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Reading the tea leaves – How might the Government Procurement (Judicial Review) Bill provide additional avenues for challenging government procurement

In February 2016, Australia and 11 other countries signed the Trans-Pacific Partnership (TPP), a free trade agreement between a range of countries in the Pacific region. Chapter 15 of the TPP includes a number of provisions concerning government procurements, including a requirement, under Article 15.19, that each TPP party maintain an independent review authority to determine complaints concerning the breach of TPP procurement requirements.

The Government had intended to legislate these requirements through the Government Procurement (Judicial Review) Bill, (the Bill) which was to be introduced before Parliament rose last year. While the United States subsequently withdrew from the treaty, Prime Minister Turnbull has indicated that he intends to try to preserve the treaty. It is also possible the Government may seek to pass the Bill, even in the absence of the TPP, to comply with other international treaties and obligations.

What will the Bill look like?

The Government is yet to release a draft of the Bill, however we have considered its likely composition from current Government policy and the text of the TPP itself.

Firstly, the Government has indicated that challenges will be heard in either the Federal Court or the Federal Circuit Court and, as the name of the Bill suggests, challenges will be in the nature of judicial review.

Second, challenges will be on the basis of a breach of the Commonwealth Procurement Rules (CPRs). In large part, the CPRs align with the TPP procurement requirements, however some amendment of the CPRs may be required to ensure that Article 15.19 of the TPP is complied with.

Third, the Government has stated that only ‘covered procurements’ will be subject to challenge. In this context, it is worth noting the TPP only requires challenges to be permitted for procurements over a certain threshold. Thresholds are set out for both corporate and non-corporate Commonwealth entities, with the procurement threshold for non-corporate Commonwealth entities being approximately A$230,000 for goods and services.

This is significantly higher than the current monetary threshold for Division 2 of the CPRs and it remains to be seen whether the Government adopts a lower threshold for challenges than is required by the TPP and/or whether the introduction of the Bill results in the monetary threshold in Division 2 of the CPRs being increased.

Fourth, the Government has stated remedies available to tenderers will include ‘injunctions’. This appears to be a reflection of the requirement in the TPP that governments adopt procedures providing for ‘prompt interim measures, pending the resolution of a complaint, to preserve the supplier’s opportunity to participate in the procurement’. This suggests that the injunctive relief proposed by the Government may be sought at any stage of the procurement process.

The TPP also makes provision for agencies to decide that these interim measures will not apply where there are ‘overriding adverse consequences for the interests concerned, including the public interest.’ It is likely that the Government will adopt this as a limitation on the Court’s power to issue an injunction.

Finally, the TPP also requires that governments adopt procedures allowing for ‘corrective action’, which may include compensation, albeit that compensation can be limited to ‘either the costs reasonably incurred in the preparation of the tender or in bringing the complaint, or both’. While some jurisdictions, such as the United States and the United Kingdom, allow for contracts to be overturned post-award, the TPP does not require the Government to include such a mechanism in the Bill.

What will the impact be?

Without seeing the final details of the Bill, it is difficult to predict how it will affect Commonwealth procurement. Some guidance can be taken, however, from overseas’ experience. In the United States, an average of between 0.5% and 1% of government procurements are subject to administrative or judicial challenges by tenderers, through what are known as ‘bid protests’.

Of the 70,000 procurements reported to AusTender in the 2015-16 financial year, only about 20%, or 14,000, were for more than $250,000. Assuming that procurements are challenged at the low end of the rate in the United States, this would result in about 70 challenges to procurements by Commonwealth agencies each year, although we would be surprised if there were that many.

The Verdict

While the fate of the Bill is unclear, if it is introduced (and passed), the potential for government procurement processes to be challenged will increase. While the numbers are not likely to be high, there will almost certainly be several cases where tenderers will seek redress under the new scheme.

Authors
Ian Temby | Partner
T +61 2 6120 4814
E ian.temby@maddocks.com.au
  Joshua Smith | Lawyer
T +61 2 6120 4825
E joshua.smith@maddocks.com.au

In February 2016, Australia and 11 other countries signed the Trans-Pacific Partnership (TPP), a free trade agreement between a range of countries in the Pacific region. Chapter 15 of the TPP includes a number of provisions concerning government procurements, including a requirement, under Article 15.19, that each TPP party maintain an independent review authority to determine complaints concerning the breach of TPP procurement requirements.

The Government had intended to legislate these requirements through the Government Procurement (Judicial Review) Bill, (the Bill) which was to be introduced before Parliament rose last year. While the United States subsequently withdrew from the treaty, Prime Minister Turnbull has indicated that he intends to try to preserve the treaty. It is also possible the Government may seek to pass the Bill, even in the absence of the TPP, to comply with other international treaties and obligations.

What will the Bill look like?

The Government is yet to release a draft of the Bill, however we have considered its likely composition from current Government policy and the text of the TPP itself.

Firstly, the Government has indicated that challenges will be heard in either the Federal Court or the Federal Circuit Court and, as the name of the Bill suggests, challenges will be in the nature of judicial review.

Second, challenges will be on the basis of a breach of the Commonwealth Procurement Rules (CPRs). In large part, the CPRs align with the TPP procurement requirements, however some amendment of the CPRs may be required to ensure that Article 15.19 of the TPP is complied with.

Third, the Government has stated that only ‘covered procurements’ will be subject to challenge. In this context, it is worth noting the TPP only requires challenges to be permitted for procurements over a certain threshold. Thresholds are set out for both corporate and non-corporate Commonwealth entities, with the procurement threshold for non-corporate Commonwealth entities being approximately A$230,000 for goods and services.

This is significantly higher than the current monetary threshold for Division 2 of the CPRs and it remains to be seen whether the Government adopts a lower threshold for challenges than is required by the TPP and/or whether the introduction of the Bill results in the monetary threshold in Division 2 of the CPRs being increased.

Fourth, the Government has stated remedies available to tenderers will include ‘injunctions’. This appears to be a reflection of the requirement in the TPP that governments adopt procedures providing for ‘prompt interim measures, pending the resolution of a complaint, to preserve the supplier’s opportunity to participate in the procurement’. This suggests that the injunctive relief proposed by the Government may be sought at any stage of the procurement process.

The TPP also makes provision for agencies to decide that these interim measures will not apply where there are ‘overriding adverse consequences for the interests concerned, including the public interest.’ It is likely that the Government will adopt this as a limitation on the Court’s power to issue an injunction.

Finally, the TPP also requires that governments adopt procedures allowing for ‘corrective action’, which may include compensation, albeit that compensation can be limited to ‘either the costs reasonably incurred in the preparation of the tender or in bringing the complaint, or both’. While some jurisdictions, such as the United States and the United Kingdom, allow for contracts to be overturned post-award, the TPP does not require the Government to include such a mechanism in the Bill.

What will the impact be?

Without seeing the final details of the Bill, it is difficult to predict how it will affect Commonwealth procurement. Some guidance can be taken, however, from overseas’ experience. In the United States, an average of between 0.5% and 1% of government procurements are subject to administrative or judicial challenges by tenderers, through what are known as ‘bid protests’.

Of the 70,000 procurements reported to AusTender in the 2015-16 financial year, only about 20%, or 14,000, were for more than $250,000. Assuming that procurements are challenged at the low end of the rate in the United States, this would result in about 70 challenges to procurements by Commonwealth agencies each year, although we would be surprised if there were that many.

The Verdict

While the fate of the Bill is unclear, if it is introduced (and passed), the potential for government procurement processes to be challenged will increase. While the numbers are not likely to be high, there will almost certainly be several cases where tenderers will seek redress under the new scheme.

Authors
Ian Temby | Partner
T +61 2 6120 4814
E ian.temby@maddocks.com.au
  Joshua Smith | Lawyer
T +61 2 6120 4825
E joshua.smith@maddocks.com.au