Legal Risks In Procurement and the New NSW Procurement ...cdn.nsw.ipaa.org.au/docs/27 March Legal...

Presented by Scott Alden 27 March 2013

1

Legal Risks In Procurement

and the New NSW

Procurement Framework

Overview

1. Background to the procurement framework: the process

contract

2. What does the procurement framework look like?

3. The ICAC framework - ensuring fairness and probity

4. What are the reforms and what are their implications?

2

1. Background to the procurement

framework: the process contract

A. Legal Risks

i. The Process Contract

One Contract (before Hughes Aircraft)

(i) Invitation to Tender (Invitation to Treat)

(ii) Tender (Offer) – Validity Period

(iii) Letter of Acceptance (Acceptance)

3



Two Contracts (after Hughes Aircraft)

(A) The Queen in Right of Ontario et al v Ron

Engineering & Construction Eastern Ltd (1981) Canada

(B) Hughes Aircraft Systems International

and Airservices Australia (1997) 146 ALR 1

(C) Ipex ITG Pty Ltd (in liq) v State of Victoria

[2010] VSC 480

(D) Ipex ITG Pty Ltd (in liq) (recs apptd) v State of Victoria

[2012] VSCA 201

4



Can You Exclude the Process Contract?

There is no intention to create legal relations by this RFP. The request may

result in negotiations for the award of a contract, but of itself is not an offer

that applicant / Proposers accept by submitting a proposal. To avoid doubt,

no process contract will arise by the issue of this RFP.

Cubic Transportation Systems Inc & Anor v State of New South

Wales & 2 Ors (2002)

5



Should You Exclude the Process Contract?

Ron Engineering & Construction Eastern Ltd [1981] 1 SCR 111

Canada

City Polytechnic of Hong Kong v Blue Cross (Asia Pacific) Insurance

[1994] HK CFI 355

6



Excluding Liability under a Process Contract

Tercon Contractors Ltd v British Columbia (Transportation and

Highways) 2010 SCC4

RFP exclusion of liability clause:

“Except as expressly and specifically permitted in these Instructions to

Proponents, no Proponent shall have any claim for compensation of

any kind whatsoever, as a result of participating in this RFP, and by

submitting a Proposal each Proponent shall be deemed to have agreed

that it has no claim.”

7



Consequences of Breach of the Process Contract

Damages for a breach of the Process Contract

Loss of Profit

Loss of Chance

J&A Developments v Edina Manufacturer Ltd, Amoura Ltd Ors [2006]

NIQB 208

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Disclosure & Preliminary Discovery

Griffin Energy Pty Ltd v Western Power Corporation [2006]FCA 1242

Telstra Corporation Limited v Minister for Communications,

Information Technology and the Arts (No.3)[2007] FCA 1567

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ii. Avoid Risks

• Careful drafting of the RFT

• Comply with the Process Contract

• Adequate Planning

• Internal Training

• Proper Processes

• Compliance Program

• Contracting out of the Process Contract?



10

iii. General

Misleading and Deceptive Conduct

Section 18, Schedule 2 Competition and Consumer Act

2010

Fabcot Pty Ltd v Port Macquarie-Hastings Council [2010]

NSWSC 726

Equitable Estoppel

LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd (unreported 10 April 2003)



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A. What do I have to comply with?

Local Government

State Government (Departments, Statutory Authorities, State owned corporations, Government Trusts)

Commonwealth Government

2. What does the procurement

framework look like?

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NSW Procurement Framework

NSW Government is overhauling its procurement systems

For Goods and Services procurement, an Interim Procurement Policy Framework currently applies to government agencies.

All relevant requirements of the NSW Government Tendering Guidelines (issued December 2011) have been captured by the Interim Procurement Policy Framework (sections 2-5).

The NSW Government Procurement Policy & Guidelines Paper issued in 2004 (TPP04.01) applies where it is not inconsistent with the interim framework

For Construction procurement, a different set of guidelines and schemes apply (see next page)



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NSW Procurement Framework



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Goods and Services Procurement Construction Procurement

An Interim Procurement Policy

Framework is in place for purchasing

Goods and Services (available at

www.procurepoint.nsw.gov.au) from 1

January 2013

Construction procurement guidelines apply for

procurements valued below the $1 million

threshold for the Agency Accreditation Scheme

for Construction (see next page)

From 1 July 2013, a revised version of

this framework will be in place

An Agency Accreditation Scheme for

Construction applies for the planning and/or

delivery phases of construction projects valued

at $1 million or above

The NSW Government Procurement

Policy & Guidelines Paper (TPP04.01)

applies where it is not inconsistent

with/overridden by these newer policies

NSW Treasury appraisal/monitoring

requirements apply for major projects with a

cost of over $50 million

http://www.procurepoint.nsw.gov.au/

NSW Procurement Framework - construction

Approved quote/tender requirements from 1 July 2013:



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Value

Construction

Construction Related

Consultancy (where Pre-qualification

Scheme exists)

Other

Consultancy

Goods and Services

(no existing

State Contract)

**

Up to $30,000 1 1 1 1

$30,000 -

50,000

3 1 3* 3

$50,000 - 150,000

3 3 3* 3

$150,000 - 250,000

3* 3 Open Tender*

3

Over $250,000

Open Tenders *

3 Open Tender*

Open Tender

* Where a pre-qualification scheme is used, adopt the number specified by the

scheme. If not specified in the prequalification scheme, a minimum of 3 is

recommended.

** This is in accordance with the State Contracts Control Board general purchasing

delegation for non-construction work.

Public Sector Employment and Management Act 2002 (NSW)

Section 149 Obligations of government agencies

(1) A government agency is to exercise its functions in relation to the procurement of

goods and services in accordance with:

(a) any policies and directions of the Board that apply to the agency, and

(b) the terms of its accreditation (if any) by the Board, and

(c) the principles of probity and fairness.

(2) A government agency is also to ensure it obtains value for money in the exercise of

its functions in relation to the procurement of goods and services.

(3) A government agency is, at the request of the Board, to provide information to the

Board about its activities in relation to the procurement of goods and services.

(Emphasis added)



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The Gateway Review System

The Gateway Review System was intended by the NSW Government to "help agencies

improve their procurement discipline and achieve better service results from their activity"

(Procurement NSW website)

A Gateway Review is mandatory if a project meets strategic review or business case

criteria (see next page) under Treasury Circular 10/13.

1. Submission of a project proposal for a Gateway Review requires agencies to

complete an online Risk Assessment Tool.

2. A small team of experienced procurement practitioners conduct the reviews based on

service delivery, affordability, value for money, sustainability, governance, risk

management and stakeholder management and change management.

3. Review results are summarised in a report which may include recommendations.



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The Gateway Review System



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Strategic Review Business Case Review

Estimated total cost over $10 million; AND All projects with an estimated

total cost over $10 million and

commencing in the upcoming

budget year, OR

Commencing in years 2-4 of the upcoming

forward estimates period OR

Estimated total cost over $1

million (if requested by

Treasury)

Proposed for State Infrastructure Strategy

publication or other public statement

"Several ICAC investigations have exposed corrupt conduct

and identified common corruption risks

in procurement processes."

- ICAC Website under 'Preventing Corruption'

3. The ICAC Framework and

Ensuring Fairness and Probity

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Dragan Marijan v Rail Corporation NSW T/A RailCorp [2012] FWA

5639

Employee's engagement of a particular service provider which was not a member

of RailCorp's approved panel of suppliers, and which later charged RailCorp an

inflated price for services it had subcontracted.

FWA found that the employee had accepted that he had breached RailCorp's

procurement policy, that "he was well aware of the need to comply with RailCorp's

policy" and breached the policy repeatedly – and therefore lawfully dismissed.

In particular, where panels are used for procurement, departure from using service

providers on those panels can undermine the system.

Future and existing service providers may form the view that the agency may not

follow procurement processes and be discouraged from applying.



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What is Probity

i. Uprightness, Honesty, Ethical, Behaviour and Good Process

ii. Tenets of Probity

• Best value for money (ICAC)

• Impartiality (ICAC)

• Conflicts of Interest (ICAC)

• Accountability and Transparency (ICAC)

• Confidentiality (ICAC)

• Use of an appropriately competitive process (ANAO)

• Fairness and Impartiality (ANAO)

• Consistency and Transparency of Process (ANAO)

• Appropriate Security and Confidentiality Arrangements (ANAO)



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What is Probity

ii. Tenets of Probity (cont)

• Value for Money (NSW Procurement Reform – Strategic

Directions Statement 2012) (SDS)

• Encouraging Competition and No Discrimination (SDS)

• Effectiveness and Efficient Use of Resources (SDS)

• Accountability and Transparency (SDS)

• Confidentiality (ICAC)

• Proper Risk Management (SDS)

• Proportionality (Process vs Scale and Scope of Procurement



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4. What are the reforms and what

are their implications?

(A) The Strategic Directions Statement

Published by the NSW Procurement Board in November 2012

Ultimate objective to develop a system where "doing business

with the NSW Government is simpler, easier and more

attractive"

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(B) Overarching Goals & The Six Strategic Directions

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Alignment with Business

Needs

Value for Money

Delivery of Quality

Government Services

Strategic and agile procurement

Simplification and Red Tape Reduction

Effective category management across

government

Supporting agencies in a devolved

environment

Industry engagement

Innovation




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government


environment

Industry engagement

Innovation

• The need to move away from a 'one

size fits all' approach to

procurement and adopt a more

responsive procurement model.

• Introduction of an accreditation

system for government agencies

which will enable agencies to

procure goods and services within

the scope of their accreditation.

• Priority actions (by end 2013)

include reviewing the current

maximum five year contract term,

and developing a simple,

performance based rating scheme

for prequalification schemes

utilising the NSWBuy Platform.




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government


environment

Industry engagement

Innovation

• The new Procurement Policy

Framework is intended to provide a

'one stop shop' for agencies

concerning procurement processes.

• Further steps include:

• abolishing management fees

under contracts

• introducing 30 day payment

terms for small business

suppliers

• simplifying the process for

pre-qualification of suppliers

on the Government's existing

Performance and

Management Services

prequalification scheme.

• identification of obsolete and

duplicative policies for repeal,




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government


environment

Industry engagement

Innovation

• A category management model for

procurement involves approaching

the procurement of goods and

services on a category wide, rather

than contract-by-contract basis.

• This requires effective coordination

across government with estimated

costs savings in excess of $13

billion per annum.

• Priority categories to be identified,

Category Management Working

Groups established for each

category, and approval of category

management planning guidelines

between 2013 and 2014.




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government


environment

Industry engagement

Innovation

• According to the Strategic

Directions Statement, "where

appropriate, procurement should be

undertaken by those closest to the

'business' need, those with the best

understanding of opportunities to

make savings and by those where

the incentives to drive value is

strongest."

• Clusters must obtain appropriate

accreditation before 1 July 2013 as

one way of meeting this principle.




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government


environment

Industry engagement

Innovation

• An Industry Advisory Group is being

established to advise on a range of

matters including procurement

trends and opportunities.

• Proposed actions for 2013 include:

• the trial of a series of

suppliers forums across the

State;

• the development of a detailed

industry engagement strategy;

and

• training by the Department of

Finance and Services to

Government procurement

staff on effective engagement.




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government


environment

Industry engagement

Innovation

• Stimulating innovation within

procurement assists with unlocking

the potential for delivering value.

• The NSW Procurement Board will

trial early industry engagement in

the development of two of the

priority category management

working plans.

• By Q2 2013, the Procurement

Leadership Group is also to host a

forum on the use of "outcome

based" procurements to share the

lessons learnt by agencies.



(C) Commercial Approaches In Contracts

Term : 5 years to 18mths – 2 years

Types and Levels of Insurance ($10m Public and Product)

Indemnities

Liability Cap Multiple of Contract Price

Indemnity To Complement Insurance

Government Not To Give Indemnities

Agencies to Limit Liability to 1 x Contract Price

ADR – Mediation not Expert Determination

IP – Consider Contractor to Retain and Agency to Licence

Guarantees – Only Where Justified eg Sole Supplier

Termination for Convenience – Yes Where Compensated

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(D) Timeframes

A transitional period is currently in place until the new system

for the procurement of Goods and Services becomes fully

functional from 1 July 2013.

During this transitional period, there is an interim NSW

Procurement Board Policy Framework that applies to all

procurement processes for the NSW Government.

From July 2013 it was anticipated that a revised version of the

Policy Framework will apply. The likelihood is that the Policy

Framework will remain substantially intact, with changes made

based on feedback from the Procurement Board, agencies and

based on other changes in government policies or laws.

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(E) Accreditation

Accreditation involves the assessment of a NSW agency's

procurement capabilities and the accreditation of that agency to

conduct procurements in accordance with the level of its

capability.

Once accredited an agency may:

procure goods and services in accordance with its accreditation;

use any procurement method considered appropriate to procure

goods and services within the limits of its accreditation;

If an agency wishes to procure beyond the limits of its

accreditation, it must refer the procurement to the Department

of Finance and Services.

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(E) Accreditation (Goods and Services)

The interim Procurement Framework requires that by 1 July

2013, all agencies must be accredited for Goods and Services

Procurement.

Until 1 July 2013, agencies that are not accredited may procure

under their existing procurement arrangements subject to

complying with the conditions of those arrangements

Where no existing procurement arrangement is in place, procure

in accordance with Board Direction 2012-04 (see next page)

After 1 July 2013, agencies that are not accredited will need to

comply with Board directions which will be issued in the first half

of 2013.

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(E) Accreditation (Goods and Services)

Board Direction 2012-04 for unaccredited agencies:

procurements over $3,000 and up to $30,000 require at least one

written quotation;

procurements over $30,000 and up to $250,000 require at least three

written quotations;

procurements over $250,000 and up to $1,000,000 require a tender

to be conducted; and

procurements over $1,000,000 require an open competitive

procurement process that is appropriate to the nature of the goods

and services, and full details and specifications of the proposed

procurement must first be submitted to the Department of Finance

and Services for concurrence.

35



(E) Accreditation Scheme Scoring Guide

The NSW Procurement Board decides to issue agencies with an

accredited status in accordance with a score on a range of

requirements.

These requirements relate to Strategy; Governance, Control and

Policy; the Procurement Process; Procurement Tools and

Systems; Information Management and Reporting, and

Organisation and Capability.

To achieve a score – 1 being the lowest and 4 being the highest

– agencies must meet all considerations (see handout) and

provide sufficient evidence of policies being applied in practice.

The requirements outlined on the next slides are in accordance

with the Accreditation Scheme Scoring Guide v2012.4

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(E) Accreditation Scheme Scoring Guide: Strategy

Requirements:

Approved procurement function strategy

Procurement Management Plan submitted to NSW Procurement

Board and conformance to standard template

Annual Procurement Management Plan & Report developed at an

entity level

37



(E) Accreditation Scheme Scoring Guide: Governance,

Control and Policy

Requirements:

Procurement governance function in place

Documented process for identifying, managing and mitigating

procurement risk

Procurement participates in entity's annual internal audit planning

Documented Procurement Manual which complies to NSW

Government policy and is approved by the CPO or equivalent

A procurement delegation manual exists that identifies delegation

levels and approval authorities

38



(E) Accreditation Scheme Scoring Guide: Procurement

Process

Requirements:

Business Case is developed prior to commencing procurement projects as

required by NSW Government procurement policy.

The entity can demonstrate that spend analysis has been undertaken to

support opportunity assessments and drive category strategies.

Entity demonstrates consideration of demand drivers and methods to manage

demand.

Minimum specifications are identified and specified.

Procurement procedures require supplier market analysis.

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Process

Requirements:

Contract management plans are developed & performance management

process exists

Meetings are conducted with suitable suppliers to assess the success of the

relationship, identify areas for improvement and engage in planning at

appropriate levels .

Benefits are reported and tracked.

Sourcing strategy is developed and documented.

Policies and procedures include guidelines exist for tendering and evaluation.

Guidelines exist for procedures around Negotiation & contract award.

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Tools and Systems

Requirements:

Use of Procurement Tools and/ systems to support stages of the

procurement process.

Evidence that systems and tools are being used and that training

programmes are in place.

41



(E) Accreditation Scheme Scoring Guide: Information

Management and Reporting

Requirements:

Policies and procedures for information reporting.

Entity has completed capability assessment matrix and nominated

category managers.

42



(E) Accreditation Scheme Scoring Guide: Organisation and

Capability

Requirements:

The capability of procurement personnel and category managers is

appropriate for delivering its procurement strategy and maintaining its

procurement manual and supporting tools and systems.

Procurement training and development plans exist, including

example individual training and development plans.

Documented resource planning process exists which considers

resourcing against the dimensions of size of spend and complexity.

Procurement organisational structure, position description and

articulation of rationale for organisational structure.

43



(E) Accreditation scheme (construction) from 1 July 2013

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Agency Accreditation Status - Planning and/or Delivery Phases

Project

Risk

Accredited:-

Projects of all

values

Non-Accredited:-

Projects valued

>$50M

Non-Accredited:-

Projects valued

<$50M

Partial Accredited:-

Projects valued

<$50M

H Can undertake

without external

support using own

procurement

system

Require external

support. Must use

the government

procurement system

Require external

support. Must use

the government

procurement system

N/A - Require

external support and

must use the

government

procurement system

for delivery phase

M Can undertake

without external

support using own

procurement

system

Require external

support. Must use

the government

procurement system

Require external

support. Must use

the government

procurement system

Can undertake

without external

support but must use

the government

procurement system

L Can undertake

without external

support using own

procurement

system

Require external

support. Must use

the government

procurement system

Can undertake

planning without

external support.

Delivery requires

external support and

use of the

government

procurement delivery

system

Can undertake

without external

support but must use

the government

procurement system

for delivery phase

(partial accreditation

not required for

planning phase)



(E) Partial accreditation for construction

45

• A non-accredited agency may apply to the Department of Financial

Services (DFS) for accreditation for only the planning phase or delivery

phase of a particular construction project.

• Partial accreditation may be sought for:

the planning phase of medium risk profile projects less than $50

million in value; and

the delivery phase of medium and low risk profile projects of value

less than $50 million.

N.B. accreditation is not required for procurements below $1 million

or planning of low risk projects less than $50 million

• Partial accreditation should be sought if the agency believes it has in-

house staff with suitable competencies for the project.



(F) Unsolicited Proposals Policy

Proposals offered by private individuals, companies, not-for-

profit entities and non NSW Government owned Local

Authorities such as councils are classified as 'unsolicited

proposals'.

These unsolicited proposals are administered under a Guide for

Submission and Assessment of Unsolicited Proposals and

involves a pre-submission concept review stage; Stage 1(a) and

Stage 1(b), Stage 2 and Stage 3.

Though the unsolicited proposals review process is not a

substitute for routine competitive procurement, it is

acknowledged that unsolicited proposals may offer opportunities

of real value for Government.

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Pre-submission concept review stage:

An optional initial, pre-lodgement meeting between the proponent

and the Department of Premier and Cabinet to discuss the key

attributes, benefits, requirements and assumptions underlying the

potential proposal.

This is not a compulsory stage, but proponents planning to formally

submit an unsolicited proposal are strongly advised to arrange such

a meeting with DPC, prior to committing substantial resources to the

development of the proposal.

A key part of this meeting will be the demonstration of the unique

attributes of both the proposal and the proponent in order to progress

through the process.

The Government may provide feedback at this stage as to whether it

considers that the proposal, as presented, is consistent with the

Guide. Notwithstanding this feedback, it is the proponent's decision

as to whether is proceeds with making a formal Stage 1 submission. 47




Stage 1:

(a) Initial Submission and Preliminary Assessment - DPC will

undertake a Preliminary Assessment of the proposal in conjunction

with the relevant agencies to determine if the submission constitutes

an unsolicited porposal and if it contains sufficient potential grounds

to justify direct dealing and therefore undertake a Stage 1

Assessment. The Unsolicited Proposals Steering Committee

approves progression, or otherwise, to Stage 1(b).

(b) Strategic Assessment of Initial Submission – Includes a

comprehensive initial assessment of the proposal to identify the

potential benefit to Government of further consideration and

development with the Proponent. The outcome is advice to the

Proponent of progression to Stage 2, or that the Government does

not wish to proceed.

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Stage 2: Detailed Proposal

Requires the Proponent and Government to work cooperatively in the

development and assessment of a Detailed Proposal. The outcome

is advice to the Proponent of progression to Stage 3, or that the

Government does not wish to proceed.

Stage 3: Negotiation of Final Binding Offer

Involves the finalisation of all outstanding issues with a view to

entering into a binding agreement, should the Government accept

the final offer.

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SCOTT ALDEN Sydney Location Head

Finance & Projects

DLA Piper Australia

Phone: 02 9286 8128

Email: [email protected]

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Legal Risks In Procurement and the New NSW Procurement ...cdn.nsw.ipaa.org.au/docs/27 March Legal...

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