A Brave New World: Judicial Review of Commonwealth Procurement

What you need to know

• The Government Procurement (Judicial Review) Bill 2017 (Cth) (the Bill) was passed by both houses of Parliament on 18 October 2018 and assented to on 19 October 2018.
• The Act will commence either by proclamation or within 6 months of receiving Royal Assent.
• The Government Procurement (Judicial Review) Act 2018 (Cth) provides suppliers with the right to seek judicial review of contraventions of the Commonwealth Procurement Rules (CPRs) by a Commonwealth entity or its officials, where this relates to a "covered procurement". 
• Where a contravention of the CPRs is found, the Federal Circuit Court or the Federal Court of Australia may grant an injunction and/or order payment of compensation for reasonable expenditure associated with the tender process and/or in making and attempting to resolve a complaint. Compensation or an injunction will not be granted where a contravention of the CPRs occurred before the commencement of the Act.
• The Act confirms that a contravention of the CPRs will not affect the validity of a contract. This does not change the current position.

What you need to do

• Review your internal procurement policies, processes and procedures to ensure that these are consistent with the requirements of the Act.
• Ensure that your policies and procedures provide for transparent and clearly documented complaints handling and investigation processes.
• Consider and account for the potential impact that delays or compensation costs could have on the timeframes and budgets of future procurement projects.

1. Overview and Background

The Act is intended to "establish an independent and effective complaints mechanism for procurement processes".

The Bill was introduced into Parliament on 25 May 2017.  The Act implements recommendation 11 of the July 2014 Senate Finance and Public Administration References Committee report into Commonwealth procurement procedures. Recommendation 11 called for the Department of Finance (Finance) to establish an impartial and independent mechanism for handling complaints relating to procurement processes. 

The Act is also drafted to align with international obligations under the World Trade Organisation Agreement on Government Procurement (GPA), to which Australia has submitted a bid to accede, and the Trans-Pacific Partnership (TPP), to which Australia is a signatory.

Both the GPA and TPP require an impartial and independent body to which suppliers can make complaints regarding government procurement processes, and be awarded compensation or other remedies if appropriate. 

In the second reading speech, delivered in the Senate on 20 September 2018, Senator Cash stated "[b]eyond meeting international obligations, the Bill will also ensure that regional suppliers and small and medium enterprises have timely access to justice to raise complaints about procurement processes and seek remedies".

The Act will commence as an Act either by proclamation or within 6 months of receiving Royal Assent.  It was assented to on 19 October 2018. The Addendum to the Explanatory Memorandum clarifies that this will allow flexibility to facilitate Australia's accession to the GPA and to allow the TPP to commence. Further, the flexible commencement date will allow the Department of Finance to provide certainty to relevant stakeholders, including procuring entities and suppliers, regarding the commencement and operation of the legislation.

2. Jurisdiction

What procurements will be subject to the Act?

The Act provides that the Federal Circuit Court or the Federal Court (the Courts) may hear applications from suppliers for injunctions or damages, where a relevant Commonwealth entity  or an official of that entity has engaged, or is engaging or proposing to engage, in any conduct in contravention of the CPRs. It also establishes a process for dealing with complaints by suppliers.

In order to make an application to a Court, or make a complaint: 

• the procurement in question must be a "covered procurement";
• the conduct must involve a contravention of the "relevant CPRs"; and
• if an injunction is sought in the application, the applicant must have also made a complaint under the Act and must have made a reasonable attempt to resolve the complaint if it would have been reasonable to do so (this is not required if only compensation is sought). 

Covered Procurements

A procurement will be a "covered procurement" if both Divisions 1 and 2 of the CPRs apply to it.

The initial consideration is whether the Commonwealth entity is subject to the CPRs. The CPRs apply to all non-corporate Commonwealth entities and select prescribed corporate Commonwealth entities (these are prescribed in the Public Governance, Performance and Accountability Rule 2014 (Cth)). 

If the CPRs apply, the question that follows is whether both Divisions 1 and 2 of the CPRs apply. Division 2 (and therefore the Act) does not apply where the procurement:

• falls below the procurement threshold for the application of Division 2 (for non-corporate Commonwealth entities this is procurements below $80,000 and for prescribed corporate Commonwealth entities this is procurements below $400,000 (other than procurements for construction services where the threshold is $7.5 million));
• is for a type of contract that is exempt from Division 2 under Appendix A of the CPRs (for example procurements relating to motor vehicles, leasing of land, labour hire contracts, research and development activities, funded by international grants); or
• has been determined by the relevant accountable authority to be exempt under paragraph 2.6 of the CPRs, which includes measures deemed necessary for the "protection of essential security interests" (i.e. the Defence Procurement Policy Manual identifies exempt Defence procurements).

In addition, the Finance Minister can by legislative instrument determine that a procurement that would otherwise be in a class of covered procurements, is not a covered procurement.  

Relevant CPRs

Secondly, the supplier's application or complaint must relate to a contravention of the "relevant CPRs". This means that the application or complaint must concern either:  

• a provision of Division 1 of the CPRs that has been declared by the CPRs as a provision that may be subject to review; or
• any of the rules in Division 2 of the CPRs. 

CPRs will need to be amended to specify which of the rules within Division 1 are "relevant" and therefore subject to review under the Act. We expect this will be done between now and the commencement of the Act.

Finance has provided examples of possible contraventions which could give rise to successful applications by suppliers. The examples provided include:

• the provision of additional information to a supplier which provides it with an unfair advantage;
• acceptance of a late tender where a valid exception does not apply; or
• an approach to market is published with a response time of less than 25 days, where an exception for a shorter timeframe does not apply. 

Who can make a complaint or application to a Court?

The Act provides that a "supplier" can make a complaint or an application to a Court where its "interests are affected" by a contravention of the CPRs. A "supplier" means an entity "who supplies or could supply goods or services" to the Commonwealth. 

"Interests affected" is similar to language found in many other Commonwealth laws, including the Administrative Appeals Act 1975 and the Administrative Decision (Judicial Review) Act 1977. In those contexts, the concept has been given a wide meaning and we expect a similar approach would be applied here.

This confers standing on a wide group of potential complainants, allowing a claim to be brought by any supplier who participated in the tender process and that was affected by the contravention. If, for example, a breach of the CPRs occurs during a shortlisting process, the suppliers not shortlisted would be able to make a complaint or application. The interest affected would be an interest in having a fair opportunity to compete.

3. Complaints Process

What is the process following a supplier complaint?

Suppliers may make a complaint if they have reason to believe that a Commonwealth entity or official has contravened, is contravening, or may contravene, a relevant CPR. 

Before a supplier seeks an injunction in a Court, it must first submit a written complaint to the accountable authority (or delegate) of the Commonwealth entity in question. It must also make a reasonable attempt at resolving the complaint (if it would be reasonable to do so). A complaint is not required to be submitted if the supplier only seeks compensation from the Court.

Complaints must be made in writing to the accountable authority for the Commonwealth entity. The complaint is not required to be made using a particular form. Agencies would be prudent to treat anything in writing sent by a supplier to their accountable authority which complains about a CPR contravention as a complaint under the Act.

Unlike the more strict timing requirements that must be met when seeking an injunction, there are no time limits that apply to the making of a complaint. 

On receipt of a complaint, the accountable authority must: 

• investigate the conduct the subject of complaint and prepare a report of the investigation; and
• suspend the relevant procurement process, unless a "public interest certificate" is (or has been) issued.

The intention of the investigation is to resolve the complaint and to create a record of the attempt to resolve the complaint. The purpose of the suspension, which requires that all activities cease, is to ensure the supplier can participate fully in the procurement process if the complaint is ultimately found in its favour.

Public Interest Certificate

A "public interest certificate" is a certificate issued by the accountable authority (or delegate) of a relevant Commonwealth entity. The certificate must state that "it is not in the public interest for [the specified procurement] to be suspended while any injunction application is being considered or complaints are being investigated". Once issued, a public interest certificate should be published on the Commonwealth entity's website.  

A public interest certificate should only be issued where a suspension could result in "real adverse consequences to the public interest". The Explanatory Memorandum to the Bill indicates that procuring entities will receive guidance on when a public interest certificate can be issued. This guidance is not yet available but we expect it will be published prior to the commencement of the Act.  

It should be noted that while the public interest certificate will prevent the procurement process from being suspended, it will not prevent the supplier from seeking, and the Courts awarding, the grant of an injunction or an award of compensation. 

Nevertheless, for large or significant procurements that may be detrimentally affected by a suspension, officials should consider as part of the procurement planning process, whether a public interest certificate should be issued prior to the approach to market being made. 

Duration of Suspension

If no public interest certificate is issued, the suspension requires that all activities relating to the procurement cease until one of the following occurs:

• the complaint is resolved (this requires that the supplier inform the accountable authority that it considers that the complaint has been resolved);
• the complaint is withdrawn;
• a public interest certificate is issued; or
• the Court makes a determination on the matter under the Act.

The suspension of all activities until one of these outcomes is reached means that supplier complaints will now have the potential to create substantial delays in procurement processes.

4. Remedies

What does the Court have the power to do? 

There are two types of orders that a Court can make under the Act. They are to:

• grant an injunction – either compelling the Commonwealth entity or an official of that entity to do something (performance injunction) or not do something (restraining injunction); and/or
• make an order for the payment of compensation to the supplier for the "reasonable expenditure" incurred in preparing the tender and/or in making and attempting to resolve its complaint. 

Injunctions

The purpose of the injunction remedy is to preserve a supplier's right to participate in an ongoing procurement. For example, a court might grant an injunction restraining the Commonwealth from undertaking a limited tender, where the Court considers that the conditions in Division 2 for conducting a limited tender, when applicable, have not been met.  

A Court's ability to issue an injunction is subject to several procedural requirements. The Court must not grant an injunction unless:

• the supplier has first complained to the Commonwealth entity and has made "a reasonable attempt" to resolve the complaint (if it would be reasonable to expect it to have done so); and
• the application for the injunction (i.e. the date when legal proceedings were initiated) was made within 10 days after the later of the contravention occurring or the supplier becoming aware (or when it ought reasonably have become aware) of the contravention. 

The Courts have discretion to allow for a later date for filing. However, the Courts must not allow for a longer period for filing an application unless:

• the failure to lodge the application within the time period is attributable to the applicant's "reasonable attempt to resolve the complaint"; or
• there are "special circumstances" that warrant allowing a longer period.

It is possible that a supplier may apply for both an injunction and compensation in relation to a contravention. If this is the case, and:

• a public interest certificate is in force; and
• the procurement has not reached the stage where a contract has been entered with a supplier (i.e. the procurement process is still ongoing), 

the Court must consider whether compensation would be a more appropriate remedy than the grant of an injunction for the contravention.

If the Court is satisfied that issuing an injunction would cause "significant delay" to the process concerned, and that compensation is the more appropriate remedy, the Courts may refuse to grant an injunction. 

Compensation

It is procedurally much easier to make an application for compensation than it is to make an application for an injunction because: 

• the making of a complaint is not a pre-requisite for seeking compensation;
• an application for compensation can be made even if there have been no attempts made to resolve the dispute (the Civil Dispute Resolution Act 2011 (Cth) requires litigants to attempt to resolve disputes but does not prevent proceedings being commenced if that has not been done);
• there are no time limits which apply to the making of an application for compensation (although a significant delay could mean that the application is an abuse of process, although this is a high bar); and
• an application for compensation can be made even if no injunction has been sought (either concurrently or at some point in the past). 

Compensation under the Act can only be awarded to cover the "reasonable expenditure" associated with tender process and/or the making of a complaint. Suppliers cannot apply for compensation under the Act for other forms of loss such as expected revenue from a contract or for loss of profit, or loss of chance to tender for other work.

The size of any award of compensation under the Act will obviously depend on the complexity and scope of a procurement, and any payments made to the tenderers to cover their costs of participating in the procurement process, which is common on very large/complex tender processes and tenders with a significant design element.

Commonwealth entities may need to consider and account for the impact that potential compensation awards could have on procurement budgets.

Validity of contracts

The Act confirms that a contravention of the CPRs will not affect the validity of a contract. This includes a contract entered into as a consequence of a procurement involving a contravention of the CPRs. The Addendum to the Explanatory Memorandum states this provision is not limited to proceedings brought under the Act, but applies to all contraventions of the CPRs. This clarifies that courts cannot, under the Act, invalidate agreements which have already been executed.

This also means that it is unlikely the Courts will grant an injunction following the award of a Contract, as the grant of an injunction in that situation would have no practical effect. However, compensation may still be an appropriate remedy following the execution of a Contract. 

The Act will also not cover contraventions which occurred prior to the commencement of the Act. 

Alternative Remedies

The Act will not displace other forms of legal redress currently available in relation to Commonwealth procurement processes. 

The most relevant for Commonwealth entities is the potential for a "process contract" to arise during the course of an approach to market. If a process contract is found to have arisen, the Commonwealth is bound to act in accordance with the terms of the tender process it establishes, and a breach will provide tenderers with the option to pursue contract law remedies against the Commonwealth, including damages for breach of a process contract if one is found to exist. (Commonwealth tender terms and conditions commonly expressly exclude a process contract, which reduces the risk of this being an issue).

Suppliers may also still consider other non-judicial options for resolving procurement disputes, like making a complaint to the Commonwealth Ombudsman or the Procurement Coordinator within Finance.

5. Implications

Commonwealth entities need to be aware:

• of the additional procedural obligations arising under the Act, particularly in relation to the handling of complaints and the conduct of investigations;
• that the submission of a complaint about a procurement may lead to a requirement to immediately suspend the procurement; and
• of the potential impact of the remedies available under the Act.

To prepare for the commencement of the Act, Commonwealth entities should:

• review their internal procurement procedures and policies to ensure that they are consistent with the requirements of the Act, particularly with regard to the management of complaints and the conduct of investigations;
• consider and develop policies for when it will be appropriate to issue a "public interest certificate", having regard to the scale and complexity of a procurement and the potential implications of any delay;
• ensure staff are aware of the potential consequences associated with a contravention of the "relevant CPRs" (when all of these are known).  Commonwealth entities will need to maintain clear and accurate records documenting a procurement process, to assist with any investigation or resolution of disputes should these arise; and
• review proposed and future tender processes and budgets to ensure these account for potential time delays or compensation costs, which could arise if a complaint is made.

 

Authors: Steve McKinney, Partner; Sarah Ross-Smith, Partner; Hyans Mach, Counsel, Rob Andersen, Senior Associate, Cale Woods, Lawyer; Katherine Roderick, Lawyer