New Australian procurement requirements provide protection to foreign tenderers

In brief 5 min read

New, wide-reaching requirements for government procurement processes have recently been implemented around Australia, following the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and other Free Trade Agreements with Australia's key trading partners. These new requirements have significant implications for government departments and agencies, as well as tenderers for government contracts, particularly those with foreign shareholders or affiliations. We examine the procurement requirements and how they have been adopted around Australia.

Key takeaways

• New, wide-reaching requirements for government procurement processes have been introduced around Australia following the Federal Government's ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11) and other Free Trade Agreements (FTAs) with Australia's key trading partners.¹

• These new requirements have significant implications for federal, state and territory government departments and agencies when conducting procurements.

• Tenderers for government contracts, particularly those with foreign shareholders or affiliations, should note their new enhanced rights, especially in Commonwealth and New South Wales procurements where tenderers now have statutory rights and remedies for breach of the new rules.

What are the new requirements?

Governments around Australia have taken different approaches to implementing the new TPP-11 and FTA requirements, so those involved in government procurement will need to take careful heed of the new requirements relevant to their jurisdiction(s).² However, the following five key principles introduced by TPP-11 are particularly significant, as they can be seen as setting the most rigorous benchmark, and have generally been in adopted in one form or another around Australia:

• Equal treatment: government organisations must not discriminate against any tenderer due to its degree of foreign affiliation or ownership, such as preventing a local tenderer from participating on the basis that they have foreign shareholders or on the basis that they supply products originating in other countries;
• Offsets: tenderers must not be required to provide conditions or undertakings that require the use of local content, a domestic supplier, the licensing of technology, or similar actions aimed at encouraging local development;³
• Conditions for participation: conditions for participation in a tender are permitted, but must not inappropriately discriminate against international tenderers, such as requiring prior experience in Australia;
• Specifications: specifications must not create an unnecessary obstacle to trade; and
• Open approaches to market: government organisations must generally use an open approach to market for all relevant procurements, unless an exception applies.

What are the relevant thresholds and exemptions?

There are different thresholds for, and exemptions from, compliance with the new requirements that apply in each jurisdiction.

Commonwealth thresholds

For Commonwealth entities, the new requirements apply where a covered procurement exceeds the following values (including GST):

• $80,000 for non-corporate Commonwealth entities, other than for procurements of construction services;
• $400,000 for prescribed corporate Commonwealth entities, other than for procurements of construction services; and
• $7.5 million for procurements of construction services by relevant entities.

State and territory thresholds

In accordance with TPP-11, the new requirements apply in states and territories where a covered procurement has a value (including GST) that exceeds:

• $9.247 million for a procurement of construction works; and
• $657,000 for a procurement of any other goods or services.

These thresholds are subject to change every two years and were last set on 1 January 2018.

Exemptions

While the new procurement requirements apply to most government procurements with a value in excess of the thresholds outlined above, there are certain procurements that are specifically exempted from compliance under the terms of TPP-11, such as procurements relating to health services.

In practice, the government departments and agencies to which the new rules apply differ from jurisdiction to jurisdiction, depending on the scope of the implementing legislation/policy and the activities the departments and agencies carry out. Some jurisdictions also maintain a list of exempt procurements.

How have these new requirements been implemented around Australia?

Commonwealth, New South Wales and Tasmania take a legislative approach

New South Wales became the first state in Australia to give legislative effect to the new procurement requirements, with a Direction issued by the NSW Procurement Board taking effect from 29 November 2019 (the NSW Direction).⁴

The NSW Direction is the first to be issued under the Public Works and Procurement Amendment (Enforcement) Act 2018 (NSW) (the Procurement Amendment Act), which established that the NSW Procurement Board can issue directions or policies specifying certain provisions as 'enforceable procurement provisions'.

Importantly, the Procurement Amendment Act provides tenderers with statutory rights and remedies against any New South Wales government organisation that breaches these enforceable procurement provisions. Eg if a tenderer believes a government organisation has breached an enforceable procurement provision, the tenderer may have the power to trigger an investigation and suspend the procurement process. Additionally, the tenderer may be able to apply to the Supreme Court of New South Wales to issue an injunction or award compensation for contravention of an enforceable procurement provision.

The approach New South Wales has taken closely follows the Federal Government's approach under the Commonwealth Procurement Rules and the Government Procurement (Judicial Review) Act 2018 (Cth). Tasmania is also following a similar path, with the Government Procurement Review (International Free Trade Agreements) Act 2019 (Tas) which was passed on 2 October 2019 but has not yet taken effect.

By giving legislative effect to the new procurement requirements, the Federal, New South Wales and Tasmanian Governments are ensuring the rules are not simply disregarded: officials and government organisations are put on notice that if they ignore their obligations under the respective policy frameworks, they risk the suspension of a relevant procurement or being taken to court. This has significant implications for government, as it materially increases government accountability in the context of the procurement processes it conducts, given that unsuccessful tenderers would otherwise often have little recourse against government organisations as regards procurement processes.

This legislative and judicial review approach is different from the approach taken in other states and territories, which implemented the new procurement requirements through their procurement policy frameworks, as discussed further below.

Other states and territories take a policy-led approach

Other states and territories have taken active steps – at varying levels – to implement the obligations introduced by FTAs through their policy frameworks, but some have been slower than others at adopting obligations introduced by TPP-11 and the FTAs. While the Northern Territory, South Australia and Western Australia have released guidance that informs their respective government organisations of their obligations to comply with FTAs, Victoria and the Australian Capital Territory have broader, clearer and more prescriptive procurement obligations that clearly take TPP-11 into account.

Victoria provides a strong example of a policy-directed approach to addressing the new procurement requirements. In May 2019, the Victorian Government Purchasing Board (VGPB) released the Guide to government procurement under international agreements, which sets out the requirements of the FTAs as they apply in Victoria and the relevant exceptions.⁵ In December 2018, the Victoria Department of Treasury and Finance also issued directions and instructions for compliance with FTAs that apply to public construction-related procurements.⁶

The Australian Capital Territory's approach is likewise noteworthy, with the Australian Free Trade Agreements Procurement Fact Sheet (the ACT Fact Sheet), providing clear guidance for Australian Capital Territory government organisations. The ACT Fact Sheet explains that although the FTAs that the Federal Government is a signatory to 'vary marginally from each other', they 'should be treated as individual agreements despite their similarities'. However, the ACT Fact Sheet confirms that government organisations should use TPP-11 as the benchmark for procurements, 'as this has the most rigorous requirements of the FTAs'.⁷

Notably, while all other states and territories have taken steps to adapt their procurement frameworks, Queensland has largely resisted implementing the new FTA obligations.

What can a tenderer do if there has been a breach of the FTA requirements?

TPP-11 requires the designation of at least one impartial administrative or judicial review authority that is independent of the relevant procuring entity to review, in a non-discriminatory, timely, transparent and effective manner, a challenge or complaint by a tenderer.

There are three different ways this requirement has been reflected around Australia:

• Legislation: As noted above, the Federal, New South Wales and Tasmanian Governments have each taken a legislative approach giving tenderers statutory rights and remedies against government organisations that breach the new procurement requirements.
• Policy: South Australia has implemented a Supplier Complaints Policy, which provides general direction and guidance to public authorities in addressing tenderer complaints and establishing an effective complaint management process and resolution system.⁸ This includes ensuring all formal complaints are investigated by an appropriate, independent officer, who is required to demonstrate impartiality and fairness in all supplier complaint investigations.
  Similarly, the Australian Capital Territory's Supplier Complaints Management Procedure sets out the process for managing procurement complaints, and requires territory entities to adhere to the following principles when managing supplier complaints: responsiveness, accountability, objectivity, fairness and transparency.⁹
  Meanwhile, the Northern Territory sets out information for managing complaints in its policies and rules. This, similarly, includes a focus on independence, fairness and transparency. However, unlike South Australia and the Australian Capital Territory, it has not created specific guidelines aimed at tenderers.
• Contractual: Victoria has taken a contractual approach, requiring government organisations to include in tender invitation documentation a legally binding dispute resolution clause, which provides that complaints or challenges by a tenderer in relation to the non-compliance with the procurement requirements of FTAs will be resolved by a process of:
  • negotiation and then mediation between the tenderer and the organisation; and
  • if this is not successful, determination by an independent arbitral tribunal with the power to make an award of compensation or award corrective action.

A model dispute resolution clause that complies with the requirements of TPP-11 is published on the VGPB's website.

Actions you can take now

• Government departments and agencies need to familiarise themselves with the new procurement requirements applicable to their organisation, including any relevant exemptions.
• Suppliers and contractors, particularly those with foreign shareholders or affiliations, are advised to familiarise themselves with the new requirements in the jurisdiction(s) in which they respond to government tenders, particularly the rights and remedies now available to them.
• The practical implications of the new procurement requirements for government procurement documentation and processes around Australia remain to be seen. That said, the move towards enforceable procurement rules that are subject to impartial review has significant implications for those involved in government procurement, and may be seen as a good step forward in ensuring greater accountability and transparency in government procurement in Australia.