Express law No. 09

17 September 2004

Draft Commonwealth Procurement Guidelines issued by the
Department of Finance and Administration

The Department
of Finance and Administration (Finance) has issued draft
Commonwealth Procurement Guidelines (draft
CPGs) incorporating changes to implement Australia's
obligations under Chapter 15 of the Australia – United
States Free Trade Agreement (FTA). In addition, a draft
Ministerial Direction has been prepared under section 47A
of the Commonwealth Authorities and Companies Act 1997 (CAC Act) that will require, for the first time, certain
CAC bodies to comply with the CPGs. It is proposed that
the draft CPGs will apply from 1 January 2005.

Introduction

The draft CPGs continue to apply to the procurement
of property and/or services by agencies. The general procurement
policy framework is set out in Part 1 of the draft CPGs.
In addition, to implement FTA requirements, there are now
mandatory procurement procedures for 'covered procurements'.
These are set out in Part 2 of the draft CPGs. An overview
of the mandatory procurement procedures is set out below.

Open
competition and non-discrimination

Under the procurement
policy framework, the core principle underpinning Australian
Government procurement remains 'value
for money', based on whole of life costing. Value
for money is enhanced by:

  • encouraging
    competition by ensuring non-discrimination in procurement
    and using competitive procurement process;
  • promoting the efficient, effective and ethical use
    of resources; and
  • making decisions in
    an accountable and transparent manner.

The concepts of non-discrimination
and competitive procurement processes clearly reflect the
influence of the FTA. It
is significant that in the current and previous versions
of the CPGs, there was a recognition that non-competitive
procurement processes may be used where this could be justified
on a value for money basis. By contrast, the draft CPGs
have a greater focus on competition.

In addition, the draft
CPGs require agencies to consider the procurement of goods
and services on the basis of their
suitability for their intended purpose, and not on the
basis of their origin. This will mean there is far less
scope to include industry development or local content
requirements in tender documentation, although agencies
are still encouraged to source at least 10% of their purchases
by value from SMEs.

The focus on open competition is also
reflected in the proposed new requirement for agencies
to publish annual
procurement plans to enable suppliers to be better aware
about procurement opportunities.

Mandatory procurement procedures

Covered procurements

The mandatory procurement procedures
in Part 2 of the draft CPGs apply to 'covered procurements'.
Covered procurements are procurements that exceed the following
monetary thresholds:

  • $80,000 for procurements
    in FMA agencies, other than for construction services;
  • $400,000 for procurements in relevant CAC bodies,
    other than for construction services; and
  • $6 million for procurements of construction services
    by FMA agencies or relevant CAC bodies.

However, certain
kinds of procurements are excluded from the mandatory procedures
(although not necessarily from
the other parts of the draft CPGs). These are set out in
Appendix A to the draft CPGs, and include leasing of real
property, purchases funded by grants or sponsorships and
the procurement of research and development services.

Open,
select and direct sourcing

The mandatory procurement procedures
have a presumption in favour of open approaches to the
market, that is, approaches
inviting submissions from any interested business. A more
restricted procurement process (ie 'select tendering' or 'direct
sourcing') is permitted only in limited circumstances.

Select
tendering may be used only where an agency has a basis
for identifying all interested (or potentially interested)
eligible suppliers. However, this does not mean that an
agency can rely on its 'knowledge of the market' to
select suppliers for inclusion in its tender process. Agencies
may use select tendering only by shortlisting from an initial
expression of interest, or by using a multi-use list (eg
the current endorsed supplier arrangement) or by issuing
a tender to all suppliers who comply with essential external
legal requirements (eg suppliers who hold a particular
kind of licence).

An agency may use direct sourcing only
in certain defined circumstances. Direct sourcing is where
an agency invites
one or more suppliers of its choice to tender. The circumstances
include cases of extreme urgency brought about by unforeseen
events, purchases made under exceptionally advantageous
conditions that only arise in the very short term, or in
particular cases where there is no reasonable alternative
or substitute supplier.

Other particular requirements

Part 2 of the draft CPGs
also sets out particular requirements that must be met
by agencies in relation to the content
of their tender documentation and the tender evaluation
and contract award processes. In brief, agencies are required
to ensure that:

  • conditions for participation
    are limited to requirements aimed at ensuring a supplier
    has the legal, commercial,
    technical and financial abilities to fulfil the requirements
    of the procurement. These conditions may include a
    requirement for relevant prior experience, but not a
    requirement that
    the relevant prior experience is with a particular
    agency, the Australian Government or in a particular
    location;
  • tender documentation is available electronically (where
    possible) and fully describes the nature of the procurement,
    conditions for participation, evaluation criteria to
    be used, and other terms and conditions relevant to tender
    evaluation;
  • as far as possible, any
    technical specifications are specified in terms of
    functional and performance requirements and
    based on international standards where they exist;
  • a time limit of at least 25 days is given for suppliers
    to lodge submissions (except in certain circumstances
    which may permit a lesser period, but no less than 10
    days);
  • all tenders are assessed fairly and impartially and
    are treated in confidence;
  • contracts are
    awarded to complying tenders that represent the 'best
    value for money'; reasons are given
    to unsuccessful suppliers.

Agencies should also be aware
of the proposed requirement that they put in place an
internal review process for dealing
with any complaints arising from procurement processes.
Agencies will be required to ensure that suppliers have
fair, equitable and non-discriminatory access to the
review process. The involvement of an independent probity
auditor
in the review process may be invaluable in assisting
with the conciliation and resolution of any complaints.

Application
of the draft CPGs to CAC bodies

The decision to apply
Part 2 of the draft CPGs to certain CAC bodies is also
significant. The current CPGs apply
to FMA agencies and not to CAC bodies. However, it
is important to note that the draft Ministerial Direction
will not require
the relevant CAC bodies to also comply with other
parts of the draft CPGs, that is, the CAC bodies will not
be
subject to those parts of the CPGs that set out the
requirements of FMAR regulations 9, 10 and 13. CAC
bodies
will also
not be subject to Part 3 of the draft CPGs which
deals with other Government policies that interact with
procurement.

Further information

A more detailed analysis of the draft
CPGs and the current version of the CPGs will be contained
in
the forthcoming
edition of Commercial Notes.

For further information
please contact:

Harry Dunstall
Senior Executive Lawyer
T 02 62537066 F 02 6253 7301
M 0417 201450
harry.dunstall@ags.gov.au

Important: The material in Express law is
provided as an early, interim view for general information
only and further analysis on the matter may be prepared
by AGS. The material should not be relied upon for
the purpose of a particular matter. Please contact
AGS before any action or decision is taken on the basis
of any of the material in this message.