Update to the Commonwealth Procurement Rules 

The Minister of Finance has issued an updated version of the Commonwealth Procurement Rules (CPRs) which will come into effect on 1 July 2022. Relevant Commonwealth entities should review and update their procurement processes and templates as needed to align with the updated requirements in the CPRs.

Relevant Commonwealth entities should refer to the guidance issued by the Department of Finance on these updates for further information.

What’s changed?

The updated CPR requirements fall into three broad categories:

• New rules for procurement from Small and Medium Enterprises (SMEs).
• New rules requiring mandatory compliance with procurement-connected policies.
• Contextual consideration of insurance when managing procurement risk.

The updates also clarify the operation of the CPRs in respect of the Commonwealth Superannuation Corporation.

Small and Medium Enterprises

The updates to the CPRs focus on promoting further and fairer procurement from SMEs, being Australian or New-Zealand firms with fewer than 200 full-time equivalent employees.

SME Participation (paragraph 5.5)

To maximise competition and enhance opportunities for SMEs, the updated CPRs provide that officials of relevant entities should consider the potential benefits of the disaggregation of large projects into smaller packages, where appropriate. Relevant entities should note that paragraph 9.5 of the CPRs, which prohibits the dividing a procurement into separate parts solely to avoid an open tender process, remains unamended.

Paying Suppliers on Time (paragraph 5.8)

The requirement for non-corporate Commonwealth entities to make all payments to suppliers within the maximum payment terms has been updated to remove the contract value threshold of $1 million. This means that non-corporate Commonwealth entities must pay suppliers within the maximum payment terms, regardless of the contract value, according to the Supplier Pay On-Time or Pay Interest Policy (RMG 417, which will also be updated from 1 July 2022).

Direct procurement of SMEs (Appendix A, exemption 17)

The updated CPRs amend exemption 17 in Appendix A of the CPRs to allow direct procurements from SMEs without application of the rules in Division 2 of the CPRs, for procurements up to an increased threshold of $500,000 for the Department of Defence (Defence). While this update allows higher value exempted procurements for Defence, the existing threshold of $200,000 has been maintained for procurements by other relevant entities.

Mandatory application of procurement-connected policies (paragraph 4.9)

Procurement-connected policies contain policies relating to various aspects of the procurement process. The updated CPRs amend paragraph 4.9 such that non-corporate and prescribed corporate Commonwealth entities must comply with a procurement-connected policy if applicable.

While previously the CPRs simply referenced procurement-connected policies, this update includes an express rule to reinforce that compliance with procurement-connected policies is mandatory for relevant entities. In practice, this should not change the existing procurement approach of relevant entities.

Procurement risk and insurance (paragraph 8.4)

The updated paragraph 8.4(a) recommends relevant entities limit insurance requirements in contracts in accordance with the actual risk borne by the supplier, taking into account any contractual liability caps. Further, paragraph 8.4(b) also provides that relevant entities should not direct suppliers to take out insurance before a contract is actually awarded.

The updated guidance around insurance requirements underscores the importance of appropriate risk assessment both prior to and during the procurement process. It also reflects the importance of minimising costs of tendering and ongoing costs during the contract term associated with insurance requirements.

What do relevant entities need to do?

The updated CPRs commence from 1 July 2022, applying to new procurements undertaken from that date. While the updated CPRs will not have retrospective application, relevant entities are encouraged to start transitioning all procurement protocols and internal policies to reflect the incoming changes. In particular, officials from relevant entities should consider taking the following steps:

1. Preparing updates to internal policies to align with the updated CPRs, especially with respect to ensuring:
   1. the procurement planning stage includes consideration of procurement from SMEs and the potential benefits of the disaggregation of large projects into smaller packages, where appropriate; and
   2. that procurement, risk management, liability and evaluation policies and processes appropriately reflect updated guidance for insurance requirements in contracts.
2. Updating template approach to market (ATM) documentation to ensure that the updated CPRs are appropriately reflected, including ensuring:
   1. that insurance requirements in ATM documentation and draft contracts are appropriate to the risk, and that suppliers are not required to hold insurance prior to entering into a contract. Officials should review any mandatory conditions of participation and evaluation criteria in tender documentation to ensure that insurance requirements align with the updated rules; and
   2. payment provisions comply with the Supplier Pay on Time or Pay Interest Policy, noting the removal of the $1 million threshold for contract value.
3. Exclusively for the Department of Defence, updating internal guidelines to reflect the increased exemption threshold for SMEs up to $500,000. Defence officials should note the continued requirement in exemption 17 to first satisfy the Mandatory Set Aside requirements (as applicable) in the Indigenous Procurement Policy before relying on exemption 17. Division 1 rules, including in relation to achieving value for money, will continue to be relevant to any limited procurement process undertaken in accordance with this exemption.

Please contact us for more information or if you require assistance.

This article was written by Justin Bernau, Partner, Elizabeth Skelly, Partner, Jacob Mugavin, Senior Associate, Aneale Banerjee, Associate, and Vinayak Kaushik, Law Graduate.