In what circumstances can an unsolicited proposal be considered by a Commonwealth entity? Can a Commonwealth entity directly negotiate and engage a proponent under the Commonwealth Procurement Rules (CPRs) who has submitted an unsolicited proposal?
This article explores these two questions, as well as the inherent probity risks in direct negotiations, and the probity measures that should be in place to mitigate these risks.
Summary
Commonwealth entities can consider an unsolicited proposal and directly negotiate and exclusively engage with a potential supplier via a limited tender (without the need for a competitive tender) under CPR 10.3(c) where the procurement is:
- made under exceptionally advantageous conditions that arise from a genuine unsolicited innovative proposal; and
- not a routine procurement from regular suppliers.
Value for money must, at all times, be front of mind for procuring entities and be able to be achieved via the direct negotiations.
Direct negotiations can also give rise to probity issues and risks. We have outlined below the probity measures that can be put in place to mitigate these.
Legislative Framework
Unless there is an exemption in Appendix A of the CPRs, Division 2 of the CPRs applies for procurements by the Commonwealth in certain circumstances depending on the value and the type of Commonwealth entity. The thresholds are $80,000 (non-construction and non-Corporate Commonwealth entities), $400,000 (non-construction and prescribed corporate Commonwealth entities) and $7.5m (construction and relevant entities).
Under CPR 9.10, a limited tender can be conducted instead of an open tender in the circumstances specified under CPR 10.3, or when a procurement is exempt under Appendix A of the CPRs.
Under CPR 10.3(c), a limited tender may be conducted (ie. a direct negotiation with a single supplier) for a procurement made under exceptionally advantageous conditions arising from an ‘unsolicited innovative proposal’, which is not a ‘routine procurement from regular suppliers’.
A procurement conducted by limited tender is not required to meet the rules in CPR 10.6 – 10.8 (Request documentation), 10.20 – 10.31 (Minimum time limits), or 10.35 (Awarding contracts).
However, under CPR 10.5, in accordance with the general rules for accountability set out in the CPRs, for each contract awarded through limited tender, a written report must be prepared that includes:
- the value and type of goods and services procured;
- a statement indicating the circumstances and conditions that justified the use of limited tender; and
- a record demonstrating how the procurement represented value for money in the circumstances.
What is an unsolicited proposal?
But what is ‘exceptionally advantage conditions’, and how does the Commonwealth determine if something is an innovative proposal?
The CPRs do not define, or provide any guidance on, ‘exceptionally advantage conditions’ or ‘unsolicited innovative proposals.’ There are also no prescribed guidelines or policy governing unsolicited proposals for Commonwealth Government entities.
However, all States and Territories in Australia, as well as some Commonwealth Departments, have published unsolicited proposal or market-led proposal policies, and these can be referred to as guidance for Commonwealth entities.
Under the Unsolicited Proposals Guide for Submission and Assessment August 2017 (NSW Guidelines), an unsolicited proposal must meet the following criteria to be deemed a genuine unsolicited proposal:
- Uniqueness
- Value for money
- Whole of government impact
- Return on investment
- Capability and capacity
- Affordability
- Risk allocation
Uniqueness is described under the NSW Guidelines as “genuinely innovative ideas, including financial arrangements or solutions that are otherwise unlikely to be defined and put to market”.1
Uniqueness is typically the most difficult criteria to satisfy for a genuine unsolicited proposal, as the uniqueness needs to apply to both the proposal and the proponent.
For example, if a supplier owns something unique that is ‘exceptionally advantageous’ to the Commonwealth (such as intellectual property, real property or other unique assets) that would limit the Commonwealth from contracting with other parties if an open tender process was conducted, then this may justify the uniqueness of the proposal. However, if another supplier would be readily able to provide the proposed solution, then it would be difficult to maintain that the proposal is unique.
Probity risks and measures
When considering an unsolicited proposal under CPR 10.3(c), relevant probity principles of fairness, impartiality, accountability, transparency and particularly the requirement to achieve a value for money outcome must be considered.
The decision to accept an unsolicited proposal via a limited tender procurement must strictly comply with the CPRs to also avoid a complaint under the Government Procurement (Judicial Review) Act 2018 (Cth) (GPJR Act).
Probity measures that can be implemented to mitigate against probity risks in direct negotiations include:
- Developing and putting in place an unsolicited proposal policy (if not already in place), or reviewing an existing policy to ensure any consideration of an unsolicited proposal complies with the CPRs.
- Developing a template direct negotiation protocol, or template negotiation plan (if not already in place), and customising and implementing this protocol or plan for each specific direct negotiation.
- Engaging a probity advisor or seek probity advice on a case-by-case basis to assist with direct negotiations, or advise on whether an unsolicited proposal complies with the requirements of the CPRs.
Conclusion
Commonwealth entities can (and should, where appropriate) consider an unsolicited proposal and directly negotiate and exclusively engage with a potential supplier via a limited tender where that procurement is:
- made under exceptionally advantageous conditions that arise from a genuine unsolicited innovative proposal; and
- not a routine procurement from regular suppliers.
Prescribed Commonwealth guidelines or policy governing unsolicited proposals would be helpful to assist Commonwealth Government entities assess unsolicited proposals in a uniform and compliant manner. In the absence of those, Departments should develop their own guidelines that strictly comply with the CPRs, and can look to other jurisdictions (such as the comprehensive NSW Guidelines), for guidance on how to assess unsolicited proposals, particularly the fundamental ‘uniqueness’ aspect.
Robust probity measures should also be embedded into any direct negotiation, or limited tender process, to safeguard against potential tender challenges, including under the GPJR Act.
This article was written by Scott Alden, Partner and Victoria Gordon, Senior Associate.
1 Page 8, ICAC ‘Direct Negotiations: Guidelines for Managing Risks’
