Recent changes to the Commonwealth Procurement Rules: boosts to competition, risk sharing and cash flow

What you need to know

• The Commonwealth Procurement Rules (CPRs) were updated, effective from 1 July 2022.
• The new CPRs include changes focused on improving competition for SMEs, appropriately sharing risk and creating consistent payment terms across Commonwealth procurements.
• There are also some minor changes arising from the new CPRs that are not covered in this article. The full details are available on the Department of Finance’s website, as well as guidance on the new CPRs.

What you need to do

• Before approaching the market, you should consider disaggregating the project into smaller parts to improve SME competition as well as conduct a risk assessment to determine the appropriate risk allocation between parties and management mechanisms.
• Review your internal procurement policies, processes and templates to align with the new CPRs, including revised payment, liability and insurance provisions.

Detailed Insights

Competition for SMEs

To remove barriers to entry and improve competition for SMEs, the new CPRs provide that Commonwealth officials should consider disaggregating large projects into smaller packages where appropriate (see new paragraph 5.5d).

Officials should be aware that the purpose of disaggregating a large project is particularly important. Officials would contravene paragraph 9.5 of the CPRs if they separated a procurement into smaller parts solely to avoid the application of the more onerous rules in Division 2 of the CPRs (eg the default requirement to undertake an open approach to market).

The new CPRs also include changes to exemption 17 in Appendix A.  Exemption 17 previously only applied to Commonwealth entities purchasing goods and services valued up to $200,000 from an SME. The new Exemption 17 additionally applies to the Department of Defence purchasing goods and services valued up to $500,000 from an SME. Accordingly, this enables Defence to undertake higher value procurements with SMEs without the application of the additional rules in Division 2 of the CPRs.

Risk sharing

The CPRs include a general principle in paragraph 8.4 which states that risks should be borne by the party best placed to manage them. The new CPRs include two new subparagraphs 8.4a and 8.4b which emphasise that:

• risks borne by suppliers should be reflected in contractual liability caps rather than insurance requirements; and
• suppliers do not need to take out insurance before a contract is awarded.

The intent of these changes is to avoid red-tape and unreasonable costs to suppliers when participating in procurement processes and throughout the term of a resultant contract. Accordingly, it is increasingly important for officials to undertake risk assessments prior to approaching the market to appropriately identify the types and levels of risk involved in any resultant contract and the necessary insurance and liability requirements.

It is important to note that the new subparagraphs are not ‘mandatory’. Rather, they indicate good practice. So, officials may choose not to apply the rules where necessary, however they should seek advice in this circumstance.

Cash flow

The previous CPRs required non-corporate Commonwealth entities (such as Defence) to make payments to suppliers within 20 days of receiving a correctly rendered invoice, or within five days for eInvoices, where the contract is valued up to $1 million. The new CPRs remove the value threshold of $1 million so that there are consistent payment times across Commonwealth procurements, regardless of value.

The full details of the changed payment terms are set out in an updated Supplier Pay On-Time or Pay Interest Policy (RMG 417) available on the Department of Finance’s website. This policy works in concert with the Payment Times Procurement Policy.

Further Information

There are other minor changes in the new CPRs, the details of which are available on the Department of Finance’s website. Further, the Department of Finance has additional guidance regarding the CPR provisions described above.

If you have any questions, or would like to know how this might affect your procurement, please feel free to contact us.

Authors: Rory Alexander, Director + Principal and Derek Smith, Senior Associate

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