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FTA Shakes Up Government Procurement

FTA Shakes Up Government Procurement

The Australia-US Free Trade Agreement will bring major changes to Australian government procurement.

Change is coming to Australian government procurement, and it is coming fast. When the Australia-US Free Trade Agreement (FTA) came into effect on January 1, 2005, most procurement and contracts managers across the country would have taken a close look at Chapter 15 and asked "Do we comply?" No doubt many US officials did the same.

In 20-odd pages of new rules, Chapter 15 of the FTA requires changes to procurement process, documentation and reporting, at both federal and state levels. For Commonwealth agencies, these changes are reflected in new Commonwealth Procurement Guidelines (CPGs). With the January 1 deadline having now passed, any agency that fails to implement the new CPGs may soon be dealing with the consequences of non-compliance.

Less Flexibility, Less Freedom

So, what has changed? In general terms, the goal has been to level the playing field, and make government procurement more transparent. Rather than playing favourites with local vendors, governments are now required to treat Australian and US vendors the same, and there are new reporting requirements to back it up.

In practical terms, this means the end of some familiar techniques for building flexibility and freedom into the procurement process.

Gone are the days of releasing key tenders on a short fuse, giving vendors very little time to prepare and submit their bids. Short response times tend to favour "insiders" who, through working with an agency, get early notice of projects and have more time to put together a strong bid. From now on, agencies are required to publish annual notices of their procurement plans, and tender response times must give vendors adequate time to prepare bids. This will vary according to the complexity of the project, but the general rule will be 30 days or more.

Another area to change is tender documentation. It is quite common for Requests for Tender (RFTs) to keep the evaluation criteria somewhat vague, so that an agency is free to decide what really matters once all bids are in. It is also common for those criteria to include things like local industry participation, or a proven track record of working with a particular agency. Since January 1, this has all changed. Evaluation criteria must now be exhaustively spelled out in the RFT, and things like local industry preference are not allowed (with limited exceptions).

Even a decision to abandon a tender is affected by the FTA. Previously, most RFTs made it clear that an agency could stop at any time, without giving reasons. Now, an agency can only abandon a tender where it believes it is not in the public interest to go ahead. In most cases, this will not be a problem. But if a tender is stopped to avoid awarding a contract to an unpopular vendor, that decision would be wide open to challenge.

More Complexity

For the old hands of government procurement, getting to grips with the post-FTA rules ought to be pretty straightforward. But with many purchasing decisions devolved to line managers, the inexperienced or infrequent buyer of goods and services is now facing an increasingly complex compliance challenge.

Suppose you are a branch manager and you need a consultant to review and report on the delivery of some funding program. What do you do?

Can you simply give the contract to a particular expert, or do you need to go out to tender? If a tender is required, does it have to be open, or can you restrict it to a panel of approved providers? Are your options better if the contract value is below a certain amount? Which RFT templates should you use, and how do you decide which optional clauses, schedules and so on to include? What is the difference between "descriptive" and "functional" requirements, and which ones can you use in the project specification? Working through these issues is no picnic, especially if you are in a hurry.

More Reporting

Reporting on tenders and contracts has also been made more complex. Australian Federal Financial Management and Accountability (FMA) regulations already require Commonwealth agencies to report all contracts worth $2000 or more in the Gazette Publishing System. The Senate Order (also known as the "Murray Order") requires agencies to report various details of contracts worth $100,000 or more via their Web sites. Now, the FTA adds similar reporting for construction contracts worth from about $9.4 million and other contracts for goods or services worth about $82,000 or more.

More Challenges

On one view, the FTA merely tinkers with existing procurement policy. It is no radical change. But that view ignores the impact of a new approach to tender challenges.

To date, challenges to tender outcomes have been relatively rare in Australia. However, challenges look set to become more common. Not only does the FTA require agencies to encourage vendors to raise and resolve complaints directly, but it also requires an impartial administrative or judicial authority to receive and review tender challenges.

If the process or documentation for a significant tender falls short of FTA requirements, do not be surprised if a disgruntled vendor tests these waters.

Time to Panic?

Although there is no immediate need to panic, it would be unwise just to sit back and see what happens. Inevitably, someone will be the guinea pig for this new regime. You probably do not want that to be you.

As a minimum, anyone involved in government procurement needs to understand the major changes, how they apply to your agency, and what needs to be done to ensure compliance. If you have not already done so, you should review your policies, processes and documentation, and communicate those changes to relevant staff. It is also a good opportunity to try new tools and services that can take the pain and complexity out of the procurement process.

In many respects, it is business as usual for contracts and procurement teams. But stay tuned for tender challenges. They may not happen overnight, but they will happen.

Jamie Wodetzki is CEO of SpeedLegal and was previously a senior associate with a with a national law firm (www.speedlegal.com.au).

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