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Legal framework

Relevant legislation

What statutes or regulations govern procurement of defence and security articles?

In Australia, defence and security procurement is undertaken by the federal government through the Department of Defence (Defence). Like other federal government agencies, Defence is subject to the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act), which establishes a framework for expenditure of public resources. Requirements for procurement are contained in the Commonwealth Procurement Rules (CPRs) issued under the PGPA Act. The central principle of the CPRs is value for money, and this is supported by further obligations to encourage competitive markets, ensure non-discriminatory purchasing practices and accountability for purchasing decisions, and to use efficient, effective, ethical and transparent procurement processes. The CPRs contain rules in two divisions: Division 1 applies to all procurements regardless of value while 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 (eg, stronger requirements to conduct open tenders and to follow certain rules in conducting the procurement). With respect to Defence, the procurement thresholds are as follows:

  • other than for procurements of construction services, A$80,000; and
  • for procurement of construction services, A$7.5 million.

The CPRs are supported by a range of related policies, including those addressing indigenous economic development, workplace gender equality and the maximisation of Australian industry participation in major projects. As the largest procurement agency in the federal government, Defence has established its own overarching procurement management framework, including the Defence Procurement Policy Manual (DPPM), and a series of policies and programmes for particular procurement matters including intellectual property, cost principles and risk. On 19 December 2017, a refreshed version of the DPPM was released, which incorporates the CPRs so that officials can find in one place the Commonwealth and Defence procurement-related policy that applies to them. Defence has also developed its own suite of contracts, the Australian Standard for Defence Contracting (ASDEFCON) templates, for use across the range of its procurement projects.

Identification

How are defence and security procurements identified as such and are they treated differently from civil procurements?

Defence and security procurements are identified as those acquisitions made by Defence for the purpose of supporting the Australian Defence Force. Such acquisitions range from simple, low-value goods and services to complex military hardware. Defence procurement is subject to the same legislative regime as other federal government procurements, with several exemptions. Division 2 of the CPRs does not apply to procurements undertaken by the Defence Intelligence Organisation, the Australian Signals Directorate or the Australian Geospatial-Intelligence Organisation, nor to procurements that have been determined as necessary for the protection of ‘essential security interests’ in accordance with Rule 2.6 of the CPRs. These include goods that fall within certain US Federal Supply Codes and the procurement of specified services, including those relating to design and installation of military systems and equipment, operation of federal government-owned facilities, and the support of military forces overseas. Defence procurements are also exempt from several free trade agreements. For example, certain Defence procurements are excluded from Chapter 15 of the Australian-US Free Trade Agreement, the objective of which is to provide non-discriminatory access to the procurement framework of each country.

Conduct

How are defence and security procurements typically conducted?

All defence procurements must comply with the mandatory rules contained in Division 1 to the CPRs, while procurements at or above the relevant threshold must comply with the Division 2 rules unless an exemption applies. Pursuant to the CPRs, procurements at or above the relevant threshold must use an ‘open tender’ process, which involves publishing an open approach to market and inviting submissions from tenderers through a request for proposal. However, the DPPM provides that where a procurement is low risk and below the relevant threshold, it should generally be conducted on a limited tender basis. This involves a single potential supplier (or several potential suppliers) being invited to submit a response in lieu of the open tender process. Defence may also utilise a limited tender for a procurement at or above the relevant threshold where it is exempt from Division 2 under Appendix A to the CPRs or because it has been designated as an ‘essential security interest’, or because it meets the specified conditions for limited tender under Rule 10.3 of the CPRs.

In March 2017, the CPRs were updated to include an express requirement on all Commonwealth entities to consider and manage their procurement security risk in accordance with the Australian government’s Protective Security Policy Framework (PSPF). The PSPF provides guidance and best practice advice to assist agencies to identify their responsibilities to manage security risks pertinent to their people, information and assets. It comprises 16 core requirements that articulate what agencies must do to achieve the Australian government’s desired protective security outcomes, covering issues of governance, personnel security, information security and physical security. The objective of these mandatory requirements is to ensure that official resources and information provided to agencies is safeguarded at all times and a culture of protective security is embedded. Most core requirements have a number of supporting requirements that are intended to facilitate a standardised approach to implementing security across government.

Proposed changes

Are there significant proposals pending to change the defence and security procurement process?

While defence spending and the efficacy of Defence’s procurement practices are subject to considerable political debate, there are no significant proposals pending to change the defence and security procurement process at this time.

Information technology

Are there different or additional procurement rules for IT versus non-IT goods and services?

The procurement rules do not differ for the procurement of information technology. The ASDEFCON Strategic Materiel suite of contracts are usually used by Defence as the base documents for procuring complex and high-risk IT supplies.

Relevant treaties

Are most defence and security procurements conducted in accordance with the GPA or other treaty-based procurement rules, or does this jurisdiction commonly use the national security exemption to procure them?

Australia is not currently a member of the World Trade Organization (WTO) Agreement on Government Procurement. However, it made an accession offer to the WTO Committee on Government Procurement in 2015, a revised offer in September 2016 and a second revised offer in June 2017 (in response to feedback and questions received from the Committee in respect of the 2016 revised offer). Australia received, in principle, an agreement to join the WTO Agreement on Government Procurement in June 2018.

On 17 October 2018, the parties to the WTO Agreement on Government Procurement approved this decision, thereby concluding negotiations. Australia has one year to ratify the decision at a domestic level and then submit its instrument of accession. The domestic treaty-making process includes deliberation by the Australian government’s Joint Standing Committee on Treaties. To a limited extent, defence relies on national security or similar exemptions contained in free trade agreements to procure supplies on a sole sourcing basis.

Disputes and risk allocation

Dispute resolution

How are disputes between the government and defence contractor resolved?

Defence’s dispute resolution process encourages the parties to negotiate a resolution to the dispute before commencing litigation, although this does not prevent a party from seeking urgent interlocutory relief. The ASDEFCON template used for strategic materiel procurement contains clauses reflecting this objective. If negotiation fails to resolve the dispute, the parties may agree to use an alternative dispute resolution process (such as mediation or arbitration). If the parties do not agree to an alternative dispute resolution process or such process does not achieve the required outcome, either party may commence legal proceedings.

To what extent is alternative dispute resolution used to resolve conflicts? What is typical for this jurisdiction?

As noted above, alternative dispute resolution (eg, arbitration, expert determination or mediation) is preferred as a means of resolving disputes between Defence and a contractor. There are few recorded court cases of contractual disputes with Defence, indicating that confidential alternative dispute resolution is largely relied on to resolve Defence contractual disputes.

Indemnification

What limits exist on the government’s ability to indemnify the contractor in this jurisdiction and must the contractor indemnify the government in a defence procurement?

Pursuant to a delegation issued under the PGPA Act, the Finance Minister has delegated to Defence the power to indemnify a contractor within stated rules. Approval from the Finance Minister is needed to give an indemnity outside the rules. In granting an indemnity, a Defence official must consider two overarching principles:

  • that risks should be borne by the party best placed to manage them; and
  • that the benefits to the federal government in relation to the indemnity should outweigh the risks involved.

Additionally, an official can only grant an indemnity to a contractor if the official is satisfied that the likelihood of the event occurring is remote (ie, it has a less than 5 per cent chance of occurring), and that the most probable expenditure if the event occurred is not significant (ie, it would be less than A$30 million). The indemnity cannot apply to certain costs (eg, no indemnity can be given for civil or criminal penalties of the indemnified party). Defence acknowledges in its procurement policy that it may be necessary, where a contractor is exposed to risks over which it has no control, or that would otherwise make the contract uneconomical for the contractor, for Defence to grant an indemnity on behalf of Defence. In practice, Defence will only provide an indemnity to a contractor in exceptional circumstances and after rigorous liability risk assessment, including considering the full potential cost of the liability to the Commonwealth.

Limits on liability

Can the government agree to limit the contractor’s liability under the contract? Are there limits to the contractor’s potential recovery against the government for breach?

Defence has a stated preference for a contractor’s liability to be determined according to principles of Australia’s common law. However, Defence is able to agree to limit liability to achieve a value for money outcome. Defence has developed its own guide to capping liability for this purpose. Like other federal government agencies, Defence will not usually accept any limitation on a contractor’s liability in respect of personal injury or death, third-party property damage, breach of intellectual property rights, confidentiality, privacy or security obligations, fraud or dishonesty, unlawful or illegal acts, or indemnities provided by the contractor under the contract. A supplier seeking to cap its liability may be required by Defence to provide a risk assessment to support the requested cap. There are no general statutory or regulatory limits to the contractor’s ability to recover against the government for breach of contract.

There are some statutory rights for the government to use copyright material (and material protected by some other intellectual property rights) without the rights owner’s consent subject to using them for permitted government purposes and paying compensation determined by statutory rules. Such rights could have the effect of limiting a contractor’s ability to recover from the government for breach of licence rights in a contract.

Risk of non-payment

Is there risk of non-payment when the government enters into a contract but does not ensure there are adequate funds to meet the contractual obligations?

There is no material risk of non-payment of any amount that the federal government is required to pay under contract. The Defence budgeting process provides for commitments under existing contracts and planned procurements. On occasion, Defence may wish to commence a contract subject to budget appropriation of funds. This may occur, for example, where Defence enters into a supply contract that has budget funds allocated, but the associated support contract is to start in a later year and may not yet have had funds allocated.

Parent guarantee

Under what circumstances must a contractor provide a parent guarantee?

In complex or high-value procurements, Defence will usually require that a contractor that is a subsidiary provide a deed of substitution and indemnity from a parent company (or other entity), which allows Defence to request substitution of the contractor for the guarantor if specified events occur. Defence may also consider accepting a conventional parent guarantee, or an unconditional bond to pay on demand issued by a creditworthy financial institution (known colloquially as a ‘bank guarantee’).

Defence procurement law fundamentals

Mandatory procurement clauses

Are there mandatory procurement clauses that must be included in a defence procurement contract or that will be read into the contract regardless of their actual inclusion?

The DPPM provides that where an ASDEFCON template exists for a particular type of procurement, that template should be used for a new procurement of that type and should only be amended in accordance with relevant policy. The ASDEFCON contract templates for complex procurements contain mostly ‘core’ clauses that are intended to be retained. Such core clauses include the right of Defence to terminate for convenience, limitations on the contractor’s liability and the indemnification of Defence by the contractor. While there is no express doctrine requiring certain clauses to be ‘read into’ the contract regardless of their express inclusion, certain terms may be implied into a contract pursuant to general principles of Australian contract law if permitted by the contract terms (eg, an implied obligation to act in good faith).

Cost allocation

How are costs allocated between the contractor and government within a contract?

The DPPM provides for a range of potential cost-allocation options depending on the complexity of the project and the level of risk to both Defence and the contractor. For example, the parties may agree for the contractor to be paid a fixed fee regardless of the costs actually incurred, subject to certain variations detailed in the contract. Alternatively, Defence may permit variations to compensate for increases in the cost of labour and materials. Defence may also agree fixed or variable labour rates and overheads where the amount of labour required under a contract is uncertain. Cost-sharing arrangements may be adopted in high-risk projects where the contract costs cannot be accurately determined.

Disclosures

What disclosures must the contractor make regarding its cost and pricing?

The disclosures a contractor is required to make regarding its cost and pricing will depend on the fee structures chosen. For example, if a contract is for a fixed price and was formed following a competitive procurement process, a contractor is not typically required to provide costing information. However, cost details are often required for variations and supplies priced by reference to cost inputs. If a contractor requires an advance payment to meet upfront costs (eg, to pay manufacturers for raw materials), the contractor may need to provide to Defence invoices and orders relating to the advance payment.

Audits

How are audits of defence and security procurements conducted in this jurisdiction?

The Auditor-General may access Defence contractors’ and subcontractors’ records and premises to conduct performance audits. In addition, the Australian National Audit Office conducts an annual review of major Defence acquisitions. The review, which is published in a major projects report, includes information relating to the cost, schedule and the progress towards delivery of required capability of individual projects as at 30 June each year.

IP rights

Who gets the ownership rights to intellectual property created during performance of the contract? What licences are typically given and how?

Defence has an intellectual property policy aligned with the federal government policy. Defence policy is to maintain a flexible approach in considering options for ownership, management and use of intellectual property. Defence is required to conduct a risk assessment to determine whether it should own any intellectual property developed under the contract. Defence will generally require the contractor to provide it with a licence to use the contractor’s pre-existing intellectual property for broadly defined ‘defence purposes’. If Defence sees a security risk in allowing the contractor to commercialise created intellectual property, Defence is more likely to wish to own such created intellectual property and limit the contractor’s right of use.

On 10 May 2018, an updated version of the ASDEFCON (Strategic Materiel) template was released by Defence that incorporates a new framework for intellectual property. The objective of the new framework is to better reflect the importance of technical data and software and their relationship with intellectual property. The Commonwealth’s position is that the core clauses ensure the Commonwealth has the necessary rights to items of technical data and software that enable it to effectively and efficiently use the defence capability, as intended. We understand that Defence intends to introduce the new framework for intellectual property into the remaining pro forma documents that make up the ASDEFCON suite of contracting templates; however, at the time of writing, this has not yet occurred.

Economic zones

Are there economic zones or other special programmes in this jurisdiction commonly utilised by foreign defence and security contractors for financial or other procurement-related benefits?

While programmes have been developed for the benefit of certain contractors, they are not typically amenable to use by foreign defence and security contractors.

Forming legal entities

Describe the process for forming legal entities, including joint ventures, in this jurisdiction.

In Australia, a joint venture describes an arrangement in which two or more parties enter into an agreement to pursue common objectives while remaining separate legal entities. Joint venture arrangements may be either unincorporated or incorporated. There is no legislation directly regulating arrangements of either type. Under an unincorporated joint venture, the respective rights and obligations of the participants are essentially determined by contract. The rights and duties of the participants are usually set out in detailed joint venture documents and may be interpreted and supplemented by reference to general contract law. A joint venture will often be conducted by a corporate entity owned by the joint venture participants. In this case, the participants normally enter into shareholder agreements and Australian corporations laws will apply to many aspects of their relationship. While Defence permits the submission of procurement bids by joint ventures, it will usually seek to enter into a contract with a single legal entity. Defence may sometimes contract with multiple parties as part of a public-private partnership or similar structure, although it will usually insist the multiple parties owe their obligations to Defence on a joint and several basis.

Access to government records

Are there statutes or regulations enabling access to copies of government records? How does it work? Can one obtain versions of previous contracts?

The Freedom of Information Act 1982 (the FOI Act) grants a right of access to a document held by Defence (potentially including previous contracts). This extends to documents held by a party providing services (though not goods) to Defence under contract. If a document falls under one of the FOI Act’s nine exemptions (including documents affecting national security, defence or international relations), Defence may refuse to release it or can redact the exempt sections. Documents falling under one of the FOI Act’s eight conditional exemptions must be released, unless it would be contrary to the public interest to do so. In practice, freedom of information requests to access Defence contracts are often partially or fully rejected relying on an exemption but this result cannot be guaranteed. In addition, the Australian Geospatial Intelligence Organisation, the Australian Signals Directorate and the Defence Intelligence Organisation are excluded from the operation of the FOI Act. The CPRs also require federal government agencies to make available via the AusTender website contracts for goods or services valued at or above A$10,000 (including goods and services tax). This requirement is subject to the relevant FOI Act exemptions. A log of decisions by Defence on giving access to documents under FOI Act requests can be viewed on the Defence website.

Supply chain management

What are the rules regarding eligible suppliers and supply-chain management and anti-counterfeit parts for defence and security procurements?

There are no specific rules regarding supply-chain management and anti-counterfeit parts for defence and security procurements. The requirements for a procurement may require bidders to submit details on how they address those sorts of issues.

However, on 18 September 2018, the Modern Slavery Bill 2018 (Cth) was introduced to the Senate of the Australian Parliament, having passed through the House of Representatives. The Modern Slavery Bill, if passed, will establish a supply-chain reporting regime requiring the Commonwealth, a corporate Commonwealth entity or a Commonwealth company to prepare a modern slavery statement for each financial year and submit it to the Minister for Home Affairs. The modern slavery statement will be required to describe the structure, operations and supply chains of the reporting entity, any risks of modern slavery in the reporting entity’s operations and supply chains, and actions taken by the reporting entity to assess and address those risks. The Minister must maintain an online publicly available register of modern slavery statements. Equivalent legislation applicable to commercial organisations has recently been passed in the Australian State of New South Wales.

Further, the Global Supply Chain (GSC) Program is a federal government programme managed by the Centre for Defence Industry Capability. It involves working with eight ‘prime’ contractors to obtain opportunities for Australian companies to work within their supply chains. Each of the prime contractors are provided funding to set up a GSC team within their organisation. This team takes ownership of managing and identifying which Australian companies can be part of the organisation’s supply chain, and liaises with the GSC teams from other prime contractors to foster growth of the Australian defence industry.

International trade rules

Export controls

What export controls limit international trade in defence and security articles? Who administers them?

The Defence and Strategic Goods List (DSGL) published under the Customs Act 1901 identifies military and dual-use items regulated under Australia’s export controls. Australia implements export controls on the export of controlled items in both tangible and intangible forms. Under the Customs (Prohibited Exports) Regulation 1958, it is prohibited to export controlled items from Australia without a permit. Since April 2016, under the Defence Trade Controls Act 2012, intangible transfer of export controlled items (DSGL technology) by a person within Australia to another person outside Australia is regulated as part of export controls. Intangible transfer can occur, for example, by a person emailing DSGL technology from a place within Australia to another person outside Australia. Intangible transfer can also occur by a person within Australia providing another person outside Australia with the means to access DSGL technology situated in Australia (eg, a password to access DSGL technology on a server). Unlike some jurisdictions, Australia does not apply export control rules to transfers of controlled items to foreign nationals within Australia. There are limited situations where no permit is required or where an alternative, easier-to-­administer permit may be available. Defence Export Controls within the Department of Defence is responsible for issuing permits and giving guidance on export controls.

Domestic preferences

What domestic preferences are applied to defence and security procurements? Can a foreign contractor bid on a procurement directly?

Foreign contractors regularly successfully bid directly on Australian defence and security procurements. They also regularly bid using an Australian subsidiary or as part of a joint venture. A foreign contractor may directly bid on an Australian government defence and security procurement other than where the government relies on a trade agreement provision entitling the government to place limits on bidders or do selective sourcing.

Australia has agreed in the government procurement chapter of several free trade agreements to treat foreign suppliers no less favourably than the procuring entity accords to domestic suppliers for covered procurements. Defence procurement above a monetary threshold is usually a covered procurement. However, the free trade agreements contain some carveouts from this commitment, such as for procurement of supplies for identified essential security defence needs. Most free trade agreements to which Australia is a party also switch off the government procurement chapter obligations for any form of preference to benefit small-to-medium enterprises.

Australian domestic and foreign bidders for defence and security procurement are required to participate in the Australian Industry Capability (AIC). The AIC requirements applicable for a procurement are set out in the procurement terms. Requirements are generally more extensive if the procurement is estimated to be over A$20 million or for supplies relevant to the priority areas where the government wishes to develop Australian defence capability. The AIC programme commitments that bidders offer in their bids form part of the procurement assessment criteria and the contractual obligations of the successful bidder. While not a domestic preference, a foreign contractor may also face some practical challenges in meeting the criteria for an Australian defence and security procurement if the project requires substantial access to security classified information.

Favourable treatment

Are certain treaty partners treated more favourably?

There are measures benefiting trade in defence articles with US suppliers. The governments of Australia and the United States have agreed the Defense Trade Cooperation Treaty. A measure facilitated by the treaty is that US suppliers can apply to be members of the Australian Community. A member has been vetted to meet certain security requirements. As a result, the member should find that trade in controlled items is streamlined and subject to fewer licensing or permit requirements. Given their traditionally close defence relationship, the Australian and US governments have also established protocols for transfer of defence-related material and working on joint defence projects that can benefit participating suppliers.

Sanctions

Are there any boycotts, embargoes or other trade sanctions between this jurisdiction and others?

The Australian federal government implements the United Nations Security Council sanctions and applies its own autonomous sanctions. The government does not tend to apply boycotts or embargoes in trading with a jurisdiction. Instead, the government prohibits without a permit direct or indirect trade with designated persons and entities and industry-sector targeted trade in certain goods and services connected with a sanctioned jurisdiction.

When sector sanctions are applied against a jurisdiction, the sanctioned supplies usually include exporting arms and related materiel to or providing services concerning arms and related materiel benefiting the jurisdiction.

The Department of Foreign Affairs and Trade (DFAT) administers Australian sanctions but consults with Defence Export Controls on arms and related materiel matters. DFAT generally treats all items listed on the DSGL as falling within the meaning of arms and related materiel.

Sanctions vary with changes to the political climate. At the time of writing, Australian sanctions apply for the Central African Republic, Counter-terrorism, Crimea and Sevastopol, the Democratic People’s Republic of Korea (North Korea), the Democratic Republic of the Congo, Eritrea, the Former Federal Republic of Yugoslavia, Guinea-Bissau, Iran, Iraq, ISIL (Da’esh) and Al-Qaida, Lebanon, Libya, Myanmar, Russia, Somalia, South Sudan, Sudan, Syria, the Taliban, Ukraine, Yemen and Zimbabwe.

Trade offsets

Are defence trade offsets part of this country’s defence and security procurement regime? How are they administered?

The Australian government does not use trade offsets in its procurement regime.

Ethics and anti-corruption

Private sector appointments

When and how may former government employees take up appointments in the private sector and vice versa?

Former federal government employees are not usually prevented from taking up appointments in the private sector or vice versa. Former government employees are under ongoing duties of confidentiality to protect government information (disclosure of information protected under legislation can be subject to a fine or imprisonment). The former government employees may also agree specific commitments with their former employer to address conflict of interest concerns. Defence has a policy addressing post-separation employment giving guidance to the departing government employee and his or her new employer. It is not uncommon for a former Defence employee to agree for a period not to be involved in specified projects for his or her new employer where the employee was involved in that project while employed by Defence. The new employer might also be asked to make corresponding commitments. Typically, the period is one year. Government procurement terms usually state that compiling a bid with the improper assistance of a former government employee is a breach of the procurement terms and can lead to exclusion from the procurement.

Addressing corruption

How is domestic and foreign corruption addressed and what requirements are placed on contractors?

The federal Criminal Code contains offences for bribing a public official and for accepting a bribe. There are separate offences for bribing domestic (Commonwealth) and foreign public officials. Penalties include fines, imprisonment or both. The Code makes it an offence to offer or provide to a person an inducement that is not legitimately due with the intention of influencing a public official in his or her official duties to retain business or obtain a business advantage not properly due to the recipient of the benefit. The definition of ‘Commonwealth public official’ includes an officer or employee of a contracted service provider for a ‘Commonwealth contract’ and who provides services for the purposes (whether direct or indirect) of the Commonwealth contract. As part of their employment terms, Australian government officials are also subject to obligations to avoid conflicts of interest and comply with relevant policies. There are government policies addressing the limited extent to which government officials may accept gifts and hospitality and disclosure requirements. Defence has a detailed policy on gifts and hospitality.

Separately, Parliament recently passed the Foreign Influence Transparency Scheme Act 2018 (FITS Act), which will come into effect on 29 June 2019, unless proclaimed earlier. The FITS Act is aimed at providing more transparency regarding persons who undertake certain activities on behalf of ‘foreign principals’ (defined as foreign governments and related entities and individuals, as well as foreign political organisations). Under the FITS Act, a person who carries out specified types of activities on behalf of a foreign principal for the purpose of political or government influence must register with the Foreign Influence Transparency Scheme. Registrants must provide up-to-date information about their activities to the Secretary of the Department, in this case Defence, particularly during voting periods for federal elections. While certain exemptions apply, the FITS Act contains criminal offences for failure to comply with its requirements.

Lobbyists

What are the registration requirements for lobbyists or commercial agents?

Aside from the Foreign Influence Transparency Scheme described above, there is no legislation regulating lobbying. The federal Department of the Prime Minister and Cabinet administers a lobbying policy that includes a requirement for persons conducting lobbying activities on behalf of a third-party client to register themselves and their clients on the publicly available lobbyist register. Government officials should not meet with a person who fails to meet a requirement to register on the lobbyist register. There are listed exceptions to ‘lobbying activities’ and ‘lobbyist’. A person does not engage in lobbying activities when he or she makes communications to the government about a tender.

Limitations on agents

Are there limitations on the use of agents or representatives that earn a commission on the transaction?

As long as it does not breach secret commission laws, there is no prohibition on the use in Australian government procurement of agents or representatives that earn a commission. However, the procurement terms may require disclosure of use of such agents or representatives and any commissions paid. Such a disclosure requirement is contained in some of the Defence template procurement terms. Secret commission laws could be relevant, for example, if the agent was acting for both the bidder and the customer and this fact was not properly disclosed or otherwise dealt with.

Aviation

Conversion of aircraft

How are aircraft converted from military to civil use, and vice versa?

Aircraft used by Defence for a military purpose will usually be procured specifically for that purpose and will not be an aircraft converted from a civil use (and vice versa). Defence occasionally provides old military aircraft for foreign government military use and the aircraft would go through a refurbishment process to be suitable for the new owner’s use. If Defence was to make military use aircraft available for disposal or converted to civilian use, the aircraft would go through a decommissioning process to have weapons and sensitive information removed. The Directorate of Military Disposals is responsible for the disposal of major Defence equipment and capability platforms.

Drones

What restrictions are there on manufacture and trade of unmanned aircraft systems or drones?

The manufacture of unmanned aircraft systems or drones is permitted in Australia. Trade in these items is regulated if any component or technology used in the items is subject to export controls. Use of unmanned aircraft systems or drones is heavily regulated (including testing that might occur as part of the manufacturing process).

Miscellaneous

Employment law

Which domestic labour and employment rules apply to foreign defence contractors?

The domestic labour and employment rules applying to foreign defence contractors will depend on various factors, including whether the foreign contractor is incorporated in Australia, the nature of the work to be performed under the contract and whether the foreign contractor’s employees are performing work in Australia. A foreign contractor may need to consider federal as well as state or territory labour and employment laws.

Employees of incorporated entities (whether Australian or foreign entities) that carry out trade or commerce in Australia, and who are working in Australia, are covered by the federal system of employment laws. The applicable employment laws differ for employees under industrial awards, collective workplace or enterprise agreements and employees under other non-regulated employment contracts. Federal, state or territory work health and safety laws will apply to work performed in Australia.

It will be an important matter for Defence that a contractor agrees to comply with the federal Work Health and Safety Act 2011 (the WHS Act) (or equivalent state or territory legislation) for work to be performed in Australia. Defence contracts may also require contractors to comply with certain laws even if the laws may not regulate a foreign contractor. For example, even if work is done outside Australia, Defence may contractually require the contractor to agree to comply with the WHS Act with respect to any contractor worksite that Defence personnel may visit. Defence contractors may also need to consider the application of Australian federal, state and territory anti-­discrimination legislation particularly if employment of foreign nationals from certain jurisdictions may be problematic (eg, if security clearances are needed to perform the contract). Defence contractors may need to obtain exemptions from Australian anti-discrimination laws to exclude certain foreign nationals from hiring pools.

Defence contract rules

Are there any specific rules that contractors, foreign or domestic, are bound by in defence contracts?

Several specific rules have been noted in the above responses. Other specific rules applying to working with Defence are usually imposed via contract. For example, contractors for Defence contracts are usually contractually required to comply with a range of Defence policies, such as policies regulating conduct on Defence premises.

Do contractors avail themselves of these rules when they perform work exclusively outside of the jurisdiction?

As explained above, it is usually Defence and not a contractor who seeks to apply Australian laws and Defence policies when work is performed exclusively outside of Australia.

Personal information

Must directors, officers or employees of the contractor provide personal information or certify that they fulfil any particular requirements to contract with a government entity?

Contractor personnel will need to provide personal information when they apply for a security clearance to access protected information. The level of personal information required will depend on the level of security clearance sought. Key personnel named for contracts will often need to provide resumes on their expertise. Identity details are also usually needed if a person is visiting Defence premises. Criminal convictions (or similar) certifications for employees are not usually sought unless Defence has assessed this is necessary for the procurement requirement (eg, for a person to be in a role of trust or handling monies for Defence). It may be a requirement in a tender that a bidder disclose any relevant criminal convictions imposed on it, its related entities and directors and officers.

Licensing requirements

What registration or licensing requirements exist to operate in the defence and security sector in the jurisdiction?

There is no registration or licensing requirement to be eligible to do business with Defence. Security clearances or other vetting may be needed to access certain programmes or procurements run by Defence. Industry participants can apply for membership of the Defence Industry Security Program (DISP), which is managed by the Defence Security and Vetting Service. The purpose of DISP is to enhance Defence’s ability to monitor and mitigate the security risks associated with the contracting for, or outsourcing of, Defence services, functions and capabilities. DISP members must comply with the security standards required by the Defence Security Principles Framework, the PSPF, and the Australian Government Information Security Manual. Industry participants are generally required to obtain and maintain DISP membership if they are accessing, handling or storing classified information in their capacity as a prime contractor or sub

contractor to Defence.

Environmental legislation

What environmental statutes or regulations must contractors comply with?

The applicable environmental statutes and regulations depend on the types of supplies. The contractor may be directly regulated by these laws or contractually required to comply with these laws because Defence is regulated. For example, the Environment Protection and Biodiversity Conservation Act 1999 imposes requirements on all Australian Government entities, including Defence, regarding management of their activities. Other laws called out as important by Defence include the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989, which gives effect to Australia’s international obligations under the Montreal Protocol and establishes measures to protect the ozone layer and to minimise emissions of synthetic greenhouse gases. Defence also encourages contractors to follow the Australian Packaging Covenant in dealing with packaging waste. Environmental planning laws may need to be considered for certain land uses.

Must companies meet environmental targets? What are these initiatives and what agency determines compliance?

There is no specific environmental target set by Defence for companies to meet. There is substantial guidance issued by Defence on how it may take into account environmental protection, waste management and energy efficiency in procurement. If Defence had a specific environmental objective or requirement for a project, it would usually be set out in the procurement criteria.

Do ‘green’ solutions have an advantage in procurements?

Defence is required under federal government policy to consider energy efficiency in purchasing decisions. As noted above, Defence gives considerable guidance on what may be relevant. Procurement terms may identify when environmental considerations form part of the tender evaluation criteria.

Updates & Trends

Updates & Trends

Updates and trends

On 19 October 2018, the Government Procurement (Judicial Review) Bill was passed by Parliament. Once the Act commences, it will establish an impartial and independent complaints mechanism for suppliers participating in government procurement processes and, importantly, provide the Federal Circuit Court and the Federal Court of Australia with the power to grant injunctions and order payment of compensation for contravention of the CPRs. The body accountable for investigating complaints will be required to suspend a procurement while any supplier complaint is investigated, unless delay of the procurement is deemed not in the public interest. Importantly, the new regime only applies to ‘covered procurements’, and essential security and defence-related procurements will often (but not always) fall outside the legislation’s meaning of covered procurement.

The passing of this legislation represents an important and necessary step towards meeting Australia’s international law obligations in relation to the World Trade Organisation Agreement on Government Procurement and the Trans-Pacific Partnership Agreement.