Businesses tendering for certain Commonwealth procurement contracts valued over $4 million (GST inclusive) must provide, with their tenders, a statement from the Australian Taxation Office (ATO) showing they have a satisfactory tax record (STR).

This requirement has been in place since July 2019, following the implementation of the Black Economy Procurement Connected Policy (Black Economy Policy). While the Black Economy Policy is not new, it is still not well understood by many tenderers or their advisers. This means tenderers continue to find their tender is rejected, despite having spent time and money on its preparation.

As Commonwealth entities are effectively prevented from accepting tenders from, or contracting with, organisations that do not hold a satisfactory and valid STR, understanding what is an STR, and what are the lodgement requirements, is critical for both tenderers and government entities.

According to the Department of Finance, during 2020-21, Commonwealth entities collectively published just over 84,000 contracts on AusTender, representing a combined value of $69.8 billion.

When you are working with this volume and value, it is vitally important to be satisfied that contracts are not awarded to suppliers that are engaged in illegal practices.

In response to the Black Economy Taskforce’s 2016-17 recommendations, the Australian Government, through The Treasury, introduced a requirement that businesses participating in Government procurement processes and being awarded contracts must be able to demonstrate their participation in the Australian taxation system. This requirement is implemented by the Black Economy Policy.

The Black Economy Policy is a procurement-connected policy (see rules 4.9 – 4.10 of the Commonwealth Procurement Rules (CPRs)).

How does the Policy work?

The Black Economy Policy applies to all open market procurements valued at over $4 million. Both tenderers and relevant Commonwealth entities must comply with the Black Economy Policy.

In summary, if a tenderer does not submit the required STR(s) or STR receipt(s) with its tender (and, if submitting an STR receipt, does not provide, to the procuring entity, the valid and satisfactory corresponding STR within four days after the tender closing time), the tender must be excluded from further consideration.

Compliance enables Commonwealth entities to ensure they are contracting with providers that comply with their taxation obligations; and to comply with the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act), the CPRs and the resource management framework.

However, it is disheartening for procuring entities and tenderers when an otherwise competitive tender cannot progress to evaluation due to non-compliance with the Black Economy Policy. In some cases, procurements have had to be cancelled when all tenderers have failed to comply.

To minimise the risk of this occurring, we set out below some practical tips for tenderers and procuring entities to consider in relation to the Black Economy Policy.

For procuring Commonwealth entities

Non-corporate Commonwealth entities should use the model clauses for procurement documentation and contracts when the Black Economy Policy applies. You can download a copy of the model clauses from the Treasury website.

Procuring entities can also reduce the risks of non-compliance by:

• providing additional explanation of the Black Economy Policy requirements and the consequences for tenderers if the correct STR(s) is/are not lodged with their tenders. For example, you can: include additional drafting to give context to the model clauses in the approach to market documentation; release a reminder to tenderers to apply for their STRs before the tender closing time; and explain the STR requirements in an industry briefing (you may wish to do all three)
• when possible, ensuring the timeframe for submission of tenders gives sufficient time for potential tenderers to apply for STRs. Depending on the complexity of the approach to market or the potential contracting structures, this may necessitate a timeframe that is more than the minimum timeframes prescribed in the CPRs
• building enough time into the initial screening stage to accommodate the need to consider STR issues, especially if:
  • personnel involved in screening are unfamiliar with the Black Economy Policy
  • potential tenderers are likely to include subcontractors, or to comprise partnerships or corporate groups – which all require additional STRs to be obtained
  • there is a long time between the closing time and likely contract award. As an STR is only valid for 12 months, this might mean compliance needs to be re-confirmed (and if necessary, fresh STRs obtained).
• ensuring personnel involved in initial screening understand the Black Economy Policy requirements and how to assess tenderer compliance.

Finally, to avoid unintended outcomes arising from STRs expiring during a contract period, personnel managing contracts with STR provisions should:

• consider STR compliance when considering requests by the contractor (such as for subcontracting, novation or change in corporate control)
• check ongoing STR validity as part of regular contract administration.

For potential tenderers

When responding to an open approach to market, tenderers must provide, with their tender, either a:

• satisfactory STR that is valid as at the closing date; or
• receipt showing that the tenderer has applied to the ATO for a STR. If the tenderer submits an STR receipt, the valid and satisfactory STR must be provided to the Commonwealth entity running the procurement within four business days after the closing time.

A ‘satisfactory’ STR is one showing that the tenderer:

• is up to date with registration requirements, including ABN, GST and Tax File Number
• has lodged at least 90% of all income tax returns, FBT returns, and BAS due in the last four years
• on the date of issue, does not have more than $10,000 due to the ATO.

A ‘valid’ STR is one that has been issued by the ATO within the previous twelve months.

Tenderers can apply for an STR at any time. There is no need to wait until an approach to market is published. Tenderers that respond to Australian Government procurements regularly should consider building an annual application to the ATO into their tendering practices.

Foreign tenderers with no Australian tax presence and not- for-profit tenderers must also submit a valid and satisfactory STR. However, their STR will have a six month expiration date.

Depending on the corporate structure of a tenderer, or whether the tenderer intends to use subcontractors, additional STRs may also be required. For example, if the tenderer is a trustee of a trust, an STR must be lodged for the trustee and the trust.

If a potential tenderer is preparing a tender in response to an open approach to market and does not have an STR, it should apply to the ATO for the requisite STR(s) as part of its early tender preparation. Put another way, don’t leave it until the last minute to apply for an STR.

Applying for an STR early is beneficial from a tenderer’s perspective because:

• if additional STRs are required in order to satisfy the Black Economy Policy, these can be applied for well before the closing time
  
• it can help alleviate the stress that often arises when responding to approaches to market, and when having a tender excluded.

Key takeaways

Commonwealth procuring entities should ensure they have given potential tenderers a lot of guidance about the Black Economy Policy, as it is complex and can lead to exclusion of tenders that are otherwise competitive or, in a worst case scenario, cancellation of a procurement.

Organisations interested in tendering for Australian Government open procurements valued at over $4 million should make sure they understand which STRs they need to submit with their tender – and apply to the ATO for those STRs early.