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Machinery of Government Changes – how does this affect ICT arrangements?

The one thing that is certain to stay constant, is the changing nature of the public service.

Between variations to agency size, structure and portfolio and changes in programs, it is critical for Commonwealth departments and agencies to proactively manage their technology contracting arrangements in a way that minimises the business continuity and legal risks associated with these inevitabilities.

On 5 December 2019, Prime Minister Scott Morrison announced new Machinery of Government (MoG) changes, as specified below. In accordance with the Administrative Arrangements Order also announced on 5 December 2019, the MoG changes will take effect from 1 February 2020.

It is important to quickly identify the impact of MoG changes, so business continuity is protected and inefficiency, contracting overlaps, and non-compliance and cost risks are avoided or mitigated. While Commonwealth ICT vendors are experienced (and generally reasonably cooperative) in dealing with MoG changes, they will also be focused on ensuring their contract rights are met.

Reasons affected entities should start to consider the impact of the MoG changes on their technology arrangements include:

  • a proactive approach may assist in reducing the risk of having to re-negotiate existing ICT contracts
  • a failure to do so may lead to unforeseen costs for the Commonwealth.

It is essential to recognise quickly the impact of changes, identify any legal risks and plan a response to them.

WHAT PARTS OF MY ENTITY’S TECHNOLOGY ARRANGEMENTS WILL BE AFFECTED BY A MoG CHANGE?

MoG changes are likely to affect every possible sort of technology arrangement. For example:

  • ICT products – does the software, hardware or cloud service now need to be used by different entities, parts of entities, on different systems, at different sites, for different purposes?
  • Telecommunications – what user, network and other devices do you now need?
  • Managed services or support services – how will the MoG changes affect the current description and scope of services?
  • Configured systems – which entity will now manage the system? Does it need to be moved to new infrastructure?
  • Developmental or solution build contracts – do you need to build that new entity-centric solution? Does management of the build process need to move to another entity?

We recommend you consider taking the following steps:

  • identify any contracts affected by a MoG change
  • identify the contract features that will be affected by change (e.g. user numbers, sites, data storage limits, asset volumes). We can assist you in developing a checklist for this
  • work out what impact the MoG change will have (e.g. who is moving where? What impact does this have on the contracts?)
  • work with other affected entities (e.g. the entity to which you are moving or which is joining your entity) to determine what is required for the new entity, what are the existing overlaps, and what needs to change? (more users, less users, more sites, higher volumes etc)
  • review the contracts for any existing flexibility or MoG process clauses
  • work out whether those clauses will work for your identified MoG impact, or at least whether they can be used as a starting point for negotiating with vendors
  • work out what alternative flexibility you already have built into the contract (some suppliers may be a party to a whole-of-government arrangement that allows substantial flexibility for transfers of goods/services between entities, but other contracts may be enterprise specific)
  • look holistically across your contract suite to consider these issues, whether there is any overlap with any new entity to be merged with yours, how merging entities’ packages of technology arrangements now need to interact, be consolidated, be re-negotiated or be terminated
  • develop a plan of action that is designed to facilitate as orderly an approach as possible.

WHAT SHOULD I CHECK FOR IN MY CONTRACT?

As a starting point, your checklist could cover the following:

ICT contract considerations Yes No
Machinery of Government (MoG) provisions

Does your contract provide a specific process for dealing with a MoG change?

What are the limits and conditions with which you need to comply to use that process?

Reduction of scope

Does your contract allow you to reduce scope where you need to do so to avoid overlap with another entity’s technology arrangements?

Does your contract allow you to transfer the contract to another entity?

Is there a clause that permits the department to assign its rights to another entity? Is vendor consent required?

How flexible are your charging provisions?

Charging provisions in contracts with ICT vendors may allow your entity to procure additional volumes of ICT products or services (such as licences) at pre-arranged prices, and could also provide for the relevant access rights for personnel of other entities to obtain the benefit of the ICT products and services.

What are the restrictions in your contract on usage?

Does the number of licences or subscriptions provided to your entity under the contract equate to the number of personnel requiring such licences or subscriptions (as relevant) after the MoG changes?

What termination rights does your contract have? Is there a right to terminate for convenience?

A termination for convenience clause allows a party to terminate a contract without default. While there is some legal controversy regarding these clauses (and potentially costs payable), the courts have accepted their effectiveness, albeit that they are likely to be subject to the obligation to cooperate (do all things reasonable to give the other party the benefit of the contract) and to act in good faith (acting honest and reasonably). They may also require payment of compensation.

Will there be multiple contracts with ICT vendors providing the same ICT services and products running simultaneously?

Will you now have multiple contracts with ICT vendors providing the same ICT products and services and dealing with the same subject matter?

What administrative changes need to be made? Will you need to vary the contract, for example, to update the ‘contract manager or description of parties’ parts of the contract?

There may be other variations required to the contract to reflect the MoG changes. For example, you may need to amend the listed ‘Key Contacts’ or ‘Key Personnel’ so as to reflect any new roles of personnel as a result of the MoG changes.

This article only focuses on the impact of the MoG changes on ICT contracts. We recommend that, if your entity is affected by the MoG changes, you should also consider how any Commonwealth legislation may affect your ICT arrangements (including, for example, the Privacy Act or the Acts Interpretation Act 1901 (Cth)).

If you would like more information or to discuss these suggestions, contact Caroline Atkins, Anthony Willis, Gavan Mackenzie or Katherine Armytage.

AUTHORS 
Caroline Atkins| Partner
+61 2 6120 4836
E
 caroline.atkins@maddocks.com.au
Anthony Willis| Partner
T +61 2 6120 4835
E anthony.willis@maddocks.com.au
Gavan Mackenzie| Partner
+61 2 6120 4837
gavan.mackenzie@maddocks.com.au
Katherine Armytage | Partner
T +61 2 6120 4838
katherine.armytage@maddocks.com.au

The one thing that is certain to stay constant, is the changing nature of the public service.

Between variations to agency size, structure and portfolio and changes in programs, it is critical for Commonwealth departments and agencies to proactively manage their technology contracting arrangements in a way that minimises the business continuity and legal risks associated with these inevitabilities.

On 5 December 2019, Prime Minister Scott Morrison announced new Machinery of Government (MoG) changes, as specified below. In accordance with the Administrative Arrangements Order also announced on 5 December 2019, the MoG changes will take effect from 1 February 2020.

It is important to quickly identify the impact of MoG changes, so business continuity is protected and inefficiency, contracting overlaps, and non-compliance and cost risks are avoided or mitigated. While Commonwealth ICT vendors are experienced (and generally reasonably cooperative) in dealing with MoG changes, they will also be focused on ensuring their contract rights are met.

Reasons affected entities should start to consider the impact of the MoG changes on their technology arrangements include:

  • a proactive approach may assist in reducing the risk of having to re-negotiate existing ICT contracts
  • a failure to do so may lead to unforeseen costs for the Commonwealth.

It is essential to recognise quickly the impact of changes, identify any legal risks and plan a response to them.

WHAT PARTS OF MY ENTITY’S TECHNOLOGY ARRANGEMENTS WILL BE AFFECTED BY A MoG CHANGE?

MoG changes are likely to affect every possible sort of technology arrangement. For example:

  • ICT products – does the software, hardware or cloud service now need to be used by different entities, parts of entities, on different systems, at different sites, for different purposes?
  • Telecommunications – what user, network and other devices do you now need?
  • Managed services or support services – how will the MoG changes affect the current description and scope of services?
  • Configured systems – which entity will now manage the system? Does it need to be moved to new infrastructure?
  • Developmental or solution build contracts – do you need to build that new entity-centric solution? Does management of the build process need to move to another entity?

We recommend you consider taking the following steps:

  • identify any contracts affected by a MoG change
  • identify the contract features that will be affected by change (e.g. user numbers, sites, data storage limits, asset volumes). We can assist you in developing a checklist for this
  • work out what impact the MoG change will have (e.g. who is moving where? What impact does this have on the contracts?)
  • work with other affected entities (e.g. the entity to which you are moving or which is joining your entity) to determine what is required for the new entity, what are the existing overlaps, and what needs to change? (more users, less users, more sites, higher volumes etc)
  • review the contracts for any existing flexibility or MoG process clauses
  • work out whether those clauses will work for your identified MoG impact, or at least whether they can be used as a starting point for negotiating with vendors
  • work out what alternative flexibility you already have built into the contract (some suppliers may be a party to a whole-of-government arrangement that allows substantial flexibility for transfers of goods/services between entities, but other contracts may be enterprise specific)
  • look holistically across your contract suite to consider these issues, whether there is any overlap with any new entity to be merged with yours, how merging entities’ packages of technology arrangements now need to interact, be consolidated, be re-negotiated or be terminated
  • develop a plan of action that is designed to facilitate as orderly an approach as possible.

WHAT SHOULD I CHECK FOR IN MY CONTRACT?

As a starting point, your checklist could cover the following:

ICT contract considerations Yes No
Machinery of Government (MoG) provisions

Does your contract provide a specific process for dealing with a MoG change?

What are the limits and conditions with which you need to comply to use that process?

Reduction of scope

Does your contract allow you to reduce scope where you need to do so to avoid overlap with another entity’s technology arrangements?

Does your contract allow you to transfer the contract to another entity?

Is there a clause that permits the department to assign its rights to another entity? Is vendor consent required?

How flexible are your charging provisions?

Charging provisions in contracts with ICT vendors may allow your entity to procure additional volumes of ICT products or services (such as licences) at pre-arranged prices, and could also provide for the relevant access rights for personnel of other entities to obtain the benefit of the ICT products and services.

What are the restrictions in your contract on usage?

Does the number of licences or subscriptions provided to your entity under the contract equate to the number of personnel requiring such licences or subscriptions (as relevant) after the MoG changes?

What termination rights does your contract have? Is there a right to terminate for convenience?

A termination for convenience clause allows a party to terminate a contract without default. While there is some legal controversy regarding these clauses (and potentially costs payable), the courts have accepted their effectiveness, albeit that they are likely to be subject to the obligation to cooperate (do all things reasonable to give the other party the benefit of the contract) and to act in good faith (acting honest and reasonably). They may also require payment of compensation.

Will there be multiple contracts with ICT vendors providing the same ICT services and products running simultaneously?

Will you now have multiple contracts with ICT vendors providing the same ICT products and services and dealing with the same subject matter?

What administrative changes need to be made? Will you need to vary the contract, for example, to update the ‘contract manager or description of parties’ parts of the contract?

There may be other variations required to the contract to reflect the MoG changes. For example, you may need to amend the listed ‘Key Contacts’ or ‘Key Personnel’ so as to reflect any new roles of personnel as a result of the MoG changes.

This article only focuses on the impact of the MoG changes on ICT contracts. We recommend that, if your entity is affected by the MoG changes, you should also consider how any Commonwealth legislation may affect your ICT arrangements (including, for example, the Privacy Act or the Acts Interpretation Act 1901 (Cth)).

If you would like more information or to discuss these suggestions, contact Caroline Atkins, Anthony Willis, Gavan Mackenzie or Katherine Armytage.

AUTHORS 
Caroline Atkins| Partner
+61 2 6120 4836
E
 caroline.atkins@maddocks.com.au
Anthony Willis| Partner
T +61 2 6120 4835
E anthony.willis@maddocks.com.au
Gavan Mackenzie| Partner
+61 2 6120 4837
gavan.mackenzie@maddocks.com.au
Katherine Armytage | Partner
T +61 2 6120 4838
katherine.armytage@maddocks.com.au