In August 2020, the Department of Finance published new guidance regarding the consideration of broader economic benefits to the Australian economy when making a value for money (VFM) assessment in relation to significant Commonwealth procurements (generally, those above $4 million or, for construction services, $7.5 million).
In order to comply with the new guidance, Commonwealth officials will need to:
- Ensure that a consistent approach to the evaluation of broader economic benefits is adopted across all key documents governing a procurement process (e.g. approach to market documentation, procurement plan and evaluation plan);
- Request that tenderers provide appropriate information regarding the broader domestic economic benefits delivered by their tenders; and
- Document how broader economic benefit has been considered and evaluated as part of the overall VFM assessment.
Commonwealth entities should ensure that their policies and templates are appropriately updated for this purpose.
In order to maximise the prospect of a favourable VFM assessment in relation to a significant Commonwealth procurement, tenderers will need to:
- Carefully consider the tender response requirements and evaluation criteria related to broader economic benefits; and
- Demonstrate benefits to the Australian domestic economy which are consistent with the new guidance.
VFM AND DOMESTIC ECONOMIC BENEFIT
VFM has always involved considerations beyond merely price (refer paragraphs 4.4 – 4.6 of the CPRs) and, since 2017, has specifically required Commonwealth officials to consider the economic benefit of significant tenders to the broader Australian economy (refer paragraphs 4.7 and 4.8).
The new guidance outlines the types of activities that Commonwealth officials may consider as domestic economic benefits when making a VFM determination. These include creating employment for Australian workers, apprentices and trainees and using Australian Small and Medium-sized Enterprises (SMEs) as subcontractors or suppliers. There is also a strong focus on economic benefits delivered through research and development, technology transfer and increased productivity and innovation.
The guidance makes clear that only direct economic benefits should be identified and assessed. By way of example, it notes that Commonwealth officials may consider the economic benefit of employing unemployed people, but not second round effects of those employees buying additional goods and services because they are employed.
WHAT YOU NEED TO DO
For Commonwealth officials charged with achieving VFM in relation to significant procurements, the guidance includes a useful checklist which details the key steps when assessing broader economic benefits (and also some practical examples).
Commonwealth officials will need to:
- Ensure the approach to market documentation:
- clearly sets out the economic benefit information required to be provided by tenderers. This should be commensurate to the scale, scope and risk of the opportunity and should not disadvantage SMEs through greater administrative burden;
- indicates how the economic benefit information requested will be used to evaluate VFM. This should make clear that only first round or direct economic effects to the Australian economy will be considered; and
- inform tenderers that qualitative and quantitative economic benefits considered in tender submission may be subject to verification at an appropriate stage of the procurement;
- Consider whether the economic benefit requirement will be a weighted evaluation criterion, and if so, what weighting should apply; and
- Ensure that all governing documents adopt a consistent approach to the consideration of broader economic benefits.
Commonwealth entities should ensure that their policies and templates are appropriately updated to give effect to these requirements. We also expect that some Commonwealth entities will seek to introduce more robust contractual mechanisms by which commitments to broader Australian economic benefits are made by tenderers, verified during and after the project delivery phase (whether by Commonwealth entities or independently), and additional remedies for non-compliance.
Tenderers will need to pay close attention to the requirements set out in the approach to market documentation, and carefully consider how they structure their tendered solutions, in order to maximise the prospect of a favourable assessment of broader domestic economic benefits.
This article was written by Toby Mittelman, Partner.