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19 Mar 2020

Procuring when an emergency strikes – altered procurement obligations and opportunities at the NSW and Federal levels

By Dr Ashley Tsacalos, Monique Azzopardi and Gabrielle Shina

Public sector agencies and their procurement teams should consider each procurement on a case-by-case basis, and understand the emergency and urgent response provisions within the NSW and Commonwealth procurement frameworks, and their exemptions.

Recently, Australia has experienced an unprecedented series of extreme weather phenomena, including severe drought, catastrophic bushfires and flooding. Australia now also faces the increasingly imminent threat of the novel coronavirus or COVID-19. These events have had a number of adverse consequences throughout Australia, including impacting businesses and the economy.

NSW and Commonwealth legislation and policies recognise that, in emergency and similar situations, there is a need for changes to procurement obligations to address and respond to events such as these. We examine each below.

Setting the scene in NSW

NSW Government agencies must conduct their procurement activities in accordance with the Public Works and Procurement Act 1912 (NSW) (PWP Act), Public Works and Procurement Regulation 2019 (NSW) (PWP Regulation) and relevant policies, including the NSW Government Procurement Policy Framework.

Subject to a relevant exemption, section 176 of the PWP Act mandates that NSW Government agencies conduct their procurement activities in accordance with the:

  • policies and directions issued by the NSW Procurement Board;
  • term of its accreditation (if any) by the Board; and
  • principles of probity and fairness.

Section 176 also requires that NSW Government agencies ensure that they obtain value for money in the exercise of their functions in relation to the procurement of goods and services. These general principles also underpin the NSW Government Procurement Policy Framework.

NSW Government procurement in emergency cases

Clause 4 of the PWP Regulation creates an exemption to compliance with section 176 of the PWP Act in an "emergency".

Under clause 4(1) of the PWP Regulation, where an "emergency" occurs, a government agency head, or nominated agency employee, may authorise procurement of goods and services to a value sufficient to meet that particular emergency, without complying with the obligations under section 176.

What is an "emergency"?

The term "emergency" is not defined under the PWP Act or in the PWP Regulation and does not appear to have been judicially considered to-date in this context. The Macquarie Dictionary defines an "emergency" as "an unforeseen occurrence; a sudden and urgent occasion for action". The recent circumstances of extreme weather, bushfires and COVID-19 could satisfy this definition. However, it is important to note that the procurement must be to meet the needs of the particular emergency. For example, a health department needing to urgently procure surgical face masks for patients and medical practitioners in response to COVID-19. However, ultimately, whether an agency can rely on clause 4 of the PWP Regulation must be looked at on a case-by-case basis.

If a NSW Government agency relies on the emergency exemption under the PWP Regulation, it must:

  • report it to the Board as soon as possible (for example, by notifying the Board in writing that the agency has relied on clause 4 of the PWP Regulation in response to a particular emergency and providing the Board with sufficient details of the procurement and the emergency relied upon); and
  • not authorise the procurement of goods and services in excess of those necessary to meet the immediate needs of the emergency.

Accordingly, if NSW Government agencies rely on the emergency provisions under the PWP Regulation, they are advised to:

  • make it clear in any procurement or tendering documentation that the procurement is made under clause 4 of the PWP Regulation;
  • ensure that the contract has a defined contract period that does not exceed the needs of the agency to respond to the emergency event and contains no automatic renewal provisions; and
  • ensure that the contract includes the right for the agency to cease procuring goods or services once the emergency ends.

Bushfire relief works in NSW

In response to the recent NSW bushfires that have impacted large areas of NSW, on 28 January 2020, the Board issued Procurement Board Direction 2020-01: Support for Bushfire Affected Communities. The aim of the Direction is twofold:

  • support local businesses in relation to the bushfire recovery works; and
  • assist economic recovery in bushfire affected areas within NSW.

Under the Direction, when engaging suppliers to conduct bushfire clean-up, repairs, rebuilding or remediation works, or to supply associated goods or services, NSW Government agencies must give first preference to appropriate "local businesses" in the local government area in which the work is to be conducted.

A local business is defined as a business of any size:

  • with a registered business address in the local government area, or
  • that can demonstrate that it has substantial operations, including a local workforce in the local government area,

in which the work is to be conducted.

If there are no appropriate local businesses, or if a local business cannot complete the works within a reasonable timeframe, then the work may be allocated to a "regional supplier".

A regional supplier is defined as a business of any size:

  • with a registered business address in regional NSW, being all areas within NSW, but outside the Newcastle, Sydney and Wollongong metropolitan areas; or
  • that can demonstrate it has substantial operations, including a local workforce in regional NSW.

Only in situations where there are no appropriate local businesses or regional suppliers may NSW Government agencies allocate the work or services to another suitable supplier.

The Direction will apply to all NSW Government agencies until it is withdrawn. It is currently scheduled for review on 28 January 2021.

It is important to note the following:

  • the Direction only applies in relation to bushfires that have occurred in the calendar years 2019 and 2020. Currently, the Direction does not cover other emergency and disaster events that have occurred within NSW (for example, the recent floods in NSW);
  • if they conduct a procurement pursuant to the Direction, NSW Government agencies do not have to use whole of government contracts or mandated pre-qualification schemes. Further, the new Enforceable Procurement Provisions under Procurement Board Direction 2019-05 do not apply to procurements falling within the scope of the Direction;
  • where applicable, and subject to the exemptions under the Direction, agencies should still ensure compliance with other NSW procurement policies and guidelines, including the SME and Regional Procurement Policy and the Aboriginal Procurement Policy and Aboriginal Participation in Construction Policy;
  • regardless of their reliance on the Direction, agencies must still ensure that they conduct appropriate due diligence of all proposed suppliers in accordance with all applicable procurement policies and guidelines. Additionally, agencies should ensure that suppliers have the requisite experience and capability to carry out the procurement and fulfil the contract; and
  • State Owned Corporations are not required to comply with the Direction, but guidance materials on the NSW Government's ProcurePoint website encourage them to do so.

How do buyers locate local and regional suppliers?

As a first step, NSW Government buyers may search and locate potential suppliers through the "Bushfire-affected Communities Rebuild Portal", which is available through the eTendering website. The purpose of this portal is to assist NSW Government buyers to connect with local businesses and regional suppliers.

Setting the scene in the Commonwealth

Commonwealth entities are required to conduct procurement activities in accordance with all applicable legislation and rules, including the Public Governance, Performance and Accountability Act 2013 (Cth) (PGPA Act) and the Commonwealth Procurement Rules (CPRs) enacted under the PGPA Act.

The CPRs are the "keystone of the Government's procurement policy framework" and establish a common set of rules for all Commonwealth Government procurements to ensure value for money and the use of public resources in the most efficient, economical and ethical way. To this end, the CPRs include rules with respect to the conduct of procurements, including when an entity may conduct a limited tender (that is approaching one or more suppliers to make submissions rather than conducting an open approach to market).

A limited tender can only be used in a narrow category of cases; for example, when the procurement is under the relevant financial procurement threshold as set out in the CPRs or when a relevant exemption under the CPRs applies.

Exceptions for "extreme urgency"

Under rule 10.3(b) of the CPRs, a relevant entity may conduct a tender above relevant procurement thresholds through a limited tender "when, for reasons of extreme urgency brought about by events unforeseen by the relevant entity, the goods and services could not be obtained in time under open tender".

A Commonwealth entity that conducts a limited tender under this exemption must:

  • still comply with the rules set out in Division 1 of the CPRs, such as achieving value for money, treating all potential suppliers equitably and acting ethically throughout the procurement process; and
  • prepare and appropriately file within the relevant entity's record management system a written report that includes sufficient information to comply with rule 10.5 of the CPRs, including a statement indicating the circumstances and conditions that justified the use of a limited tender.

The CPRs do not define "extreme urgency". An ordinary, dictionary definition meaning of the term is likely to apply. It is important to note that the event of extreme urgency must be brought about by events unforeseen by the relevant entity. This therefore differs from the requirements under NSW legislation, which does not require that the relevant emergency be "unforeseen".

What should public sector agencies do?

Public sector agencies and their procurement teams should consider each procurement on a case-by-case basis. The emergency and urgent response provisions within the NSW and Commonwealth procurement frameworks are not all encompassing and are subject to conditions. Agencies should get to know the exemptions, their conditions and how they apply.

If public sector agencies conduct procurements relying on the emergency or extreme urgency provisions, they are advised to:

  • make it clear in any procurement or tendering documentation that the procurement is made under clause 4 of the PWP Regulation or rule 10.3(b) of the CPRs (as applicable);
  • ensure that the contract has a defined contract period that does not exceed the needs of the agency to respond to the relevant emergency event or extreme urgency (as applicable) and contains no automatic renewal provisions; and
  • ensure that the contract includes the right for the agency to cease procuring goods or services once the emergency or extreme urgency (as applicable) ends.

For further information on procuring in emergency situations, please contact a member of our team.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.