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Maddocks advised the Commonwealth Department of Health on the drafting and negotiation of the Sixth Community Pharmacy Agreement (the 6CPA) with the Pharmacy Guild of Australia. Since 1990, the Government and the Pharmacy Guild have … Continued

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Wednesday 16 August 2017 Maddocks has acted for USG Boral Building Products in the purchase of a wall, ceiling system and plasterboard supply business based in the Sunshine Coast in Queensland. USG Boral is one … Continued

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The Status Quo – Current limitations on challenges to Commonwealth procurement processes

There are three main avenues for challenging a procurement decision made by a Commonwealth agency. The main claims are:

  • breach of contract, on the basis that the tender documents constitute a ‘process contract’
  • misleading and deceptive conduct, negligent misrepresentation or estoppel, on the basis of a representation made during the procurement process
  • judicial review of the procurement process on administrative law grounds.

Process contracts

In Hughes Aircraft v Airservices Australia, Justice Finn found that a tender process can give rise to a ‘process contract’, where both parties are bound by an agreement to conduct the tender process in a certain way. In the government context, the contract would also likely include an implied duty to act fairly, reasonably and in good faith.

Whether or not there is a process contract will depend on the intention of the parties. Usually, this means that an agency can prevent their tender documentation from giving rise to a process contract by a clear disclaimer to the contrary, however it is also important that the requirements of the tender do not, of themselves, establish a contractual relationship. The more onerous the terms of the tender requirements the more care that will need to be taken to avoid this outcome.

Even if a process contract exists, it will only require the agency to follow the procedures set out in their tender documentation (and to act fairly, reasonably and in good faith when dealing with tenderers). In the context of the major procurements that we see, the Commonwealth is very good at managing the risk of non-compliance with the procurement process, through the use of probity advisers where appropriate. As with most risk management issues, the earlier a problem can be addressed the better.

Representations in the procurement process

Another way in which procurement processes can be subject to challenge is on the basis of a false or misleading representation made during the process.

One avenue for this, is a misleading or deceptive claim under the Australian Consumer Law, as enacted under the Competition and Consumer Act 2010 (Cth). These provisions will only apply to the Commonwealth where the relevant agency or statutory body is carrying on a business. Ordinarily, this will not be the case for Commonwealth agencies as their procurement processes take place in the context of ordinary governmental functions.

At common law, challenges can also be made on the basis that an agency made a negligent misrepresentation, or that a representation made during the procurement process gave rise to an estoppel. Such claims do not require the Commonwealth to have been carrying on a business but do require that the Commonwealth owe a duty of care or have departed from a previous representation it induced the tenderer to rely on.

As the Commonwealth ordinarily takes care to ensure that information provided to tenderers is accurate, there have been very few reported cases where a tenderer has succeeded on the basis of an incorrect or misleading representation being given during the procurement process.

Judicial review of procurement decisions

Finally, a tenderer might seek judicial review of a procurement decision. In most cases this has involved an application under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act) although procurement decisions may also be challenged on common law administrative law principles.

For an application to succeed under the ADJR Act, the tenderer must show that the procurement decision was an administrative decision made under an enactment. This requires not only that the empowering Act authorise or require the making of the particular procurement decision, but that it govern the validity of the contract as well.

In contrast, in most cases the validity and effect of the contract is governed by the ordinary laws of contract, with the relevant legislation merely conferring a general power to enter into contracts. This will not suffice. Similarly, a number of cases have suggested that the exercise of a general contractual power is a ‘private’ activity that will not be amenable to judicial review at common law unless it involves considerations of a particularly public nature, or the exercise of a public duty.

The Verdict

Currently, there are limited options for tenderers to challenge Commonwealth tender processes and decisions. As will be seen in the next article in the series the Government Procurement (Judicial Review) Bill may change this.

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

There are three main avenues for challenging a procurement decision made by a Commonwealth agency. The main claims are:

  • breach of contract, on the basis that the tender documents constitute a ‘process contract’
  • misleading and deceptive conduct, negligent misrepresentation or estoppel, on the basis of a representation made during the procurement process
  • judicial review of the procurement process on administrative law grounds.

Process contracts

In Hughes Aircraft v Airservices Australia, Justice Finn found that a tender process can give rise to a ‘process contract’, where both parties are bound by an agreement to conduct the tender process in a certain way. In the government context, the contract would also likely include an implied duty to act fairly, reasonably and in good faith.

Whether or not there is a process contract will depend on the intention of the parties. Usually, this means that an agency can prevent their tender documentation from giving rise to a process contract by a clear disclaimer to the contrary, however it is also important that the requirements of the tender do not, of themselves, establish a contractual relationship. The more onerous the terms of the tender requirements the more care that will need to be taken to avoid this outcome.

Even if a process contract exists, it will only require the agency to follow the procedures set out in their tender documentation (and to act fairly, reasonably and in good faith when dealing with tenderers). In the context of the major procurements that we see, the Commonwealth is very good at managing the risk of non-compliance with the procurement process, through the use of probity advisers where appropriate. As with most risk management issues, the earlier a problem can be addressed the better.

Representations in the procurement process

Another way in which procurement processes can be subject to challenge is on the basis of a false or misleading representation made during the process.

One avenue for this, is a misleading or deceptive claim under the Australian Consumer Law, as enacted under the Competition and Consumer Act 2010 (Cth). These provisions will only apply to the Commonwealth where the relevant agency or statutory body is carrying on a business. Ordinarily, this will not be the case for Commonwealth agencies as their procurement processes take place in the context of ordinary governmental functions.

At common law, challenges can also be made on the basis that an agency made a negligent misrepresentation, or that a representation made during the procurement process gave rise to an estoppel. Such claims do not require the Commonwealth to have been carrying on a business but do require that the Commonwealth owe a duty of care or have departed from a previous representation it induced the tenderer to rely on.

As the Commonwealth ordinarily takes care to ensure that information provided to tenderers is accurate, there have been very few reported cases where a tenderer has succeeded on the basis of an incorrect or misleading representation being given during the procurement process.

Judicial review of procurement decisions

Finally, a tenderer might seek judicial review of a procurement decision. In most cases this has involved an application under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act) although procurement decisions may also be challenged on common law administrative law principles.

For an application to succeed under the ADJR Act, the tenderer must show that the procurement decision was an administrative decision made under an enactment. This requires not only that the empowering Act authorise or require the making of the particular procurement decision, but that it govern the validity of the contract as well.

In contrast, in most cases the validity and effect of the contract is governed by the ordinary laws of contract, with the relevant legislation merely conferring a general power to enter into contracts. This will not suffice. Similarly, a number of cases have suggested that the exercise of a general contractual power is a ‘private’ activity that will not be amenable to judicial review at common law unless it involves considerations of a particularly public nature, or the exercise of a public duty.

The Verdict

Currently, there are limited options for tenderers to challenge Commonwealth tender processes and decisions. As will be seen in the next article in the series the Government Procurement (Judicial Review) Bill may change this.

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