19 May 2020

COVID 19 – Procurement Policy Note: Coming together (while staying apart)

This article was written by Rachael Lewis and Lachlan Forrester.

The National Cabinet has been consistent in its message that every Australian has a role to play in grappling with the COVID-19 pandemic. It seems, for its part, the Commonwealth has come to the (socially-distant) party.  The Department of Finance has issued the COVID-19 – Procurement Policy Note (PPN) to provide guidance to Commonwealth entities (1) preparing to approach the market and (2) managing existing contracts during the pandemic.  The PPN acknowledges the strain that COVID-19 has placed on many suppliers and seeks to encourage flexibility in their dealings with the Commonwealth to help them see through the crisis.  

The take home message of the PPN is clear: collaboration and flexibility are the “new black”.

Now, we know there are more law firm COVID-19 related hot-takes going around than actual cases of the virus but stick with us!  We have considered the new PPN and have some useful tips to help you navigate the procurement process during the age of COVID-19.  

Approaching the market

1. Have a plan

While Australia’s efforts to combat COVID-19 are showing really positive signs, it is important that you are prepared for a range of circumstances that could play out over the coming year.  For example, given that many other countries have been less fortunate than Australia with respect to COVID-19, there may be uncertainty around the security of some supply chains for some time. 

If you are a Commonwealth entity planning to approach the market, you should consider the impact COVID-19 has had (or will have) on potential suppliers’ capacity to respond to your procurement process. Specifically, the PPN suggests that Commonwealth entities should think about:

  • how COVID-19 may impact plans in the immediate future (for example, should a planned procurement be delayed for a period where it is known that relevant supply chains will be affected for the particular requirement);
  • appropriate timelines for suppliers to engage with the procurement process depending on the nature of the market (for example, are your potential suppliers in an industry or location (eg overseas) which is under considerable pressure at present either because of significantly increased demand or because they have had to stand employees down and would need more time to respond);
  • the amount of time potential suppliers require to put in submissions;
  • the potential to structure procurements into practical achievable deliverables (for example, is it appropriate to split a proposed procurement so that some deliverables can be provided, even if all cannot be at present?); and
  • bringing forward procurements that are less reliant on substantial material supply (for example, bringing forward procurements that are not reliant on COVID-19 affected supply chains, such as procurements for the supply of certain services).

The PPN also suggests that Entities may wish to engage with the market (such as through a Request for Information) to understand capability before formally approaching the market - particularly when engaging with industries where the full impact of COVID-19 is not yet clear.

2. Consider your procurement methodology carefully

The PPN notes that the Commonwealth Procurement Rules (CPRs) are in-built with sufficient flexibility to provide for procurement processes to proceed during COVID-19. For example, the CPRs allow Accountable Authorities to apply any measures that they deem appropriate for a range of circumstances, including to protect human health.

Managing your existing relationships

1. Don’t play hardball

The underlying theme of the PPN is that Commonwealth entities should manage their existing relationships in a collaborative and sensible manner. This will not only ensure the short-term viability of your suppliers through this crisis, it will also assist the Government’s efforts to restart the economy as restrictions continue to ease.

The PPN encourages Commonwealth entities to take a long-term view to their dealings with suppliers. To achieve this, Commonwealth entities are expected to resolve any issues which arise using non-adversarial methods where possible. Commonwealth entities are also permitted to provide relief where appropriate. This could include agreeing that termination rights will not be exercised or that liquidated damages will not be claimed.

2. Communication is key

To ensure you don’t end up dealing with an unexpected crisis, communicate often and effectively with your suppliers.

The PPN specifically provides that Commonwealth entities may consider varying agreements to accommodate the change in circumstances.  These variations could include:

  • Waiving certain contractual obligations;
  • Varying the frequency and timing of delivery;
  • Varying or waiving targets and performance indicators.

But to know what circumstances have changed and what variations you might consider, you need to have communicated with your suppliers.  Varying contractual obligations may help preserve goodwill with your supplier well after the pandemic has subsided.  However, the PPN is clear that these variations should be limited to the specific circumstances of the situation and only implemented on a case-by-case basis. It is therefore imperative that any variation is specifically targeted to give the agreement effect with the least amount of variation possible and that it’s clear how long any variation will remain in place.   

3. Don’t forget your obligations

Don’t forget you must still satisfy your obligations under relevant legislation. In particular, the PPN makes reference to the requirements of the Public Governance, Performance and Accountability Act 2013. Commonwealth entities will still need to ensure that public resources are used in an efficient, effective, economical and ethical manner – pandemic or not.   

Notwithstanding these obligations, there is still significant flexibility for Commonwealth entities to development case-by-case solutions. The PPN encourages you to consider seeking legal advice on these matters where appropriate (we swear it actually says this – look it up!).

Supplier Payment

The PPN encourages Commonwealth entities to pay suppliers as quickly as possible to ensure suppliers do not experience avoidable cash flow issues.  This is particularly important where your suppliers might be facing payment issues from their other customers and clients who are under COVID-19 induced financial pressures.

The PPN points to the Department of Finance’s Supplier Pay On-Time or Pay Interest Policy which requires:

  • Using payment cards as a preferred option for payments to suppliers valued below $10,000 (this means payments are made immediately); and
  • Maximum payment terms of 20 calendar days for contracts valued up to $1 million, or 5 calendar days when the supplier and agency have e-Invoicing capability. Where payment is not made to a supplier by these timeframes, interest is payable.

However, the PPN encourages Commonwealth entities to do better and exceed these maximum payment terms.

Key contacts

COVID-19: Implications for Business

The spread of Coronavirus (COVID-19) has forced us to think and act differently. Beyond the human response, now is the time to think about what the consequences may be on your business, and how best you can prepare for those.

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