25 February 2020
7 min read
#Procurement, #Local Government
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As the fires begin to ease, many councils in fire-ravaged regions are grappling with the aftermath.
A new legislative change may bring some help to those councils who need to quickly enter into new contracts for goods or services to assist with the bushfire response and recovery.
The Local Government (General) Amendment (Tendering) Regulation 2020 (NSW) has increased the threshold for contracts that require councils to run an open tender from $250,000 to $500,000 in certain circumstances.
This will allow councils to more quickly engage suppliers and contractors than the current procurement rules would usually allow.
What does the new regulation allow?
Under the Local Government Act 1993 (NSW), a tender is required for a contract to carry out services for councils valued over $250,000 – or another amount as may be prescribed by the regulations (it is currently $250,000 having recently been increased).
Under the Local Government (General) Amendment (Tendering) Regulation 2020 (NSW), a new regulation 170A in the Local Government (General) Regulation 2005 (NSW) permits councils to enter into a contract for an amount of $500,000 but only in the case of a contract that:
Whilst only operative for a relatively short period of time, this will assist councils to enter into higher-value contracts more quickly without the need to run a lengthy tender process.
Councils will still need to comply with all value for money obligations prior to entering into contracts under this new regulation.
Councils may also consider relying on other existing exemptions under the Local Government Act 1993 (NSW), which are discussed below.
Local procurement recap
Tendering and the legislative framework
Tendering and the activities of procurement for NSW local government are governed by:
The Guidelines, constituted under section 23A of the Act, are mandatory for local councils to consider as part of the tendering process.
Councils must also comply with their own internal procurement policies.
When is a tender required?
The circumstances where a tender is required are set out in section 55(1) of the Act and regulation 163 of the Regulation.
A tender is required for a contract to carry out services for councils valued over $250,000 (or another amount as may be prescribed by the regulations – e.g. the above $500,000 bushfire-related response amount) unless exempt pursuant to section 55(3) of the Act.
Relevant exemptions for the requirement for a tender under section 55(3) of the Act that may apply in relation to the bushfires are:
In accordance with the Guidelines, councils must also be able to provide assurance of openness and accountability, build anti-corruption capacity and achieve the best value for money.
The Guidelines state that in addition to the legislative requirements for a tender, councils are also encouraged to use the tendering process in the following circumstances:
Accordingly, councils must also consider the following before relying on an exception under section 55(3) of the Act to engage directly with a supplier without running a tender process:
Exemption for emergency
As noted above, there is a new increased prescribed expenditure to assist councils with bushfire-related response and recovery under section 55(3)(n)(ii) of the Act and regulation 170A of the Regulation.
This is separate to the exception that allows councils to enter into a contract made in the case of emergency under section 55(3)(k) of the Act.
Unfortunately, there is no case law that has directly considered what constitutes an emergency under the Act.
The Guidelines are similarly unhelpful, stating that extenuating circumstances, and cases of emergency are not defined by the Act and should be used as an exemption to the tendering requirements only after careful consideration with the reasons clearly documented.
While it may seem obvious that a bushfire is an emergency, it is interesting to consider whether the exception extends to the time period following an emergency, where the need to enter into a contract would be more likely once the councils has had time to consider the aftermath of the destruction and the resulting needs of its locality.
Exception for extenuating circumstances / unavailability of competitive or reliable tenders
Section 55(3)(i) of the Act provides an exemption for the requirement for councils to invite tenders under section 55(1) for “a contract where, because of extenuating circumstances, remoteness of locality or the unavailability of competitive or reliable tenderers, councils decide by resolution (which states the reasons for the decision) that a satisfactory result would not be achieved by inviting tenders.”
To satisfy the exemption, councils must have demonstrated in a resolution, at the time of the engagement, the reasons for the decision that a satisfactory result would not be achieved by inviting tenders.
The case of SoCares Support Group Inc v Cessnock City Council [2012] NSWLEC 23 (SoCares) considered the exemption in section 55(3)(i) of the Act, including the:
Construction of section 55(3)(i)
SoCares held that section 55(3)(i) requires councils to be satisfied of “one of the three specified circumstances”[1] for the exception to operate, being:
Therefore, only one of the three exceptions in section 55(3)(i) need be made out in order for the section to be satisfied.
Meaning of extenuating circumstances
Extenuating circumstances are not defined by the Legislative Framework. Part 3.1 of the Guidelines state that extenuating circumstances should be used as an exemption to the tendering requirements only after careful consideration, with the reasons clearly documented.
In the absence of a definition of ‘extenuating circumstances’ in the Legislative Framework, case law may be relied on.
The Court in SoCares held that the word ‘extenuating’ in section 55(3)(i) is to be given its ordinary meaning, which is not as onerous as "unusual or extraordinary”, but requires councils to be satisfied that there are circumstances which are “sufficiently different” to justify not calling tenders.[2]
The recent bushfires would likely satisfy the meaning of “sufficiently different” to justify an exemption to a tender process.
Meaning of the unavailability of competitive or reliable tenderers
The Court in SoCares also considered the meaning of “the unavailability of competitive or reliable tenderers” in section 55(3)(i) of the Act, and similarly found that the ordinary meaning of the words "unavailability" and "reliable" apply. "Unavailability" means not able to be used or obtained and "reliable" means consistently good in quality or performance. Councils must be reasonably satisfied in relation to the matters which must be considered.[3]
Councils are not under a positive obligation under section 55(3)(i) to identify the availability of alternative competitive or reliable tenderers, but merely satisfy itself of the unavailability of competitive or reliable tenderers, which the court held is a materially different emphasis in the obligation imposed on council by section 55(3)(i) of the Act.[4]
Conclusion
Councils in the bushfire aftermath that require goods and services for bushfire recovery should take advantage of the new procurement rules that increase the tendering limit to $500,000 for contracts entered into between 17 January 2020 and 1 July 2020.
Councils should also be aware of the other exceptions that they may be able to rely on including for cases of emergency and extenuating circumstances.
[1] SoCares Support Group Inc v Cessnock City Council [2012] NSWLEC 23 [51].
[2] Ibid [55].
[3] Ibid [57].
[4] Ibid [60].
Authors: Scott Alden & Victoria Gordon
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