Australia: Commonwealth Procurement Rules

Procurement Update
Last Updated: 13 May 2012
Article by Ellen Williamson

From 1 July 2012, the Commonwealth Procurement Rules (CPRs) will replace the Commonwealth Procurement Guidelines (CPGs). Procurement officers in Financial Management and Accountability Act 1997 (Cth) (FMA Act) agencies and relevant Commonwealth Authorities and Companies Act 1997 (Cth) (CAC Act) bodies must be aware of this change.

There are no major policy changes from the CPGs to the CPRs. The procurement and reporting thresholds remain unchanged. As under the CPGs, Division 1 of the CPRs applies to all procurements and Division 2 applies to procurements valued at or above the relevant procurement threshold.

The key changes from the CPGs to the CPRs are to:

  • Clarify that the CPRs are a set of rules. The guidance and good practice material that is located in the CPGs, for example limiting a contractor's liability to the Commonwealth, has been removed and will now be separately covered by Finance's web-based guidance
  • Ensure consistent and well understood use of terminology:
    • "Must" indicates those rules that must be complied with in undertaking procurement
    • "Should" indicates matters of good practice
    • References in the CPGs to "needs to ensure" and "needs to" are replaced with "must" in the CPRs
    • The terms "covered" and "non-covered" are replaced with "at or above the relevant procurement threshold" and "below the relevant procurement threshold" respectively
    • New defined terms are included, for example, "potential supplier" - anyone who may respond to an approach to market; "tenderer" - a person who has responded to an approach to market; and "supplier" - a person who has entered into a contract with the Commonwealth
    • Amendment to some definitions. For example, "procurement" is now defined by reference to "goods and services" rather than "property and services"
  • Redefine the methods for approach to market, to reflect the recommendations of the Australian National Audit Office (ANAO)Report on Direct Source Procurement (Audit Report No. 11 2010-11), as follows:
    • "Open tender" under the CPGs remains "open tender" under the CPRs
    • "Select tender" under the CPGs is now "prequalified tender" under the CPRs
    • "Direct source" under the CPGs is now "limited tender" under the CPRs
  • Clarify the difference between prequalified tender and limited tender, to reflect the recommendations of the ANAO Report on Direct Source Procurement, so that:
    • A prequalified tender requires that submissions be sought from all potential suppliers on:
      • A shortlist derived from a previous open approach to market
      • A list selected from a multi-use list; or
      • A list of all potential suppliers who hold a specific licence or comply with a legal requirement, where that licence or legal requirement is essential to the conduct of the procurement
    • A limited tender occurs where submissions are sought from one or more potential suppliers and the process does not meet the rules for either an open tender or a prequalified tender
  • Clarify the concept of "value for money". Value for money applies to the entire procurement process, incorporates other Commonwealth policy requirements and includes a new factor to consider during value for money assessment, namely, environmental sustainability (such as energy efficiency and environmental impact).

Other notable changes from the CPGs to the CPRs are:

  • An update of the rules to reflect recent changes to the FMA Act and Financial Management and Accountability Regulations 1997, including requiring use of Commonwealth resources in an efficient, effective, economical and ethical manner that is not inconsistent with the policies of the Commonwealth
  • A re-order of parts of the document, to make it easier to navigate, for example, the cooperative agency procurement section is moved from Division 2 of the CPGs to Division 1 of the CPRs. The CPRs include diagrams summarising each of Division 1 and Division 2 at section 1.1 and a new section 3, "How to use the Commonwealth Procurement Rules". Clarification that the procurement and reporting thresholds are Goods and Services Tax-inclusive is included in the CPRs
  • An amendment to the requirements for ensuring value for money in procurement, by adding two additional requirements, namely:
    • Considering the risks (not just the relative risk of each proposal)
    • Conducting a process commensurate with the scale and scope of the procurement
  • Recognition that encouraging competition requires agencies to consider the costs to potential suppliers of participation in procurement when designing a process commensurate with the scale, scope and risk of the procurement
  • An amendment to broaden the circumstances in which limited tenders may be conducted to include extreme urgency brought about by events unforeseen by the agency, where the goods and services cannot be obtained in time under a prequalified tender (in addition to an open tender)
  • Requiring that contracts without an end date must allow for periodic review and termination if they do not continue to represent value for money
  • Recognition that procurement by third parties on behalf of an agency is a valid method of procurement, provided it achieves value for money and that agencies do not use thirdparty arrangements to avoid the rules in the CPRs
  • The requirement for the written report for each contract awarded by limited tender to include a record demonstrating how the procurement represented value for money
  • Inclusion of a new exemption from Division 2 of the CPRs in Appendix A, namely, the procurement of goods and services from a small-to-medium enterprise with at least 50% Indigenous ownership, to reflect Finance Circular 2011/02
  • An express requirement for agencies to record any non-compliance with the CPRs in their Certificate of Compliance.

Comments on the amendments

It is interesting that the review did not take the opportunity to make more substantial improvements to the procurement policy framework. For example, procurement thresholds remain unchanged, there remains no equivalent of the NSW Government's Smartbuy online purchasing system, innovation in procurement methods (eg reverse auctions) is absent and there is still no guidance to agencies on how they should approach balancing the financial and non-financial considerations in a value-for-money assessment.

While many of the amendments from the CPGs contained in the CPRs could be considered semantic, the name change from Guidelines to Rules firmly reiterates the intention that officers involved in procurement must comply with the Commonwealth's procurement policy. Adding CPR reporting to the Certificate of Compliance process will bring to Ministerial and Parliamentary attention any non-compliance with the CPRs.

Recognition of procurement through third-party arrangements is justified, but further guidance on how agencies use third parties to conduct procurement while complying with the CPRs is required or will need to be developed by agencies.

A key emphasis of the changes is that a "one size fits all" approach to purchasing is not the best way to achieve value for money, but that the size, nature and risk of procurement needs to be actively considered in developing an appropriate process. There is also now formal recognition that the cost to potential suppliers participating in formal procurement affects value for money.

What do you need to do?

Agencies should:

  • Ensure they have robust procedures to identify, record and eliminate noncompliance with the CPRs
  • Consider revisions to CEIs, template documentation and procurement process training and guidance to ensure:
    • Appropriate consideration is given by officers in the design of procurement processes to the scope, size and risk of the procurement activity
    • Value for money assessments specifically consider environmental sustainability and other Commonwealth policy requirements.

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