This alert provides an outline of procurement practices that Australian public sector health bodies should be applying in their procurements to give effect to obligations under the FTA. We address three questions:
- What are the overarching principles of government procurement under the FTA?
- What are the methods and notice requirements for government procurement under the FTA?
- To what procurements and government bodies does the FTA apply?
1.1 The FTA came into effect on 1 January 2005. One of the key aims of the FTA was to introduce mutual non-discrimination between Australian and U.S. business. In particular, through Chapter 15, it levelled the playing field for government procurement.
1.2 Chapter 15 applies to most Australian federal government procurement in the health sector. To a more limited extent, the Chapter applies to state and territory health procurement. (The states and territories are responsible for the majority of health sector procurement.) In Australia, the requirements from the Chapter have been incorporated into government procurement rules and policies.
1.3 The Chapter sets requirements for conducting government procurement to enable U.S. and Australian suppliers to compete on a non-discriminatory basis. The requirements are not just about applying the same tender assessment criteria to all suppliers. They also require that suppliers be given the same access to information about, and an equal opportunity to compete in procurement opportunities.
1.4 Key requirements government entities are to follow in conducting procurement are:
- rules on the types of tender processes that can be used (e.g, requiring that open tenders be conducted, unless there is a good reason not to);
- rules for conducting the procurement aimed at addressing potential disadvantages a foreign supplier may encounter (e.g., to publish planned procurement activity online and enable interested parties to register to receive updates);
- setting minimum response times for tenders;
- making the closing time consistent for all tenderers;
- requiring tender documents to be provided promptly and prepared so as to contain all information necessary to enable suppliers to prepare and submit responsive tenders;
- requiring the government entities to promptly reply to any reasonable request for information about a procurement, but without giving a tenderer an unfair advantage;
- if a government entity modifies the evaluation criteria or technical requirements or otherwise changes any procurement documentation, to notify this to all known tenderers; and
- providing tenderers with an independent administrative or judicial avenue to receive and review challenges about covered procurements.
What are the overarching principles of government procurement under the FTA?
- General Principles set by Chapter 15
2.1 The golden rule set by the Chapter is that each party must not discriminate against the other. Each party and its procuring entities are to treat suppliers of the other party no less favourably than the most favourable treatment that the party or the procuring entity accords to goods, services and suppliers in its own jurisdiction.
2.2 In addition, a procuring entity of a party may not:
- treat a locally established supplier less favourably than other locally established suppliers on the basis of degree of foreign affiliation or ownership; nor
- discriminate against a locally established supplier on the basis that the goods or services offered by that supplier for a particular procurement are goods or services of the other party.
- Procurement Requirements
3.1 Under the Chapter, a procuring entity can set conditions for participation in the procurement, to ensure that the supplier has the legal, commercial, technical and financial abilities to fulfil the requirements of the procurement.
3.2 In making its assessment, a procuring entity:
- can consider the financial, commercial and technical abilities of a supplier inside or outside the territory of the procuring entity;
- can only take into account the criteria specified in the tender notice. In practice evaluation criteria is often described in a way to allow the procuring entity to apply a degree of subjective judgment or expressly allows the procuring entity to consider "any other matter it considers relevant"; and
- may require relevant prior experience. However, the procuring entity cannot require that the prior work experience be in the territory of the procuring entity.
What are the methods and notice requirements for government procurement under the FTA?
- Permitted procurement methods
4.1 Chapter 15 specifies three different procurement methods:
- open tendering;
- selective tendering; and
- limited tendering.
- Open Tendering
Open tendering is a procurement method where all interested suppliers may submit a tender. In the health sector, open tendering is frequently used to establish a panel of suppliers for medical or related supplies that need to be ordered on a regular basis. Often a state or territory health department will conduct the tender to appoint the panel of suppliers and then public hospitals will then buy off the panel.
- Selective Tendering
6.1 Tenders made under selective tendering should be invited from the maximum number of domestic and U.S. suppliers consistent with the effective operation of the above mentioned procurement requirements.
6.2 The selective tender process must be done in accordance with specified procedures, these include:
- a multi-use list;
- a list of suppliers that have responded to a notice inviting applications for participation, or to an expression of interest; or
- a list of suppliers that comply with particular licensing or other legal requirements that exist independently of the procurement process.
6.3 In relation to the first two bullet points, when developing a list, the procuring entity should initially approach the wider market to identify potential suppliers eligible and interested in participating in the selective tender process.
6.4 A multi-use list is formulated so that the procuring entity can use it on more than one occasion. The procuring entity must publish the list and allow for suppliers to apply for inclusion in the list annually. Notice of the list can be made electronically.
6.5 Procuring entities may conduct a selective tender from the list of potential suppliers that have been granted a licence, or that have been determined to comply with specific legal requirements that exist independently of the procurement process, provided that:
- the requirements for a licence or compliance with specific legal requirements is essential to the conduct of the procurement;
- the complete list of such potential suppliers is maintained by the appropriate agency; and
- the entity invites all the suppliers on the list to submit tenders in the procurement.
6.6 In the health sector, selective tendering tends to be used for larger purchases where the relevant market participants have been identified. Expressions of interest processes are often conducted when the procuring entity is developing its requirements to gauge initial market interest as well as refining supply requirements for a later selective tender.
- Limited tendering
7.1 Provided that a procuring entity does not use limited tendering as a measure to avoid competition or to protect domestic suppliers or in a manner that discriminates against either of the parties, a government agency may contact a supplier or suppliers of its choice in the following circumstances:
- where a tender process has already been undertaken and either (i) no tenders were submitted, (ii) no tender met the essential requirements or (iii) no supplier met the conditions for participation;
- where particular goods or services can be supplied only by a particular supplier and no reasonable alternative or substitute goods or services exist for a permitted reason (e.g. due to absence of competition for technical reasons);
- where an existing supply is in place and the agency requires additional goods and services sufficiently relating to those already supplied;
- for goods purchased on a commodity market;
- where a procuring entity procures a prototype or a first good or service that is intended for limited trial or that is developed at its request in the course of, and for, a particular contract for research, experiment, study, or original development;
- where necessary, for reasons of extreme urgency brought about by events unforeseen by the procuring entity, the goods and services could not be obtained in time under the tendering procedures otherwise set out in the Chapter;
- where new construction services are required consisting of the repetition of similar construction services and the initial contract was let following an open or selective tendering process;
- for purchases under exceptionally advantageous conditions that only arise in very short time e.g. unusual disposals or unsolicited proposals; and
- in permitted circumstances for the winner of a design contest.
7.2 Limited tendering (sometimes also referred to as sole sourcing) can be more controversial for both suppliers (who may have internal constraints in being involved in sole sourcing) and buyers (if they incorrectly decide the sole sourcing requirements have been met).
- Tender Documentation
8.1 Under the Chapter, the tender documents must include:
- a complete description of the nature, scope and quantity of the goods and services and requirements to be filled, including any technical specifications;
- any conditions for participation, including financial guarantees or information to be submitted;
- all evaluation criteria; and
- any other terms and conditions relevant to the evaluation of the tenders.
8.2 The procuring entity must also promptly reply to any reasonable request for relevant information by the tenderer participating in the procurement. This information, however, may not provide information that would give a supplier an advantage over its competitors in the procurement.
- Publication of Notice of Intended Procurement
9.1 Under the Chapter, government agencies undertaking a procurement must publish a notice inviting interested suppliers to submit tenders or apply to participate in a procurement. The notice must be published in any electronic or paper media that is widely disseminated and which also remains readily accessible to the public for the entire tender period.
9.2 The following information must be included in each notice of intended procurement:
- the name and address of the government agency, relevant contact information, and information necessary to obtain all relevant documents relating to the procurement;
- a description of the procurement and conditions for participation; and
- the address and time limit for the submission of tenders and, where appropriate, any time limit for submissions for an application for participation in a procurement, and a time frame for the delivery of the goods and/or services.
9.3 Notice of publication of intended procurement does not apply when government agencies use multi-lists, select suppliers on the basis of a licence or specific legal requirements, or when using limited tendering process.
- Time Requirements
10.1 The Chapter sets out time requirements for government procurements. The response time for all tenders must allow tenderers adequate time to submit applications or requests to participate and to prepare and submit tenders. When considering the time limit, the procuring entity must take into account and the nature and complexity of the procurement.
10.2 Generally, procuring entities must provide potential suppliers with a minimum of 30 days to prepare and lodge a submission in response to a tender request. This minimum requirement can be reduced to 25 days where the notice is provided on an electronic medium.
10.3 In some limited circumstances, a procuring entity may establish a time limit which is less than the 30 days, but this can be no less than 10 days. These circumstances include:
- where the procuring entity has published a separate notice, including a notice of planned procurement at least 30 days and not more than 12 months in advance and these details include a description of the procurement, the estimated timing of the approach to the market, the estimated time limit for submission of the tenders and the procedure to obtain requests for documentation;
- where the procuring entity procures commercial goods or services (defined in the Chapter);
- in the case of second or subsequent publication of notices for procurement of a reoccurring nature; or
- where a state of urgency substantiated by the government agency renders impracticable the required time limit.
10.4 All participating suppliers which submit tenders in accordance with the tender must do so in accordance with a common deadline. The common deadline also applies when:
- as a result of a need to amend information provided to suppliers, the government agency extends the time limit for qualifications or tendering procedures; or
- negotiations are terminated and suppliers permitted to submit new tenders.
A potential issue for tenderers in relation to the common deadline requirement is that procuring entities can be very reluctant to accept late bids, unless they are convinced doing so will not disadvantage any other tenderer.
10.5 Where a government agency plans to undertake a procurement using suppliers that have satisfied particular conditions for participation, the invitation to tender must include the time limit for submitting applications. When using this process, the conditions for participation must be advertised sufficiently in advance to give all potential suppliers time to initiate and, to the extent that is compatible with the efficient operation of the procurement process, to complete the registration and qualification procedures. This does not apply in the case where notice of a multi-use list has been readily accessible in electronic form from a reasonable period.
- Awarding Contracts
11.1 Unless a procuring entity determines that it is not in the public interest to award a contract, the entity shall award a contract to the supplier satisfying the conditions for participation and that is fully capable of undertaking the contract and whose tender is determined to be the lowest price, the best value, or the most advantageous, in accordance with the essential requirements and evaluation criteria specified in the notices and tender documentation. As noted above, in practice the evaluation requirements are usually expressed so as to allow the entity to apply some subjective judgment (e.g., to determine what is value for money in all the circumstances rather than just the lowest bid).
11.2 The procuring entity must promptly inform suppliers that have submitted tenders of the contract or decision. Further, the procuring entity must, on request, provide an unsuccessful supplier with the reasons why the entity did not select the supplier's tender.
- Review of Supplier Challenges
12.1 Under the Chapter, in the event of a complaint by suppliers, suppliers are encouraged to resolve the matter with the procuring entity as the first step. Some but not all government agencies have detailed processes for handling procurement complaints.
12.2 If the complaint cannot be resolved between the parties, the supplier has an avenue to appeal to an impartial administrative or judicial authority, that is independent from its procuring entity, to receive and review challenges that suppliers submit in accordance with domestic laws.
12.3 There are a range of public law and private law legal avenues that may be available to address a government breach of tender rules. The legal actions available can depend on various factors such as:
- the legal framework for conducting the procurement (e.g, did the tender terms themselves create a contract?);
- what type of government body was involved (e.g, one that is subject to all the same laws as a private sector body?); and
- the type of complaint (e.g, whether the issue is about natural justice or misuse of confidential information).
12.4 Importantly, there is no specific standalone court system in Australia for addressing procurement grievances. As legal and practical matters, this can make successfully challenging government procurement decisions difficult, especially if a contract with the successful tenderer has already been executed. Acting promptly to raise a concern with a procurement is usually key to a supplier having its grievance dealt with effectively.
To which procurements and government bodies does the FTA apply?
- What is a covered procurement?
13.1 The Chapter applies to "covered procurements". Covered procurement refers to the procurement of goods or services by any contractual means, which satisfy the value and threshold specifications, conducted by a procuring entity identified as subject to the Chapter.
13.2 There are some exclusions from being a covered procurement. Key exclusions for the health sector are:
- arrangements where the government entity provides financial assistance such as grants, loans, subsidies, guarantees, cooperative agreements and sponsorship arrangements; and
- procurement of research and development services.
- despite the above exclusions, most government entities will have in place rules for conducting grant programs and the like which reflect substantially the same principles as the procurement rules.
- Thresholds for Procurements
14.1 Chapter 15 only applies to for contracts which are equal to or above a certain specified threshold.
14.2 For the procurement of general goods and services, the thresholds for federal government agencies are A$80,000 (as at 1 January 2012, the threshold is subject to adjustment). For state and territory government bodies, the threshold for the procurement of goods and services are A$573,000 (as at 1 January 2012, the threshold is subject to adjustment). Note, there are higher thresholds for the procurement of construction services.
14.3 Particularly for state and territory procurement, the amount of the thresholds can mean that procurement of many health sector supplies will not be a covered procurement under the Chapter. Despite this, the practice of most procuring entities is to apply the same procurement rules to all procurements. This means the requirements in the Chapter are usually applied across all procurements. It is worth noting however, that for procurements below the threshold, the government bodies tender to allow a broader range of procurement methods (e.g, to apply a less formal 3-quotes system to low value procurements).
14.4 The Chapter requires that procurement must be valued on a total estimated contract value basis to determine whether it is a covered procurement.
14.5 A procuring entity must not divide a procurement into separate parts nor use a particular method to estimate the value of the procurement to circumvent the requirement of the FTA.
- Government Agencies Covered by Chapter 15 and Exemptions Relating to Health
15.1 The Chapter applies to "procuring entities". This captures federal government entities responsible for the health sector but only some and state and territory government entities with health sector responsibilities.
15.2 In some states and territories, procurement of health and welfare services (but not goods) is expressly excluded from being a covered procurement.
15.3 The following table identifies the main health sector agencies treated as procuring entities under the Chapter
Click here to view table.