Australia: Transparency in procurement by local government

Last Updated: 26 December 2018
Article by David Creais

Councils are bound by specific legislation that demands transparency in contracting, with a view to preventing collusion, corruption, nepotism and paying above market prices. Getting it wrong can lead the Council and responsible officer open to public complaints and court action, not to mention a referral to ICAC. In this article we discuss the legislation, what you must do to comply, and how to avoid common pitfalls.

Local Government Act 1993

Section 55 lists the contracts for which council must invite tenders. The most frequent are for the provision of:

  • goods or materials (by sale, lease or otherwise)
  • services (other than a contract for banking, borrowing or investment services)

Most relevantly, the section does not apply to:

  • a contract where, because of extenuating circumstances, remoteness of locality or the unavailability of competitive or reliable tenderers, a council decides by a resolution which states the reasons for the decision that a satisfactory result would not be achieved by inviting tenders; and
  • a contract involving an estimated expenditure or receipt of less than $150,000 (Regulation 163).

Local Government (General) Regulation 2005

The Local Government (General) Regulation 2005 sets out the requirements for contracts to which section 55 applies.

A contract, and any variation or discharge of the contract, must be in writing and be executed by or on behalf of the council (Regulation 165).

Whenever a council is required by section 55 to invite tenders, Regulation 166 states that it must decide which of the following is to be used:

  • The open tendering method by which tenders are invited by public advertisement (Regulation 167)
  • The selective tendering method by which invitations to tender are made following a public advertisement asking for expressions of interest (Regulation 168)
  • The selective tendering method by which recognised contractors selected from a list prepared or adopted by the council are invited to tender for contracts of a particular kind (Regulation 169).

Regulation 170 states that the tender documents must:

  • give details of the work to be carried out, the goods or facilities to be provided, the services to be performed or the property to be disposed of
  • specify the criteria on which tenders will be assessed
  • if a council amends tender documents after they have been issued, it must take all reasonably practicable steps to inform those persons of the amendments.

Regulation 171 relates to shortened tender periods and states that if a council believes there are exceptional circumstances it may decide on an earlier deadline than that advertised.

However, the earlier deadline must be a specified time on a date that is at least 7 days after the first publication of the advertisement.

A council must also keep a record of:

  • the circumstances requiring an earlier deadline
  • the name of the staff member who made the decision (if it wasn't made by the council).

Similarly if, having specified or included a deadline in an advertisement, a council becomes aware of circumstances that show the deadline may not allow enough time for meaningful tenders, it may extend the deadline (Regulation 172).

The council must then take all reasonable steps to inform people of the later deadline.

As with a shortened deadline, council must then keep a record of:

  • the circumstances requiring a later deadline
  • the name of the staff member who made the decision (if it wasn't made by the council).

Regulation 175 prescribes that at the time specified for the close of tenders, the appropriate person must open the tenders in the presence of:

  • at least 2 people designated by the general manager for the purpose
  • any tenderers and members of the public who wish to attend the opening
  • as soon as practicable after the tenders have been opened, the appropriate person must prepare a tender list specifying the names of the tenderers in alphabetical order
  • immediately after preparing a tender list, the appropriate person must display the list where it can be readily seen by members of the public.

In certain circumstances tenders may be varied (Regulation 176).

At any time before a council accepts any tenders for a proposed contract, a person who has submitted a tender may vary it by providing the council with further information by way of explanation or clarification, or by correcting a mistake or anomaly.

Such a variation may be made either at the request of the council or the tenderer. The council may only accept the tenderer's request for a variation if it seems reasonable to do so in the circumstances.

If a tender is varied, the council must provide all other tenderers whose tenders have the same or similar characteristics the opportunity to vary their tenders in a similar way.

A council must not consider a variation of a tender if the variation would substantially alter the original tender, and the council must keep a record of:

  • the circumstances requiring the variation of a tender
  • the name of the staff member handling the matter.

After considering the tenders submitted for a proposed contract, the council must either (Regulation 178):

  • accept the tender that, having regard to all the circumstances, appears to be the most advantageous, or
  • decline to accept any of the tenders.

A council must ensure that every contract it enters into as a result of an accepted tender is with the successful tenderer and in accordance with the tender (modified only by any variation under Regulation 176).

A council that decides not to accept any of the tenders or receives no tenders for the proposed contract must, by resolution, do one of the following:

  • postpone or cancel the proposal for the contract
  • invite fresh tenders based on the same or different details
  • invite, in accordance with Regulation 168, fresh applications
  • invite, in accordance with clause 169, fresh applications
  • enter into negotiations with any person (whether or not the person was a tenderer) with a view to entering into a contract in relation to the subject matter of the tender.

However, if a council resolves to enter into negotiations, the resolution must state the council's reasons for declining to invite fresh tenders or applications, and for deciding to enter into negotiations with the person or persons.

As soon as practicable after entering into a contract or deciding not to accept any of the tenders, a council must (Regulation 179):

  • notify all tenderers whose tenders were not accepted or, as the case may be, that none of the tenders for the proposed contract was accepted
  • display a notice in a conspicuous place accessible to the public specifying the name of the successful tenderer and the amount of the successful tender or, if none of the tenders was accepted, a notice to that effect.

Tendering Guidelines for NSW Local Government October 2009

The Guidelines were adopted by the Deputy Director General (Local Government), Department of Premier and Cabinet under section 23A of the Local Government Act 1993.

They provide a practical and detailed guide to tendering in accordance with the Act and Regulation, and must be taken into consideration by all councils when exercising their tendering functions.

The Guidelines are divided into four sections:

Guiding principles – sets out the overarching principles that apply to the tendering process.

Procurement management – outlines processes necessary to effectively manage the process.

The tendering process – outlines the stages involved in the process with reference to specific legislative requirements and recommended practices.

Resources – provides useful publications, websites and contacts as well as a tendering checklist and list of commonly used terms.

Section 3, the tendering process, is the heart of the Guidelines; in particular, Part 3.6, which deals with developing the tender documents.

Section 4, Resources, includes a very useful Tendering Checklist

Model Code of Conduct for Local Councils in NSW

The Model code is made under section 440 of the Local Government Act 1993 and the Local Government (General) Regulation 2005.

It sets the minimum standards of conduct for council officers and requires every council to adopt a code of conduct that incorporates the provisions of the Model Code.

Failure by a councillor to comply with the standards of conduct constitutes misconduct for the purposes of the Act.

Failure by a member of staff to comply with a council's code of conduct may give rise to disciplinary action.

Specifically, it prescribes that a councillor or officer must not conduct himself or herself in a manner that:

  • is likely to bring the council or other council officials into disrepute
  • is contrary to statutory requirements or the council's administrative requirements or policies
  • is improper or unethical
  • is an abuse of power
  • involves the misuse of position to obtain a private benefit.

A councillor or officer must:

  • act lawfully and honestly, and exercise a reasonable degree of care and diligence in carrying out functions under any Act
  • consider issues consistently, promptly and fairly, and deal with matters in accordance with established procedures, in a non-discriminatory manner
  • take all relevant facts known to them, or that they should be reasonably aware of, into consideration and have regard to the particular merits of each case, without taking irrelevant matters or circumstances into consideration when making decisions.

An act or omission in good faith, whether or not it involves error, will not constitute a breach of the Model Code.

Common law misrepresentation/misleading and deceptive conduct

Misrepresentation is the false statement of a material fact made by one party to another to induce that other party to enter into a contract.

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive (section 18 of the Australian Consumer Law).

The statement or representation may be unintentional.

The statement or representation may be made by omission – there will be an actionable misrepresentation if a party had a reasonable expectation that if a relevant matter existed it would be disclosed.

The consequence of misrepresentation in the tender process can be a claim for damages or to be able to rescind (or refuse to enter) the tender contract or both.

Process contract

A request for tender (RFT) can itself constitute a contract, known as a "process contract".

By submitting a tender in response to the RFT, a binding contract between the tenderer and council is formed that requires the process set out in the RFT to be followed in evaluating the tenders and awarding the tender contract.

Consequences of not complying with the tender "process contract" may be:

  • a claim for damages or to be able to rescind (or refuse to enter) the tender contract or both, if the complainant is the successful tenderer, or
  • an action to restrain the award of the tender contract to the successful tenderer or damages or both, if the complainant is an unsuccessful tenderer.

Tips and Traps

Things you should do:

  • Consider using the tender process in accordance with the Guidelines even if the contract involves amounts below the prescribed $150,000 threshold (see also Part 3.1 of the Guidelines)
  • Be aware when calculating the estimated expenditure under the contract that it is the aggregate or cumulative cost over the life of the contract
  • Make sure the tender documents follow the "4 Cs" – clear, consistent, comprehensive and compliant
  • Make the specifications as detailed as possible
  • Document everything, especially communications with tenderers
  • Circulate relevant information and communications to all tenderers – if in doubt, circulate
  • Use the Tendering Checklist in the Guidelines (or a similar document).

Things you should not do:

  • Vary a contract that was initially below the prescribed threshold for tendering so that expenditure exceeds the prescribed threshold without either going to tender or following the prescribed process
  • Negotiate or agree to departures from the terms of the tender contract after the tender has been awarded
  • Vary a contract to such an extent that in reality it is a new contract
  • Automatically discard a tender received after the deadline for submission (see Regulation 177).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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