The Australian National Audit Office (“ANAO”) has published a report on “Procurement by the National Capital Authority”[1] looking at the effectiveness of its procurement activities. While the findings are no doubt disappointing for the National Capital Authority (“NCA”), the report provides valuable reminders for all Australian Government entities regarding procurement best practice and pitfalls to avoid.
Key learnings…
The main driver of the audit, and that which should always be the holy grail of a government procurement process, is in ensuring that the Australian Government achieves value for money in its procurement activities.
With this in mind, the key learnings highlighted by the ANAO in this audit related to:
- the use of open and competitive government procurement processes;
- treating potential suppliers to government fairly and equitably; and
- maintaining accurate and adequate records.
…and what not to do
While not wanting to dwell on the NCA’s shortfalls identified by the ANAO in its report, sometimes the most effective way of understanding best practice is to consider examples of ‘what not to do’, such as:
- giving preference to, or limiting the process to, incumbent service providers;
- direct sourcing from an incumbent supplier in order to avoid the cost of an open tender process;
- extending an approach to an existing panel arrangement to select suppliers not on the panel;
- not following the published evaluation criteria in the evaluation process or not including a complete description of the criteria (including any applicable importance or weightings) in the request documentation;
- failing to maintain appropriate records of the justification for using a limited tender approach and how value for money was achieved in that process;
- having incomplete records of conflict of interest declarations;
- incorrectly reporting relevant details (e.g. the procurement method, contract value or contract start date) on AusTender;
- commencing service delivery prior to the contract being executed.
None of these learnings are new, rather they are useful reminders and may encourage government entities to reflect on their own processes and potentially identify some areas for improvement.
There are two areas in the ANAO’s report which raise interesting points for discussion: the application of essential requirements to the process; and when a procurement can be considered to be for “construction services”, thereby enlivening the higher relevant procurement threshold under the Commonwealth Procurement Rules (“CPRs”) for when the rules in Division 2 of the CPRs must be followed.
The perils of essential requirements
Where essential requirements (minimum content and format requirements, conditions for participation or otherwise mandatory requirements) are to apply they must be specified in the request documentation, be truly ‘essential’ for tenderers to meet requirements of the procurement and a tenderer must be rejected for failure to meet a requirement. For this reason, care must be taken when including essential requirements in a procurement process.
Unfortunately, there is often an attraction to overzealous use of conditions of participation or other mandatory requirements as there is a perception that it will give a requirement gravitas and will protect the government entity from risk. However, if not executed well, misguided use of essential requirements can put the entire procurement process at risk.
One key risk is that the essential requirements unfairly limit competition (even where an open tender process is used) by including inappropriate requirements that exclude or discriminate against suppliers that would otherwise be capable of participating in the process and delivering the services. The ANAO discussed some examples of discriminatory requirements such as, requiring suppliers to hold a current committee membership or security clearance, as opposed to being eligible to hold such a membership or capable of obtaining a clearance. Taken a step further, poorly specified essential requirements may result in no suppliers responding to the approach to market or all tenderers being rejected.
Equally problematic is specifying conditions for participation but then allowing a tenderer that has failed a condition to progress in the process. This can be particularly tempting to do where the requirement specified is not absolutely essential or can be met at a future point in time and is a sign that the requirements should not have been specified as conditions of participation in the first place.
What are “construction services”?
While the term is defined in the CPRs[2] , the ANAO found that an overly broad application of the term was being used by the NCA, which included classifying the following as construction services:
- supply and delivery of compost, drainage sand and mulch; and
- supply and delivery of granite plaques for the Old Parliament House Rose Gardens.
By using this broad application of the term the NCA was able to rely on the higher procurement threshold applicable to construction services[3] to justify conducting those procurements as limited tenders rather than open tenders. Following these findings, the ANAO has recommended that the Department of Finance issue guidance for entities on applying the definition of “construction services” for the purposes of the CPRs.
It can be easy to fall into bad habits and practices, particularly where there are no controls in place to catch them. It is important that government entities have sufficient guidance, policies, administrative processes and training in place to enable personnel to administer government procurement processes in accordance with the CPRs and achieve value for money for the Australian Government.
If you would like any legal assistance regarding your government procurement process, please contact Lucinda Watson, special counsel in the Government and Commercial Law team at Moulis Legal.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
© Moulis Legal 2022
[1] Auditor-General Report Report No. 30 2021-22 Performance Audit
[2] “Construction Services” are defined in the CPRs as “procurements related to the construction of buildings and procurements of works as defined by the Public Works Committee Act 1969”.
[3] The procurement threshold for construction services is $7.5 million (GST incl.), the threshold for other procurements by non-corporate Commonwealth entities is $80,000.
