Australia: Procurement: Year in review and year ahead: unfair contract terms, market-led proposals and the Government Procurement (Judicial Review) Bill

Last Updated: 8 February 2017
Article by Scott Alden, Victoria Gordon, Daniella Ivanoska and Lauren Stables
Most Read Contributor in Australia, November 2018

Procurement has always been an ever changing and evolving area and last year saw the introduction of some new legislation and processes that will ensure that it continues to evolve and develop throughout 2017. These are:

  • Unfair Contract Terms legislation and the impact this will have on procurement
  • The growing use of Market Led Proposals for projects
  • The introduction of the Government Procurement (Judicial Review) Bill into the Commonwealth in late 2016 which will no doubt be further debated and finalised this year

Unfair Contract Terms (small business)

The Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) ('SBUCTA') commenced on 12 November 2016. SBUCTA extends the existing unfair standard form contract term regime so that it applies not only to consumers (as was previously the case), but now also to a new category of 'small business contracts.'

This law makes unfair terms in small business contracts void. In order for the law to apply, and in general terms:

  • At least one of the parties needs to be a small business
  • The up-front ascertainable contract price must be an amount less than $300,000, or less than $1m if the contract is for a period in excess of 12 months
  • The contract must be a standard form contract (i.e. drafted by one party and put to the other with little opportunity to negotiate)
  • The contract must contain an unfair term

Where these factors are in place the unfair contract term will be declared unlawful and severed from the contract on application of one of the parties, with compensation also being available to the aggrieved party.

It is easy to see how this law will be particularly relevant to those engaged in procurement. In summary, the following issues are particularly relevant to the procurement process and procurement documents:

  • The process of procurement, which involves the development of an RFT by the Principal (including the Contract) and the issuing of the RFT to proponents on a 'take it or leave it' basis means that the law will apply and the contract will be tested if the successful contractor (or principal) is a small business and the contract value is under the thresholds. This means the new laws will need to be considered early in respect of all procurements prior to them going to market.
  • An organisation does not know whether the law will apply until it has selected the contractor (i.e. it will only apply where of the parties is a small business).
  • Finding out whether an organisation is a small business or not may not be that easy as the test is based on head count (and so includes Part Time staff and also 'regular and systematic' casuals). Asking the organisation through the tender process, such as a question in a response schedule, is one way of trying to address this but where an organisation provides incorrect information, whether deliberately or not, there is no 'due diligence' defence so such information cannot be relied on in any proceedings commenced under this new law.
  • Procurers need to be careful not to discriminate (or be seen to discriminate) against a business based on its size by not selecting a small business to avoid this new law.
  • Procurers that develop two standard contracts (i.e. one for small business which complies with the new law and removes any unfair terms, and one for other businesses where the laws will not apply) will not know which one to use in the RFT and for the procurement exercise until the preferred tenderer is known and the contractor selected. This may mean putting both in with a statement that the final contract used will depend on the successful contractor.

Other procurement issues arising as a result of this legislation will include whether a procurer extends or varies existing contracts, or decides not to and allows it to terminate. The reason for this is that, whilst the new law does not have retrospective application (i.e. it only applies to new contract), it will apply to existing contract that are varied (in respect of the varied terms), and extended (in respect of the entire contract). Where an organisation currently has a contract with a small business, and that contract contains what would be considered 'unfair terms', if that contract is extended without removing or amending those unfair terms, then the procurer risks breaching the law under the new regime in relation to the previously valid and lawful contract.

Finally, the process contract itself will be subject to these laws and it may be that discretions and exclusions of liability as part of the procurement process itself will be voidable by an unhappy small business bidder.

It is clear that this new law raises significant issues not just in respect of the contract and its terms, but also in relation to the procurement process itself and the future management of existing contracts.

Market-led proposals

Market-led proposals, or unsolicited proposals have continued to be effectively utilised as an alternative approach to bringing unique and innovative ideas from industry to be considered by the Governments. Market-led proposals allow private organisations to propose new projects without any formal request or tender for information being issued, removing the public consultation and tender processes involved in procurement.

All Australian state governments, with the exception of Western Australia, have adopted market-led proposal guidelines to ensure transparency and fairness in the assessment process of market-led proposals from industry. The NSW Guide for Submission and Assessment of Unsolicited Proposals (August 2012) (the NSW Guide) have in place a three stage assessment to ensure transparency and that the evaluations of the proposals are streamlined. The first stage of the assessment process involves a preliminary assessment of the proposal to determine whether it meets the criteria of a market-led proposal. The second stage of the processes requires the proponent and government to work together and develop a detailed proposal. If the government then wishes to proceed with the proposal, stage three negotiation of the final and binding offer will take place.

When evaluating market-led proposals, the NSW Guide provides the following criteria:

  • Uniqueness
  • Value for money
  • Whole of government impact
  • Capability and capacity
  • Affordability
  • Risk allocation

While the guidelines have effectively provided clarity on the assessment process, proponents are still faced with risks and issues that will need to be addressed. One of the risks associated with market-led proposals is the protection of the proponent's ideas and concepts if the Government does not choose to go ahead with the proposal. The NSW Guide provides that the proponents and the Government are to agree on the approach to managing intellectual property during the first stage of the assessment process to avoid such risks.

The proponents also face a high threshold when demonstrating the uniqueness of their proposal. All proponents need to demonstrate that their proposal offers unique benefits, a unique ability to deliver the proposal, as well as the ability to deliver value for money to the NSW Government. In the 2015-16 financial year, the NSW Government received 21 market-led proposals of which 18 were assessed. None of the proposals proceeded to stage two of the assessment process, with the main reason being lack of uniqueness and inability to provide value for money.

However, provided that the appropriate framework and guideline are in place to address such risks, market-led proposals will continue to play an important role in bringing proactive and innovative thinking in procurement that could potentially benefit the economy.

Government Procurement (Judicial Review) Bill

Last year, the Commonwealth announced that the Government Procurement (Judicial Review) Bill (the Bill) would be introduced in the 2016 Spring sittings of Parliament. With the text of the Bill still yet to be made publically available, speculation is beginning to bubble in the procurement space as to its contents and implications.

Most likely, the Bill will provide the Federal Court, and the Federal Circuit Court, the power to deal with certain procurement disputes and grant injunctions or order compensation to dissatisfied tenderers for a breach of the Commonwealth Procurement Rules (CPRs).

The Bill has been drafted partly in response to the 2014 recommendation by the Senate Finance and Public Administration Committee for the need for an independent dispute mechanism for the Commonwealth procurement processes, and partly to bring Australia into line with our international obligations under the Trans-Pacific Partnership Agreement (TTP) to provide suppliers with an impartial authority to review disputes under the Government Procurement Chapter.

The Bill would also better position Australia for our likely accession to the World Trade Organisation's Agreement on Government Procurement (GPA), which, like the TTP, requires a transparent dispute review process.

Although the Bill would significantly alter the current legal landscape in Australia concerning tender challenges by introducing a statutory mechanism for suppliers to challenge government tenders for breach of the CPRs, such a regime is not novel. For example, in the U.S., the Government Accountability Office (the GAO) first published a bid protest decision that a solicitation was unlawful in 19261.

U.S. Government Accountability Office

In the U.S., a bidder or other interested party may file a challenge with the GAO regarding the terms of a federal government tender or an award of a government contract. The GAO Bid Protest Regulations govern the particular issues the GAO may review and the parties who may lodge a protest.

The GAO may hear complaints alleging violations of federal procurement law in federal acquisitions, however challenges to small business size certifications are statutorily barred. Any interested party (an actual or prospective bidder whose direct economic interest would be affected by the award of, or failure to award, a contract) may file a protest.

Filing a bid protest with the GAO may trigger an automatic stay of a contract award, or performance of a contract, until the GAO makes a determination either dismissing, denying or sustaining the protest.

If a protest is dismissed or denied, the procuring agency can commonly proceed with the bid. However, when a protest is sustained, the GAO can recommend specific actions, for example amending the tender, or requiring the government to re-evaluate the proposals. Although these recommendations are not legally binding (due to the separation of powers doctrine in the U.S. precluding legislative branch agencies from governing the actions of executive branch agencies), the procuring agency is required by statute to notify the GAO if GAO's recommendations are not fully implemented - and, the GAO must in turn, notify Congress.

Further, a party who is not satisfied with the GAO's decision can request the GAO to reconsider their determination, and can also effectively appeal the GAO's decision by filing a bid protest with the Court of Federal Claims.

Wrap Up

In conclusion, we expect it to be a busy and interesting year this year in the procurement sector with:

  1. a new law relating to commercial contracts and terms to consider as part of our processes and documents
  2. the continuation and expanded use of the market led proposals process in the successful conception and delivery of projects
  3. a new legislative regime government challenges to tender processes in the Commonwealth

Footnotes

1 D Gordon, 'Bid Protests: The Costs are Real, but the benefits Outweigh Them' (2013) 42 George Washington University Law School 3, 4.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
Scott Alden
Lauren Stables
 
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