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Looking out for smaller businesses – the revised rules for Commonwealth Procurement

By Anthony Willis, Patrick Collins

• 23 June 2022 • 6 min read
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On 28 March 2022, the then Federal Minister for Finance, Senator Simon Birmingham released a new version of the Commonwealth Procurement Rules (CPRs). The updated CPRs will take effect on 1 July 2022 and put further emphasis on the engagement of small-to-medium enterprises (SMEs) in Commonwealth procurements.

What’s new?

The substantive updates to the CPRs are geared towards encouraging further engagement of SMEs in Commonwealth contracting activities.

The then Federal Minister for Finance, Senator Simon Birmingham said that the updated CPRs would “open new doors for SMEs in the government procurement market” and “remove perceived barriers” barring SME participation within Commonwealth tenders.

The updated CPRs seek to achieving this though:

  • encouraging a greater volume of procurement activities for smaller work packages;
  • reducing delays in payment times;
  • lowering the costs for SME participation in tender processes; and
  • expanding the range of circumstances in which the Department of Defence may undertake limited tender procurements.

Divide and co…mpetition

The current CPRs encourage officials to be mindful of the obstacles faced by SMEs when participating, or seeking to participate, in Commonwealth procurement processes. One such challenge can be the sheer size of Commonwealth tenders. It is not an easy task for an SME, without dedicated bid managers, to respond to large-scale requests for tenders. Further, Commonwealth procurement processes can often have short response windows and the added complexity afforded by a wide array of compliance requirements.

The updated CPRs seek to achieve this outcome by stating that Commonwealth officials should consider disaggregating large projects into smaller composite packages (updated CPRs r.5.5(d)).

Accordingly, whether a large scale project can be divided up is now something that officials will need to consider when commencing a procurement activity.

Pay on time, it’s in your interest

The updated CPRs extend the Commonwealth’s ‘pay on time’ policy to all suppliers to improve payment times to suppliers operating in the supply chains of Australian Government contracts. Previously this policy only applied if the supplier’s contract was valued at or below $1 million.

Under the updated CPRs, all non-corporate Commonwealth Entities (NCCE) must pay electronic invoices within 5 days and all other invoices within 20 days. If an NCCE does not make payment within these time periods, it may be liable to pay the supplier interest (updated CPRs r.5.8).

NCCEs should review any standard form contracts for goods or services valued above $1 million to ensure that this requirement of the updated CPRs is reflected in those templates, and be mindful of the need to incorporate this requirement when undertaking contract variations from 1 July 2022.

Reduction of suppliers’ insurance costs

The updated CPRs seek to reduce suppliers’ insurance costs which might otherwise present a barrier to some suppliers from participating in Commonwealth procurement processes. Relevant entities are encouraged to:

  • limit insurance requirements in Commonwealth contracts to reflect the actual risk born by suppliers in liability caps (updated CPR r.8.4(a)); and
  • refrain from directing potential suppliers to take out insurance before a contract is actually awarded (updated CPRs r.8.4(b)).

This means that relevant entities should be undertaking risk assessments of their procurement processes and the proposed contracts to ensure that those contracts include an appropriate liability cap. Further, any such risk assessment should be documented and kept on file to ensure that your department or agency can prove that you undertook the appropriate steps before entering into a contract, in the event of an audit or other scrutiny.

Perhaps, from 1 July 2022, it will be more difficult for relevant entities to negotiate contracts (particularly with SMEs) that do not cap the supplier’s liability but instead rely on the ordinary principles of Australian contract law (including doctrines of causation, remoteness and the duty to mitigate one’s own loss) to appropriately allocate risks between the parties.

Direct Defence Procurement

In an effort to build domestic sovereign capabilities, the updated CPRs will permit the Department of Defence to purchase goods and services directly from SMEs (i.e. without going through an open tender process) for procurements valued up to $500,000.

Compliance clarification

In addition to the added focus on SMEs, the updated CPRs provide clarification regarding the compliance requirements of NCCEs and prescribed corporate Commonwealth entities (CCE).

NCCEs and prescribed CCEs must comply with procurement connected policies if these polices are applicable to the procurement process. As of writing, the following procurement connected polices are in place:

Table – Procurement Connected Policies

Policy
Description
Originating Department
Payment Times Procurement Connected Policy
Large businesses (Reporting Entities
under the Payment Times Reporting Act 2020) that are awarded Australian Government procurement contracts valued over $4 million (GST inclusive) to pay their subcontracts valued up to $1 million within 20 calendar days.
The Department of the Treasury
Black Economy – increasing the integrity of government procurement
Businesses seeking to tender for Australian Government procurement contracts over $4 million (including GST) to provide a statement from the Australian Taxation Office showing they have a satisfactory tax record.
The Department of the Treasury
Indigenous Procurement Policy
Establishes Commonwealth procurement targets for Indigenous enterprise participation.
National Indigenous Australians Agency
Workplace Gender Equality Procurement Principles and User Guide
Requires certain tenderers (employers with 100 or more employees in Australia) to demonstrate they are compliant with the Workplace Gender Equality Act 2012 in order to be considered for Australian Government procurement contracts valued at or above the relevant procurement thresholds.
Department of the Prime Minister and Cabinet
Australian Industry Participation Plans for Government Procurement
Requirement for successful tenderers to prepare and implement Australian Industry Participation plans.
Department of Industry, Innovation and Science
Code for the Tendering and Performance of Building Work 2016 (Building Code 2016)
Requirement for relevant Commonwealth entities to apply Building Code 2016 to all Commonwealth funded building work undertaken for, or on behalf of a funding entity.
Attorney- General’s Department

Where can I learn more?

The Department of Finance has released a table of changes detailing each change made in the updated CPRs.

Should you have any specific questions or would like to learn how these updates may affect your business or department, please contact:

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