Suppliers to benefit from Australian procurement law reform

Out-Law Analysis | 15 Apr 2019 | 9:22 am |

ANALYSIS: New laws set to take effect in Australia promise to incentivise better procurement practices among Commonwealth agencies by strengthening the rights of suppliers when challenging defective procurement.

The Government Procurement (Judicial Review) Act 2018, due to come into effect on 18 April 2019 at the latest, provides suppliers with access to more effective remedies in cases where Commonwealth procurement rules have been breached by agencies, including access to injunctive relief or compensation.

The reforms are likely to result in increased challenge from aggrieved unsuccessful bidders for Commonwealth agency contracts.  They should also prompt changes to procurement polices and practices that increase both the transparency and competitive nature of the procurement process.

The new legislation

The Government Procurement (Judicial Review) Act 2018 provides a new role for the courts in Australia to review supplier complaints regarding alleged breaches of the Commonwealth Procurement Rules (CPR) by Commonwealth agencies.

The Act sets out powers the courts have to grant injunctions and/or order payment of compensation in cases where they find Commonwealth agencies have breached the CPR. The powers can be exercised by the Federal Circuit Court of Australia and the Federal Court of Australia.

CPR breaches that occur after the Act enters into force, including those which concern procurements that were started before the commencement date, are subject to review under the new legislation.

Justification for the legislative changes

The Government Procurement (Judicial Review) Act implements a recommendation contained in a Senate Finance and Public Administration References Committee's report from July 2014 which examined Commonwealth procurement procedures.

The Committee's report included a recommendation for the Department of Finance to establish an independent and effective complaints mechanism for procurement processes. The recommendation stemmed from the Committee's finding that the then current processes through which complaints can be submitted regarding Commonwealth procurements, to the Commonwealth ombudsman or the Australian government procurement coordinator, were infrequently used.

While the ombudsman and procurement coordinator were tasked with relaying complaints to the relevant Commonwealth agency, they have had no power to compel government agencies to revisit their decisions.

The purpose of the legislation is outlined in an explanatory memorandum as well as in a speech by the then minister for small business, Michael McCormack, made at the time of the Bill's  second reading in Australia's parliament in 2017.

Those statements confirm that the Act is aimed at introducing greater transparency and accountability to the procurement process, strengthening the review rights of suppliers, particularly small and medium enterprises (SMEs), in submitting tenders for Commonwealth procurements, and enacting Australia's treaty obligations under the World Trade Organization (WTO) agreement on government procurement as well as the Trans-Pacific Partnership trade agreement, which requires Australia to maintain an impartial and independent review body to provide remedies for government procurement complaints.

How complaints work under the new regime

The Act provides for a two-stage complaints procedure.

Submitting a complaint directly

Initially, suppliers can raise issues with the relevant Commonwealth agency by submitting a written complaint to the 'accountable authority' within those agencies. For Australian government departments, the accountable authority will be the secretary of the relevant department.

Those complaints can be submitted where suppliers believe that a Commonwealth entity or official has engaged, is engaging or is proposing to engage in any conduct in contravention of the relevant CPRs insofar as those rules relate to a 'covered procurement'.

A covered procurement will typically be one which is subject to both division 1 and division 2 of the CPRs. That will be the case if the procurement exceeds stated thresholds, these being AUS$80,000 ($57,000) for a non-construction procurement by a non-corporate Commonwealth entity; AUS$400,000 ($285,000) for a non-construction procurement by prescribed corporate Commonwealth entities; and AUS$7.5 million ($5.35m) for construction services procurement by relevant entities.

Procurements that fall within the exemptions listed under the CPRs, including for leasing land, procurement of motor vehicles, engaging legal counsel and procurements for certain national security agencies such as the Defence Intelligence Organisation, are exempt. Other procurements can also be excluded from scope by Australia's finance minister.

Where complaints concern an alleged breach of the CPRs by virtue of a Commonwealth entity or official's conduct and the interests of the supplier are affected by that conduct then the accountable authority is bound to investigate that complaint, prepare a report of the investigation and can, if it chooses, suspend the procurement for a period. However, the authority need not do this if it has certified that it is not in the public interest for a specified procurement to be suspended.

Public interest certificates should only be issued when suspension would result in real adverse consequences, and there is currently little guidance regarding what constitutes a 'real adverse consequence'.

Going to court

Once the direct complaints process has concluded, and if the supplier is not satisfied with the outcome of the accountable authority's investigation, the supplier can then seek remedies from the Federal Circuit Court in the form of an injunction or compensation. Compensation is limited to the reasonable costs for the preparation of the tenders, or the costs relating to the supplier's challenge, or both.

The Department of Finance has provided a list of possible contraventions of the CPR rules giving rise to successful supplier challenges. These include:

A procuring entity publishes an approach to market with a time limit for responses of less than 25 days, and the procurement does not meet any of the conditions for shorter timeframes specified in the CPRs;

A procuring entity accepts a late tender submission from a supplier, and the lateness was not caused by mishandling by the procuring entity;

Following a request from a potential supplier, a procuring entity provides additional information to that supplier which and that information provides them with an unfair advantage

Positive lessons from the UK

While the establishment of an independent complaints mechanism for procurement process will be new to Australia, such a framework is already in place in law in the UK.

The Public Contracts Regulations 2015, effective in England, stem from EU public procurement law reforms and are aimed, in part, at helping SMEs better compete for public contracts. The remedies under the Public Contracts Regulations are broadly similar to those provided for under the Government Procurement (Judicial Review) Act 2018 in Australia.

A study, published by Public Procurement Law Review in 2018, found that the Public Contracts Regulations had helped drive some behavioural change in public procurers in England, that the ban on pre-qualification questionnaires had made the award process faster, and that there was evidence that SMEs are winning a greater share of contracts as a result of the reforms.

Rob Buchanan is a Sydney-based expert in procurement at Pinsent Masons, the law firm behind Out-Law.com.