Legal Insights

Considerations for councils when preparing a new procurement policy

By Paul Woods & Sophie Baring

• 18 October 2021 • 7 min read

Councils are required to prepare and adopt a procurement policy for the tendering of goods, services and works by 1 January 2022. This article considers the transitional arrangement that apply to councils pending adoption of a new policy, and options for limited (non-public) tender processes for construction works and services.

Background

The Local Government Act 2020 (Vic) (2020 Act) has progressively repealed over 400 provisions in the Local Government Act 1989 (Vic) (1989 Act).

Section 186 of the 1989 Act required councils to seek public tenders or expressions of interest (EOIs) where the estimated value of works and services exceeded certain financial thresholds. It was repealed on 1 July 2021.

Sections 108 and 109 of the 2020 Act establish a new framework for councils procuring works and services.

Section 108 requires councils to prepare and adopt a procurement policy. These policies must specify the principles and processes applying for the purchase of goods and services. Amongst other things, procurement policies must promote open and fair competition and provide value for money.

Section 109 requires:

  • each council to comply with its procurement policy; and
  • Chief Executive Officers to ensure that any report to council recommending entering into a procurement agreement also considers opportunities for collaboration with other councils or public bodies.

Under the new provisions, there are no pre-specified financial thresholds above which councils must seek tenders or EOIs. Councils are to specify their own thresholds, which must not exceed the thresholds stated in Regulations made in connection with the 2020 Act. No financial thresholds for seeking tenders or EOIs have been published in any Regulations made under the 2020 Act as at the date of this publication. Councils separately set out the conditions under which public tenders or EOI’s must be invited.

Procurement policies must also identify the criteria to be used when assessing whether a proposed contract provides value for money.[1]

Councils must prepare and adopt their procurement policies under the 2020 Act by 1 January 2022.[2] Until then, transitional provisions in the 2020 Act mean that Councils must continue to comply with the requirements of section 186 of the 1989 Act.[3]

The following sections of this article summarise procurement requirements under the 1989 Act, and an approved, alternative method of procuring construction works and related services.

Continuing compliance with section 186 of the 1989 Act

Under section 186 of the 1989 Act, for contracts valued at or greater than:

  • $150,000 for goods and services; and
  • $200,000 for works,

Councils must undertake a competitive process – by providing public notice and either inviting tenders or seeking EOIs. Where EOIs are invited, councils must then invite tenders from some or all of those who expressed interest. Councils have identified that these requirements led to significant compliance costs and inefficiencies.[4]

However, those procurement obligations do not apply if a council enters into a contract in accordance with arrangements approved by the Minister for Local Government (Minister) for the purposes of sub-section 186(5)(c) of the 1989 Act.

The Construction Supplier Register – an alternative procurement route

On 17 May 2012, the then Minister approved an alternative arrangement for councils entering into contracts for building and construction works and related services – that is, an alternative arrangement to the public tender and EOI requirements in section 186 of the 1989 Act.

Where the value of works or services was estimated to exceed the financial thresholds applying under section 186, councils were permitted to seek tenders from at least three pre-qualified contractors registered with the Construction Supplier Register (CSR)[5]. This is referred to below as the ‘2012 Approval’.

The Ministerial approval included other requirements, such as that the contract should, where possible, be an Australian Standard with minimal special conditions and a fair risk allocation, and provide for a fair entitlement to payment.

The current CSR

The CSR is a scheme now managed by the Department of Treasury and Finance enabling contractors and suppliers to pre-qualify with the State for the provision of construction works and services.

Pre-qualification is available in a range of categories, depending on the type and value of work or services. Contractors and suppliers wishing to pre-qualify must meet the State’s requirements to demonstrate the necessary expertise, management systems and financial capacity. It is operated in accordance with Ministerial Directions for Public Constructions Procurement in Victoria (Directions).[6]

The Directions only apply to public ‘Agencies’[7], which do not include municipal councils. However, councils who are in the process of preparing new procurement policies will be assisted by understanding what the Directions permit.

Under clause 3.2 of the Directions, public agencies procuring construction works or services must either carry out open tenders, ‘select tenders’ open to at least three suppliers in the relevant category on the CSR, or a ‘Limited Tender’ in accordance with the instructions given in the Directions.

For Limited Tenders, a single tenderer may be approached if the engagement is expected to be less than $50,000. If the engagement is expected to be between $50,000 and $500,000, at least three potential tenderers must be invited to participate. Where ‘special circumstances’ exist (such as in the case of extreme urgency, to ensure occupational health and safety or to address life-threatening situations), the Agency may determine the most appropriate way to conduct the Limited Tender which may include approaching a single tenderer.

Considerations for councils when preparing a new procurement policy

The CSR option afforded by the 2012 Approval gave councils flexibility to procure works or services outside of the financial thresholds applying under section 186, whilst ensuring a competitive process involving contractors or suppliers whose experience and capacity has been vetted by the State.

Councils who are preparing their new policies for implementation by 1 January 2022 may wish to:

  • retain the flexibility that was afforded to them by the 2012 Approval - that is, to have the ability to seek tenders for construction works or services from a limited number of pre-qualified contractors and suppliers on the CSR, rather than publicly invite tenders or EOI’s; and
  • implement a Limited Tender option, similar to what is available to public agencies under the Ministerial Directions, where there are special circumstances.

For example, councils may consider approving arrangements where tenders are sought from at least 3 pre-qualified contractors on the CSR, depending on the estimated contract value.

Alternatively, the CSR option may be provided in circumstances determined by council to be urgent, such as for urgent road works or repairs to a public building, where there are insufficient time to conduct a public tender.

Subject to the announcement of contract value thresholds under the 2020 Act, when preparing their policies, councils may also consider including an option for a Limited Tender process – such as approaching a single tenderer where considerations of urgency or safety require it.

[1] Section 108(3)(b) of the 2020 Act.

[2] Section 108(6) of the 2020 Act.

[3] Section 108(7) of the 2020 Act.

[4] The Victorian Competition and Efficiency Commission reported some Councils indicating that “the s186 threshold creates additional work without significantly impacting the cost of goods and services” - Local Government for a Better Victoria: An Inquiry into Streamlining Local Government Regulation, p. 215, April 2020.

[5] The CSR was then administered by the Department of Transport on behalf of the State of Victoria.

[6] Ministerial Directions for Public Construction Procurement in Victoria (July 2018), clause 3.2(b)(ii).

[7] Under the Directions, ‘Agency’ means ‘a department or public body’ such as a State Government Department, a public statutory authority or State business corporation .

Do you need assistance preparing a new procurement policy?

Please contact a member of our team.

By Paul Woods & Sophie Baring

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