Finance Circular
No. 2006/02
To all departments, agencies and relevant CAC Act bodies subject to the Commonwealth Procurement Guidelines
Commonwealth Procurement Guidelines - Clarification
Purpose
The purpose of this Circular is to clarify certain elements of the Commonwealth Procurement Guidelines (CPGs).This clarification of the CPGs may assist agencies to simplify some of their internal procurement processes.
Terms in this Circular which are defined in the CPGs are in bold text on their first use.
Target Audience
This Circular applies to all departments and agencies subject to the Financial Management and Accountability Act 1997 (FMA Act) and to relevant CAC Act bodies[1].
Background
1.The current CPGs came into operation from 1January2005 with the following keyobjectives:
- to strengthen theprovisions on encouraging competition;
- to strengthen the accountability and transparency framework; and
- to introduce the Mandatory Procurement Procedures (MPPs)that give effect to obligations entered into by the Government under the Australia – United States Free Trade Agreement (AUSFTA) and other free trade agreements.
2.The CPGs have been reviewed to take into account the experience, including feedback from agencies, of the first year of operation of the MPPs.
Key Points
3.This Circular should be read in conjunction with the CPGs. It addresses elements of the text of the CPGs which are considered to require clarification. It does not represent any change to the Australian Government’s procurement policy framework.
Issues
Scope of ProcurementReference CPGs paragraphs 2.2 – 2.5 (refer also to Finance Circular 2005/14 Procurement Policy Framework – Contracts for Labour Hire.)
Exclusions from the Procurement PolicyFramework
4.The scope of the CPGs has been raised by a number of agencies. For clarity, the CPGs address only circumstances where there is a proposal to spend public money on the acquisition of property or services. Procurement[2]therefore does not include such matters as:
- investment (or divestment) - any mode of application of money or financial assets for the purpose of gaining a return, whether by way of income, capital gain or any other form of return;
- sales by tender - for example, the sale of sponsorship rights or the sale of an asset such as land; or
- any property right not acquired through the expenditure of public money -for example,a right to pursue a legal claim for negligence.
Disposal of Public Property
5.Regulation7 of the Financial Management and Accountability Regulations 1997 (Regulations) allows the Minister for Finance and Administration to issue CPGs which may include guidelines on ‘the disposal of public property’. However, there are no requirements in the CPGs on thedisposal of property.
6.Chief Executives of FMA Act agencies are required by section44 of that Act to manage Commonwealth resources in an efficient, effective and ethical manner. The management of disposals falls within those responsibilities.
7.Chief Executive’s Instructions, issued under the authority of the FMAAct in accordance with FMA regulation 6, are designed to enable a Chief Executive to address any other elements of the framework if an agency considers there is a need for additional guidance. Chief Executive’s Instructions may be issued on the disposal of public property.
8.It is appropriate to consider the potential future costs (or benefits) of disposing of goods when undertaking a wholeoflife costing as part of a value for money assessment.
Measures to Protect Security Health and National TreasuresReference CPGs paragraph 8.2
9.Paragraph 8.2 of Division 2 of the CPGs allows Chief Executives discretion in the application of the MPPs. Itprovides that ‘Nothing in this Division of the CPGsprevents an agency from applying measures determined by their Chief Executive to be necessary to the maintenance or restoration of international peace and security or to protect human health or the protection of essential security interests or to protect national treasures of artistic, historic or archaeological value’.
10.Paragraph 8.2 is to be treated as having application in respect of Division 1 as well as Division 2 of the CPGs. Paragraph 8.2 should be read that ‘Nothing in any part of the CPGs prevents an agency from applying measures…’.
11.The operation of paragraph 8.2 in no way diminishesthe responsibility of Chief Executives under section 44 of the FMA Act to promote the efficient, effective and ethical use of resources.
Value for Money Reference CPGs paragraphs 4.1 - 4.5
Written Contracts
12.A recent ANAO Audit Report[3]found some cases where formal contracts had not been entered into for the supply of property and services. Use of a written contract where appropriate supports the obligation of agencies to properly manage risk and achieve value for money.
13.A written contract is a robust and objective means of managing procurement riskparticularly to specify requirements such as price, performance, duration, termination, confidentiality, risk management and intellectual property.Agencies may wish to consider including guidance in Chief Executive’s Instructions to better inform their officers about when a written contract is required. For example, a well constructed purchase order which includes standard terms and conditions may be an appropriateform of written contract for minor low risk purchases. A comprehensive written contract with terms and conditions negotiated and agreed by the contracting parties would be appropriate for most,if not all, procurements conducted by tender.
Contract End Dates and Termination Provisions
14.There appear to be circumstances where some agencies administer contracts that have evolved to a stage where legally they could be continued in perpetuity. Such arrangements are difficult to reconcile with obligations to achieve value for money and are likely to act to limit competition. Agencies should approach the market in respect of property or services provided under any such existing contracts as soon as practicable.
15.All contracts should regularly and objectively be reviewed to test that they continue to represent value for money. In practice this generally occurs when anagency approaches the market. In addition it is good practice to include a clear end-date and/or termination provision in any contract. For example, this could be a stated date beyond which any contract extension options can no longer be exercised.
16.Some elements of a contract will survive a contract end date or termination of a contract. For example, obligations to maintain confidentiality do not cease on termination orcompletion of a contract.
Management of Confidential Information (FMA Act Agencies only)
Reference CPGs paragraphs 7.15 - 7.33 and Guidance on Confidentiality of Contractors' Commercial Information[4].
17.Agencies need to ensure that officials actively consider the matter of confidentiality of contract clauses during procurement planning, contract drafting and contract negotiation processes.
18.Appropriate transparency in Australian Government procurement requires that assessments of whether or not material is confidential should be made on a case-by-case basis. In the absence of a reason to act otherwise contracts should generally only include provisions to protect the confidentiality of material where:
- it is required by law (such as the PrivacyAct1998);
- it is required in order to protect the Commonwealth’s interests, such as where the disclosure of information would have a detrimental effect on the Commonwealth; or
- a potential supplier has made a request for confidentiality which satisfies the following tests:
- the information to be protected must be identified in specific rather thanglobal terms;
- the information must have the necessary quality of confidentiality;
- disclosure would cause detriment to the parties concerned; and
- the information was provided under an understanding that it would remain confidential.
19.Draft contracts issued with request documentation should generally not include confidentiality provisions which seek to protect a contractor’s confidential information beyond the scope of the model contract clauses at part 7.3 of Guidance on Confidentiality of Contractors’ Commercial Information.
Time Limits
CPGs paragraphs 8.31 - 8.33
20.Paragraph 8.31 of the CPGs states that agencies ‘need to provide sufficient time for potential suppliers to prepare and lodge a submission in response toan approach to the market’.Agencies should note that the time limits referred to in CPGs paragraphs8.32 and8.33 represent a minimum period, and should not be treated as a default time limit for potential suppliers to lodge a submission.
21.The time limit stated in CPGs paragraph8.32 applies to each approach to the market. Asdescribed in CPGs paragraph8.32, a single approach to the market must comply with the time limits; or,in the case of a multi-stage procurement process,each approach to the market must comply with the time limits.For example,when a call for expressions of interest is followed by a select tender,the time limit for each approach to the market of the procurement may be reduced to a minimum of 10 days where that approach to the market meets the conditions specified in CPGs sub-paragraphs8.32(a)(d).
22.Notwithstanding the minimum time limits and the ability to reduce time limits provided in the CPGs, an agency is responsible for ensuring that procurement processes are transparent and that any time frame does not detract from the open competition aspect of the procurement processor the outcome. Whether a process is sound and its decisions are defensible and able to be substantiated in accordance with government policyis a matter of judgement that must be made by the procuring agency. In this context, any time limit applied to a procurement process must be reasonable, equitable and compliant with the CPGs.
Conditions for Direct Sourcing
Reference CPGs paragraph 8.65
23.Paragraph 8.65 sets out the circumstances in which an agency may conduct a covered procurement through a direct sourcing process.
24.A conditionunder which direct sourcing is allowable under subparagraph 8.65(a)(i) of the CPGs is ‘where, in response to an open approach to the market: (i) no submissions were received’. This condition is intended to include circumstances where no submissions were received which represented ‘value for money’ and should be applied accordingly.
AusTender
25.Agencies are required to use AusTender for the publication of request documentation. The CPGs require, to the extent practicable, that all requestdocumentation be available for download from AusTender. Paragraph 7.21 of the CPGs provides that:‘The mandatory procurement procedures set out in Division 2 require open approaches to the market, including requests for tender, requests for expressions of interest and requests for inclusion on a multi-use list, to be published on AusTender. Furthermore, any documentation providing information on the request (request documentation) must be available, to the extent practicable, for download from AusTender.’
26.A further reference to this requirement is made at paragraph 8.21:‘Where practicable, request documentation for an open or select tender process must be distributed electronically. Where electronic distribution is not practicable, the agency must promptly provide the request documentation, on request from any potential supplier.’
27.The requirement of paragraph 7.21 is that request documentation must be availablefor download from AusTender, to the extent practicable. This requirement is not diminished in any way by the operation of paragraph 8.21. This is consistent with the definition of electronicin the CPGs, which includes AusTender.
Further Information and Contacts
28.Questions on procurement should be directed in the first instance to the agency’s Chief Financial Officer or procurement unit.
29.Further questions on the procurement policy framework may be directed through the agency’s Chief Financial Officer or procurement unit to the Procurement Agency Advice Branch at addition to the CPGs, a list of reference information published by Finance is available from our website at Government Finances).
John Grant
Division Manager
Procurement Division
Asset Management Group
3 August 2006
Page 1 of 6Finance Circular 2006/02
Department of Finance and Administration
[1] Relevant CAC Act bodies are those bodies listed in Schedule 1 of the Commonwealth Authorities and Companies Regulations 1997.
[2]The term procurement encompasses the whole process of acquiring propertyor services. It begins when an agency has identified a need and decided on its procurement requirement. Procurement continues through the processes of risk assessment, seeking and evaluating alternative solutions, contract award, delivery of and payment for the property or services and, where relevant, the ongoing management of a contract and consideration of options related to the contract.
[3]ANAO Audit Report No.57 2004-05 Purchasing Procedures and Practices.
[4]Guidance on Confidentiality of Contractors' Commercial Information is available from (Government Finances menu) and provides detailed guidance on the treatment of contractors’ commercial information.