The Government Procurement Review: Australia
Government procurement legislation exists for the Australian Commonwealth government, state and territory governments, and local governments.
Commonwealth – key legislation and official guidance
At the Commonwealth level, the key legislation on government procurement is the Public Governance, Performance and Accountability Act 2013 (Cth) (the PGPA Act). The PGPA Act brought the fundamental elements of the Commonwealth financial framework together under one piece of legislation.
Official guidance on Commonwealth procurement is primarily contained in the Commonwealth Procurement Rules (CPRs) and the Public Governance, Performance and Accountability Rule 2014, which are issued under the PGPA Act. Further, the Government Procurement (Judicial Review) Act 2018 (Cth) (the Government Procurement Act) provides suppliers with significant rights to challenge a government procurement process for contravention of the CPRs.
The Department of Finance is primarily responsible for setting Commonwealth government procurement rules. It issues policies and directions for procurement, such as resource management guides dealing with liability, indemnity, payment terms and other positions to be applied in procurement and contracts.
There are a number of Commonwealth government procurement-connected policies. Different government agencies are responsible for these policies. For example, the Department of Industry, Innovation and Science is responsible for the Australian industry participation policy, and the Attorney-General's Department is responsible for the policy to apply the Building Code 2013 and Building Code 2016 incorporating the Supporting Guidelines for Commonwealth Funding Entities.
At the Commonwealth level, substantial further official guidance is given for conducting defence procurement. Defence procurement is largely subject to the same legislation and official guidelines as other Commonwealth procurement. Additionally, the Department of Defence issues a Defence Procurement Policy Manual (DPPM), and other guidelines and policies applicable to defence procurement.
The Department of Defence also issues its own contract terms for a range of supply categories.
State, territory and local government – key legislation and official guidance
State and territory governments have all enacted legislation regulating how their respective government agencies are to conduct procurement. The approach applied across jurisdictions is broadly similar. States and territories each have a central body that sets procurement rules and conducts most procurement. Government agencies that undertake a substantial amount of procurement (such as health departments) tend to have greater control over their own procurement. Similar to the approach at the Commonwealth level, there are Treasurer's Instructions or similar that provide further policy and guidance on conducting procurement.
State and territory governments tend to establish more whole-of-government purchasing arrangements than their Commonwealth counterparts.
Each state also has a local government structure. Legislation is enacted by each state setting rules for local government procurement. Local government bodies will set further rules that regulate their procurement activities.
Agreement on Government Procurement
The World Trade Organization Agreement on Government Procurement (GPA) entered into force for Australia on 5 May 2019. Australia's membership of the GPA provides Australian businesses with reciprocal, legally binding access to the government procurement markets of all current GPA members. Through the GPA, Australia is able to access markets where it does not have free trade agreements and other new opportunities.
ii Fundamental procurement principles
Procurement rules generally require that contracts be awarded to the bid demonstrating the best value for money and otherwise satisfying the conditions of participation. As an example, the principles for procurement set out in the CPRs are to apply the core rule of achieving value for money. This is supported by requirements in the CPRs to:
- encourage competition and be non-discriminatory;
- make proper use of public resources by efficient, effective, economical and ethical procurement;
- ensure accountability and transparency in procurement activities;
- appropriately manage and address risks in procurement activities; and
- use an appropriate procurement method.
Other governments apply procurement principles largely consistent with those in the CPRs.
Year in review
i Legislation, policy and guidance
On 17 December 2021, the Australian government signed the Australia–United Kingdom Free Trade Agreement (FTA) that, among other things, includes a government procurement chapter. Limited changes to Australian government procurement policy are expected to implement the Australia–United Kingdom FTA. Expected changes include commitments around conducting procurement electronically.
From 1 January 2022, the New South Wales (NSW) Modern Slavery Act 2018 requires that reasonable steps are taken to ensure that goods and services procured by and for government agencies are not the product of modern slavery. Agencies are required to include these reasonable steps in their annual report as well as action taken by the agency in respect of any issue raised by the Anti-Slavery Commissioner that year. The NSW government has published modern slavery and procurement guidance that includes information about the steps an agency can take to address modern slavery risks throughout the procurement life cycle.
From 1 October 2021, the Commonwealth's Payment Times Procurement Connected Policy (the Policy) commenced, requiring large businesses (a 'reporting entity' under the Payment Times Reporting Act 2020) that are awarded Australian government procurement contracts valued at over A$4 million (goods and services tax (GST) inclusive) to pay their subcontracts valued at up to A$1 million within 20 calendar days of satisfactory delivery of the goods or services and an invoice having been received. All non-corporate Commonwealth entities (e.g., largely government departments and agencies) are required to comply with the Policy and other Commonwealth entities are encouraged to use best endeavours to apply the Policy.
On 29 March 2022, the Commonwealth government announced changes to the CPRs (effective 1 July 2022) including:
- clarification that the CPRs apply to the administrative services of the Commonwealth Superannuation Corporation relating to the superannuation schemes that it administers;
- a requirement that non-corporate Commonwealth entities and prescribed Commonwealth entities comply with procurement-connected policies (where the policy indicates that it applies to the procurement process and the entity);
- amendments advising procuring officials to consider the disaggregation of large projects into smaller packages that maximise competition, where appropriate;
- amendments to remove the A$1 million threshold in the Supplier Pay On-Time or Pay Interest Policy;2
- amendments providing that suppliers do not need to take out insurance until a contract is to be awarded, to limit insurance imposts in contracts and embed the principle of risk sharing by better reflecting the actual risk in contractual liability; and
- an amendment to Appendix A: Exemption 17 permitting the Department of Defence to directly engage small and medium-sized enterprises (SMEs) for procurements valued at up to A$500,000.
The amendments aim to increase the prospects of SMEs securing Commonwealth contracts.
ii Case law
Litigation concerning government procurement is infrequent and there were no related cases of note reported in the past year. Historically, decisions have primarily reinforced existing principles and the application of judicial review to a government decision has been difficult. However, litigation may increase going forward as suppliers activate their rights under the Government Procurement Act to apply to the courts for an injunction or compensation for contravention of the CPRs.
Scope of procurement regulation
i Regulated authorities
There are typically two types of regulated government bodies for procurement purposes. The first are departments and agencies that do not have a legal identity separate from the Crown. Complying with the procurement laws and policies in most cases is mandatory for these bodies. The second are other government-created bodies that have a legal identity separate from the Crown (e.g., bodies created by statute or government-owned companies). Treatment of these bodies differs. Sometimes they may choose whether to subject themselves to procurement laws and policies. In other cases, they can be directed to comply.
ii Regulated contracts
Any contracts awarded by government bodies using public money or relating to public property will generally be regulated (or covered) by the procurement rules.
Under the CPRs, activities that are not considered to be covered procurement activities are:
- investments and divestments;
- sales by tender;
- purchases of goods or services for resale, or of goods or services used in the production of goods for resale;
- any property right not acquired through the expenditure of public money (e.g., a right to make a claim for negligence);
- statutory or ministerial appointments;
- engagement of employees; or
- arrangements between non-corporate Commonwealth entities where no other suppliers were approached.
Rules still apply to spending public funds on non-procurement activities. For example, the Commonwealth Grant Rules and Guidelines contain rules for grant programmes that are similar to the CPRs.
At the Commonwealth level, the CPRs contain rules in two divisions. Division 1 applies to all procurements regardless of value. Division 2 applies additional rules to procurements valued at or above the relevant procurement threshold (unless an exception applies). The Division 2 rules require a higher level of transparency (e.g., stronger requirements to conduct open tenders and to follow certain rules in conducting the procurement). The procurement thresholds are those described in Section IX.
For states and territories, the financial threshold for a contract usually determines the procurement method that must be used.
There are some exceptions to the obligation to advertise or hold a competitive procedure. Sole sourcing (or direct sourcing) is permitted in limited circumstances, such as:
- where, in response to an approach to the market, no suitable submissions were received;
for reasons of extreme urgency;
- for purchases made under exceptionally advantageous conditions that only arise in the very short term, such as from unusual disposals or unsolicited innovative proposals, noting that in recent years, all states and territories have released guidelines for the submission and assessment of unsolicited proposals; or
- where the property or services can only be supplied by a particular business and there is no reasonable alternative.
Sole sourcing cannot be used to avoid competition or discriminate against any domestic or foreign supplier.
In any sole or direct sourcing arrangement, the general procurement policy framework still applies, including the requirement to achieve value for money.
FTAs containing a non-discrimination in procurement obligation may also allow certain procurements to be conducted without being advertised or on a sole sourcing basis. For example, Australia's FTAs in many cases do not cover defence procurement, or the procurement of health and welfare services, education services, utility services or motor vehicles.
For defence procurement, there is further policy guidance concerning the basis upon which defence procurement might be conducted on a sole sourcing basis.
Contracting parties are generally free to agree to vary a contract or transfer the contract to a different supplier. However, in the case of contract variations, the customer will need to consider whether the extent of the variations is so substantial as to constitute a different procurement to the one already conducted. If so, the variation may fall outside the sole sourcing rules and require a new approach to the market.
Non-corporate Commonwealth entities must use the Commonwealth Contracting Suite for contracts under A$200,000. Corporate Commonwealth entities are encouraged to apply the suite of templates. For procurements valued between A$200,000 and A$1 million (GST inclusive), use of the Commonwealth Contracting Suite is encouraged consistent with Resource Management Guide No. 420.3
Special contractual forms
i Framework agreements and central purchasing
One agency is usually appointed as the lead agency to conduct a coordinated or whole-of-government procurement. At the Commonwealth level, the lead agency is usually the Department of Finance.
The Commonwealth, state and territory governments all use whole-of-government procurement arrangements for certain types of supplies. Where there is such an arrangement for a type of supply, it is usually mandatory for government customers to purchase under the arrangement (unless an exemption applies). In some jurisdictions, local governments participate in joint procurement arrangements where they appoint a party to conduct procurement for a number of local government bodies.
The supplies typically subject to whole-of-government arrangements are items routinely purchased by government bodies without the need to be further customised prior to use (e.g., supplies for hospitals, computer equipment, telecommunications services and cleaning services).
Some panel arrangements are established for more bespoke services, such as to pre-qualify suppliers able to provide certain IT services. From the pre-qualified list, government bodies may then conduct a further procurement to select a provider for particular projects (e.g., to select a systems integrator to implement a new system).
Defence establishes panel arrangements for some types of supplies (such as IT services or to pre-qualify to participate in defence research programmes).
ii Joint ventures
Government-owned bodies (regardless of whether they are part of a joint venture) are typically subject to less stringent procurement rules than government departments. However, in practice they tend to apply procurement rules consistent with those applicable to government bodies.
Public–private partnerships (PPPs) are not typically established with a requirement that they be bound by government procurement rules when buying, but accountability for use of public resources will still influence how the PPP conducts procurement. At the Commonwealth level, guidance issued under the PGPA Act includes accountability obligations on officials to cooperate with others (including participants in PPPs) to achieve common objectives, where practicable.
The National Public Private Partnership Policy and Guidelines, endorsed by the Council of Australian Governments on 29 November 2008, address partnering with the private sector for the provision of public infrastructure and related services, including on procurement. The Commonwealth, and state and territory governments have agreed that PPPs must be considered for any project with a value in excess of A$50 million.
PPPs typically incorporate a significant consideration of whole-of-life costs, allowing the government to lock in long-term allowances for project maintenance, asset and quality control. In most PPPs, the government allocates the risk of additional future costs to the private sector concessionaire. This impacts the procurement approach. For example, the concessionaire usually has discretion to determine how to best manage these risks (e.g., by subcontracting them to a builder or operator, pricing for risks or building in contract measures to give relief for risks).
The bidding process
The Commonwealth government and each state and territory government maintain public websites where procurement opportunities must be advertised and the awarding of contracts published.
At the Commonwealth level, the CPRs require that each agency publish, by 1 July each year, the agency's annual procurement plan containing details about planned approaches to market on the AusTender website. AusTender must also be used to publish multi-use list opportunities, open tenders above the procurement threshold and, where practicable, request documentation.
The CPRs also require details about awarded and amended contracts to be published on AusTender if the contract is valued at or over the reporting threshold, which is A$10,000 for non-corporate Commonwealth entities. For prescribed Commonwealth entities bound by the CPRs, the reporting threshold is A$400,000 for procurements other than procurement of construction services or A$7.5 million for procurement of construction services.
Procurement rules generally require that contracts be awarded to the bid demonstrating the best value for money and otherwise satisfying the conditions of participation.
At the Commonwealth level, if a procurement is above the procurement threshold, the CPRs require that, unless contrary to the public interest, an agency must award a contract to the bidder that the agency has determined:
- satisfies the conditions for participation;
- is fully capable of undertaking the contract; and
- will provide the best value for money, in accordance with the essential requirements and evaluation criteria specified in the approach to market and tender documentation.
It is common for tender terms to give the agency some flexibility in awarding contracts. Tender terms will typically state that the lowest-price bid will not necessarily be accepted and that the customer may exercise discretion to accept a non-compliant or alternate bid, or decide not to proceed at all.
The majority of procurements conducted have online lodgement requirements. For example, at the Commonwealth level, most tenders are required to be lodged through AusTender.
Defence procurements will require lodgement through AusTender or other electronic means where appropriate. If, for example, the request for tender documents involves security-classified or other sensitive information, then lodgement in the form of hard copy or physical delivery to a tender box may be used.
iii Amending bids
At the Commonwealth level, the CPRs permit customers to change terms applicable to the procurement, provided that all bidders are treated equitably. Where a procurement is above the procurement threshold, additional change notification requirements apply.
The tender terms will usually define the basis upon which final tenders may be changed pre-award. Tender terms will typically give the customer flexibility to discuss proposals with one or more shortlisted bidders and seek further responses from them without needing to go back to excluded bidders.
It could be more difficult for a customer to justify that a significant change made during the preferred bidder stage does not breach procurement rules. For example, if the tender terms stated that a requirement was mandatory and bidders were excluded for not meeting that requirement, it could be problematic for the customer to keep dealing with a preferred tenderer who, at the preferred bidder stage, said it did not meet the mandatory requirement. This could be unfair to the excluded bidders (and, if so, could breach the procurement rules).
i Qualification to bid
The tender terms will typically give the customer discretion to exclude a bidder for breach of the tender conditions or inappropriate behaviour in connection with the tender.
If a party has been involved in an earlier stage of the project being tendered (e.g., in preparing the requirements document), such a party may find itself excluded from competing in the later tender. Alternatively, the party may need to implement measures to quarantine the staff involved in that earlier work from the tender. This issue often arises for large defence procurement and in PPPs (partly because they can take place over several years).
Bidders can be excluded for failing to meet the mandatory requirements. A bidder might also be excluded for failing to comply with mandatory procurement policy.
Procurement frameworks usually enable government agencies to exclude bidders on grounds such as insolvency, false declarations or significant deficiencies in performance under a prior contract.
It is not uncommon, particularly in PPPs and large defence projects where tendering costs can be very high, for the initial selection phase to be an 'expression of interest' process where those consortia interested in tendering are reduced to a small number (often two or three) on the basis of demonstrated technical experience and financial capacity, with only those selected invited to continue in the next 'request for proposal' phase.
ii Conflicts of interest
Tender terms usually require tenderers, to avoid an actual or apparent conflict of interest arising, to promptly report any such conflict and to comply with any directions issued for how the conflict is handled.
Defence procurements and PPPs usually contain more detailed terms for handling conflicts of interest. Procurement terms will typically contain a prohibition on improper assistance and on a bidder using recently departed customer personnel or a contractor who may have been involved with the project.
iii Foreign suppliers
Foreign suppliers may bid for government procurement opportunities. Foreign suppliers are not required to set up a local branch or subsidiary, or have a local-tax permanent establishment presence to do business with public authorities.
Government bodies are required to comply with Australia's sanctions regime, which applies sanctions from the United Nations Security Council as well as autonomous sanctions. A government customer would be unable to do business with a foreign supplier if that would breach Australian sanctions.
FTAs have impacted Australia's procurement rules and requirements. Australia has agreed several FTAs that contain requirements to eliminate preferential treatment of local suppliers and provide transparency in the government procurement process. These goals have been incorporated into procurement frameworks across all Australian governments. For example, the CPRs prohibit discrimination that would otherwise favour local suppliers. However, the FTA non-discrimination in government procurement requirements contain exemptions, for example, to allow Australian governments to apply preferences to SMEs.
Foreign suppliers are generally eligible to bid for defence contracts, but may face restrictions where the project would involve access to classified information.
i Evaluating tenders
Most tender terms will set out evaluation criteria.
At the Commonwealth level, the CPRs require agencies to include relevant evaluation criteria in tender documentation to enable the evaluation of bids on a fair, common and appropriately transparent basis. Value for money is usually the overarching criterion. The CPRs, in the 'value for money' section, reflect the Australian government's commitment to sustainable procurement practices.
ii National interest and public policy considerations
National interest, local, social and environmental considerations are taken into account in different ways in procurement. Some public policy requirements are included in tender evaluation criteria. Others operate as a bar to doing business with the government. Examples of those requirements at the Commonwealth level are:
- for procurements over A$4 million (or A$7.5 million for construction services), the requirement in Division 1 of the CPRs that officials must consider the benefit of the procurement to the Australian economy in light of the various international trade agreements to which Australia is a party;
- the Australian Industry Participation (AIP) National Framework, which applies to major Commonwealth government procurements (generally above A$20 million), pursuant to which tenderers for certain Commonwealth procurements are required to prepare and implement an AIP Plan; and
- the Workplace Gender Equality Procurement Principles and User Guide require government agencies to obtain a letter of compliance from certain tenderers (employers with 100 or more employees) that indicates compliance with their obligations under the Workplace Gender Equality Act 2012 (Cth).
The tender terms will usually contain a term giving bidders the opportunity for a debriefing.
The CPRs require that, after the rejection of a bid, officials must promptly inform affected bidders of the decision. Debriefings must be made available, on request, to unsuccessful bidders, outlining the reasons that their submissions were unsuccessful. There are mixed approaches by government bodies as to whether they are willing to provide a debrief before a contract is executed or afterwards.
Confidentiality obligations for tenders are governed by the tender terms. There is usually an obligation on each party to use and disclose each other's confidential information only for the purpose of conducting the procurement.
Historically, legal challenges to procurement decisions have been infrequent and, in the absence of serious wrongful conduct by a government body, do not tend to succeed.
The Government Procurement Act confers standing on a wide group of potential complainants to seek either or both of an injunction and an order of compensation through the courts for contravention of the CPRs during the tender process. This applies to covered procurements, being those to which both Divisions 1 and 2 of the CPRs apply. This means that the procurement value is estimated at or above the following thresholds:
- A$80,000 for non-corporate Commonwealth entities (non-construction services);
- A$400,000 for prescribed corporate Commonwealth entities (non-construction services); and
- A$7.5 million for non-corporate and prescribed corporate Commonwealth entities (construction services).
The CPRs declare certain provisions to be 'relevant provisions' under the CPRs for the purposes of the Government Procurement Act. The rights to seek injunctions or orders of compensation apply only in relation to contraventions of 'relevant CPRs'. These are outlined under Rule 6.9 of the CPRs.
At a state level, in NSW, the Public Works and Procurement Amendment (Enforcement) Act 2018 enables the NSW Procurement Board to issue policies and directions concerning the procurement of goods and services by and for government agencies. The legislation establishes a set of enforcement powers and rules relevant to challenging awards.
Procurement decisions are likely to come under judicial scrutiny in future as complainants challenge the conduct of government agencies at both the federal and, to a limited extent, state levels. However, awards made in relation to unsolicited proposals are governed by separate guidelines and, therefore, it is unlikely that such awards will be subject to challenge by judicial review.
There are administrative and legal processes for handling procurement complaints.
At a Commonwealth level, the CPRs require government bodies to have a timely, equitable and non-discriminatory procurement complaint handling procedure. Legislation also allows suppliers to lodge a written complaint to the procuring body for any alleged breaches of the CPRs. This will trigger an investigation and attempted resolution of the complaint by an accountable authority of the procuring body. The procurement may also be suspended until a complaint is resolved, unless suspension of the procurement would be contrary to the public interest.
There is an administrative process through the Department of Finance whereby some types of complaints are made to the Procurement Coordinator. Complaints about current tenders will only be considered where the Procurement Coordinator determines that the issue raised is sufficiently material and relevant to warrant being raised with the procuring government body, and if there is sufficient time to deal adequately with the complaint before the tender closes.
The Procurement Coordinator has no authority to compel a government body to reconsider the conduct or outcome of tender processes for which that body is accountable.
Legislation also allows a complaint about procurement to be made to the Commonwealth Ombudsman. The Ombudsman has powers to investigate and make a recommendation but no power to change a decision.
The person with standing to bring the relevant legal cause of action may commence litigation to challenge the award of a tender. Usually this will be an aggrieved tenderer. The party will need to find a public or private law cause of action.
The limitation period for applying for a remedy will usually be set out in the limitation legislation for the relevant jurisdiction or in the specific legislation containing the legal rights and remedies.
The general limitation period is six years from the date the cause of action accrued. Different periods are set for particular causes of action. If the cause of action arose under an agreement executed as a deed, the limitation period could be 12 or 15 years from the date the cause of action accrued, depending on the jurisdiction.
Complaints raised under the Government Procurement Act for alleged breaches of the CPRs must be raised with the courts within 10 days of the contravention occurring.
ii Grounds for challenge
In practice, challenging procurement decisions can be difficult in the absence of serious wrongful conduct.
Complainants can now make an application under the Government Procurement Act to the Federal Court or the Federal Circuit and Family Court of Australia for an injunction or an order of compensation for contravention of the CPRs by a government body, or both. However, even if the court finds that the CPRs have been contravened, the court is not able to overturn the awarded contract.
Administrative and private law actions may also be available to provide a remedy for a procurement complaint. For example, administrative law may allow a claim based on denial of natural justice, a lack of procedural fairness or on the legitimate expectation doctrine, or legislation allowing the review of administrative decisions made under an enactment. However, these cases are rare, as procurement decisions are not usually found to have been made under an enactment.
Depending on the circumstances, private law remedies may be available. For example:
- most procurements will be conducted under a tender process contract and, where a process contract has been created, an action in breach of contract may be available if the government body fails to follow the procurement process;
- if the government body has acted in a misleading manner in conducting the procurement, it may be liable for misleading conduct in breach of the Competition and Consumer Act 2010 (Cth) or under corresponding state and territory fair trading legislation, although there are limitations on when the government can be liable under the legislation; or
- the doctrine of estoppel may be available to provide redress for a tendering complaint where representation, reliance and detriment can be shown to have occurred.
There are few cases where remedies have been obtained against the government for procurement practices.
Hughes Aircraft Systems International v. Airservices Australia4 (Hughes) established that, under Australian law, a public tender could be governed by a 'process contract'. In Hughes, the process contract contained the express tender terms (which included confidentiality obligations that were found to have been breached) and the implied term that the government body was to evaluate all tenders fairly and in good faith (which was breached as tenderers were not treated fairly).
JS McMillan Pty Ltd v. Commonwealth 5 (McMillan) is the leading Australian authority for procurement disputes based on misleading conduct by government. In McMillan, the Commonwealth government conducted a procurement to outsource its printing operations. JS McMillan Pty Ltd accused the government of having engaged in misleading conduct under the predecessor to the Competition and Consumer Act 2010 (Cth). For the government to be liable, the test for applying the act to the Crown's activities needed to be satisfied. The test was whether the government could be treated as carrying on a business. It was held that outsourcing printing operations was not carrying on a business and so the act did not apply.
For private law causes of action, the courts may grant injunctions, set aside contracts, order new tenders and award damages for breach of tender process contracts. However, contracts are rarely undone. If a bidder obtains a court decision in its favour concerning the conduct of the procurement, the most likely remedy is damages to compensate the bidder for loss.
No fines are available for breach of procurement procedures.
For private law causes of action, the remedies may be quite limited. For example, powers to review an administrative law decision may only grant the court the power to require that the decision be remade (which may not change the outcome). Damages are also not an available remedy for all administrative law actions. However, as noted in Section II, the Government Procurement Act now provides an avenue for seeking an order for payment of compensation for contravention of the CPRs in relation to a covered procurement.
Substantial changes to Australian government procurement rules going forward are not expected. We would expect governments to continue to focus on ensuring that their suppliers are engaging in responsible sourcing (e.g., by assessing modern slavery risks in their supply chain). Anecdotally, we are also seeing an increased government focus on applying procurement policies such as indigenous sourcing.
1 Anne Petterd is a partner and Sally Pierce is a senior associate at Baker McKenzie.
2 Resource Management Guide No. 417.
3 Further information is provided in https://www.finance.gov.au/publications/resource-management-guides/mandatory-use-commonwealth-contracting-suite-procurement-under-200000-rmg-420.
4 (1997) 146 ALR 1.
5 (1997) 147 ALR 419.