (Vic).

It is general practice for Australian Government contracts to contain dispute resolution provisions which provide for a process that assists the parties to resolve disputes with limited disruption to the performance of the contract. Such provisions will generally apply to any dispute under the contract, including accounting, cost and pricing issues. Otherwise general contract law principles will apply.

In NSW and Victoria, as is the case federally, government contracts will generally contain dispute resolution clauses.

Generally, it is the obligation of the specific agency which entered into the contract to resolve the dispute with the contractor. If the dispute cannot be resolved and legal action needs to be taken, it will be taken in the most appropriate court in the relevant jurisdiction. This may be a federal or State/Territory court or tribunal.

New South Wales (NSW): In NSW, the agency conducting the procurement usually has the responsibility to resolve complaints in the first instance, but will escalate issues as necessary and refer disputes to external statutory bodies when appropriate. The NSW Procurement Board and NSW Ombudsman may also deal with disputes where agency processes have been exhausted without a resolution. 

Victoria: In Victoria, as with the Commonwealth, the authority to resolve a dispute is with the specific agency involved.  Many agencies will be subject to the direction of a Minister, who would therefore be able to direct the agency to resolve the disputes.

Maddocks

Maddocks House, Level 1
40 Macquarie Street
Canberra
ACT 2600
Australia

+61 2 6120 4835

+61 2 6230 1479

Anthony.Willis@maddocks.com.au maddocks.com.au
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Maddocks was founded in Melbourne more than 130 years ago and provides legal services to corporations, businesses and governments throughout Australia and internationally, with offices in Canberra, Melbourne and Sydney. In recent years the firm has experienced rapid, client-driven growth and now has 76 partners and approximately 600 staff. It has a leading public sector procurement team, including around 12 partners, eight special counsel and over 20 other lawyers advising on the establishment and structuring of procurement processes and contracts; the conduct of procurement processes and contract negotiations, including probity and bid protest issues; and contract management and disputes. Its clients include many of the agencies of the Commonwealth government, most of the Australian state/territory governments and a large number of local authorities. Maddocks provides advice across the full range of public sector activities, including procurement, contracts and grants, and commercial matters; technology, telecommunications, defence and IP; and building and construction, infrastructure, planning and environmental law.

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