New Rules For Ethical Behaviour And SMEs In Australian Government Procurements

KEY TAKEAWAYS

The Australian Government's Commonwealth Procurement Rules (CPRs) are going through another refresh. Effective 1 July 2024, the rules setting out the framework for Australian Government procurement, will put a greater emphasis than ever on the ethical obligations of suppliers, as well as the contribution of SMEs to the Australian economy through Government contracts. The changes also see a wider range of tenders become subject to Australian economic benefit considerations.

Notably, some of the expectations within a newly introduced Commonwealth Supplier Code of Conduct require positive action by suppliers, and failure to take steps to ensure they are met may result in remedial action and/or termination of the contract by the Commonwealth. It is therefore crucial that businesses seeking to contract with the government understand their obligations and put in place policies, procedures and systems to implement the required behaviours and to enable compliance to be monitored and reported.

In this publication, Moulis Legal Special Counsel Lucinda Watson discusses the changes suppliers can expect to encounter when working with Government come 1 July 2024.

What will change?

The new CPRs will come into effect on 1 July 2024, by way of repeal and replacement of the previous CPRs.

The CPRs retain their general framework and fundamental aim of ensuring 'best practice' in the procurement process to achieve value for money. However, there will be some major and principled changes, most notably the introduction of standardised ethical requirements of suppliers through a mandatory "Commonwealth Supplier Code of Conduct" (the Code).

Supplier conduct has come under intense scrutiny in recent times and there have been a range of Government changes and initiatives aimed at addressing the recent tax leak scandal. The introduction of the Code aligns with the Government's theme of expecting a higher standard of ethical behaviour from suppliers that want to continue to do business with the Australian Government, with some States having already put supplier codes of conduct in place.

The CPRs will also provide renewed support for SMEs and an expanded commitment to economic benefit to the Australian economy in Australian Government tender processes.

Businesses contracting or seeking to engage with the Australian Government are recommended to familiarise themselves with the refreshed CPRs and the new Code.

Standardised ethical requirements of suppliers

The Department of Finance has published a set of minimum ethical expectations of suppliers and subcontractors in the Code. From 1 July 2024, it will be mandatory for the Code to be included in all contracts between suppliers and the Australian Government¹, requiring suppliers to comply with, monitor compliance with, and report breaches of, the Code.

The Code establishes the Commonwealth's overarching expectation that suppliers "conduct themselves with high standards of ethics such that they consistently act with integrity and accountability"², reflecting the same high standards that the Government expects of itself. This is to be actioned through ethical behaviour; appropriate corporate governance and business practices; and respecting work health, safety and workplace rights.

In summary, the Code expects:

• Ethical behaviour, demonstrated through:
  • disclosure and appropriate management of conflicts of interest
  • conducting business with integrity
  • protection of Commonwealth information and not mis-using that information
  • upholding of the Australian Public Service Values.
• Appropriate corporate governance and business practices, implemented through:
  • high standards of professional conduct
  • appropriate management of, and responsibility for, risks
  • maintenance of detailed financial and business records
  • compliance with taxation obligations and promptly paying subcontractors
  • undertaking and cooperating with audits
  • maintaining sustainable business practices and minimising environmental impacts.
• Respecting work health, safety and workplace rights, achieved by:
  • managing workplace health and safety and acting to prevent involuntary labour and human rights abuse
  • preventing discrimination, harassment and supporting gender equality and diversity
  • complying with relevant workplace legislation and respecting employee rights and entitlements
  • respecting the rights of Aboriginal and Torres Strait Islander peoples and helping to stimulate First Nations businesses.

Not just a guideline – the Government may terminate for non-compliance!

Importantly, the Code requires positive action by suppliers, and so failure to take steps to meet the expectations may result in remedial action and/or termination of the contract by the Commonwealth³. And of course, similar requirements may also be captured as direct contractual obligations under the relevant contract.

The extent to which the Commonwealth will investigate compliance with the Code will depend on the nature, scale, scope and risk profile of the procurement⁴. Suppliers may be required on request to produce evidence of policies, frameworks or systems that are in place to ensure compliance with the Code.

In addition, the Australian Government may consider a supplier's compliance with the Code in future procurements, and suspected breaches of the Code that could constitute serious and systemic corrupt conduct will be notified to the National Anti–Corruption Commission.

It is therefore crucial that businesses seeking to contract with the government understand the obligations with respect to the new Code and put in place policies, procedures and systems to implement the required behaviours and to enable compliance with the Code to be monitored and reported to the Commonwealth.

Increased commitment to SMEs

The updated CPRs will provide greater commitment to and support for SMEs by:

• Increasing the quota of contracts awarded to these businesses. For contracts valued up to $1 billion dollars, non-corporate Commonwealth entities will procure at least 25% of contracts by value from SMEs (a 5% increase).⁵ For contracts valued up to $20 million, non-corporate Commonwealth entities will commit to procuring at least 40% of contracts by value from SMEs (another 5% increase).⁶
• An expanded exemption to allow for the direct engagement of SMEs for procurements up to $500,000 (increased from $200,000).⁷

The CPRs will also clarify that benefits for SMEs will only apply to independent entities, rather than small or medium sized entities that are supported by the resources of a larger entity.⁸

This is a timely show of support for SMEs considering the ever-increasing difficulties faced by smaller businesses in the current economic climate, coupled with a recent public sector push to scale back its outsourcing and reliance on contractors.

Greater importance of benefit to the economy

Going forward, an increasing number of procurements will be captured by criteria considering contribution to the Australian economy. Currently the requirements apply to contracts valued over $4 million. From 1 July 2024, economic benefit to the Australian economy will be considered for procurements valued over $1 million⁹, meaning more procurements will be subject to a benefit to the Australian economy assessment. In theory, this could benefit local businesses and boost local jobs.

Achieving gender equality targets

The Government has also announced, as part of the National Strategy for Gender Equality, a new requirement for all businesses with 500 or more employees to commit to and achieve targets against at least three of the Gender Equality Indicators in order to be awarded a Government contract. The Gender Equality Indicators (of which there are six) are administered by the Workplace Gender Equality Agency and currently must be reported against annually by employers with 100 or more employees¹⁰.

And finally, the Government is bringing in a requirement for approaches to market to facilitate the ability for women-owned and led businesses to be identified. This initiative is aimed at enabling gender to influence approaches to procurement as well as providing Government with data in relation to the women-owned and led businesses contracting with Government.

Shifting values of Commonwealth procurement

The addition of the Code and tweaks to pre-existing principles in the refreshed CRPs reflect the current value focus of the Australian Government in procurement. Ethical commitments and expectations are being implemented in more concrete ways, with greater consequences for suppliers that fail to comply with these expectations. Increased commitment to supporting SMEs and meeting gender equality targets also suggests an increasingly holistic approach to be taken by government officials in engaging with businesses and achieving value for money.

Footnotes

1. Commonwealth Procurement Rules, paragraph 6.12.

2. Commonwealth Supplier Code of Conduct, page 1.

3. Commonwealth Supplier Code of Conduct, page 1.

4. Commonwealth Supplier Code of Conduct, page 1.

5. Commonwealth Procurement Rules, paragraph 5.6.

6. Commonwealth Procurement Rules, paragraph 5.7.

7. Commonwealth Procurement Rules, Appendix A.

8. Commonwealth Procurement Rules, Appendix B.

9. Commonwealth Procurement Rules, paragraph 4.7.

10. Workplace Gender Equality Act 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.