The final week of the sitting calendar for 2016 has seen not only Senate crossbench support for a Bill to re-establish the Australian Building and Construction Commission, but also some important changes to the Commonwealth Procurement Rules (CPRs), including a requirement to consider the “economic benefit of the procurement to the Australian economy”.

Under the new CPRs which will come into effect on 1 March 2017, for procurements above $4 million, Commonwealth officials will have to consider the “economic benefit of the procurement to the Australian economy”. So, as between two otherwise equally placed tenderers, or two tenderers both otherwise representing value for money, the one demonstrating a greater value to the Australian economy, such as by use of Australian goods and services, is likely to prevail unless Australia’s international agreements, such as free-trade agreements, would prevent that.

Other changes mean that officials will need to understand the relevant regulations that could affect a procurement, and make enquiries ‘that the procurement is carried out in consideration of those regulations’. Listed examples include consideration of tenderers’ practices regarding ethical employment, occupational health and safety and environmental impact.

There are also new requirements regarding application of Australian and international standards throughout the procurement cycle.

Relevant agencies and government entities should take steps now to update procurement templates and processes to be ready for the new CPRs. Suppliers to government will need to understand how procurements, and the assessment process, will change.

What are the changes for?

The amendments apply to procurements under Division 2 of the CPRs (i.e. procurements over the “procurement thresholds”) and are directed at:

  • discouraging unethical supplier practices, such as child labour and environmental impacts;
  • ensuring that the procurement process is informed by more comprehensive information in relation to compliance with standards; and
  • as a first for Commonwealth procurement, requiring consideration of a procurement’s economic benefit to the Australian economy.

Economic Benefits to Australia Economy

The new requirement to consider the economic benefit of the procurement to the Australian economy operates in the context of Australia’s national and international agreements, including free trade agreements, which may restrict the ability of officials to favour Australian businesses or goods over foreign suppliers or goods.

What’s not entirely clear from the drafting is whether the economic benefit test operates as an additional consideration that officials need to consider when assessing VFM, or whether it operates as a separate assessment after VFM is determined.

What will agencies need to do? Entities will need to update their procurement templates and processes to ensure that their officials are prompted to consider the economic benefit of the procurement to the Australian economy, and should turn their mind to what that tests will apply in the context of the procurement and how they will elicit relevant information from tenderers. We see this as a focus area in the coming weeks, as officials grapple with how this will affect the evaluation of tenders.

Agencies will also need to further understand the impact of the international trade agreements on their procurements – and how the ‘Australian economic benefit' test for their procurements will be applied in the context of those international agreements.

Discouragement of Unethical Supplier Practices

The requirement for officials to “make reasonable enquiries that the procurement is carried out considering relevant regulations and/or regulatory frameworks” puts the onus on the relevant entity to understand the regulatory environment that will be relevant to the procurement. While the emphasis is on ethical supplier practices such as labour regulation, it is not limited to those considerations.

What will agencies need to do? Entities will need to update their procurement templates and processes to ensure that their officials are prompted to understand the regulatory environment for the procurement, and make reasonable enquiries about the tenderers’ practices, particularly in relation to:

  • labour regulations (including ethical employment);
  • occupational health and safety; and
  • environmental impacts.

Australian and international Standards

There are two new rules.

The first requires that where an Australian standard applies to goods and services the subject of the procurement, tender responses must demonstrate capability to meet that standard. Entities will need to establish which Australian standards apply to a procurement, and update procurement documents to require tenderers to demonstrate their ability to comply with the applicable standard in their responses. Further, the contract will need to contain “evidence of the applicable standard”. This suggests relevant standards should be called out by name in the contract.

The second rule requires that where an entity applies a standard for goods or services (interestingly, this applies to Australian and international standards) it must make reasonable enquires to determine compliance with that standard, including gathering evidence of relevant certifications and periodic auditing of compliance by an independent assessor.

What will agencies need to do? Entities will need to update:

  • procurement process documents to prompt officials to make enquiries into compliance with standards throughout the procurement cycle;
  • template contracts to identify relevant standards and ensure the entity can determine if the standard is being complied with (by introducing rights to require certifications to be provided, and rights to carry out independent auditing).

Here is a link to the New CPRs. The amendments are in paragraphs 10.10, 10.18, 10.30, 10.31 and 10.37.