Defence Procurement Manual

Defence Procurement Policy Manual
1 July 2011
Mandatory Procurement Guidance for Defence and DMO Staff
Defence Procurement Policy Manual Foreword
Foreword
The Department of Defence conducts more procurement than almost any organisation in Australia. It comes as no surprise, then, to realise that procurement policy is an important foundation stone to our operations, particularly within the Defence Materiel Organisation. This role as a significant procuring agency has also been emphasised by the recent release of the 2009 report Defending Australia in the Asia Pacific Century: Force 2030 (The Defence White Paper) and the savings requirements outlined in the Strategic Reform Program. Given the ever increasing demands on Defence at all levels, clear and easily accessible procurement policy is more important than ever. The Defence Procurement Policy Manual (DPPM) is the primary reference document for all Defence officials involved in the procurement process and provides procurement officers and others involved in the procurement process with up to date mandatory policy and guidance. The DPPM is intended to be used in conjunction with other Defence documents such as the Defence and DMO CEIs and contracting templates. The authority for the DPPM comes from the Defence and DMO Chief Executives Instructions (CEIs). The DPPM incorporates guidance from the Financial Management and Accountability Act 1997 (Cth), the Financial Management and Accountability Regulations 1997 (Cth) and the Commonwealth Procurement Guidelines December 2008. Effective management across the procurement lifecycle, from the conception of an idea through contract to project closure, is vital to Defence in delivering projects on time, on budget and to the required quality, capability and safety standards. The development of a mature relationship with industry and the use of sound procurement and contract management principles will assist Defence in achieving superior procurement outcomes, in particular the savings required under the Strategic Reform Program and the requirement to deliver to Government the capability required in the Defence White Paper. Commercial Policy and Practice Branch within the DMO Office of Special Counsel is the sponsoring authority for the DPPM. Under the direction of General Manager Commercial the DPPM is currently being reviewed with the objective of streamlining the information provided and ensuring consistency with updated legislation and policy. The ultimate goal of the current DPPM review process is to ensure that the DPPM is primarily a compliance focused manual which will ensure that key procurement requirements are more easily identified and complied with. The DPPM will now be released on a regular basis to ensure the currency of information. To this end, I am now pleased to release to you this updated version of the DPPM. I trust you will find it a useful and informative resource as you conduct your procurement activities in Defence.
HARRY DUNSTALL General Manager Commercial
Approved by GM Com 1 July 2011
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Defence Procurement Policy Manual Notices
Notices
NOTE TO EXTERNAL USERS:
Those users external to Defence should be aware that the Defence Procurement Policy Manual (DPPM) has been prepared for the guidance of Defence staff involved in procurement activities. Nothing in the DPPM should be construed as a representation as to the future conduct of the Commonwealth in any particular procurement activities. The DPPM should not be relied upon as a substitute for independent legal or procurement policy advice. Please note that while the Commercial Policy Help Desk can respond to DPPM policy questions, this service is not available to those outside of Defence. Contractors should, in the first instance, seek guidance from the relevant Contact Officer for their specific procurement.
Commonwealth of Australia 2011 This work is copyright. You may download, display, print and reproduce this material in unaltered form only (retaining this notice) for your personal, non-commercial use or use within your organisation. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved. Requests and inquiries concerning reproduction and rights should be addressed to Commonwealth Copyright Administration, Attorney Generals Department, National Circuit, Barton ACT 2600 or posted at http://www.ag.gov.au/cca
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Defence Procurement Policy Manual Introduction
Introduction
Commonwealth Procurement Guidance
Procurement conducted within the Commonwealth is governed by the Department of Finance and Deregulations legislative and policy framework comprising: the Financial Management and Accountability (FMA) Act 1997 (Cth); the Financial Management and Accountability Regulations (FMAR) 1997 (Cth); and the Commonwealth Procurement Guidelines (CPGs) and related Department of Finance and Deregulation (DOFD) Finance Circulars.
The FMAR 7(4)) require officials performing duties in relation to procurement to act in accordance with the Commonwealth Procurement Guidelines (CPGs).
Whole of Defence Procurement Guidance

Procurement in the Department of Defence is further governed by a series of policy and procedural documents. These documents have different levels of applicability and enforceability determined by reference to Defence Instruction (General) ADMIN 00-001 - The System of Defence Instructions (SoDI). The SoDI provides the following hierarchy for financial and procurement related policy and procedural documents: Defence and Defence Materiel Organisation (DMO) Chief Executives Instructions (CEIs); and the Defence Procurement Policy Manual (DPPM) - as a Defence Manual.
Defence CEI 2.1 (Procurement) requires officials undertaking procurement to have regard to the DPPM. DMO CEI 2.1 (Procurement) requires DMO officials performing duties in relation to procurement to comply with the DPPM.
Defence Procurement Policy Manual System

The DPPM is the primary reference document for all Defence and DMO officials involved in the procurement process. Unless otherwise specified, a reference to Defence should be interpreted as a reference to Defence and the DMO. The General Manager Commercial DMO (GM Com) is the sponsoring authority for the DPPM as the whole of Defence Business Policy Owner for procurement policy and procurement professionalisation. Within the Office of Special Counsel, the DPPM is maintained by the Directorate of Commercial Policy with assistance from a wide range of specialist areas (which are listed on its website). The guidance provided in the DPPM incorporates mandatory procurement policy drawn from the higher level Commonwealth or Defence procurement guidance, in particular the CPGs. These requirements are mandatory for all Defence officials. The format of DPPM chapters is being progressively updated to highlight mandatory procurement policy at the start of each chapter. Obligations which must be complied with, in all circumstances, are denoted by the use of the term must within the mandatory policy section at the beginning of each chapter. The use of the term should denotes matters of best practice.
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Defence Procurement Policy Manual Introduction Where urgent DPPM updates are required, or procurement related advice needs to be promulgated, Departmental Procurement Policy Instructions (DPPIs) are released. Accordingly, the DPPM must be read in conjunction with all current DPPIs until the relevant DPPI is incorporated into the DPPM and/or cancelled. Further sources of policy and procedure applicable to whole of Defence procurement include: the ASDEFCON suite of tendering and contracting templates and the Infrastructure Division Suite of Contracts. Please note, that where an existing template is appropriate to the type of procurement being undertaken, the use of that template is mandatory; Process Templates when developed, these tools will provide best practice templates for a range of procurement process issues, such as tender evaluation or drafting source evaluation reports; and the Better Practice Guides when and as developed, these guides will provide sound practice guidance for certain procurement related activities. In line with the publication of these guides, the guidance material currently contained in the DPPM may be moved into these guides in order to reduce duplication.
DMO Procurement Guidance

Within the DMO, specific functional level policy falls under the System of Defence Materiel Instructions (SDMI) hierarchy. Compliance with DMO functional policy is mandatory for all personnel working in the DMO. DMO officials performing duties in relation to procurement must be aware of and comply with the requirements of all relevant Defence Materiel Instructions (DMIs). Of particular importance to the procurement process is the DMI(PROC) and DMI(FIN) series of instructions.
DPPM Feedback
All feedback on the DPPM and related suggestions are welcome as the Directorate of Commercial Policy seeks to maintain the quality and currency of the DPPM. Please forward any suggestions to commercial.policy@defence.gov.au in the first instance.
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Defence Procurement Policy Manual Defence and DMO Procurement Support Areas
Defence and DMO Procurement Support Areas

Introduction
Procurement and contracting advice and support is available from a range of sources throughout the Defence portfolio. General Manager Commercial, Defence Materiel Organisation (GM Com, DMO), is the Business Process Owner (BPO) for procurement policy and procurement professionalisation and is responsible for setting and maintaining the procurement policy framework within which all Defence officials and advisors must operate. This policy framework is consistent with the whole of government procurement environment established by the Department of Finance and Deregulation (DOFD) and as promulgated in the Commonwealth Procurement Guidelines. Defence officials requiring procurement support should consult with their Group or Divisional procurement area in the first instance where such support is available. Some of the established procurement support areas are listed below. Where Defence Groups identify a requirement for contracting services, they may submit a request through their Group Head to Special Counsel to Chief Executive Officer (SCCEO) for consideration on a case by case basis.
Defence Materiel Organisation

Office of Special Counsel (OSC), Head Commercial Enabling Services (HCES) and Head Commercial and Industry Programs (HCIP) within Commercial Group aims to assist Defence and DMO to manage contracting, financial, industry, legal and process risk with respect to procurement projects through contract formation and contract management, consistent with Defences accountability and reporting framework. The organisational structure of Commercial Group is detailed below. Further information on the functions and responsibilities of each directorate within Commercial can be found in the Commercial Group Organisational Structure.
Commercial Group
Office of Special Counsel (OSC)
OSC mission is to assist Defence and DMO to manage legal and commercial risk across the capability and procurement life cycle, through the provision of strategic commercial legal and legal policy advice, and commercial policy advice. OSC is comprised of two branches: Commercial Policy and Practice (CPP) and DMO Legal. CPP works to develop, coordinate and communicate Defence-wide best practice commercial policy, innovation and practice, and professionalisation. CPP is comprised of three directorates: Commercial Policy, Commercial Innovation and Practice; and Commercial Professionalisation.
DMO Legal forms part of the OSC as the DMO corporate legal advisor. The role of DMO legal is: the primary source of strategic legal advice for the CEO and DMO executive; to ensure DMO and Defence procurement policies and practices comply with the law and Commonwealth policy; and provision of timely solutions to complex legal issues. DMO Legal is also the IP Policy owner for the whole of Defence. DMO Clients: For DMO clients the Office of Special Counsel provides the following services:
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Defence Procurement Policy Manual Defence and DMO Procurement Support Areas corporate legal advice and assistance, including advice on Intellectual Property policy and practice; engagement of external legal services through the Strategic Commercial Legal Panel; commercial policy and practice advice; and support of the system that allows for engagement of external support services through the DMO Support Services (DMOSS) Panel.
Defence (non DMO) Clients: For Defence (non DMO) clients the Office of Special Counsel provides the following services: legal advice on Intellectual Property policy and practice; commercial policy and practice advice; and support of the system that allows for engagement of external support services through the DMOSS Panel.
Defence (non DMO) clients seeking legal advice and assistance (with the exception of advice on Intellectual Property policy) and seeking to engage the services of external Legal Service Providers should contact the Defence Legal Directorate of External Legal Services dels.defencelegal@defence.gov.au. For contracting advice, Defence clients should contact their Group contracting area (if any) in the first instance.
Head Commercial Enabling Services

Commercial Enabling Services is comprised of two branches: Contracting Support and Capability Delivery Support. Contracting Support is comprised of two directorates: Contracting Services and Financial Investigation Service. Capability Delivery Support is comprised of five directorates: Cost Estimation and Assurance Unit (CEAU), Australian Industry Capability (AIC) Implementation Unit, AIC Audit, Acquisition Strategy Coordination, and Supplier Quality Assurance Service.
Head Commercial and Industry Programs

Commercial and Industry Programs is comprised of two branches: Export Programs and Industry Engagement, and Economic and Commercial Analysis. Export Programs and Industry Engagement is comprised of six directorates: Defence Export Unit, IMC/ITARS, GSC, Industry Programs (excludes GSC), Major Events, and BAO. Economic and Commercial Analysis is comprised of three directorates: Company Profiles, Economic and Commercial Analysis, and Company and Industry Performance.
Commercial Group Business Unit

Tender room management and advertising tenders sits under Business Support within the Commercial Group Business Unit.
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Defence Procurement Policy Manual Defence and DMO Procurement Support Areas Accessing Help Desk services New Commercial Policy Directorate Help Desk Functionality Commercial Policy Help Desk is used as an initial point of contact for all Defence and DMO queries relating to the DPPM and Procurement Policy. The email address is: commercial.policy@defence.gov.au. For those seeking DMOSS support, email: DMOSS.ADMIN@defence.gov.au. Personnel can register and login to DMOSS Business Management System (BMS) available from DMOSS website (http://intranet.defence.gov.au/dmoweb/sites/dmoss/comweb.asp?page=63240). DMO officers requiring access to specialist contracting support are encouraged to approach their respective Executive Director in the Contracting Services Directorate in the first instance. The current DPPI on Requesting professional services from the Office of Special Counsel Defence Materiel Organisation outlines the requirements for accessing contracting and legal services in the DMO. The DMO Chief Finance Officer is the BPO for DMO Financial Policy, including the DMO Chief Executives Instructions and associated financial delegations framework, and are a key contributor in shaping the business management of the DMO. The division has a central role in performance reporting, strategic resource management, financial accounting and the establishment of supporting business systems. The DMO Financial Policy Helpdesk can be contacted by email at mailto:dmofinance.policy@drn.mil.au or by telephone on 03 9282 3959 or 03 9282 5305
Defence
Chief Finance Officer Group
The Directorate of Financial Policy in the Financial Policy, Controls and Skilling Branch is responsible for the collective delivery of effective financial management policy and guidance, provides assurance of comprehensive financial management processes/practices to facilitate compliance with Government legislation and policy, and delivers skills development for a professionalised finance workforce. In particular, the Branch develops and promulgates the Defence Chief Executives Instructions and financial delegations. The Defence Financial Policy Helpdesk can be contacted by email at financial.policy@defence.gov.au or by telephone on (02) 6265 6111. All fax correspondence and forms for Defence Treasury and Banking should be sent to fax number (02) 6265 6592. All mail correspondence should be sent to Defence Treasury and Banking R12 A100. Email queries can be sent to treasury.banking@defence.gov.au.
Defence Support Group

As part of the Defence Support Group, Infrastructure Division manages the development, maintenance and disposal of the Defence estate and comprises six areas; Executive Support; Public Private Partnerships; Property Services; Infrastructure Asset Development; Estate Planning; and Estate Policy and Environment.
Refer to the Infrastructure Management website at http://intranet.defence.gov.au/im/ for a full set of infrastructure related core policies, procedures and business processes that cover the planning, development and delivery of the Infrastructure asset life cycle. Approved by GM Com 1 July 2011 Page Prelim3
Defence Procurement Policy Manual Defence and DMO Procurement Support Areas The Business Services, Procurement and Contracting (BSPC) Branch in DSG is responsible for procurement, contracting, commercial advice and support to DSG. BSPC also provides a broad range of services to Defence including publishing, insurance, accounts payable, accounts receivable and debt management.
Chief Information Officer Group

The ICT Sourcing Centre (ICTSC) is the Chief Information Officer (CIO) Groups centre of expertise on Information and Communications Technology (ICT) contracting policy and procurement support. Across Defence, the procurement of ICT is conducted primarily by CIOG. The Directorate of Procurement and Contracting Services in CIOG is the authority across Defence on all ICT contract and procurement matters and acts as the DMOs delegated agent for ICT procurement. Procurement officers contemplating ICT procurement should contact the ICT Sourcing Service Desk by email at CIOG.ProcurementAdvice@defence.gov.au or by telephone at (02) 6128 7778. For further information refer to the CIOG Website.
Capability Development Group

The Directorate of Capability Support (DCS) provides assistance to Capability Desk Officers in the development and drafting of business cases, capability proposals and other documents that support First Pass approval. The Directorate of Capability Operations and Plans comprises two principal elements: Operations and Governance. The Operations element provides direct support to desk officers to help with the progression of their projects into and through the Defence Capability Plan process, including: cost estimation for program costing, business case and document development and contracting and procurement assistance. The Governance element assures the completeness of operational business process and procedures and encompasses: critical group reporting; decision support; procurement assurance; group level agreements; and general reporting.
Office of the Secretary and Chief of the Defence Force Group

The Defence Export Control Office (DECO) within the Department of Defence is responsible for administering controls on the export of defence and dual use goods, and the granting of authorisations to export, in the form of permits and licences. Defence goods listed on the Defence and Strategic Goods List being exported from Australia, except for operations or training requires a DECO permit or licence. This includes items being returned to the OEM or sent overseas for repair, for demonstration purposes, as well as export of parts and components. DECO also delivers an awareness-raising program called 'Outreach'. Further information on DECO can be found at http://www.defence.gov.au/strategy/deco DECO can be contacted on 1800 66 10 66 and deco@defence.gov.au.
Intelligence and Security Group

Business Operations Directorate provides contracting and financial services to the Defence Signals Directorate, the Defence Intelligence Organisation and the Defence Imagery and Geospatial Organisation.
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Defence Procurement Policy Manual Defence and DMO Procurement Support Areas
Defence Science and Technology Organisation

Science Industry and External Relations Branch develops, promulgates, supports and monitors the Defence Science and Technology Organisations (DSTO) industry and external relations engagement. The DSTO Business and Commercialisation Office within the Science Industry and External Relations Branch provides advice and support on issues associated with DSTOs interaction with industry and is the initial point of contact for contracting matters. The DSTO facilitates business and commercial activities undertaken by the laboratories, including the management of DSTO intellectual property and the formation of agreements with industry, universities, Cooperative Research Centres, and the wider science and technology community.
Navy
Defence Instruction (Navy) LOG 77-4 Navy Procurement and Navy Contract Register states that the Directorate Navy Industry Engagement & Contracting Bureau (DNIECB) is the only specialist contracting organisation within Navy. The DNIECB provides the following roles and functions to Navy: development and management of a national baseline for DSG service delivery to Navy through CSA/SLA arrangements; co-ordination of performance measurement, customer satisfaction and reporting of DSG service delivery to Navy; advice and assistance to Navy managers on all aspects of commercial contracting activities including the review of contracts and contract management practices; guidance on baselining of services, performance measurement and production of statements of work; and administration of assigned contracts.
How to request external legal services

External legal services must be procured in accordance with the Attorney Generals Legal Services Directions 2005. In Defence and the DMO, all external legal services are engaged through the Defence Legal Services Panels that have been established under deeds of standing offer. Defence has Legal Services Panels across 16 areas of legal expertise. DMO Legal is responsible for the dayto-day management of the Strategic Commercial panel. Defence Legal (in particular the Directorate of External Legal Services, DELS) is responsible for the management of the remaining fifteen panels, as well as the overall governance of all sixteen Legal Services Panels. The Legal Services Panels are used for all legal work supporting Defence activities other than those provided by the Defence Legal Service or DMO Legal. To procure external legal services for Defence contact the Directorate of External Legal Services by emailing dels.defencelegal@defence.gov.au. To procure external legal services for DMO refer to Departmental Procurement Policy Instruction (DPPI) 21/2009 Requesting professional services from the Office of Special Counsel Defence Materiel Organisation. Queries regarding the engagement of external legal services providers can be obtained by emailing DMO.LegalPanel@defence.gov.au. Pending the issue of a new Defence Instruction (General) Legal regarding the provision of legal services, procedures for the use of the current Defence Legal Services Panel are set out in DEFGRAM No 681/2009 - Engagement of External Legal Service Providers. Further information on the use of the panel can be obtained by contacting a Legal Services Coordinator. Procurement officers who require external legal advice must not engage external legal service providers directly. External legal advice in relation to procurement of good and services can only be obtained through the Office of Special Counsel (for DMO), and through Defence Legal (for Defence).
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Defence Procurement Policy Manual Defence and DMO Procurement Support Areas Legal Process or Probity Services Procurement officers should note that probity services in Defence are not considered legal services and are not procured under the Legal Services Panel, however DMO officers should approach DMO Legal regarding the engagement of independent legal process or probity advisors in the DMO.
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Defence Procurement Policy Manual Complex Procurement Process Flowchart
Complex Procurement Process Flowchart
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Defence Procurement Policy Manual Simple Procurement Process Flowchart
Simple Procurement Process Flowchart
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Defence Procurement Policy Manual Table of Contents
Table of Contents
Simple Procurement Process Introduction ...............................................................................................................................1 Mandatory Policy.......................................................................................................................1 Operational Guidance ...............................................................................................................3 Simple Procurement Defined ...............................................................................................3 Simple Procurement - A Risk Based Approach ...................................................................3 Conducting Simple Procurement Step by Step ................................................................5 Regular or On Going Requirements ..................................................................................13 Purchasing Card ................................................................................................................13 Defence Travel Card..........................................................................................................14 Delegations, Competencies and Proficiencies ..................................................................14 Key References.......................................................................................................................15 1.1 The Legal Framework ....................................................................................................... 1.11 Introduction ....................................................................................................................... 1.11 Mandatory Policy............................................................................................................... 1.11 Operational Guidance ....................................................................................................... 1.11 Overview ...................................................................................................................... 1.11 Executive Function....................................................................................................... 1.11 Judicial Function .......................................................................................................... 1.12 Legislative Function ..................................................................................................... 1.12 Procurement Framework Hierarchy ............................................................................. 1.13 Key References................................................................................................................. 1.14 Commonwealth Procurement Guidelines ......................................................................... 1.21 Introduction ....................................................................................................................... 1.21 Mandatory Policy............................................................................................................... 1.21 Operational Guidance ....................................................................................................... 1.21 Overview ...................................................................................................................... 1.21 CPG Introduction ......................................................................................................... 1.22 CPGs Division 1 - Procurement Principles .................................................................. 1.22 CPGs Division 2 - Mandatory Procurement Procedures ............................................. 1.23 Policies that Interact with Procurement ....................................................................... 1.26 Finance Circulars and Guidance.................................................................................. 1.27 Key References................................................................................................................. 1.27 Simple, Complex and Strategic Procurement ................................................................... 1.31 Introduction ....................................................................................................................... 1.31 Mandatory Policy............................................................................................................... 1.31 Operational Guidance ....................................................................................................... 1.31 Overview ...................................................................................................................... 1.31 Simple Procurement Defined ....................................................................................... 1.31 Complex Procurement Defined.................................................................................... 1.32 Strategic Procurement Defined.................................................................................... 1.32 Key References................................................................................................................. 1.33 Delegations for Procurement ............................................................................................ 1.41 Introduction ....................................................................................................................... 1.41 Page i
1.2
1.3
1.4
Mandatory Policy............................................................................................................... 1.41 Operational Guidance ....................................................................................................... 1.42 Background .................................................................................................................. 1.42 Defence and DMO Approval Framework..................................................................... 1.44 Specific Delegate Considerations ................................................................................ 1.44 DMO Specific Procedures............................................................................................ 1.45 Financial Management and Accountability Regulation (FMAR) 10 ............................. 1.46 Proposal Approver ....................................................................................................... 1.47 Procurement Approver................................................................................................. 1.48 Contract Approver........................................................................................................ 1.48 Contract Signatory ....................................................................................................... 1.48 Receipt and Spending of Public Money by Outsiders in the DMO .............................. 1.48 Recording of Delegations............................................................................................. 1.48 Splitting a Requirement................................................................................................ 1.49 Additional Approvals .................................................................................................... 1.49 Competency Requirements for Delegates................................................................. 1.410 Contractors Exercising Financial Delegations ........................................................... 1.410 Delegation Requirements for Contract Amendments ................................................ 1.411 Delegation Requirements for Standing Offers and Orders under Standing Offers ... 1.411 Simple and Complex Procurement Competencies .................................................... 1.412 Additional Training ..................................................................................................... 1.414 Key References............................................................................................................... 1.414 2.1 Contract Law and Legal Advice ........................................................................................ 2.11 Introduction ....................................................................................................................... 2.11 Mandatory Policy............................................................................................................... 2.11 Operational Guidance ....................................................................................................... 2.11 Background .................................................................................................................. 2.11 Circumstances in which Contracts are Invalid ............................................................. 2.13 Contract Terms ............................................................................................................ 2.15 Privity of Contract......................................................................................................... 2.16 Interpreting a Contract ................................................................................................. 2.16 Common Law and the Tendering Process .................................................................. 2.16 When to Seek Legal Advice......................................................................................... 2.16 Key References................................................................................................................. 2.17 Types of Contract.............................................................................................................. 2.21 Introduction ....................................................................................................................... 2.21 Mandatory Policy............................................................................................................... 2.21 Operational Guidance ....................................................................................................... 2.21 Background .................................................................................................................. 2.21 Choosing a Contract Type ........................................................................................... 2.21 Firm Price Contracts .................................................................................................... 2.22 Variable Price Contracts .............................................................................................. 2.23 Variable Quantity Contracts ......................................................................................... 2.24 Cost Reimbursement Contracts................................................................................... 2.24 Target Cost Incentive Contracts .................................................................................. 2.25 Other Contracting Methodologies and Contract Types ............................................... 2.26 Key References................................................................................................................. 2.28 Standard Defence Contracting Templates........................................................................ 2.31 Introduction ....................................................................................................................... 2.31 Mandatory Policy............................................................................................................... 2.31 Operational Guidance ....................................................................................................... 2.31 Overview ...................................................................................................................... 2.31 ASDEFCON Suite of Tendering and Contracting Templates ...................................... 2.32 Improvement of ASDEFCON Templates ..................................................................... 2.32 Page ii
2.2
2.3
Defence Facilities Contracting Templates ................................................................... 2.32 Non Approved Defence Contracting Templates .......................................................... 2.34 Key References................................................................................................................. 2.34 2.4 3.1 Not Used ........................................................................................................................... 2.41 Procurement Methods....................................................................................................... 3.11 Introduction ....................................................................................................................... 3.11 Mandatory Policy............................................................................................................... 3.11 Operational Guidance ....................................................................................................... 3.12 Background .................................................................................................................. 3.12 Procurement Methods.................................................................................................. 3.13 Selecting a Procurement Method...................................................................................... 3.13 Open Tender Process.................................................................................................. 3.13 Select Tender Process................................................................................................. 3.14 Direct Source Tender Process..................................................................................... 3.15 Reporting Methods of Procurement for Standing Offers in the DMO .......................... 3.18 Record Keeping Maintaining an Audit Trail .............................................................. 3.19 Rapid Acquisitions ....................................................................................................... 3.19 Conducting Direct Source Procurement ...................................................................... 3.19 Factors Affecting Procurement Method ..................................................................... 3.110 Key References............................................................................................................... 3.111 Risk Management in Procurement.................................................................................... 3.21 Introduction ....................................................................................................................... 3.21 Risk Management Policy ............................................................................................. 3.21 Definition ...................................................................................................................... 3.21 Risk Issues in Public Sector Procurement................................................................... 3.21 Risk Management Processes ...................................................................................... 3.22 Project Risk Score ....................................................................................................... 3.26 The Contract and Risk Management ........................................................................... 3.26 Australian New Zealand Standard ............................................................................... 3.26 Chapter Summary ............................................................................................................. 3.26 Further Reading ................................................................................................................ 3.27 Financial Policy and Advice in the Procurement Process................................................. 3.31 Introduction ....................................................................................................................... 3.31 Mandatory Policy............................................................................................................... 3.31 Operational Guidance ....................................................................................................... 3.31 Commonwealth Foreign Exchange Policy ................................................................... 3.31 Price Basis and Price Variation.................................................................................... 3.32 Selection of Australian and US Indexes for Contracts - DMO Specific ....................... 3.33 Financial Investigations................................................................................................ 3.34 Financial Investigation Services................................................................................... 3.34 Financial Viability and Capability of Tenderers............................................................ 3.34 When to Seek Financial Advice ................................................................................... 3.36 Financial Evaluation of Offers ...................................................................................... 3.37 Key References................................................................................................................. 3.38 Earned Value Management .............................................................................................. 3.41 Introduction ....................................................................................................................... 3.41 Mandatory Policy............................................................................................................... 3.41 Operational Guidance ....................................................................................................... 3.41 Use of Earned Value Management by DMO ............................................................... 3.41 Application of Earned Value Management to DMO Contracts .................................... 3.42 Contractor Reviews...................................................................................................... 3.43 Data Reporting and Analysis ....................................................................................... 3.43 Page iii
3.2
3.3
3.4
Key References................................................................................................................. 3.43 3.5 Quality Assurance ............................................................................................................. 3.51 Introduction ....................................................................................................................... 3.51 Defence Policy ............................................................................................................. 3.51 Quality Assurance Responsibilities.............................................................................. 3.52 Risk Assessment ......................................................................................................... 3.53 Selecting the Means of Assuring Quality ..................................................................... 3.53 Quality Assurance and the ASDEFCON Templates.................................................... 3.53 Quality Assurance Requirement Type Clauses ........................................................... 3.54 Certification of Contractors Quality System ................................................................ 3.55 Sourcing of Testing and Calibration Services for Measuring Equipment .................... 3.56 Quality Assurance Arrangements with Foreign Governments..................................... 3.56 Quality Assurance Representatives............................................................................. 3.56 Quality Assurance Training.......................................................................................... 3.57 Chapter Summary ............................................................................................................. 3.57 Further Reading ................................................................................................................ 3.57 Intellectual Property .......................................................................................................... 3.61 Introduction ....................................................................................................................... 3.61 Mandatory Policy............................................................................................................... 3.61 Operational Guidance ....................................................................................................... 3.61 What is Intellectual Property ........................................................................................ 3.61 Defence Categories of IP............................................................................................. 3.62 Defence Policy ............................................................................................................. 3.63 Software Licensing....................................................................................................... 3.64 Contractual Provisions ................................................................................................. 3.65 Key References................................................................................................................. 3.65 Defence Procurement and the GST.................................................................................. 3.71 Introduction ....................................................................................................................... 3.71 Mandatory Policy............................................................................................................... 3.71 Operational Guidance ....................................................................................................... 3.71 What is the GST........................................................................................................... 3.71 Charging GST .............................................................................................................. 3.71 Requirement to Issue Tax Invoices.............................................................................. 3.72 GST Transitional Rules................................................................................................ 3.73 GST in Defence Contracts ........................................................................................... 3.73 Reimbursement of Defence Expenses ........................................................................ 3.75 GST Advice .................................................................................................................. 3.75 Further Reading ................................................................................................................ 3.76 Defence Materiel Organisation Company ScoreCards..................................................... 3.81 Introduction ....................................................................................................................... 3.81 Mandatory Policy............................................................................................................... 3.81 Operational Guidance ....................................................................................................... 3.81 Objective ...................................................................................................................... 3.81 Application of Company Scorecards............................................................................ 3.82 Compiling the Company ScoreCard Assessment........................................................ 3.82 Use of Company Scorecards During Tender Evaluation............................................. 3.83 360 View ScoreCard Program.................................................................................... 3.84 Further Assistance ....................................................................................................... 3.84 Key References................................................................................................................. 3.84 Defence Security Requirements ....................................................................................... 3.91 Introduction ....................................................................................................................... 3.91 Mandatory Policy............................................................................................................... 3.91 Page iv
3.6
3.7
3.8
3.9
Operational Guidance ....................................................................................................... 3.91 Role of Procurement Officers....................................................................................... 3.91 Defence Security Manual............................................................................................. 3.92 Defence Industry Security Program ............................................................................. 3.92 Security Clearances..................................................................................................... 3.92 Release of Classified Material ..................................................................................... 3.93 Foreign Tenderers or Contractors................................................................................ 3.93 Security Classification and Categorisation Guides ...................................................... 3.93 Access to Defence Facilities ........................................................................................ 3.93 Facility Security Accreditation and ICT System Security Accreditation ....................... 3.94 Security Clauses in Tendering Documentation............................................................ 3.94 Security Performance during Contract Execution........................................................ 3.94 Further Information ...................................................................................................... 3.95 Key References................................................................................................................. 3.95 3.10 Interacting Policies .......................................................................................................... 3.101 Introduction ..................................................................................................................... 3.101 Mandatory Policy............................................................................................................. 3.101 Operational Guidance ..................................................................................................... 3.102 FMA Regulation 9 ...................................................................................................... 3.102 Australian Industry Participation ................................................................................ 3.102 Coordinated Procurement.......................................................................................... 3.102 Employment and Workplace Relations...................................................................... 3.102 Environmental ............................................................................................................ 3.103 Financial..................................................................................................................... 3.104 Information Communications and Technology (ICT) ................................................. 3.104 International Obligations ............................................................................................ 3.104 Legal 3.105 Security ...................................................................................................................... 3.105 Social Inclusion .......................................................................................................... 3.105 Other Policy Obligations ............................................................................................ 3.106 Key References............................................................................................................... 3.106 3.11 Confidential Information .................................................................................................. 3.111 Introduction ..................................................................................................................... 3.111 Mandatory Policy............................................................................................................. 3.111 Operational Guidance ..................................................................................................... 3.112 Background ................................................................................................................ 3.112 Commercial-in-Confidence Information .......................................................................... 3.112 Treatments of Information in Tenders, Standing Offers and Contracts ..................... 3.112 Disclosure of Commercial-in-Confidence Information ............................................... 3.116 Signing of Non-Disclosure Agreements by Defence Personnel ................................ 3.117 Senate Order.............................................................................................................. 3.119 Confidential Information .................................................................................................. 3.119 Defence to an Action for Breach of Confidence....................................................... 3.1111 Key References............................................................................................................. 3.1111 3.12 Australian Industry Capability ......................................................................................... 3.121 Introduction ..................................................................................................................... 3.121 Mandatory Policy............................................................................................................. 3.121 Operational Guidance ..................................................................................................... 3.121 Australian Industry Participation ................................................................................ 3.121 Defence Industry Policy ............................................................................................. 3.121 Australian Industry Capability (AIC) Program ............................................................ 3.122 AIC Program Requirements....................................................................................... 3.123 Waiver from an AIC Plan ........................................................................................... 3.124 Industry Assistance.................................................................................................... 3.125 Approved by GM Com 1 July 2011 Page v
Involvement of New Zealand Industry in AIC............................................................. 3.125 Key References............................................................................................................... 3.126 3.13 Ethics in Procurement ..................................................................................................... 3.131 Introduction ..................................................................................................................... 3.131 Mandatory Policy............................................................................................................. 3.131 Operational Guidance ..................................................................................................... 3.131 Legislative and Policy Framework ............................................................................. 3.131 Probity ........................................................................................................................ 3.133 Probity Auditors.......................................................................................................... 3.134 Conflicts of Interest .................................................................................................... 3.135 Key References............................................................................................................... 3.136 3.14 Legislation Affecting Procurement .................................................................................. 3.141 Introduction ..................................................................................................................... 3.141 Mandatory Policy............................................................................................................. 3.141 Operational Guidance ..................................................................................................... 3.141 Implications for Defence Contracts............................................................................ 3.141 Applicability of State and Territory Legislation........................................................... 3.141 Consumer Protection Legislation ............................................................................... 3.142 Contracts pre-1 January 2011 ................................................................................... 3.143 Superannuation Legislation ....................................................................................... 3.143 Taxation ..................................................................................................................... 3.144 Workers Compensation ............................................................................................. 3.144 Privacy Act Requirements.......................................................................................... 3.145 Anti-Discrimination Legislation................................................................................... 3.147 Occupational Health and Safety and Contractors...................................................... 3.148 Environmental Legislation.......................................................................................... 3.149 Key References............................................................................................................... 3.149 3.15 Indemnities, Limitation of Liability and Insurance ........................................................... 3.151 Introduction ..................................................................................................................... 3.151 Mandatory Policy............................................................................................................. 3.151 Operational Guidance ..................................................................................................... 3.152 Indemnities................................................................................................................. 3.152 Limitation of Liability................................................................................................... 3.153 Insurance ................................................................................................................... 3.156 Key References............................................................................................................. 3.1513 3.16 Environment in Procurement .......................................................................................... 3.161 Introduction ..................................................................................................................... 3.161 Mandatory Policy............................................................................................................. 3.161 Operational Guidance ..................................................................................................... 3.162 Legislative Framework ............................................................................................... 3.162 Key Commonwealth Environmental Policies ............................................................. 3.163 Defence Environmental Policies ................................................................................ 3.164 Key Considerations In Conducting Environmental Purchasing ................................. 3.165 Key References............................................................................................................... 3.168 4.1 Partnering and Teaming Arrangements............................................................................ 4.11 Introduction ....................................................................................................................... 4.11 Partnering Arrangements............................................................................................. 4.11 Teaming Arrangements ............................................................................................... 4.13 Advice on Partnering and Teaming Arrangements...................................................... 4.14 Chapter Summary ............................................................................................................. 4.14 Overseas Procurement ..................................................................................................... 4.21 Page vi
4.2
Introduction ....................................................................................................................... 4.21 Mandatory Policy............................................................................................................... 4.21 Operational Guidance ....................................................................................................... 4.22 Background .................................................................................................................. 4.22 The role of DEFMAT and CONDMAT Offices ............................................................. 4.22 Purchasing through Counsellor Defence Materiel Offices........................................... 4.23 Foreign Military Sales .................................................................................................. 4.25 Export Compliance............................................................................................................ 4.27 Export Licences ........................................................................................................... 4.27 End User Assurances ................................................................................................ 4.210 Banking and Foreign Exchange Arrangements ......................................................... 4.210 Key References............................................................................................................... 4.211 4.3 Whole of Government Procurement Contracts, Arrangements and Initiatives ................. 4.31 Introduction ....................................................................................................................... 4.31 Mandatory Policy............................................................................................................... 4.31 Operational Guidance ....................................................................................................... 4.32 Background .................................................................................................................. 4.32 Coordinated Procurement............................................................................................ 4.32 Cooperative Procurement ............................................................................................ 4.32 Information Communication and Technology (ICT) Procurement ............................... 4.33 Multi-use Lists .............................................................................................................. 4.34 Key References................................................................................................................. 4.34 Public Private Partnerships ............................................................................................... 4.41 Introduction ....................................................................................................................... 4.41 Mandatory Policy............................................................................................................... 4.41 Operational Guidance ....................................................................................................... 4.41 Background .................................................................................................................. 4.41 Public Private Partnership Suitability ........................................................................... 4.42 Interim Business Case ................................................................................................. 4.43 Tendering Process....................................................................................................... 4.44 Financier Due Diligence and Approval ........................................................................ 4.45 Contract Signature ....................................................................................................... 4.45 Contract Management and Performance Reporting .................................................... 4.46 Refinancing Post Construction Phase ......................................................................... 4.46 Advice on Public Private Partnership Arrangements................................................... 4.46 Key References................................................................................................................. 4.47 Evolutionary Acquisition .................................................................................................... 4.51 Introduction ....................................................................................................................... 4.51 Evolutionary Acquisition Defined ................................................................................. 4.51 When to use Evolutionary Acquisition ......................................................................... 4.53 When not to use Evolutionary Acquisition ................................................................... 4.54 Conducting Evolutionary Acquisition ........................................................................... 4.55 Evolutionary Acquisition Contracting Approaches ....................................................... 4.58 Chapter Summary ........................................................................................................... 4.510 Electronic Procurement..................................................................................................... 4.61 Introduction ....................................................................................................................... 4.61 Mandatory Policy............................................................................................................... 4.61 Operational Guidance ....................................................................................................... 4.61 Background .................................................................................................................. 4.61 Use of E-mail in Defence Procurement ....................................................................... 4.62 Electronic Advertising, Tendering and Reporting ........................................................ 4.64 Integrated E-Procurement............................................................................................ 4.64 Page vii
4.4
4.5
4.6
Use of the Defence/DMO Purchasing Card on the Internet ........................................ 4.64 Further Information ...................................................................................................... 4.65 Key References................................................................................................................. 4.65 4.7 4.8 Not Used ........................................................................................................................... 4.71 Standing Offers ................................................................................................................. 4.81 Introduction ....................................................................................................................... 4.81 Mandatory Policy............................................................................................................... 4.81 Operational Guidance ....................................................................................................... 4.82 Background .................................................................................................................. 4.82 Establishing Standing Offers........................................................................................ 4.82 Compliance Requirements for Standing Offers Established Pre 1 January 2005....... 4.84 Placing Orders under Standing Offers......................................................................... 4.85 Signing a Standing Offer as a Deed ............................................................................ 4.86 Local Business Rules................................................................................................... 4.86 Further Advice on Standing Offers .............................................................................. 4.86 Key References................................................................................................................. 4.86 Staged Procurement ......................................................................................................... 4.91 Introduction ....................................................................................................................... 4.91 Overview ...................................................................................................................... 4.91 Using a Staged Procurement Strategy ........................................................................ 4.91 Request for Information ............................................................................................... 4.92 Invitation to Register Interest ....................................................................................... 4.92 Requests for Proposal (RFP)....................................................................................... 4.94 Activities following the Release of an Invitation to Register or Request for Proposal . 4.95 Project Definition Studies............................................................................................. 4.96 Prototype/Pre-Production Development Stage............................................................ 4.96 Chapter Summary ............................................................................................................. 4.97
4.9
4.10 Services Contracts and Agency Relationships ............................................................... 4.101 Introduction ..................................................................................................................... 4.101 Mandatory Policy............................................................................................................. 4.101 Operational Guidance ..................................................................................................... 4.102 Background ................................................................................................................ 4.102 Employer/Employee Relationship .............................................................................. 4.103 Contracting with a Natural Person ............................................................................. 4.104 Creation of an Agency Relationship with Contractors ............................................... 4.105 Travelling Arrangements for Contracted Personnel................................................... 4.106 Other Issues............................................................................................................... 4.107 Key References............................................................................................................... 4.109 4.11 Not Used ......................................................................................................................... 4.111 4.12 Defence Unsolicited Proposals ....................................................................................... 4.121 Introduction ..................................................................................................................... 4.121 Mandatory Policy............................................................................................................. 4.121 Operational Guidance ..................................................................................................... 4.121 Background ................................................................................................................ 4.121 Definition of UPPO and UIP....................................................................................... 4.122 Submitting Unsolicited Promotional Products Offers (UPPO) ................................... 4.122 Processing Unsolicited Promotional Products Offers (UPPO) .................................. 4.122 Submitting Unsolicited Innovative Proposals (UIP) ................................................... 4.123 Evaluating an Unsolicited Innovative Proposal (UIP) ................................................ 4.124 Reasons for Declining an Unsolicited Innovative Proposal (UIP).............................. 4.124 Protection of Confidential Information and Intellectual Property................................ 4.125 Procurement of an Unsolicited Proposal ................................................................... 4.125 Approved by GM Com 1 July 2011 Page viii
Audit Requirements ................................................................................................... 4.126 Unsolicited Proposals Help Desk............................................................................... 4.126 Key References............................................................................................................... 4.126 4.13 Not Used ......................................................................................................................... 4.131 4.14 Not Used ......................................................................................................................... 4.141 4.15 The Capability & Technology Demonstrator Program .................................................... 4.151 Introduction ..................................................................................................................... 4.151 Mandatory Policy............................................................................................................. 4.151 Operational Guidance ..................................................................................................... 4.151 CTD Program Background......................................................................................... 4.151 CTD Project Governance Structure ........................................................................... 4.152 CTD Program Lifecycle.............................................................................................. 4.153 Key References............................................................................................................... 4.156 5.0 The Capability Lifecycle .................................................................................................... 5.01 Introduction ....................................................................................................................... 5.01 Mandatory Policy............................................................................................................... 5.01 Operational Guidance ....................................................................................................... 5.01 Background .................................................................................................................. 5.01 Definitions and Phases ................................................................................................ 5.01 First and Second Pass................................................................................................. 5.02 Key References................................................................................................................. 5.03 Planning Complex & Strategic Procurements................................................................... 5.11 Introduction ....................................................................................................................... 5.11 Mandatory Policy............................................................................................................... 5.11 Operational Guidance ....................................................................................................... 5.11 Overview ...................................................................................................................... 5.11 Planning for Procurement ............................................................................................ 5.11 Procurement Plan Components................................................................................... 5.12 Review of the Procurement Plan ................................................................................. 5.13 Record Keeping Maintaining an Audit Trail .............................................................. 5.13 Key Reference .................................................................................................................. 5.14 Not Used ........................................................................................................................... 5.21 Selecting a Procurement Process..................................................................................... 5.31 Introduction ....................................................................................................................... 5.31 Mandatory Policy............................................................................................................... 5.31 Operational Guidance ....................................................................................................... 5.31 Choosing a Procurement Method ................................................................................ 5.31 Contracting Methodologies .......................................................................................... 5.31 Request for Tender Process ........................................................................................ 5.32 Staged Procurement .................................................................................................... 5.32 Standing Offers ............................................................................................................ 5.33 Coordinated Procurements .......................................................................................... 5.33 Foreign Military Sales .................................................................................................. 5.33 Key References................................................................................................................. 5.33 Request Documentation.................................................................................................... 5.41 Introduction ....................................................................................................................... 5.41 Mandatory Policy............................................................................................................... 5.41 Operational Guidance ....................................................................................................... 5.42 Background .................................................................................................................. 5.42 Request Documentation for Simple Procurement ....................................................... 5.43 Page ix
5.1
5.2 5.3
5.4
Request Documentation for Complex and Strategic Procurement.............................. 5.43 Covering Letter or Other Form of Request for Tender Introduction............................. 5.43 Conditions of Tender.................................................................................................... 5.44 Draft Conditions of Contract......................................................................................... 5.44 Draft Statement of Work .............................................................................................. 5.44 Request Documentation for Covered Procurements ................................................... 5.44 Request Documentation for Single Supplier Direct Source Procurements (Sole Source)5.46 Evaluation Criteria........................................................................................................ 5.47 Tender Evaluation Plans.............................................................................................. 5.49 Legal Process and Probity Plans ............................................................................... 5.410 Advertising Business Opportunities ........................................................................... 5.411 Record Keeping Maintaining an Audit Trail ............................................................ 5.411 Industry Briefings ....................................................................................................... 5.411 Communication with Potential Suppliers and Tenderers........................................... 5.412 Amendments to Request Documentation .................................................................. 5.412 Re-Tendering ............................................................................................................. 5.412 Cancelling a Procurement.......................................................................................... 5.413 Reimbursement of Re-Tendering Costs .................................................................... 5.413 Key References............................................................................................................... 5.414 5.5 Tender Advertising, Submission and Receipt................................................................... 5.51 Introduction ....................................................................................................................... 5.51 Mandatory Policy............................................................................................................... 5.51 Operational Guidance ....................................................................................................... 5.51 Defence Policy ............................................................................................................. 5.51 Minimum Time Limits for Covered Procurements........................................................ 5.52 Tender Closing Date, Time and Place......................................................................... 5.52 Procedures for Advertising Tenders ............................................................................ 5.53 Tender Room Requirements........................................................................................ 5.54 Tender Lodgement Procedures ................................................................................... 5.54 Tender Collection and Opening Procedures................................................................ 5.55 Extension of Closing Date and/or Time ....................................................................... 5.55 Late Tenders ................................................................................................................ 5.55 Key References................................................................................................................. 5.57 Evaluation of Tenders ....................................................................................................... 5.61 Introduction ....................................................................................................................... 5.61 Mandatory Policy............................................................................................................... 5.61 Operational Guidance ....................................................................................................... 5.62 Checklist of Activities Occurring Prior to Evaluation .................................................... 5.62 Resources Required for Evaluation ............................................................................. 5.62 Evaluation Objectives and Principles........................................................................... 5.63 Evaluation Process ...................................................................................................... 5.66 Conduct of a More Complex Evaluation ...................................................................... 5.66 Evaluation Methodologies............................................................................................ 5.67 Use of Weightings in Tender Evaluations.................................................................... 5.69 Normalising .................................................................................................................. 5.69 Assessing Risk........................................................................................................... 5.610 Determining Value for Money .................................................................................... 5.610 Evaluation of Whole of Life Costs .............................................................................. 5.611 Cartels and Tenderer Collusion ................................................................................. 5.611 Offer Definition ........................................................................................................... 5.612 Source Selection Recommendation .......................................................................... 5.614 Source Evaluation Report .......................................................................................... 5.614 Early Notification of Tender Outcome........................................................................ 5.615 Preparing for Negotiations ......................................................................................... 5.615 Tenderer Substitution................................................................................................. 5.615 Key References............................................................................................................... 5.615 Page x
5.6
5.7A Negotiation and Contract Formation ................................................................................. 5.71 Introduction ....................................................................................................................... 5.71 Mandatory Policy............................................................................................................... 5.71 Operational Guidance ....................................................................................................... 5.72 Negotiation ................................................................................................................... 5.72 Awarding of Contracts for Covered Procurements ...................................................... 5.76 Contract Formation ...................................................................................................... 5.77 Public Announcement of Preferred Tenderer or Contract Award ................................ 5.78 Debriefing Tenderers ................................................................................................... 5.78 Key References............................................................................................................... 5.710 5.7B Procurement Complaints Handling ................................................................................... 5.71 Introduction ....................................................................................................................... 5.71 Mandatory Policy............................................................................................................... 5.71 Operational Guidance ....................................................................................................... 5.71 Background .................................................................................................................. 5.71 Internal Procedures for Handling Procurement Complaints ........................................ 5.72 External Grievance Mechanisms Available to Tenderers............................................ 5.74 Key References................................................................................................................. 5.75 5.8 Reporting Requirements ................................................................................................... 5.81 Introduction ....................................................................................................................... 5.81 Mandatory Policy............................................................................................................... 5.81 Operational Guidance ....................................................................................................... 5.82 AusTender.................................................................................................................... 5.82 Interim Defence Contracts Register............................................................................. 5.87 Consultant, Professional Service Provider and Contractor Reporting......................... 5.88 Other Reporting Requirements .................................................................................... 5.89 Key References................................................................................................................. 5.89 In-Service Support ............................................................................................................ 5.91 Introduction ....................................................................................................................... 5.91 In-Service Support Considerations .............................................................................. 5.91 Integrated Logistic Support .......................................................................................... 5.91 Procurement of In-Service Support ............................................................................. 5.92 Chapter Summary ............................................................................................................. 5.93 Further Reading ................................................................................................................ 5.93
5.9
5.10 Disposal of Defence Assets ............................................................................................ 5.101 Introduction ..................................................................................................................... 5.101 Mandatory Policy............................................................................................................. 5.101 Operational Guidance ..................................................................................................... 5.101 Background ................................................................................................................ 5.101 Disposal Policy Documents ....................................................................................... 5.101 Disposal Methodology................................................................................................ 5.102 Further Information .................................................................................................... 5.103 Key References............................................................................................................... 5.103 6.1 Contract Management Role .............................................................................................. 6.11 Introduction ....................................................................................................................... 6.11 Overview ...................................................................................................................... 6.11 Contract Management in the Defence Environment.................................................... 6.11 Contract Documentation .............................................................................................. 6.12 Roles and Responsibilities........................................................................................... 6.12 Contract Management Plan ......................................................................................... 6.14 Establishing Contract Management Systems .............................................................. 6.15 Page xi
Relationship Management ........................................................................................... 6.15 Chapter Summary ............................................................................................................. 6.17 Further Reading ................................................................................................................ 6.17 6.2 Performance Management................................................................................................ 6.21 Introduction ....................................................................................................................... 6.21 Performance Management .......................................................................................... 6.21 Key Performance Indicators......................................................................................... 6.22 Management of Risk .................................................................................................... 6.23 Financial and Performance Guarantees ...................................................................... 6.24 Quality Assurance........................................................................................................ 6.25 Managing Subcontractor Performance ........................................................................ 6.26 Contract Performance Reviews ................................................................................... 6.27 Company Scorecard System ....................................................................................... 6.28 Access to Contractor Premises and Records .............................................................. 6.28 Chapter Summary ............................................................................................................. 6.29 Further Reading .............................................................................................................. 6.210 Provision of Commonwealth Assistance........................................................................... 6.31 Introduction ....................................................................................................................... 6.31 Government Furnished Material .................................................................................. 6.31 Government Furnished Facilities ................................................................................. 6.33 Government Furnished Services ................................................................................. 6.34 Provision of Defence Staff / Members Required in Uniform ........................................ 6.34 Contractor Access to Commonwealth Premises ......................................................... 6.35 Access to and Use of Defence Equipment .................................................................. 6.35 Chapter Summary ............................................................................................................. 6.35 Further Reading ................................................................................................................ 6.36 Delivery, Acceptance, Payment and Ownership............................................................... 6.41 Introduction ....................................................................................................................... 6.41 Mandatory Policy............................................................................................................... 6.41 Operational Guidance ....................................................................................................... 6.41 Overview ...................................................................................................................... 6.41 Delivery ........................................................................................................................ 6.41 Acceptance .................................................................................................................. 6.42 Milestones .................................................................................................................... 6.43 Postponement .............................................................................................................. 6.43 Ownership .................................................................................................................... 6.44 Payment Policy ............................................................................................................ 6.45 Key References................................................................................................................. 6.48 Exercising Contractual Remedies..................................................................................... 6.51 Introduction ....................................................................................................................... 6.51 Common Contractual Remedies.................................................................................. 6.51 Liquidated Damages .................................................................................................... 6.51 Termination for Default ................................................................................................ 6.54 Withholding Payment ................................................................................................... 6.55 Financial Securities...................................................................................................... 6.56 Deed of Substitution and Indemnity............................................................................. 6.56 Warranties.................................................................................................................... 6.57 Chapter Summary ............................................................................................................. 6.59 Further Reading ................................................................................................................ 6.59 Preserving the Commonwealths Position ........................................................................ 6.61 Introduction ....................................................................................................................... 6.61 Awareness of Contractual Rights and Obligations ...................................................... 6.61 Page xii
6.3
6.4
6.5
6.6
Waiver .......................................................................................................................... 6.62 Estoppel ....................................................................................................................... 6.62 Development of Revised Schedules............................................................................ 6.62 Assignment and Innovation.......................................................................................... 6.63 Legal Professional Privilege......................................................................................... 6.64 Chapter Summary ............................................................................................................. 6.65 Further Reading ................................................................................................................ 6.66 6.7 Contract Amendments ...................................................................................................... 6.71 Introduction ....................................................................................................................... 6.71 Mandatory Policy............................................................................................................... 6.71 Operational Guidance ....................................................................................................... 6.71 Background .................................................................................................................. 6.71 Contract Amendments ................................................................................................. 6.71 Review of Proposed Contract Amendments................................................................ 6.74 Delegation Requirements ............................................................................................ 6.75 Reporting Contract Amendments................................................................................. 6.76 Key References................................................................................................................. 6.76 Dispute Resolution ............................................................................................................ 6.81 Introduction ....................................................................................................................... 6.81 Dispute Resolution....................................................................................................... 6.81 Keeping an Audit Trail.................................................................................................. 6.83 Other Alternative Dispute Resolution Processes......................................................... 6.84 The Litigation Process ................................................................................................. 6.87 Chapter Summary ............................................................................................................. 6.89 Contract Closure and Evaluation ...................................................................................... 6.91 Introduction ....................................................................................................................... 6.91 Discharging the Contract ............................................................................................. 6.91 Contract Closure .......................................................................................................... 6.93 Survivorship ................................................................................................................. 6.94 Evaluation .................................................................................................................... 6.94 Conversion and Disposal of Quotation, Tender and Contract Records....................... 6.95 Chapter Summary ............................................................................................................. 6.96 Further Reading ................................................................................................................ 6.96 Value for Money Checklist ................................................................................................ 1.A1 Short-Term Considerations.......................................................................................... 1.A1 Medium-Term Considerations...................................................................................... 1.A2 Longer-Term Considerations ....................................................................................... 1.A3 Risk Management Matrix .................................................................................................. 3.A1 Introduction .................................................................................................................. 3.A1 Methods of Risk Management ..................................................................................... 3.A1 Intellectual Property Summary.......................................................................................... 3.B1 Foreign Exchange Risk Management............................................................................... 3.F1 Introduction .................................................................................................................. 3.F1 Adhering to No Win No Loss Policy No Hedge Rule.............................................. 3.F1 Audit Requirements ..................................................................................................... 3.F2 Sample Partnering Agreement.......................................................................................... 4.A1 Examples of Commonly Used Evaluation Criteria ............................................................ 5.B1 Contract Management Principles...................................................................................... 6.A1 Contract Management - Practical tips, tricks and pitfalls .................................................. 6.B1 Contractor Default Checklist .............................................................................................6.C1 Page xiii
6.8
6.9
1.A
3.A
3.B 3.F
4.A 5.B 6.A 6.B 6.C
6.D 6.E
Supplies Acceptance Certificate Form (SG001) ...............................................................6.D1 Guidelines for use of the Supplies Acceptance Certificate..........................................6.D1 Contract Change Proposal Checklist ................................................................................ 6.E1
Page xiv
Defence Procurement Policy Manual Simple Procurement Process
Simple Procurement Process

Introduction
1. 2. This chapter applies to all procurement undertaken in Defence and the Defence Material Organisation (DMO). This chapter provides guidance on Simple procurement including:

a definition of Simple procurement; guidance on assessing risk in Simple procurement; a step by step guide to conducting Simple procurement; and additional information on the Defence Purchasing Card, Defence Travel Card, Eprocurement, delegations and procurement competencies.
3.
Business Units may establish their own local procedures for conducting Simple procurement provided that all such arrangements are consistent with the Financial Management and Accountability (FMA) Act 1997 (Cth), FMA Regulations, Commonwealth Procurement Guidelines (CPGs), the Defence and DMO Chief Executives Instructions (CEIs) (as appropriate) and the mandatory policy contained in this chapter. In this chapter, the Defence Purchasing Card and the DMO Purchasing Card are referred to collectively as the Defence Purchasing Card (DPC). In this chapter a reference to Procurement Approver is a reference to the Procurement Method Approver in the DMO. For consistency with the standard ASDEFCON templates used for a Simple procurement the term supplier has been used in place of the term contractor. The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
4.
5.
Mandatory Policy
Procurement officers must undertake a risk assessment before conducting any procurement to properly assess the risks associated with the procurement and accurately categorise the procurement as either: Simple, Complex or Strategic. The relevant approval documentation must document the results of the risk assessment and reference any risk mitigations that have been proposed. The Procurement Approver must validate the risk assessment and subsequent categorisation of the procurement. A procurement must be treated as at least a Complex Procurement in the following circumstances:

where integration, design or development work will be required; where additional scoping or requirements definitions work is required; where limitation of liability or liquidated damages clauses are included in the contract; where specific intellectual property rights are to be acquired; or where there is a requirement for financial or other securities.
Where any risk is assessed as extreme, advice from a Procurement officer or delegate Page SP1
Defence Procurement Policy Manual Simple Procurement Process holding a Complex procurement competency must be sought to determine whether the procurement can be treated as a Simple procurement. Procurement officers must comply with the CPGs, including the Mandatory Procurement Procedures (MPPs) for all covered procurements. Where a covered procurement will be conducted as a Simple procurement, advice from a Procurement officer or delegate holding a Complex procurement competency must be sought prior to approaching the market and at the point of source selection regarding compliance with the MPPs. Where a standing offer exists that meets the procurement requirement, the standing offer must be used in the first instance unless there are valid reasons for not doing so For covered procurements an open tender procurement method must be used unless the MPPs permit the use of a select or direct source procurement method or an exemption to the MPPs applies in accordance with chapter 1.2 and this procurement method has been approved by the Procurement Approver. Where direct sourcing is used, the reasons for doing so must be recorded. All written procurement contracts valued up to A$1million (GST inclusive) with small businesses must contain clauses which provide that Defence must pay interest where payments are not made within 30 days (or shorter period as specified in the contract) of receipt of a correctly rendered invoice Evaluation criteria must be determined and agreed upon prior to seeking quotes or going to tender. Before signing the contract (releasing a purchase order such as the SP020 Purchase Order and Contract for the Supply of Goods and Repair Services (SP020 form)), the Contract Signatory delegate must ensure that the Proposal Approver, Procurement Approver and Contract Approver delegations have been duly exercised. Where the SP020 form or DPC is used for the formation of a contract, the person issuing the purchase order to the supplier through ROMAN, MILIS or using the DPC must hold the Contract Signatory delegation and comply with the delegation requirements, Where the DPC or SP020 form is not used for the formation of a contract, the SP020 General Conditions of Contract for the Supply of Goods and Repair Services must not be provided to the supplier. A record of all important correspondence with the supplier must be kept in accordance with Defence record keeping policy and procedures. In accordance with Defence Chief Executives Instruction 2.3 - Defence Credit Cards and the DMO Chief Executives Instruction 2.3 - Corporate Cards, the DPC must be used for purchases of $5,000 or less unless there are valid reasons for not doing so. Officers using the DPC must undertake the training and hold the competencies outlined in paragraph 78. Where the DPC is not used, a purchase order must be raised. Prior to booking and undertaking travel, a travel budget must be drafted for approval by an authorised delegate. DMO Procurement officers must comply with Defence Materiel Instruction (Procurement) DMI(PROC)) 130002 - Mandatory Procurement Policy Requirements for Contract Changes.
Page SP2
Operational Guidance
Simple Procurement Defined 6. Simple procurement is a procurement category where the overall level of risk and complexity is assessed as low after a suitable risk assessment has been conducted. Some of the risks that should be considered when making such an assessment are listed and discussed below, but will vary across procurements. Once a procurement has been categorised as a Simple procurement, it can then be conducted by officials holding the Simple procurement Competency, noting the level of documentary rigour will be less than for a Complex procurement 1 . Guidance on the differentiation between the different categories of Simple, Complex and Strategic procurement is contained in chapter 1.3.
Simple Procurement - A Risk Based Approach 7. Procurement officers must undertake a risk assessment before conducting any procurement to properly assess the risks associated with the procurement and accurately categorise the procurement as either: Simple, Complex or Strategic. The risk assessment should identify all relevant risks and the probability of those risks occurring. It should also assess the impact such events would have on the procurement and how such risks might be treated (risk management). The types of risks that should be considered include legal, commercial, financial, political, project management (including schedule), technical or logistics. The extent and rigour of the risk assessment should be commensurate with the size and complexity of the procurement as determined by the official conducting the procurement. For most low value, low risk, low complexity procurements, minimal or no risk documentation may be required, particularly where pre-existing arrangements such as a standing offer are used. For larger or more complicated procurements, a more formal methodology may be appropriate. In such cases, the level of risk should be identified by referring to risk evaluation criteria and then identifying where the risk sits in the risk matrix. Risks may then be categorised as low, medium, high or extreme 2 . Chapter 3.2 provides further information on risk assessment. Only where the overall level of risk is determined to be low should the procurement be categorised as a Simple procurement. Importantly, the existence of a risk does not necessarily raise the risk profile of the procurement where there is a clear and effective method for treating or managing that risk. For example, specialist advice from a Procurement officer holding a Complex procurement competency can often be used to treat risks as they arise, thus keeping the overall risk profile of a procurement low. The relevant approval documentation must document the results of the risk assessment and reference any risk mitigations that have been proposed. The Procurement Approver is responsible for validating the risk assessment and subsequent categorisation of the procurement.
8.
9.
Risk Factors for Consideration 10. When assessing the overall level of risk in a procurement that is proposed to be treated as a Simple procurement, the following questions should be answered with either a Yes or a No (please note, although this list is intended to be comprehensive, it is not exhaustive):
Can the procured goods/services be delivered WITHOUT the need for any design development or integration work to be undertaken? Can the procurement be undertaken WITHOUT any additional scoping or requirements definition work? Is the procurement NOT a covered procurement (i.e. is the procurement exempt from Division 2 (MPPs) of the CPGs)? 3 Is the procurement for standard commercial-off-the-shelf goods and/or services?
DMO Procurement officers must comply with the additional restrictions on exercising delegations as outlined in chapter 1.4. As defined in the DMO Project Risk Management Manual, page 23, Table 3.5. 3 Procurements valued at $80,000 or more which are not the subject of an exemption will be subject to the MPPs (CPGs para 8.4). Refer to paragraph 13 and chapter 1.2 for further information.
2
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Is the procurement for a part from an Original Equipment Manufacturer? Can the requirement be described WITHOUT drafting a Statement of Work? Will standard Defence terms and conditions be used with little or no alteration or negotiation (particularly in relation to limitation of liability and intellectual property)? Will the contract NOT require limitation of liability, liquidated damages or additional intellectual property clauses? Is the procurement an order against an existing standing offer in accordance with the preagreed terms and conditions of the standing offer and where the only variables are quantity and delivery point? 4 Can value for money considerations be restricted to price, quality, fitness for purpose and compliance with required timeframes and delivery needs? Will a single stage procurement process be employed? Is the proposed method of payment simple and straightforward, i.e. payment on delivery (or acceptance), or payment using the DPC at the point of sale? Will the contract be performed WITHOUT the need for any Defence-owned assets, government furnished facilities, equipment, data, information or services to be provided to the supplier? Can the procurement be conducted with only minimal need for specialist advice on legal, commercial, financial, project management (including schedule), technical and/or logistic aspects? Is the procurement low in monetary value e.g. less than $1 million?
11.
Yes answers to the above questions will generally indicate lower levels of risk. If you answered Yes to all of the above questions, then the procurement in question is almost certainly a Simple procurement. No answers to the above questions will generally indicate higher levels of risk and will require further consideration, but will not automatically make the procurement in question a Complex procurement. A procurement must be treated as at least a Complex procurement in the following circumstances:

12.
13.
where integration, design or development work will be required; where additional scoping or requirements definitions work is required; where limitation of liability, or liquidated damages clauses are included in the contract; where specific intellectual property rights are to be acquired; or where there is a requirement for financial or other securities.
14.
Where any risk is assessed as extreme, advice from a Procurement officer or delegate holding a Complex procurement competency must be sought to determine whether the procurement can be treated as a Simple procurement. As a general rule, where more risks are assessed as medium or where the official conducting the procurement is unsure about the risk assessment, this increases the probability that the procurement is not a Simple procurement and advice should be sought from a Procurement officer holding a Complex procurement competency. There is no monetary threshold for Simple procurement. However, the value of the procurement should be considered when assessing risk and when categorising a procurement as Simple or Complex. In some cases, a large dollar value (e.g. more than $1 million) may be enough to make the procurement a Complex procurement even if other risks are low.
15.
16.
Refer to the Standing Offer Notice Section on AusTender for a list of Standing Offers
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Defence Procurement Policy Manual Simple Procurement Process Covered Procurements and the MPPs Specialist Advice Needed 17. Covered Procurements are those valued at $80,000 or more and subject to the Mandatory Procurement Procedures (MPPs) set out in the CPGs - Division 2 and which are not subject to an exemption under CPGs, Appendix A or DPPM chapter 1.2. Procurement officers must comply with the MPPs, including the specific process requirements for all covered procurements. Although these requirements increase the level of process risk involved in the procurement, covered procurements do not necessarily need to be treated as Complex Procurements. For more information on covered procurements, please refer to the CPGs, chapter 1.2 or contact the relevant Defence and DMO Procurement Support Area listed at the beginning of this manual.
Conducting Simple Procurement Step by Step 18. In cases where there is no existing approved supply arrangement (e.g. a standing offer) the following steps should be followed, generally in the specified order. Further guidance on each of the steps is provided below:

identify the requirement; plan the procurement; conduct the risk assessment and determine how risks will be managed; decide on the method of procurement and obtain Procurement Approval; select the appropriate tendering and contracting template; if necessary, obtain FMAR 10 approval; obtain Proposal Approval including Funds Availability; assess the market; seek and receive an offer or offers (approach the market); evaluate the offer or offers; select a supplier (source selection); prepare an appropriate contract and/or purchase order; obtain Contract Approval; execute the contract by signature of an official with appropriate Contract Signatory delegation; raise a purchase order; comply with AusTender and Senate Order on Departmental and Agency Contracts reporting requirements (where applicable) (see chapter 5.8); manage the contract, including ensuring delivery of the contracted goods and/or services; make payment; ensure appropriate records have been retained; and evaluate the procurement briefly capture lessons learnt.
Where an existing arrangement does exist (e.g. a standing offer) the standard terms and conditions of the arrangement usually details the process for using the arrangement. If a standing offer arrangement is to be utilised, the processes outlined in the arrangement must be followed. Define the Requirement, Plan Procurement and Assess Risk 19. A clear, unambiguous description of the requirement is important for all procurements. For off the shelf procurement, a brief description, part or catalogue number may be all that is required. In other cases, it may be necessary to detail specifications or develop a draft Statement of Work Page SP5
Defence Procurement Policy Manual Simple Procurement Process as the basis for seeking offers. The development of a Statement of Work and/or specifications will normally indicate a medium or high level of risk and may make the procurement a Complex procurement. This issue should be considered in the initial risk assessment and while the Procurement officer is responsible for developing the risk assessment and associated documentation, it remains at the discretion of the Procurement Approver to determine the overall risk level and categorisation of the procurement. In all cases, the description must provide sufficient information to allow all potential suppliers to quote for the work while at the same time allowing the contract to be enforced once executed. 20. While all procurement requires some planning, Simple procurement does not generally require detailed planning or detailed documentation. Documentation of the planning process can be concise but must clearly show the reasoning for the procurement. The preparation of a Proposal Approval submission should provide sufficient evidence of planning. Refer to the Office of Special Counsel (OSC) Intranet site for a template Proposal Approval submission. As a minimum, Procurement officers will need to determine:

how the requirement will be satisfied; whether funding is available and where it will come from; when the requirement needs to be delivered; and the delegates who will be providing Approvals.
Selecting the right Tendering and Contracting Template 21. Simple procurements may be undertaken using different tendering and/or contracting templates and consideration should be given to which template is most appropriate. Most Simple procurements will use the AC565 Request for Quotation form for seeking quotes and the SP020 form as the subsequent contract. The characteristics of these forms are discussed in more detail below. In some cases, it may be appropriate to use another approved Simple Procurement template. Where this is the case, the template package may include conditions of tender and response requirements which should be used. If a more detailed template is selected, and documentary requirements become too significant, the procurement category may need to be reviewed and re-categorised as a Complex procurement.
22.
ASDEFCON Shortform Series 23. ASDEFCON (Shortform Goods) is based on Form SP020. ASDEFCON (Shortform Goods) contains the same standard terms and conditions as Form SP020 with the exception that ASDEFCON (Shortform Goods) includes a clause limiting the liability of the supplier (clause 23). The inclusion of the limitation of liability clause in ASDEFCON (Shortform Goods) means any procurement which uses ASDEFCON (Shortform Goods) will be a Complex procurement. ASDEFCON (Shortform Goods) has been drafted in a manner that makes it suitable for a wide range of procurements which, but for the inclusion of a limitation of liability clause, would otherwise be classed as Simple Procurements. ASDEFCON (Shortform Services) has been developed specifically for those service requirements that are low risk and low value, and therefore categorised as Simple Procurements. Its use may be appropriate following an approach to the market using Form AC565. Examples of when it may be appropriate to use ASDEFCON (Shortform Services) include straightforward, short term work such as clerical or administrative services, basic trade services, ad hoc services such as gardening or cleaning services and basic consultancy services. More information on selecting templates generally can be found in the ASDEFCON Template Selection Guide and in chapter 2.3. It is also important to note that the SP020 form comprises both General Conditions of Contract and a Purchase Order. This means that it operates as a contract with the supplier and also acts Page SP6
24.
25.
26. 27.
Defence Procurement Policy Manual Simple Procurement Process as a mechanism for raising funds within the Resource and Output Management and Accountability Network (ROMAN), or solely to raise funds in ROMAN. In cases where the General Conditions of Contract are not used and an alternative template is used for the formation of a contract with the supplier (such as ASDEFCON), the SP020 (Purchase Order) form will only operate internally to raise funds in ROMAN. In these circumstances, when providing the supplier and Purchase Order to the contractor, the SP020 General Conditions of Contract must not be provided. Funds Availability and Proposal Approval 28. 29. The next step in the Simple procurement process is to provide a cost estimate and identify the source of the funding (Cost Centre and General Ledger Account Code). Funds Availability must then be confirmed by an appropriate officer, normally a business manager or finance officer with access to the current financial records of the business unit. The spending proposal may need FMAR 10 approval. Further guidance on FMAR 10 is contained in chapter 1.4. Proposal Approval should then be obtained. (Note, however, if FMAR 10 approval is required, this must be obtained before Proposal Approval.) Further guidance on obtaining approval from the Proposal Approver and the responsibilities of the Proposal Approver delegate are contained in chapter 1.4.
30.
Assess the Market 31. Knowledge of the market is important when conducting a successful procurement as it allows procurement officials to make informed decisions on value for money and the promotion of efficient and effective competition. Knowledge of the market also assists when determining the method of procurement and in exercising Procurement Approval. The level of effort expended to understand the market should be commensurate with the value and risk of the procurement. Appropriate market research may include review of potential supplier publications, internet search, making use of Defence and other Government procurement networks and use of print resources, such as the Yellow Pages.
32.
Method of Procurement and Procurement Approval 33. After developing knowledge of the market assessed against the requirement, a method of procurement must be selected for consideration by the Procurement Approval delegate. Further guidance on obtaining approval from the Procurement Approver and the responsibilities of the Procurement Approval delegate are contained in chapter 1.4. Simple procurement is a category of procurement not a method of procurement. As such, a procurement designated as a Simple procurement may still be conducted under a variety of procurement methods, including direct sourcing, select tender and open tender. The use of an existing standing offer that was established through an open approach to the market is considered to be an open source procurement for AusTender reporting purposes. Further guidance on methods of procurement for standing offers is contained in chapter 3.1 In all cases, the method of procurement and the level of competition used should be commensurate with the size and risk profile of the particular procurement. However, the obligation remains to ensure that value for money is achieved and that the use of public money is efficient, effective and ethical. For non covered procurements, there is some discretion as to how many quotes or responses are sought. As such, a procurement method of direct sourcing, select tender or open tender can be used. If market intelligence justifies the use of direct sourcing after seeking only one quote, this course of action is open to the official conducting the procurement. Where direct sourcing is used, the reasons for doing so must be recorded. If it is not clear how many quotes are needed, seeking three quotes may be a useful compromise, but it is not a mandatory requirement. Again, in all cases, it is a decision to be made after having regard to the nature of the procurement and the circumstances of the market and the obligation remains to ensure that
34.
35.
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Defence Procurement Policy Manual Simple Procurement Process value for money is achieved and to ensure that the use of public money is efficient, effective and ethical. 36. For covered procurements an open tender procurement method must be used unless the MPPs permit the use of a select or direct source procurement method or an exemption to the MPPs applies in accordance with chapter 1.2, and this procurement method has been approved by the Procurement Approver. Further details of when to use these methods of procurement can be found in chapter 5.3. Please note that the method of procurement does not refer to the template or mechanism used to formally execute the subsequent contract.
37.
Standing Offers 38. Where a standing offer exists that meets the procurement requirement, the standing offer must be used in the first instance unless there is a valid reasons for not doing so (refer to chapter 5.3 for further information). The Standing Offer Notice Section of AusTender contains a current list of available standing offers. If a suitable standing offer panel is not available, an alternative procurement method will be necessary. Guidance on establishing and placing orders under standing offers is contained in chapter 4.8.
Seeking and Receiving Offers 39. Where the method of procurement chosen for a Simple procurement involves approaching the market to seek offers from one or more suppliers, it is best practice to obtain quotes in writing. Where oral quotes are sought, Procurement officers should ensure that the same kind of information is obtained from all suppliers, the Defence standard terms and conditions are agreed to, and the decision is documented. Quotes will normally be obtained using the AC 565 Request for Quotation form. As discussed in paragraph 19, some Simple procurements may employ a different template and it may be appropriate to use the conditions of tender and annexes contained in that template to seek offers. For direct sourcing and select tendering, the AC565 form or other request documentation can be provided directly to the relevant parties and it is not mandatory to use the AusTender system for procurement advertising in these cases. Once the request has been issued, supplier(s) must be given sufficient time to prepare and lodge their response. Refer to chapter 5.5 for the minimum response periods required for covered procurements. Where an open tender is employed (and even where the procurement is not a covered procurement governed by the MPPs), the procurement must be published on AusTender in accordance with Financial Management Guidance No 15 - Guidance on Procurement Publishing Obligations, July 2007 and chapter 5.5. For any covered procurement involving an open approach to market the same minimum response times as discussed above in paragraph 39 apply to the procurement. For further information on covered procurements and the MPPs, please refer to the CPGs and chapter 1.2. Covered procurements must also comply with the tender receipting and opening procedures contained in chapter 5.6. For Simple procurements conducted using a standing offer, a pro-forma document (usually a tasking statement and official order) from the standing offer itself will normally be used.
40.
41.
42.
Evaluate Offers and Select a Supplier 43. All offers received in response to a Simple procurement request process must be treated fairly and equitably and only evaluated on the basis of criteria declared in the request documentation. Evaluation criteria will vary from one procurement to another but the following should be considered:

compliance with government procurement policy; the mandatory (essential) and desirable aspects of the requirement; compliance with the conditions of contract; Page SP8

compliance with delivery schedules; quality of the supply; fitness for purpose and technical suitability; whole of life cost, including ongoing maintenance, renewable licensing fees and the cost of consumables; and total price and any discount arrangements.
44.
For Simple procurements Procurement officers will usually make a value for money judgement on the basis of the price offered, quality, fitness for purpose and compliance with delivery requirements and any mandatory requirements. Evaluation criteria must be determined and agreed upon prior to seeking quotes or going to tender. Simple procurements do not require complicated evaluation processes, although the process should be documented. A detailed written Tender Evaluation Plan will not normally be needed for a Simple procurement. A simple matrix can be used for the evaluation of low value procurements. More detail should be included in the matrix for higher value Simple procurements. In all cases, the general principles in evaluation should be applied, in particular that offers must be assessed against the requirement or evaluation criteria stated in the request documentation. A detailed Source Evaluation Report will not normally be needed for a Simple procurement. A simple documented summary of the tender evaluation results with a recommendation to select a supplier would generally be sufficient. Procurement officers should refer to chapter 5.4 where mandatory (essential) criteria are included in request documentation.
45.
Prepare an Appropriate Contract 46. Defence has established a set of standard terms and conditions, in the SP020 form, under which Simple Procurement is normally conducted. The SP020 form was designed to be used in conjunction with the AC565 form. Procurement officers should not deviate from these standard terms and conditions when dealing with Simple procurements without seeking specialist legal advice or except as allowed by the template itself (see chapter 2.3). The need to deviate from the standard terms and conditions may indicate that it is not a Simple procurement. A copy of the terms and conditions is available on the Commercial Policy and Practice website Both the SP020 and AC565 forms are also available from the Defence Financial System ROMAN and the Military Integrated Logistic Information System (MILIS), as well as the Web Forms facility on the Defence Intranet. For external users the SP020 form is available via the Contracting link on the DMO website. There may be occasions when special conditions need to be included in the SP020 form when dealing with Simple procurements. These special conditions may relate to specific packaging requirements, shelf life of the goods being purchased, etc. When including any special conditions, Procurement officers should seek assistance from an officer with the Complex procurement competency to assess if the inclusion of the special conditions changes the procurement from Simple to Complex. Inclusion of clauses relating to limitation of liability, liquidated damages, intellectual property or a requirement for financial or other securities will elevate a procurement to the Complex level and in which case the SP020 form cannot be used. Refer to paragraphs 22 26 for further information on the ASDEFCON (Shortform) series of templates. Other approved Simple procurement templates may also be appropriate for use when conducting Simple procurement. Where anything more than minimal advice from a Procurement officer holding a Complex procurement competency becomes necessary to use such templates, the procurement category should be reviewed. In all cases of contract preparation for a Simple procurement, it is assumed that contract negotiations will not be necessary, except at the most basic level. If the procurement involves the need for significant negotiations necessitating specialist advice, the risk level will have risen to medium and the categorisation of the procurement as Simple procurement should be reviewed. Page SP9
47.
48.
49.
50.
Defence Procurement Policy Manual Simple Procurement Process Source Selection Approval and Contract Approval 51. Contract Approval is obtained after the following has occurred:

the proposal to spend public money has been approved (Proposal Approval); the method of procurement has been approved (Procurement Approval); a preferred supplier has been determined; the source selection has been approved; and a draft contract has been prepared.
52.
Source selection approval, which does not involve exercising of a financial delegation, is usually sought in the form of a written submission, including a comparative statement (a written summary detailing the significant features of each quote together with a clear statement of the relative merits of each in relation to the criteria). It is important for accountability, as a means of informing others involved with managing and monitoring the procurement, to record evaluation and selection decisions, together with their rationale. Contract Approval must be provided prior to contract signature. Further guidance on the approvals necessary for any procurement is contained in chapter 1.4.
53.
54.
Contract Signature and Raising a Purchase Order 55. Once approval from the Contract Approver delegate has been obtained the supplier may be contracted to provide the goods or services. Where a purchase order (such as the SP020 form or MILIS orders) or the DPC are used, ,the person releasing the purchase order to the supplier through ROMAN, MILIS, or using the DPC must hold the Contract Signatory delegation and comply with the delegation requirements. Before signing the contract (that is releasing a purchase order such as the SP020 form or MILIS orders), the Contract Signatory delegate must ensure that Proposal Approver, Procurement Approver and Contract Approver delegations have been duly exercised. For purchase orders issued from ROMAN and MILIS, the exercise of the Contract Signatory delegation may not involve the delegate physically signing their name. Instead the electronic release of an order from ROMAN and MILIS exercises this delegation. For manual (ie printed) MILIS orders which contain a signature block, the Contract Signatory should sign their name to avoid supplier confusion. The contract document to be signed will depend on the contracting template originally selected. For low value purchases there often will not be a formal written contract that is signed by both parties. In this case, the issue of a purchase order will generally create a contract. If a formal written contract is to be used and the Procurement officer has concerns regarding the suppliers nominated representatives authority to sign the contract, specialist contracting advice should be sought. The final contract (original plus duplicate) should be signed first by the supplier and then by the Defence representative in order to reflect the final agreement reached by the parties. The supplier is given a copy of the final contract and Defence retains the original contract. Where a written contract has been exchanged, it is not necessary to also provide the supplier with a copy of the ROMAN or MILIS purchase order, however, a purchase order record must still be raised in ROMAN or MILIS, as applicable, to establish visibility of commitment to price, quantity and delivery date. Unsuccessful suppliers should be informed of the final decision as soon as possible after a final decision is made regarding their responses, but no later than 48 hours after the award of the contract (posting of the purchase order). The method of informing unsuccessful suppliers should be the same as the method used to obtain the offers, e.g. if offers were sought by fax or email, unsuccessful suppliers should be similarly advised. Refer to chapter 5.7.A for information that can be provided to unsuccessful suppliers in a debrief. The extent of the debrief should reflect the complexity and value of the procurement. For Simple procurements, standard form Page SP10
56.
57.
58.
Defence Procurement Policy Manual Simple Procurement Process debriefs may be used. Please note that for any covered procurement, unsuccessful suppliers have a right under the MPPs to seek reasons for why they were not successful. Contract Reporting and other Reporting Requirements 59. All procurements of $10,000 or more, including purchases utilising the DPC, are required to be reported on the AusTender website within six weeks of the signing of the contract (release of the purchase order). This reporting requirement is undertaken via automatic data transfer from the ROMAN and Card Management System to the AusTender system. Where supplies are purchased through MILIS, the contract must be manually loaded onto AusTender. This requires the user to have AusTender CN/SON access. Where the monetary value of procurement exceeds $100,000 there are additional reporting requirements. Procurement officers may need to refer to a Procurement officer possessing the Complex Procurement competencies. Additional reporting requirements include reporting the procurement on the Interim Defence Contracts Register. Refer to chapter 5.8 for further information on the reporting of procurement activities. When determining if a procurement meets the financial thresholds for reporting purposes, the GST component of the procurement price is to be included.
60.
61.
Contract Management 62. Ensuring that the obligations of both parties are complied with is the essence of good contract management. In this context, progressing a contract through regular contact with the supplier is an essential part of the procurement cycle. In most cases, this can be accomplished by telephone, with a record of the conversation placed on file. Where issues materialise in the course of the contact, these should be dealt with in accordance with the provisions of the contract i.e. dispute resolution, exercise of warranties, contract change or possibly contract termination. A record of all important correspondence with the supplier must be kept in accordance with Defence record keeping policy and procedures. Where necessary, specialist contract management advice should be sought.
Delegation Requirements for Contract Changes 63. The financial delegations requirements for contract changes are detailed in chapter 6.7. DMO Procurement officers must comply with Defence Materiel Instruction (Procurement) DMI(PROC)) 130002 - Mandatory Procurement Policy Requirements for Contract Changes when processing contract changes.
Delivery, Acceptance and Payment 64. On delivery, goods need to be inspected for compliance with the purchase order and contract and receipted on the financial system where appropriate. In the case of services, appropriate steps should be taken to ensure that the services were provided in accordance with the contract. Where the requirements are met, the goods/services should be accepted in accordance with the contract. Defence is contractually obliged to pay for Supplies (goods and services) which have been delivered and accepted in accordance with any purchase order (or other request) that was issued for the Supplies. Payment conditions are detailed in the procurement contract. Defences standard terms of payment are within 30 days after the acceptance of the goods or services AND the receipt of a correctly rendered tax invoice. In accordance with Finance Circular 2008/10, all written procurement contracts valued up to A$1million (GST inclusive) with small businesses must contain clauses which provide that Defence must pay interest where payments are not made within 30 days (or shorter period as specified in the contract) of receipt of a correctly rendered invoice. Interest for late payments requires receipt of a separately rendered invoice. Refer to chapter 6.4 for further information on how interest is calculated.
65.
66.
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Defence Procurement Policy Manual Simple Procurement Process 67. Where an incorrectly rendered tax invoice is received, that tax invoice should be returned to the supplier for amendment. Defence does not have any authority to amend another partys invoice. Procurement officers involved in payment of accounts should refer to Defence Chief Executives Instruction (CEI) 2.4 Payment of Accounts and DMO CEI 2.4 - Payment of Accounts. Where a procurement is made utilising the DPC, payment to the supplier will occur under their normal credit card arrangements. Defence will make payment directly to the DPC provider. On occasions Defence may receive invoices for Supplies (goods and services) where no purchase order or contract has been raised. These invoices need to be checked carefully to ensure that the goods or services were actually requested and properly authorised. The practice of ordering Supplies other than through raising a purchase order, a contract, or using the DPC is a breach of Defence and DMO 5 policy and should be reported to the appropriate manager. Notwithstanding, Defence is contractually bound to pay for all requested Supplies.
68. 69. 70.
Record Keeping in Simple Procurement 71. Throughout the Simple procurement process, Defence officials should ensure that appropriate records and documentation are generated at the correct times and retained in accordance with Defence record keeping policy and procedures. For procurements conducted under standing offers, the pro-forma tasking statements (usually an official order and a tasking statement) of the standing offer will normally meet the requirements for record keeping, while use of the standing offer will allow some steps in the process to be abbreviated or skipped, such as assess the market. For other Simple procurements, the use of the standard AC565 and SP020 forms will also create important records, but these documents will not provide evidence of how risk was assessed or treated, nor will they explain why a procurement was categorised as Simple and who made this decision. To ensure complete records are kept, it is recommended that a delegate submission be prepared, consistent with the templates found on the OSC Website. Such a submission will address many of the record keeping requirements discussed throughout this chapter, including: procurement planning, identification of risks, justification for the method of procurement and recording of delegations. Once a contract has been executed, it is important that a copy of the original contract can always be produced, as well as the current working version of the contract that incorporates all changes (if any) that the parties have agreed post signature.
72.
73.
Evaluating the Procurement Capturing Lessons Learnt 74. After the procurement has been completed i.e. acceptance of the goods or services and payment has been made, Procurement officers should conduct a brief evaluation of the procurement to capture any lessons that may have been learnt. The following checklist identifies some questions which should be considered when evaluating a procurement:

Was the identified need satisfied (did we get what we needed)? Was the quality satisfactory? Were the goods or services delivered on time? Was the service of the supplier satisfactory? Were communication lines between Defence and the supplier satisfactory? Were communication lines within Defence satisfactory? Was payment made on time? Was the deliverable over-specified?
DMO DMI(FIN)01-0-032 DMO Procurement Business Rules
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Is there anything that could be improved? Was the level of effort, risk assessment and documentation within Defence appropriate to the procurement, given its risk and cost? Was the method of procurement used the most appropriate to obtain overall value for money? Was value for money achieved from the Commonwealths perspective? Was the procurement activity worthwhile from the perspective of Industry? Were appropriate records kept, including the original contract?
Regular or On Going Requirements 75. Where Procurement officers recognise that the same or similar items are being procured on a regular and frequent basis, it may be appropriate to establish a standing offer for the supply of those goods or services. Further information on establishing standing offers is contained in chapter 4.8. The establishment of a standing offer is a Complex procurement and should be conducted by a Procurement officer with the appropriate experience and Complex procurement competency.
76.
Purchasing Card 77. The DPC is a payment mechanism that can be used as an alternative to other methods of payment, such as cheque, direct credit and petty cash. The DPC offers a number of advantages over these other payment methods in terms of convenience, the potential to reduce paperwork (particularly claims for payment) and the prompt payment of suppliers. It is an alternative to raising a purchase order. In accordance with Defence CEI 2.3 Defence Credit Cards and the DMO CEI 2.3 Corporate Cards the DPC must be used for purchases of $5,000 or less unless there are valid reasons for not doing so. Reasons for not using the DPC could include, but are not restricted to:

78.
procurement under a standing offer; procurement made through MILIS; procurements that require the agreement of terms and conditions that differ from those that are normally available; procurements where the preferred tenderer does not accept payment by the DPC; and procurements where standard payment terms under a purchase order represent better value for money, e.g. where a premium is imposed by the supplier for use of a credit card.
79.
The DPC can be used, on a case by case basis, for purchases of $5,000 or more. The DPC must not be used for procurement made through MILIS. Where the DPC is not used, a purchase order must be raised. When undertaking Simple procurement using the DPC as a method of payment the following training and competency requirements apply:
80.
For purchases of $5,000 or less the card holder must successfully complete the DPC elearning course on CAMPUS (on-line training) http://lms.dcb.defence.gov.au/logon.asp to exercise delegations associated with the purchase; and For purchases greater than $5,000, the card holder must undertake the online training and hold the Simple procurement competency to exercise the delegations associated with the purchase.
81.
A card holder is considered to have undertaken the on-line training or hold the appropriate competency when it is reflected on the individuals PMKeys training record.
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Defence Procurement Policy Manual Simple Procurement Process 82. 83. Further guidance on the DPC, including the procedures for obtaining a DPC, can be obtained from the Defence CEI 2.3 - Defence Credit Cards and the DMO CEI 2.3 - Corporate Cards. Defence policy, including the requirement for contract and other reporting of procurements of $10,000 and over, apply to the use of the DPC as if the procurement was being conducted against a purchase order.
Use of Purchasing Card on the Internet 84. Procurement of goods or services with the DPC via the Internet can only be undertaken if all the following criteria are satisfied:

the Internet payment site is secure; the procurement is low-value and low-risk, i.e. a Simple procurement; there is no other way of ordering and paying for the specialist item; and appropriate risk mitigation strategies have been put in place.
85. 86.
Satisfaction of each of the above criteria must be met before the release of DPC numbers and cardholder details via the Internet. Risk mitigation strategies that could be adopted, depending upon the circumstances, include:

being confident that the on-line supplier is a reputable business; the web site is a bona fide website (do not access sites via indirect web links/unsolicited emails etc) and secure (i.e. https); read and be aware of the terms and conditions (particularly returns/cancellation policies etc); and place a low financial limit on the DPC to minimise the consequences of fraudulent misuse.
Defence Travel Card 87. In this section the Defence Travel Card and the DMO Travel Card are referred to collectively as the Travel Card (TC). The TC is a corporate credit card intended for use by Defence personnel to pay for official travel expenses. Prior to booking and undertaking travel, a travel budget must be drafted for approval by an authorised delegate. The delegate should, in approving the travel budget, ensure it fulfils the requirements of a proposal to spend public moneys and must have regard to Defence travel policy. The budget then provides guidance to the traveller as to the allowable expenses during the trip. The TC should be used in accordance with the policy and process contained in the ADO Travel Manual and the Card Management System Manual. Further information can be obtained by visiting the Defence Travel website.
Delegations, Competencies and Proficiencies 88. Once the procurement is categorised as a Simple procurement, an official holding the Simple procurement competency may complete the procurement, subject to local arrangements and management requirements. Except for where the DPC is used for purchases under $5,000, delegates exercising financial delegations for Simple procurement are required to hold only the Simple procurement competency. Except for Simple procurements valued at $5,000 or less, delegations must be exercised by a minimum of two separate delegates. The three delegations of Proposal, Procurement and Contract Approver cannot be exercised by the same delegate. For DMO procurements greater than $5,000, a single DMO delegate must not exercise both Proposal Approver and Contract Approver delegations. Refer to the Mandatory policy in chapter 1.4 for further guidance on exercising delegations and any restrictions which may apply. Although there is no monetary threshold for Simple procurement, where it is proposed that a procurement valued at $80,000 or more be treated as a Simple procurement, the decision to do so must be done in accordance with paragraph 13. Once the decision has been made to treat a procurement valued at $80,000 or more as a Simple procurement, the procurement can be Page SP14
89.
Defence Procurement Policy Manual Simple Procurement Process completed, including exercise of delegations, by an officer(s) holding only the Simple Procurement competency. 90. It is recommended that all staff involved in the Simple procurement process, including those involved with the receipt of goods and payment of invoices, obtain the Simple procurement competency. The Simple procurement competency may be obtained by the successful completion of the Simple procurement training (see chapter 1.4 or the CAMPUS website ). For Simple procurement, delegates may send the approval by email in the following circumstances:

91.
the delegates are not co-located and are separated by a reasonable distance; and in-person approval would unreasonably delay the process.
92.
Where the above conditions are satisfied, the delegate may forward approval (Proposal, Procurement and/or Contract Approver) by email to the processing area for action. The delegate should print a copy of the email that they have sent, sign it and place it in their physical filing system, or scan it and store it in the Defence Record Management System, and destroy the original (if the delegate makes this a practice under the General Disposal Authority). The processing area should also file a copy of the received email. It is the responsibility of the processing area to forward approvals by email or physically to any other delegates as required. (This is in accordance with POLMAN3 (third edition) and General Disposal Authority 2002/05249910 for source records that have been copied, converted or migrated.) The email version of the document provides authority and may be acted upon. However, the signed document or the scanned approval will be regarded as the official record of the approval. Where a procurement activity which commenced as a Simple Procurement is elevated to a Complex Procurement, all future delegations will need to be exercised by delegates who hold Complex competencies. Delegate approvals exercised prior to the elevation will not be affected.
93. 94.
Key References
Commonwealth Procurement Guidelines Defence Chief Executives Instruction 2.1 - Procurement DMO Chief Executives Instruction 2.1 - Procurement Defence Chief Executives Instruction 2.3 Defence Credit Cards DMO Chief Executives Instructions 2.3 - Corporate Cards Defence Chief Executives Instructions 2.4 - Payment of Accounts DMO Chief Executives Instructions 2.4 - Payment of Accounts FINMAN 5 POLMAN 3 General Disposal Authority 2002/05249910 Form AC565 Request for Quotation Form SP020 - General Conditions of Contract for the Supply of Goods and Repair Services Practical Procurement & Prompt Payment (P4) Manual Defence Materiel Instruction (Procurement) DMI(PROC)) 130002 - Mandatory Procurement Policy Requirements for Contract Changes
Page SP15
Defence Procurement Policy Manual 1.1 The Legal Framework
1.1
Introduction
1. 2.
The Legal Framework
This chapter applies to procurement undertaken within Defence and the DMO. This chapter outlines the legal framework governing Commonwealth procurement.
Mandatory Policy
There is no mandatory policy for this chapter.
Overview 3. The Australian Constitution provides a legal framework for the exercise of Commonwealth powers. This legal framework is divided into three functions:

Executive; Judicial; and Legislative.
Executive Function Role of the Governor-General 4. The Executive power of the Commonwealth is vested in the Queen and is exercisable by the Governor-General as the Queen's representative. When exercising the Executive power of the Commonwealth, the Governor-General acts on the advice of Ministers who are responsible to the Parliament. That advice is conveyed through the Federal Executive Council. The GovernorGeneral presides at meetings of the Executive Council which are attended by at least two Members of the Executive Council.
Role of the Australian Public Service 5. The Executive function is also performed by the Australian Public Service (APS). The role of the APS is to:

provide advice and support to the Government and Ministers; and effectively and conscientiously implement Government decisions and programs.
6.
Ministers are responsible for the overall management of their portfolios and are accountable to the Parliament for the exercise of those responsibilities. APS officers are accountable in turn to their relevant Minister. APS officers are held accountable for the advice they provide to the Government as their work plays a substantial role in shaping Government policy decisions. The role of the APS policy adviser is to give:

7.
honest, accurate and practical advice to Government; and full and accurate information about the factual and technical background of policies and their administration to the Parliament.
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Defence Procurement Policy Manual 1.1 The Legal Framework 8. APS officers responsible for implementing policy should ensure that the Governments intentions are both understood and carried out.
Government policy and procurement decisions 9. Policies are intended to strike a balance between prescription and empowerment. The focus is on the achievement of results or outcomes rather than imposing instructions and the observance of detailed procedures. An emphasis is placed on best practice and the benefits of planning, good management, and justifying decisions taken. Procurement policies focus on certain principles that must be observed in the procurement process. Procurement areas retain discretion to decide how best to handle their agencys specific needs. Procurement areas should take account of the following when making procurement decisions:

10.
the applicable legislation; the applicable procurement policies; their own particular circumstances; the nature of the markets in which they are buying; and the obligation to obtain best value for money.
Judicial Function 11. The Judicial function is performed by the courts. Courts interpret and apply legislation and common law. Federal matters are normally heard in the Federal Court. Appeals from decisions made in this court may be heard in the High Court. The High Court is the highest court in Australia and any determination made by the High Court is final. Parliament has also created a merit review system applicable to a range of administrative decisions. The primary agency for such reviews is the Administrative Appeals Tribunal (AAT). Other review agencies include the Merit Protection and Review Agency, the Privacy Commissioner and the Australian Human Rights Commission. It is the role of the Judiciary to interpret the meaning and application of both statutes and delegated legislation. The Judiciary also has responsibility for interpreting and applying the common law. Common law is based on the progressive development of legal principles which have emerged through the judgments of decided cases. The Judiciary must adhere to the doctrine of precedent ie. a decision of a higher court in an earlier case must be followed. Policy decisions are determined by legislation and often their scope is also determined, and sometimes limited, by common law. APS officers therefore need to be aware of the applicable legislation that may have an impact, directly or indirectly, on their activities. Legal advice may need to be sought in certain circumstances to determine the effect such legislation or common law has on procurement activities (see chapter 2.1).
12.
13.
14.
Legislative Function 15. The Legislature consists of both Houses of Parliament: the House of Representatives and the Senate. The role of the Legislature is to pass legislation. Legislation includes those statutes passed by Parliament as well as delegated legislation including regulations, by-laws and statutory instruments.
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Procurement Framework Hierarchy Financial Management and Accountability Act 1997 16. The Financial Management and Accountability Act 1997 (Cth) (FMA Act) provides the framework for the proper management of public money and public property by the Executive arm of the Commonwealth. Sections 53 and 62 of the FMA Act and Financial Management and Accountability Regulations 1997 (Cth) (FMAR) 24-26 provide the Finance Minister, the Treasurer and Chief Executives with wide powers of delegation of their powers and functions to officials. The FMA Act enables both the Defence and DMO Chief Executives to delegate some of these powers and functions to appropriate officials. In order for any person within Defence or DMO to exercise a power or function assigned or delegated to the Defence or DMO Chief Executive, must delegate the power or function to that person. The Secretary is the Chief Executive for Defence and CEO DMO is the Chief Executive for DMO.
17.
18.
Commonwealth Procurement Guidelines 19. The Commonwealth Procurement Guidelines (CPGs) are issued by the Department of Finance and Deregulation. The CPGs flow down from the FMA Act and FMARs 1 . Further information on the CPGs is contained in chapter 1.2.
Defence and DMO Chief Executives Instructions 20. FMAR 6 enables both the Defence Chief Executive (Secretary of Defence) and DMO Chief Executive (CEO DMO) to issue lawfully binding instructions on financial administration matters to all employees of Defence including Australian Defence Force members and Australian Public Service officers. The authority of the Secretary of Defence and CEO DMO relates only to financial administration and does not affect normal command arrangements. The Defence Chief Executives Instructions (CEIs) and the DMO CEIs incorporate the requirements of the FMA Act, FMARs and the CPGs. Further information on the Defence CEIs and the DMO CEIs relating to procurement is contained in chapter 1.4. It is important to note that the two sets of CEIs are not the same and may continue to change independently of each other.
21.
Defence Procurement Policy Manual 22. The Defence Procurement Policy Manual (DPPM) is the primary reference document for Procurement officers undertaking procurement at all levels within Defence. The Introduction contains further information on the authority of the DPPM. Other key sources of Defence procurement policy for purchasing officers undertaking procurement within Defence include:
23.
for Complex and Strategic procurements within the DMO, the Quality and Environmental Management System (QEMS); Defence Procurement Policy Instructions (DPPIs) and Defence Materiel Instructions (DMIs); for information on the development of proposals for major new Defence capabilities, the Defence Capability Development Hand Book ; and for procurement relating to infrastructure the Infrastructure Management website.
24.
Within individual purchasing areas there may also be local procurement instructions and standard procedures that must be followed.
The Commonwealth Procurement Guidelines are issued pursuant to FMAR 7.
Page 1.13
Key References
Financial Management and Accountability Act 1997 (Cth) Financial Management and Accountability Regulations 1997 (Cth) Commonwealth Procurement Guidelines Defence Chief Executives Instructions DMO Chief Executives Instructions Defence Capability Development Hand Book
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Defence Procurement Policy Manual 1.2 Commonwealth Procurement Guidelines
1.2
Introduction
1. 2.
Commonwealth Procurement Guidelines
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter gives an overview of the Commonwealth Procurement Guidelines (CPGs) issued by the Department of Finance and Deregulation (DOFD) as of 1 December 2008 and their impact on Defence procurement. This chapter does not detail all of the requirements of the CPGs, particularly the Mandatory Procurement Procedures specified in Division 2 of the CPGs (MPPs) that apply to covered procurements. Each mandatory CPG obligation is detailed in the chapter that is relevant to the particular obligation, for example, chapter 5.5 details the requirements and process for dealing with late tenders and direct sourcing restrictions are detailed in chapters 3.1 and 5.3. Procurement officers should refer to the Definitions section for the definitions of the terms non-covered procurements, covered procurements and Defence/DMO exempt procurements. The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
Mandatory Policy
Defence officials must comply with the CPGs when undertaking procurement in accordance with Financial Management and Accountability Regulation 1997 (FMAR) 7(4). In accordance with FMAR 9, a Defence official must not approve a proposal to spend public money unless satisfied, after reasonable inquiry that giving effect to the spending proposal would be a proper use of Commonwealth resources. Defence officials must have regard to and comply with the mandatory requirements in Finance Circulars and Commonwealth Procurement Circulars when undertaking procurement. The Procurement Approver must ensure that the reasons supporting a determination that an exemption from the MPPs is available are documented and appropriately filed. Any request to CEO DMO for an exemption based on paragraph 2.7 of the CPGs must be endorsed by either SCCEO DMO or GM Com before forwarded to CEO DMO. Proposal approver delegates must not approve a proposal to spend public money that is inconsistent with the terms of any Australian Government approval or decision relevant to the procurement.
Overview 3. The CPGs provide all agencies governed by the Financial Management and Accountability Act 1997 (FMA Act) and certain Commonwealth Authorities and Companies Act 1997 (CAC Act) bodies with the procurement policy framework for conducting procurement activities. Amendments to the FMA Act and FMARs on 1 July 2009 have resulted in a change to the status of the CPGs. FMAR 7(4) now states that An official performing duties in relation to the procurement of property or services must act in accordance with the Commonwealth Procurement Guidelines. The former FMAR 8(2) which previously allowed for an official to act contrary to the CPGs provided a written record was made containing the reasons for doing so Page 1.21
4.
Defence Procurement Policy Manual 1.2 Commonwealth Procurement Guidelines has now been deleted. In addition, subsection 64(3) of the FMA Act has been inserted into the FMA Act to give FMAR guidelines, including the CPGs, status as legislative instruments, making them part of the law of the Commonwealth. 5. The CPGs state that requirements that are to be complied with in all circumstances are denoted by the use of the term must. The use of the term should in the CPGs denotes matters of sound practice. A similar approach will also be adopted throughout the DPPM. The CPGs are divided into an Introduction, two Divisions and the Appendices. Division 1 applies to all Commonwealth procurements and Division 2 (the MPPs) applies to all covered procurements.
6.
CPG Introduction 7. The Introduction covers the purpose, scope and legislative and policy framework of the CPGs. Of particular significance to Defence is the information on Coordinated Procurement Contracting Arrangements, and the policies that interact with procurement. Further information on these subjects can be found in DPPIs 5/2008, 29/2009, 17/2010, and DPPM chapter 3.10 respectively.
CPGs Division 1 - Procurement Principles 8. 9. All procurements undertaken in Defence and the DMO must comply with Division 1 of the CPGs Division 1 of the CPGs establishes value for money as the core principle governing Commonwealth procurement. Value for money is enhanced by three other key principles:
encouraging competition by ensuring non-discrimination in procurement and the use of competitive procurement processes; promoting the use of resources in an efficient, effective, economical and ethical manner, in accordance with section 44 of the FMA Act; and ensuring that decision-making by officials occurs in an accountable and transparent manner.
Note: The term economical has been added to the definition of proper use in section 44 of the FMA. The CPGs have not been updated to reflect this change to the definition. For further guidance on the term economical refer to Finance Circular No. 2011/01 Commitments to Spend Public Money (FMA Regulations 7 to 12). 10. Value for money should be evaluated on a whole-of-life basis and cost is not the only factor in determining value for money. It is influenced by a number of factors including:

fitness for purpose; the performance history of each tenderer; the relative risk of each proposal; the flexibility to adapt to possible change over the lifecycle of the property or service; financial considerations including all relevant direct or indirect benefits and costs over the whole procurement cycle; and the evaluation of contract options (for example, contract extension options).
11.
Division 1 of the CPGs contains further information on value for money and the key principles mentioned above. Other factors that influence value for money in the Defence context are provided in chapter 5.6. Procurement officers should be aware that the overall goal of the procurement process is to provide a value for money recommendation to the delegate. The requirement to consider and achieve value for money is not limited to procurement delegation considerations. Each step in
12.
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Defence Procurement Policy Manual 1.2 Commonwealth Procurement Guidelines the procurement process requires the application of value for money principles to ensure the procurement achieves overall value for money. 13. The following are examples of steps over the life cycle of a procurement process where Defences ability to achieve value for money can be affected:
Planning. Planning helps define objectives and methods and helps in assessing, monitoring and directing the progress of the procurement; Market Research. Find out what potential suppliers there are, what price is fair and reasonable and how well potential suppliers perform; Requirement Development. Develop requirements/specifications which focus on the outcome expected from the purchase rather than specifying a particular way of meeting the requirement; Selection of Procurement Method. Make effective use of competition in the market place; Tender and Contract Development. Ensure that the terms and conditions of contracts are clear and precise, reflect the intent of the parties and optimise achievement of value for money; Negotiation. Negotiate with one or more preferred tenderers to clarify ambiguities in a tenderers offer, optimise risk allocation, agree pricing arrangements and other commercial terms to the mutual satisfaction of both parties; Relationship management. Develop and maintain a good relationship with the contractor and preserve the mutual interest you initially achieved; Contract Management. Monitor, evaluate and manage the transaction over its operating life; and Retendering. Reconsider supply arrangements at the contract completion or at the time of exercising options if they no longer offer value for money.
14.
Further guidance on determining value for money is contained in Annex 1A.
CPGs Division 2 - Mandatory Procurement Procedures 15. Division 2 of the CPGs outlines the Mandatory Procurement Procedures (MPPs) that must be followed by agencies when conducting covered procurements. See the definition of covered procurements in the Definitions section and as further explained in paragraph 19. The MPPs complement the general principles set out in Division 1 of the CPGs and are not to be interpreted or applied in a manner that diminishes or negates those general principles. This chapter will not outline all of the MPPs applicable to covered procurements, as the specific requirements are detailed in the relevant chapter. For example, chapter 5.5 outlines the application of the MPPs when dealing with Late Tenders. While the MPPs do not represent mandatory policy for non-covered procurements, they are generally considered to represent best practice in the conduct of tender processes and should be complied with where possible consistent with achieving a value for money procurement outcome. Further guidance on the application of the MPPs is contained in the DOFD publication Financial Management Guidance (FMG) 13 - Guidance on the Mandatory Procurement Procedures.
16.
17.
18.
Definition of Covered Procurement 19. In accordance with the CPGs, a procurement, except a procurement which is specifically exempt in accordance with Appendix A of CPGs, is a covered procurement if the estimated value of the property or services being procured is above the relevant threshold:
Page 1.23
for procurements (other than for construction services) by FMA Act agencies, such as Defence and DMO, the procurement threshold is $80,000; for procurements (other than for construction services) by relevant CAC Act bodies, such as Defence Housing Authority, the procurement threshold is $400,000; or for procurements of construction services by FMA Act agencies and relevant CAC Act bodies, the procurement threshold is $9 million.
20.
If a procurement is categorised as a covered procurement, it may be exempt for the operation of the MPPs for essential security reasons if it is a Defence/DMO Exempt Procurement in accordance with paragraphs 23-27.
Valuing Procurements 21. The procurement value is the maximum anticipated value of a contract, including options, extensions, renewals or other mechanisms that may be executed over the life of a contract. The estimated value includes:
all forms of remuneration, including any premiums, fees, commissions, interest, anticipated travel costs and other revenue streams that may be provided for in the proposed contract; the total maximum value of the property or services being procured, including the value of any options in the proposed contract; and any taxes or charges (including GST).
For further information on valuing procurements, particularly for valuing a lease or rental procurement, refer to paragraphs 8.5 8.10 of the CPGs. Exemptions 22. The CPGs provide for certain exemptions from the MPPs. These exemptions are specified in Appendix A to the CPGs and are as follows:
leasing or purchase of real property or accommodation. The procurement of construction services is not exempt; procurement of property or services by an agency from other Commonwealth, State, Territory or Local Government entities where no commercial market exists or where legislation or general government policy requires the use of a government provider (e.g. tied legal services); purchases funded by international grants, loans or other assistance, where the provision of such assistance is subject to conditions inconsistent with the CPGs; purchases funded by grants and sponsorship payments; procurement for the direct purpose of providing foreign assistance; procurement of research and development services, but not the procurement of inputs to research and development undertaken by an agency; the engagement of an expert or neutral person, including engaging counsel or barristers, for any current or anticipated litigation or dispute; procurement of property or services (including construction) outside Australian territory, for consumption outside Australian territory; acquisition of fiscal agency or depository services, liquidation and management services for regulated financial institutions, and sale and distribution services for government debt; procurement of motor vehicles; procurement, by the Australian Reward Investment Alliance (ARIA) or the Future Fund Management Agency, of investment management, investment advisory, or master custody and safekeeping services for the purposes of managing and investing the regulated
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Defence Procurement Policy Manual 1.2 Commonwealth Procurement Guidelines superannuation assets under the trusteeship of ARIA or for the purpose of investing the assets of the Future Fund;

procurement of blood plasma products or plasma fractionation services; procurement of government advertising services; procurement of property or services by, or on behalf of, the Defence Intelligence Organisation, the Defence Signals Directorate, or the Defence Imagery and Geospatial Organisation; contracts for labour hire but not to contracting with an intermediary (for example, a personnel firm) for the provision of an individual to supply labour (other than an intermediary that is a firm which primarily exists to provide the services of only that individual). This includes the appointment of an eminent individual to a special role by a Chief Executive, or the appointment of a person or persons by a Chief Executive to a governance committee (for example, an audit, ethics or steering committee) but does not include the engagement of consultants; and procurement of property or services from a business that primarily exists to provide the services of persons with a disability.
Defence and DMO Specific Exemptions 23. In Defence and the DMO, a covered procurement may be exempt from the operation of the MPPs if it is a Defence/DMO Exempt Procurement. Paragraph 2.7 of the CPGs permits the Chief Executive of an agency to determine that a measure is necessary for, among other things, the protection of essential security interests. The Secretary of Defence is considering which specific Defence procurements should be exempt from the operation of the MPPs as such a measure. In relation to the DMO, the CEO DMO has determined that certain DMO specific procurements should be exempt from the operation of the MPPs as such a measure. The Procurements which are subject to these Chief Executive measures are categorised as Defence/DMO Exempt Procurements. In the interim for Defence, as well as for the DMO, procurement of the following goods or services are Defence/DMO Exempt Procurements: Goods The procurement of goods that fall within the following US Federal Supply Codes (FSC):

24.
FSC 10 Weapons; FSC 12 Fire Control Equipment; FSC 13 Ammunition and Explosives; FSC 14 Guided Missiles; FSC 15 Aircraft and Airframe Structural Components; FSC 16 Aircraft Components and Accessories; FSC 17 Aircraft Launching, Landing, and Ground Handling Equipment; FSC 18 Space Vehicles; FSC 19 Ships, Small Craft, Pontoons and Floating Docks; FSC 20 Ships and Marine Equipment; FSC 23 Ground Effect Vehicles, Motor Vehicles, Trailers and Cycles; FSC 28 Engines, Turbines, and Components; FSC 29 Engine Accessories; FSC 31 Bearings; FSC 46 Water Purification and Sewage Treatment Equipment; Page 1.25

FSC 48 Valves; FSC 49 Maintenance and Repair Shop Equipment; FSC 54 Prefabricated Structures and Scaffolding; FSC 58 Communication, Detection, and Coherent Radiation Equipment; FSC 59 Electrical and Electronic Equipment Components; FSC 60 Fiber Optics Materials, Components, Assemblies, and Accessories; FSC 61 Electric Wire, and Power and Distribution Equipment; FSC 63 Alarm, Signal and Security Detection Systems; FSC 66 Instruments and Laboratory Equipment; and Specialty Metals.
Services The procurement of the following kinds of services:
Design, development, integration, test, evaluation, maintenance, repair, modification, rebuilding and installation of military systems and equipment; The operation of Government-owned Facilities; Space services; and Services in support of military forces overseas.
25.
If a procurement of goods or services by the Department of Defence (as opposed to DMO) is not listed above, but an exemption is sought, it should be raised on a case by case basis with the Secretary in the first instance, pending a final determination by the Secretary as to which specific procurements should be exempt from the operation of the MPPs as such a measure. If a procurement of goods or services by the DMO is not listed above, but an exemption is sought, it should be raised on a case by case basis with SCCEO DMO or General Manager Commercial (GM Com) in the first instance as to whether a measure could be made to exempt a particular procurement from the operation of the MPPs. Any request to CEO DMO for an exemption based on paragraph 2.7 of the CPGs must be endorsed by either SCCEO DMO or GM Com before forwarded to CEO DMO. An exemption is unlikely to be available for a procurement that is the result of a failure to properly plan the procurement process (e.g. a failure or inability to undertake an open tender process prior to expiry of the previous contract). Procurements which are exempt from the MPPs must still be undertaken in accordance with Division 1 of the CPGs. Refer to the Procurement and Contracting Branch website for further information on whether a Defence specific exemption applies.
26.
27.
Determining Whether a Defence or DMO Specific Exemption Applies 28. It is the responsibility of the Procurement Approver delegate to determine whether an exemption applies to a particular Defence or DMO procurement. Where a determination is made that an exemption is available, the Procurement Approver must ensure that the reasons supporting that determination are documented and appropriately filed.
Policies that Interact with Procurement 29. FMAR 9 provides that An approver must not approve a spending proposal unless the approver is satisfied, after reasonable inquiries, that giving effect to the spending proposal would be a proper use of Commonwealth resources [within the meaning given by subsection 44(3) of the Act]. Subsection 44(3) of the FMA Act defines proper use to mean efficient, effective and ethical use that is not inconsistent with the policies of the Commonwealth. The policies of the Commonwealth in section 44 of the FMA Act is not a defined term and should be interpreted broadly applying its ordinary dictionary meaning. Among other things, it is Page 1.26
30.
Defence Procurement Policy Manual 1.2 Commonwealth Procurement Guidelines likely that any Cabinet decision relevant to a spending proposal will constitute a Commonwealth policy, though the terms of that decision will be relevant. If that decision establishes a course or line of action it will generally be a policy for the purposes of section 44 and FMAR 9. Accordingly, Proposal approver delegates must not approve a proposal to spend public money that is inconsistent with the terms of any Australian Government approval or decision relevant to the procurement. 31. Procurement officers should be aware that the overall goal of the procurement process is to provide a value for money recommendation to the delegate. Further guidance on determining value for money is contained in Annex 1A. Other factors that influence value for money in the Defence context are provided in chapter 5.6. Officials with procurement duties are responsible for informing themselves of the legislation and policies that apply to the particular procurement that is being conducted. External Service Providers must also comply with relevant legislation and policies. This requirement should be appropriately reflected in tender documents and contracts (see chapters 3.9, 3.10, and 3.1216). The DOFD publication FMG10 - Guidance on Complying with Legislation and Government Policy in Procurement provides further assistance on policies that interact with procurement.
32.
33.
Finance Circulars and Guidance 34. Finance Circulars are released by DOFD to implement interim policy updates and guidance. From January 2004, Commonwealth Procurement Circulars are issued as Finance Circulars. Procurement officers must have regard to all Finance Circulars and Commonwealth Procurement Circulars. Current Finance and Commonwealth Procurement Circulars can be accessed on the DOFD website. DOFD has also developed procurement guidance to assist Procurement officers to understand their policy obligations when undertaking procurement activities. The full listing of publications is available on the DOFD website.
35. 36.
Key References
Commonwealth Procurement Guidelines Commonwealth Procurement Circulars Department of Finance and Deregulation Finance Circulars Department of Finance and Deregulation Financial Management Guidance (FMG) 10 Guidance on Complying with Legislation and Government Policy in Procurement. Department of Finance and Deregulation FMG 13 - Guidance on the Mandatory Procurement Procedures Department of Finance and Deregulation Finance Circular No. 2011/01 Commitments to Spend Public Money (FMA Regulations 7 to 12).
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Defence Procurement Policy Manual 1.3 Simple, Complex and Strategic Procurement
1.3
Introduction
1. 2.
Simple, Complex and Strategic Procurement
This chapter applies to procurement undertaken in Defence and the DMO. This chapter provides guidance on the Simple, Complex and Strategic procurement categories to ensure that procurements are categorised in a logical and consistent manner. An awareness of the differences between these categories will assist Procurement officers to identify the appropriate form of contractual template to be used for a procurement 1 . The procurement category will also determine the appropriate level of documentation and approval delegations required.
Mandatory Policy
Procurement officers must assess the risks associated with a proposed procurement and appropriately categorise the procurement as Simple, Complex or Strategic.
Overview 3. Procurement is the process of acquiring the resources needed to undertake the business of Commonwealth agencies. It is the entire process by which all classes of resources (personnel, materiel, facilities and services) are obtained for a specific project or procurement outcome. This process can include such capability life cycle activities as: needs, requirements, acquisition, in-service, disposal and related tasks. Defence procurement is divided into the following three broad categories: Simple, Complex and Strategic. The indicative characteristics of each procurement category are discussed below. A flowchart depicting the sequential steps in Simple and Complex procurement is located at the front of the DPPM. Before conducting a procurement, Procurement officers must assess the risks associated with the proposed procurement and appropriately categorise the procurement as Simple, Complex or Strategic. The risk assessment should identify all relevant risks and the probability of those risks occurring. It should also assess the impact such events would have on the procurement and how such risks might be treated (risk management). The types of risks that should be considered include legal, commercial, financial, political, project management (including schedule), technical and logistics risks. The rigour of the risk assessment should be commensurate with the size and complexity of the procurement and is at the discretion of the official conducting the procurement. Chapter 3.2 provides further information on conducting risk assessment.
4.
5.
Simple Procurement Defined 6. Simple procurement is a procurement category where the overall level of risk and complexity is assessed as low after a risk assessment commensurate with the size and complexity of the procurement has been conducted. The primary Defence reference for Simple procurement is the Simple Procurement chapter in the DPPM. Other useful references for simple procurement include:
7.
The Simple Procurement competency training courses outlined in chapter 1.4;
The ASDEFCON Template Selection Guide, located on the Office of Special Counsel intranet website, can also assist Procurement officers with identifying the appropriate form of ASDEFCON template.
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AC565 Request for Quotation Form; and Form SP020 - General Conditions of Contract for the Supply of Goods and Repair Services.
Complex Procurement Defined 8. Complex procurement is a procurement category where the overall level of risk and complexity is assessed as medium to high after a risk assessment commensurate with the size and complexity of the procurement has been conducted. Chapter 3.2 provides further information on the conduct of risk assessments. Complex procurement usually involves the purchase of more complex supplies (comprising goods and/or services) where:

the monetary value of the purchase is high; and broader value for money considerations apply including whole of life costing, supplier support capabilities, contractual conditions, fitness for purpose and supplier past performance.
9.
In addition, the following characteristics may apply to a Complex procurement:

comprehensive planning and risk assessment may be required; some design, development, or integration may need to be undertaken; some non-standard terms and conditions may need to be negotiated; the method of procurement may be more complex (i.e. where a staged procurement approach has been adopted, such as when an Invitation to Register Interest is conducted prior to a Request for Tender); a more complex price basis is required (e.g. variable by formula or by exchange rate, payment in source (foreign) currency); more complex payment mechanisms may be adopted (e.g. mobilisation payments, progress milestones, or performance payments); detailed probity plans, evaluation criteria, tender evaluation processes, and a Source Evaluation Report are required; government furnished facilities, equipment, data, information or services may be required to be provided to the contractor; specialist advice on legal, commercial, financial or technical considerations may be required, such as on limitation of liability or intellectual property issues; and the procurement is on the critical path of a related Strategic procurement.
10.
The primary Defence reference for Complex procurement is the DPPM. Other useful references for complex procurement include:

the ASDEFCON suite of tendering and contracting templates; and the Infrastructure Management website: http://intranet.defence.gov.au/im/.
Strategic Procurement Defined 11. Strategic procurement is a procurement category where the overall risk and complexity is high to extreme after a risk assessment commensurate with the size and complexity of the procurement has been conducted. The following characteristics are indicative of a strategic procurement:

the procurement is critical to Defences ability to meet its core objectives; the procurement is linked to corporate level planning decisions; the procurement requires First Pass and Second Pass approval (refer to Chapter 5.0 for further detail);
Page 1.32

the procurement is likely to be directed by a Government policy decision; the monetary value of the procurement is $20 million or more; there is a significant level of project management and contractual complexity; there is a medium to high level of hardware and/or software development; there is a significant level of schedule complexity; there is a significant level of technical difficulty; significant operational and support issues are involved in the procurement; strategic value for money considerations apply; there is significant political risk; there may be significant economic and regional impacts; innovative contracting approaches may be required such as alliancing or evolutionary acquisition; and specialist advice on legal, commercial, financial or technical considerations may be required during each stage of a Strategic procurement.
12.
Strategic procurement requires the application of specialised procurement knowledge and the exercise of considerable judgement in decision making. The nature of the procurement activity is very complicated and often requires coordination of multiple and concurrent activities. Delegates exercising approvals for Strategic procurements must have at minimum the required Complex procurement competencies. Chapter 1.4 provides further information on delegations for procurement. Within the Strategic procurement category the DMO uses the Acquisition Category (ACAT) framework contained in Defence Materiel Instruction (DMI) (Acquisition) 1/2006 V2.4 Acquisition Categorisation Framework to provide a consistent methodology for categorising acquisition and sustainment projects. DMOs ACAT framework is based on four Acquisition categories that provide a graduated scale from the most demanding Strategic projects to the least demanding. The largest, most demanding projects are categorised as ACAT I or ACAT II; while less demanding projects are categorized ACAT III and ACAT IV. For further information on the ACAT framework please refer to DMI (Acquisition) 1/2006 v2.4- Acquisition Categorisation Framework which is available in DMO QEMS. The primary Defence reference for Strategic procurement is the DPPM. Other useful references for Strategic procurement include:

13.
14.
15.
16.
Defence Capability Development Handbook; ASDEFCON (Strategic Materiel); and ASDEFCON (Support).
Key References
Commonwealth Procurement Guidelines Defence Capability Development Handbook ASDEFCON suite of tendering and contracting templates AC565 Request for Quotation Form SP020 - General Conditions of Contract for the Supply of Goods and Repair Services Defence Materiel Instruction (Acquisition) - 1/2006 V2.4 Acquisition Categorisation Framework
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Defence Procurement Policy Manual 1.3 Simple, Complex and Strategic Procurement ASDEFCON Selection Guide Infrastructure Management website.
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Defence Procurement Policy Manual 1.4 Delegations for Procurement
1.4
Introduction
1. 2.
Delegations for Procurement
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter:
outlines the key policies that must be adhered to when exercising delegations for procurement; and provides an overview of the required competency based procurement training for Defence and DMO officers.
3.
Defence and DMO are governed by two separate sets of Chief Executives Instructions (CEIs) and financial management frameworks, including delegations. While there are similarities between the two systems, it is important to distinguish between Defence and DMO for the purposes of exercising delegations. Defence and DMO officers hold and exercise their delegation on behalf of a separate Chief Executive, that is, the Secretary and the DMO Chief Executive Officer respectively. Please note that for the purposes of this chapter only, a reference to the Defence Portfolio is a reference to both Defence and DMO. Additionally, in this chapter only, a reference to Defence does not include the DMO and a reference to the DMO does not include Defence.
Mandatory Policy
For an official in the Defence Portfolio to exercise a power assigned or delegated to the Defence or DMO Chief Executive, that official must have the delegated authority of the relevant Chief Executive. For Defence officers those delegations are contained within FINMAN 2 Financial Delegations Manual (FINMAN 2) and for DMO officers those delegations are contained in the DMO Chief Executives Instruction (CEI) 2.1 - Annexes A E. Delegates must comply with the Financial Management and Accountability Act 1997 (Cth) (FMA Act), the Financial Management and Accountability Regulations 1997 (Cth) (FMARs), mandatory policy issued by the Department of Finance and Deregulation (DOFD) (including the Finance Ministers Orders for Financial Reporting and Finance Circulars), the Commonwealth Procurement Guidelines (CPGs), the Defence CEIs and/or the DMO CEIs and their Annexes, FINMAN 2, FINMAN 5, the DPPM, and any other relevant Defence Portfolio policy. DMO officers (and Defence officers exercising delegations on behalf of the DMO Executive) must comply with DMI(FIN) 01-0-025 Engagement of External Service Providers, DMI(FIN) 01-0-024 FMA Regulation 10 and DMI (FIN) 01-0-029 Financial Delegations Management Framework in the DMO. Officials conducting procurement in the Defence Portfolio must obtain a minimum of four delegation approvals prior to the purchase of goods and services. Delegates exercising financial delegations for procurement must meet the competency or proficiency requirements detailed in chapter 1.4. In the rare circumstances where a quote or tender may commit the Commonwealth to spending public money, Proposal Approval must be exercised for the anticipated commitment prior to release of the request documentation.
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Procurement Approval must be obtained prior to seeking quotes or tenders. Contract Approval must be obtained prior to entering into a contract, agreement or arrangement under which public money is, or may become, payable. Except for Simple procurements valued at $5,000 or less, delegations must be exercised by a minimum of two separate delegates. The three delegations of Proposal, Procurement and Contract Approver delegations cannot be exercised by the same delegate. Defence officers must not exercise a Defence delegation for DMO appropriated funds and DMO officers must not exercise a DMO delegation for Defence appropriated funds. For DMO procurements greater than $5,000, a single DMO delegate must not exercise both Proposal Approver and Contract Approver delegations. For procurements undertaken in Defence, if FMAR 10 is triggered, written agreement from the Finance Minister, or their delegate, must be obtained before the Proposal Approver can approve a spending proposal under FMAR 9. For procurements undertaken in the DMO, if FMAR 10 is triggered, written agreement from the Finance Minister, or their delegate, must be obtained prior to obtaining Contract Approval. Where the extent, scope or funding of the contract does not accord with the terms (or limits) of the Proposal Approval, a new Proposal Approval must be approved prior to Contract Approval. In the DMO, prior to entering into a contract, agreement or arrangement that could involve the contractor receiving or making payments of public money, delegate approval must be sought under Annex A and/or Annex B to DMO CEI 3.1 To authorise the payment of public money by outsiders. Details of the conditions for receipt and spending of public money by outsiders must be incorporated into the relevant contract. A delegates decision must always be recorded in writing which may include electronic format. Delegates not holding the appropriate competencies must ensure that a person holding those competencies has been consulted (Competent Adviser). The name and position of the Competent Adviser must be recorded. For DMO contracts valued at $2m or more when there is to be an increase in the value of the contract exceeding $20m or 20% of the contract value the requirements detailed in this chapter relating to the 20/20 rule must be complied with. DMO Procurement officers must use the DMOSS panel where the required specialist skills are available through that panel. DMO Procurement officers must comply with Defence Materiel Instruction (Procurement) DMI (PROC)) 130002 - Mandatory Procurement Policy Requirements for Contract Changes.
Background 4. The Financial Management and Accountability Act 1997 (Cth) (FMA Act) provides the framework for the management of public money and public property. Public money and public property is money and property in the custody or control of the Commonwealth. Since DMO became a prescribed Agency in 2006, for the purposes of the FMA Act, there are two agencies Page 1.42
Defence Procurement Policy Manual 1.4 Delegations for Procurement within the Defence portfolio Defence (which includes the Australian Defence Organisation) and DMO. The Defence Chief Executive is the Secretary and the DMO Chief Executive is CEO DMO. Relevant to all Defence Portfolio procurements is the approval process contained in the FMA Act, the Financial Management and Accountability Regulations 1997 (Cth) (FMAR). 5. The FMA Act enables the Secretary and CEO DMO to delegate some of their powers to appropriate officials. For an official in the Defence Portfolio to exercise a power assigned or delegated to the Defence or DMO Chief Executive, that official must have the delegated authority. A key provision of the FMA Act is section 44. This section places a positive obligation on the Secretary and the CEO DMO to manage the affairs of Defence and DMO in a way that promotes the efficient, effective economical and ethical use of Commonwealth resources for which they are responsible and in a manner that is not inconsistent with the policies of the Commonwealth. Section 44 also confirms that Chief Executives have the power (which may be delegated) to enter into contracts, on behalf of the Commonwealth, with respect to the affairs of their agency. Before any Chief Executive or official enters into a contract involving a spending proposal, this expenditure must be approved in accordance with the requirements of the FMARs. Compliance with the FMARs is an important part of ensuring the efficient, effective and ethical use of public money, as required by section 44.
6.
7.
FMA Regulations applicable to the Approval Framework 8. FMAR 3 defines a spending proposal as a proposal that could lead to entering into an arrangement. A spending proposal is therefore separate and distinct from the contract, agreement or arrangement under which public money is or may become payable. FMAR 7, specifically FMAR 7(2) states that an official performing duties in relation to the procurement must act in accordance with the Commonwealth Procurement Guidelines. FMAR 8 prohibits a person from entering into a contract, agreement or arrangement under which public money is, or may become payable, unless the associated spending proposal is approved under FMAR 9 and, if necessary, written agreement has been given under FMAR 10. FMAR 9 states that An approver must not approve a spending proposal unless the approver is satisfied, after reasonable inquiries, that giving effect to the spending proposal would be a proper use of Commonwealth resources. In determining whether the expenditure would be a proper use, s 44 of the FMA Act defines proper use to mean efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth. Refer to chapter 3.10 for further guidance on policies of the Commonwealth. FINMAN 2 and the Annexes to DMO CEI 2.1 provide officials (other than the Minister, the Secretary and the CEO DMO) with the delegated authority (delegates) to approve proposals under FMAR 9. Further information regarding compliance with the FMARs when making commitments to spend public money is contained in Finance Circular No. 2011/01 Commitments to Spend Public Money (FMA Regulations 7 to 12). FMAR 10 is triggered by 'unfunded' future spending proposals i.e. proposals with an estimated total value in excess of the uncommitted balance of all relevant appropriations. Further information is provided at paragraphs 29 35. FMAR 11 requires an official to have the authority of the Minister, Chief Executive or an Act of Parliament to approve a spending proposal. FMAR 12 requires approvals that have not been given in writing to be documented as soon as practicable after the approval has been given.
9. 10.
11.
12.
13.
14. 15.
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Defence Procurement Policy Manual 1.4 Delegations for Procurement Defence and DMO Approval Framework 16. Defence and DMO have two separate sets of CEIs and financial delegation frameworks which incorporate the requirements of the FMA Act and the FMARs. The delegations frameworks are established under the respective CEIs to ensure Defence Portfolio procurements comply with the requirements of the FMA legislation and regulations. Officials conducting procurement in the Defence Portfolio must obtain a minimum of four approvals prior to the purchase of goods and services and these approvals must be exercised by suitably qualified delegates. The four financial delegations for procurement are:

Proposal Approver (FMARs 9, 10, 11 and 12); Procurement Approver (FMARs 7 and 9); Contract Approver (FMARs 7, 8 and 9); and Contract Signatory (FMARs 8, 9, and 10).
Note: In the DMO, the Procurement Approver delegation is referred to as the Procurement Method Approver. For DMO officers, any reference to Procurement Approver in the DPPM should be construed as Procurement Method Approver. 17. The following additional delegations or approvals may need to be exercised in the procurement process:

FMAR 10; liability approvals (see chapter 3.15); exemption of notification of Contract details (see chapter 5.8); and hospitality (Defence CEI 2.2 Official Hospitality, Special Events and Working Meals and DMO CEI 2.2 Hospitality).
Specific Delegate Considerations 18. The following policies apply and must be considered by all delegates when exercising any of the four financial delegations for procurement:
delegates must comply with the FMA Act, the FMARs, mandatory policy issued by DOFD (including Financial Management and Accountability Orders and Finance Circulars), the Commonwealth Procurement Guidelines (CPGs), the Defence and/or the DMO CEIs (and their Annexes), FINMAN 2, FINMAN 5, the DPPM and any other relevant Defence Portfolio policy; delegations are ex officio; they are issued to a specific position or class of positions; delegations may be exercised by the holder of the position, or an official occupying or performing the duties of the position; delegates exercise their authority in their own right and cannot be directed to do so; financial limits can be imposed on a delegates authority; delegates are to satisfy themselves that the total requirement has not been separated into two or more separate requests in order to fall within a financial limit placed on their delegation; where a financial limit has been imposed on a delegates authority, the limit includes any GST component of the purchase; failure by a delegate to observe the financial limits imposed on their delegation would be a breach and may result in disciplinary action; except for Simple procurements valued at $5,000 or less, all three delegations must be exercised by a minimum of two separate delegates, however Proposal, Procurement and Contract Approver delegations can not be exercised by the same delegate;
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the delegate should record the basis of their authority, through a signature block, comprising the delegates signature, printed name, position number and title and date. For DMO delegates, the delegates PMKeys Employee Identification Number should also be included. The signature block should also include the capacity in which the delegate is approving the submission, that is, either a delegate of the DMO CEO or the Secretary of Defence; where an oral contract is entered into, the Contract Signatory delegation need not be in writing; and for Simple procurement where manual approval would unreasonably delay the process, delegates may provide approval by e-mail, where they are not co-located and are separated by a reasonable distance (see the Simple Procurement chapter).
19.
For Simple procurements equal to or less than $5,000, one delegate may exercise all four delegations. For procurements greater than $5,000, while an official can hold all four approval delegations, they must not exercise all three of Proposal, Procurement and Contract Approver. It is permissible for a single Defence delegate to exercise any two of these delegations and the Contract Signatory delegation. DMO delegates have greater restrictions on exercising Proposal, Procurement and Contract Approver as detailed in paragraph 23. In addition, more stringent provisions may be made at the local level, subject to operational requirements. Delegation submission process templates for the Proposal, Procurement and Contract Approver delegations can be found on the Office of Special Counsel intranet site. Use of process templates is not mandatory, but they provide best practice guidance on content of submissions. Defence officers must not exercise a Defence delegation for DMO appropriated funds. DMO officers must not exercise a DMO delegation for Defence appropriated funds.
20.
21.
DMO Specific Procedures 22. DMO has specific procedures that must be complied with in regard to financial delegations. The procedures relate to:
exercising delegations (DMI (FIN) 01-0-029 Financial Delegations Management Framework in the DMO); mandatory use of the FMAR 10 Tool to prepare submissions seeking FMAR 10 authorisation under the DMO Delegation (DMI (FIN) 01-0-024 FMA Regulation 10); engaging external service providers (DMI (FIN) 01-0-025 Engagement of External Service Providers); and domestic and overseas travel (DMO CEI 2.5 Official Travel).
23.
For DMO procurements over $5,000 a single DMO delegate must not exercise both Proposal Approval and Contract Approval. They can still exercise Proposal Approval and Procurement Approval, or Procurement Approval and Contract Approval (DMO CEI 2.1).
Increases to the Value of a Contract The 20-20 Rule 24. Where there is to be an increase through a contract change in the value of a contract (including an FMS case) exceeding $20m or 20% of the contract value the Contract Approver must be:
the relevant Branch Head where the officer who exercised the original Contract Approval was below Branch Head level; or the relevant Divisional Head.
25.
Proposal Approval must also be exercised for the additional amount and Procurement officers must adhere to the DMO requirement that the Proposal Approver and Contract Approver delegations be exercised by different officers. This policy does not apply to DMO contracts valued at less than $2m, or where discrete taskings are progressed against a Standing Offer as Simple procurements to achieve the Page 1.45
26.
Defence Procurement Policy Manual 1.4 Delegations for Procurement outcome negotiated at the signing of the Standing Offer. However, the policy does apply where a contract change is being proposed that will raise the value of the contract above the $2m threshold and increase the value of the contract by more than 20%. DMO Support Services (DMOSS) Panel 27. The DMOSS panel provides projects, sustainment offices and other business units with simple access to a broad range of preferred service providers for the provision of short term specialist support. DMO procurement officers must use the DMOSS panel where the required specialist skills are available through that panel.
Official Hospitality 28. For the DMO, in accordance with DMO CEI 2.2 Hospitality, official hospitality proposals must be given approval in writing by the relevant DMO Branch Head or higher level prior to seeking Proposal Approval.
Financial Management and Accountability Regulation (FMAR) 10 29. FMAR 10 states if a person proposes to enter into an arrangement and the relevant Agency has an insufficient appropriation of money, under the provisions of an existing law or a proposed law that is before Parliament, to meet expenditure that might be payable under the arrangement the person must not enter into the arrangement unless the Finance Minister has agreed, in writing, to the expenditure that might become payable under the arrangement. FMAR 10A provides that agreement under FMAR 10 is not required in relation to certain contingent liabilities. These are liabilities that fall below the remoteness and materiality thresholds prescribed by that Regulation. Under FMAR 10A, an event is considered remote if the likelihood of it occurring is assessed at less than 5%; and not material if the most probable expenditure that would need to be made in accordance with contingent liability is assessed at less than $5 million. The intent of FMAR 10 is to enable the Government to manage the extent to which Commonwealth agencies enter into commitments to spend public money in the absence of an appropriation, and thereby potentially lock-in future Budgets. FMAR 10 applies when there is insufficient unspent or uncommitted appropriation (or proposed appropriation in a Bill before Parliament) available to satisfy the total obligations arising under a spending proposal at the time the Proposal Approver is considering approving a spending proposal. Total obligations include those obligations potentially arising from any indemnities or other contingent liabilities. While liability caps are not generally considered obligations for FMAR 10 purposes there are some circumstances where a liability cap may constitute a contingent liability. For further information and guidance see Finance Circular No. 2011/01 Commitments to Spend Public Money (FMA Regulations 7 to 12). For procurements undertaken in Defence, if the requirement for FMAR 10 agreement is triggered, written agreement from the Finance Minister, or their delegate, must be obtained before the Proposal Approver can approve a spending proposal under FMAR 9. For procurements undertaken in the DMO, if the requirement for FMAR 10 agreement is triggered, written agreement from the Finance Minister, or their delegate, must be obtained prior to requesting Contract Approval. The FMAR 10 delegation is detailed in FINMAN 2 Schedule F2-1 (for Defence delegates) and DMO CEI 2.1 - Annex A (for DMO delegates), including the Finance Ministers Directions and a list of FMAR 10 delegates. For general guidance on when FMAR 10 agreement is required refer to Finance Circular No. 2011/01 Commitments to Spend Public Money (FMA Regulations 7 to 12) and (for DMO officers) DMI (FIN) 01-0-024 - FMA Regulation 10. Defence officers can also obtain further guidance on FMAR 10 by contacting the Directorate of Financial Policy in the Chief Finance Page 1.46
30.
31.
32.
33.
34.
35.
36.
Defence Procurement Policy Manual 1.4 Delegations for Procurement Officer Group on (02) 6265 6111 or email financial.policy@defence.gov.au and DMO Officers can contact their relevant FMAR 10 delegate or Director of Financial Management (DFM). DFMs may obtain further guidance from DMO Financial Policy Helpdesk on (03) 9282 4809 or email DMOFinance.Policy@defence.gov.au. Proposal Approver 37. Proposal Approval is normally the first step in the procurement process for the control and management of expenditure by the Defence Portfolio. Proposal Approval should be obtained as soon as there is sufficient information to consider the spending proposal, ideally prior to seeking quotes or tenders. If Proposal Approval is not exercised prior to seeking quotes or tenders, Procurement officers should consider consulting with the relevant delegate who will ultimately exercise Proposal Approval for the procurement prior to release of the request documentation. In the rare circumstances where a quote or tender may commit the Commonwealth to spending public money (eg where a procurement process contemplates funded trials), Proposal Approval must be exercised for the anticipated commitment prior to release of the request documentation. Proposal Approver delegates must only approve a spending proposal if they are satisfied that there are sufficient funds available to cover the full cost, that will or may become payable, including GST (where applicable), of the spending proposal. DMO Procurement officers should refer to (DMI)(PROC)-13-0-001 for further guidance on obtaining Proposal Approval for Major Capital Equipment procurement subject to the First and Second Pass Approval process. The Proposal Approver delegation requirements are outlined in FINMAN 2 Schedule F2-2 (for Defence) and DMO CEI 2.1 Annex B (for DMO), including a list of Proposal Approval delegates and any limits placed on their delegation. Directions relating to the exercising of the delegation are also provided. Tolerances or any other mechanisms that allow for expenditure of public money in excess of the total amount approved in the Proposal Approval are not permitted. For procurements valued at $80,000 or less where the amount of the spending proposal or expenditure is uncertain, the Proposal Approval may include flexibility to allow the Contract Approver to approve a contract that is in excess of the estimate in the Proposal Approval subject to the following:
38.
39.
40.
41.
the flexibility contained in the Proposal Approval must be specific, for example, up to $x, or an amount including any extras up to a not to exceed limit of $x; and the not to exceed amount or flexibility contained in the Proposal Approval must not be more than 5% of the estimated spending proposal. In these cases, the Proposal Approver is approving the not to exceed amount.
42.
For the DMO, spending proposal approvals can be conditional on certain events. For example if the spending proposal is consistent with the purpose for which the funds are allocated, but FMAR 10 agreement has not yet been obtained, a spending proposal can be approved on the condition that if FMAR 10 agreement is required it will be obtained prior to Contract Approval. Where Proposal Approval (verbal or written) has not been exercised before a contract is entered into, this will constitute non-compliance with the FMA Regulations and the delegation cannot be retrospectively obtained. For further information on breaches and reporting of breaches, Defence officers should refer to the Certificate of Compliance section of the Finance in Defence intranet site and DMO officers should refer to DMI(FIN) 01-0-029 Financial Delegations Management Framework in the Defence Materiel Organisation.
43.
Statement of Funds Availability 44. A delegate may only approve a spending proposal if there are sufficient funds available to cover the full cost of the expenditure. Therefore, it is important that they are satisfied that sufficient Page 1.47
Defence Procurement Policy Manual 1.4 Delegations for Procurement funds remain available in their budget allocation (DMO officers should refer to DMO CEI 2.1) to cover the approximate expenditure (which excludes any options). It is in this context that submissions to a Proposal Approver should contain a statement of funds availability. Procurement Approver 45. 46. Procurement Approval must be obtained prior to seeking quotes or tenders. The Procurement Approver delegation requirements are outlined in FINMAN 2 Schedule F2-3 (for Defence) and DMO CEI 2.1 Annex C (for DMO), including a list of delegates and relevant limits and directions. For further information on whether a procurement is covered and if any DMO or Defence specific exemption applies, refer to chapter 1.2 of the DPPM and paragraph 8.4 of the CPGs.
47.
Contract Approver 48. Contract Approval must be obtained prior to entering into a contract, agreement or arrangement under which public money is, or may become, payable. Contract Approver delegates must only approve a spending proposal if they are satisfied that there are sufficient funds available to cover the full cost, including GST (where applicable), of the spending proposal. The Contract Approver delegation requirements are outlined in FINMAN 2 Schedule F2-4 (for Defence) and DMO CEI 2.1 Annex D (for DMO), including a list of Contract Approver delegates and the relevant limits and directions. Except for procurements where a Proposal Approver has agreed to flexibility in the Proposal Approval in accordance with paragraph 41, where the extent, scope or funding of the contract does not accord with the terms (or limits) of the Proposal Approval, a new Proposal Approval must be approved prior to Contract Approval. If Contract Approval is provided for an amount in excess of that given by Proposal Approval, and a contract is subsequently entered into, it is a breach of the FMA Regulations and must be reported through the Certificate of Compliance process.
49.
50.
51.
Contract Signatory 52. 53. The Contract Signatory delegate is responsible for entering into a contract, agreement or arrangement under which public money will become payable. The Contract Signatory delegation requirements are outlined in FINMAN 2 Schedule F2-5 (for Defence) and DMO CEI 2.1 Annex E (for DMO), including a list of Contract Signatory delegates and the relevant directions.
Receipt and Spending of Public Money by Outsiders in the DMO 54. Section 12 of the FMA Act, permits outsiders to receive, hold or make a payment of public money where the Finance Minister (or delegate) has given written authorisation for the relevant arrangement or it is expressly authorised by the FMA Act or any other Act. An Outsider means any person other than the Commonwealth, an official or a Minister. Prior to entering into a contract, agreement or arrangement that could involve the contractor receiving or making payments of public money (e.g auction house or conference organiser) delegate approval must be sought under Annex A and/or Annex B to DMO CEI 3.1 To authorise the payment of public money by outsiders. Details of the conditions for receipt and spending of public money by outsiders must be incorporated into the relevant contract.
55.
Recording of Delegations 56. A delegates decision must always be recorded in writing, which may include electronic format. Verbal delegation approvals should not be given unless an urgent or emergency situation arises Page 1.48
Defence Procurement Policy Manual 1.4 Delegations for Procurement where no delegates are available to provide written approval and the decision cannot be deferred. While verbal approval is acceptable in limited circumstances, in accordance with FMAR 12 and DMO CEI 2.1.6 (for DMO), the approver of the proposal to spend public money must record the terms of the approval in a document as soon as practicable after giving the proposal. Where verbal approval is given, the delegate is still required to exercise their delegation within the legal and policy requirements associated with the relevant approval. 57. A delegates judgement may be open to internal or external scrutiny. Therefore, a delegate must always document their decision and the basis on which it was made, and be prepared to justify it.
Splitting a Requirement 58. Where a requirement exists, the proposal submitted to a delegate is to indicate the full financial implications of the proposal. Where a single requirement is to be sourced gradually (i.e. delivery will occur over a long period), the full requirement is to be advised to the delegate in the initial proposal submission. A procurement must not be divided or split into separate parts for the purpose of either avoiding a procurement threshold or to enable a delegate to exercise approvals within the financial limitations of their delegations (See chapter 1.2 for information on valuing a procurement).
59.
Additional Approvals 60. Procurement of Major Capital Equipment requires first and second pass approval. Please refer to chapter 5.0 for information regarding this process. Procurement officers undertaking infrastructure procurements should refer to the approval process outlined in the Infastructure Management website. The following project approvals are also required for projects which meet the specified thresholds:
Policy Area and Policy Construction Public Works Policy Reference Parliamentary Standing Committee on Public Works Relationship with Procurement and Threshold Defence and DMO must refer public works valued in excess of $15 million to the Parliamentary Standing Committee on Public Works (unless exempted) for approval before contract award, and must notify medium works with an estimated value of between $2 million and $15 million to the Committee.
61.
(refer Manual of Procedures for Departments and Agencies) Refer to DPPI 7/2008
Note all amounts are GST inclusive
Project Approval Threshold
The following approval thresholds apply to Defence and DMO projects:
Department (CDF/Secretary or their delegates) approval for projects less than $5 million; Defence Ministers approval for Projects more than $5 million but less than $20 million; Joint Ministers (Defence and Finance ministers) approval for Projects more than $20 million and less than $100 million; Cabinet approval for Projects greater than $100 million.
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Defence Procurement Policy Manual 1.4 Delegations for Procurement Competency Requirements for Delegates 62. 63. 64. For Defence, financial delegations are detailed in FINMAN 2 and for DMO, the Annexes to DMO CEI 2.1. All delegates must comply with the directions issued with the delegations. Delegates exercising financial delegations for procurement must meet the competency or proficiency requirements as detailed at the end of this chapter. Delegates not holding the appropriate competencies must ensure that a person holding those competencies has been consulted (the Competent Adviser). Competent Advisers must be satisfied that, if they were exercising the delegation in their own right, the delegation submission includes sufficient information to satisfy the requirements of the delegation being exercised. While having separate Competent Advisers for each delegation is best practice, in areas where this is impractical, e.g. regional areas, it is permissible for the same Competent Adviser to advise the relevant delegates as long as the respective delegations are being exercised by different individuals, e.g. separate delegates for Proposal Approval and Contract Approval. A Competent Adviser provides independent advice and cannot be directed to change their advice. The name and position of the Competent Adviser must be recorded. Where a Competent Adviser provides advice on a submission it should be included in the submission, and the relevant delegation submission should include a Competent Adviser signature block, comprising the Competent Adviser signature, printed name, position number and title and date. Where the advice of a Competent Adviser is not followed by the delegate, the delegate should document their reasons for not following the advice. Delegates should note that the responsibility for exercising the delegation continues to rest with the delegate. Delegates holding competencies issued by training organisations other than the Defence Portfolio should consult the Simple and Complex Procurement Competencies section later in this chapter. Information on training and assessment of competencies providing for delegations is available in the Simple and Complex Procurement Competencies section later in this chapter. In exercising delegations, delegates should also continue to follow any local requirements and/or Quality Management System procedures. Contract Signatory delegates are not required to meet a specified competency standard.
65.
66.
67. 68. 69.
Contractors Exercising Financial Delegations 70. The Defence and DMO Financial Delegation frameworks provide for contractors to exercise financial delegations for procurement. To be able to exercise a financial delegation a contractor must be an official according to the FMA Act. A contractor is deemed to be an official if the contract with the contractor stipulates that the performance of a financial task involving the spending of public money is a requirement of the contract. A contractor who is an official is subject to the FMA Act, the FMARs, CPGs, Defence and DMO CEIs, FINMAN 2, FINMAN 5, this Manual and any other relevant Defence Portfolio policy. The provision of financial delegations to contractors (where the contractor is a natural person) or a contractors employees should be minimised consistent with effective and efficient use of resources, as the Commonwealth retains minimal control over the procurement, while remaining fully accountable for the expenditure of the public monies involved. Providing a financial delegation to a contractor or its employees will allow that person (the delegate) to approve the spending proposal or the liability to pay public money. In such a case, this means that the commitment and spending of public moneys would be entirely at the discretion of the contractor (or contractor employee), within the limits of the delegation. Delegations for a contractor can only be issued by the Delegations Manager after approval by an official of at least Senior Executive Service (Band 2 level for the DMO) or equivalent level. The Directions to Delegate will outline any financial limits applicable to the contractors delegation. Page 1.410
71.
72.
Defence Procurement Policy Manual 1.4 Delegations for Procurement 73. Where a contractor is granted a financial delegation it will be subject to the same competency requirements as Defence and DMO delegates (see paragraphs 58 65- Competency requirements for Delegates). Where financial delegations are provided to a contractor (where the contractor is a natural person) or its employees, the arrangement should be reviewed at regular intervals and time limits should be imposed on the operation of the delegation that are consistent with the duration of the contractors task. To enable the Commonwealth to monitor performance and to ensure public accountability, the contract between the Commonwealth and the contractor should include provisions enabling the Commonwealth, including the Australian National Audit Office, to access the premises, records and accounts of the contractor. Further guidance and mandatory policy on Commonwealth access to a contractors premises, records and accounts is detailed in chapter 6.2. Further guidance on granting of financial delegations to contractors is detailed in chapter 4.11.
74.
75.
Delegation Requirements for Contract Amendments 76. The financial delegations requirements for contract amendments are detailed in chapter 6.7. Where the draft contract change proposes an increase in the scope of the contract, including orders under a standing offer (for example the purchase of additional supplies or services) and that increase is not an option in the existing contract, the procurement method is likely to be a Single Supplier Direct Source and should be fully justified in the Procurement Approval documentation accordance with chapter 3.1. The Procurement Approver should be satisfied that not re-tendering the requirement will achieve better value for money. DMO Procurement officers must comply with Defence Materiel Instruction (Procurement) (DMI(PROC)) 130002 - Mandatory Procurement Policy Requirements for Contract Changes when processing contract amendments.
77.
Delegation Requirements for Standing Offers and Orders under Standing Offers 78. The following paragraphs are intended to clarify the delegations that must be exercised prior to the establishment of standing offer arrangements and any order placed under a standing offer. Refer to chapter 4.8 for more detailed guidance on standing offers.
Approval of the establishment of standing offer arrangements 79. The following delegations must be exercised (in this order) for the establishment of a deed of standing offer:

Proposal Approver; Procurement Approver; Contract Approver; and Contract Signatory.
FMAR 10 Agreement 80. Generally, FMAR 10 agreement will not be required for the establishment of a standing offer, provided the arrangement for which approval is being sought does not commit the Defence Portfolio to any expenditure (actual or contingent), and that the Defence Portfolio has full control over the orders that are placed under the arrangement. FMAR 10 agreement is required if the deed contains a form of spending commitment on behalf of the Commonwealth, such as an uncapped Commonwealth indemnity or a contractor liability cap with respect to third party claims.
81.
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Defence Procurement Policy Manual 1.4 Delegations for Procurement Approval of orders placed under a standing offer 82. The following delegations must be exercised for the placement of an order under a standing offer:

FMAR 10 (if triggered); Proposal Approver; Procurement Approval (for DMO only); Contract Approval; and Contract Signatory.
83.
Within Defence, there is no requirement for Procurement Approval for individual orders placed under a standing offer. However, when an individual order is placed under an established standing offer, it is best practice for the Proposal Approval submission to verify that the procurement method i.e. use of the standing offer, represents value for money. The Proposal Approval delegate must also confirm that the standing offer which is being used to purchase the goods/services constitutes an appropriate contractual framework for the sourcing of the relevant goods/services. This requires that the delegate confirm that the goods/services covered by the order are of a type or range described in the relevant deed of standing offer as goods/services available to be sourced under the arrangement. A standing offer cannot be used to purchase goods/services that fall outside the scope of the arrangement. In addition, the Proposal Approver delegate must also confirm that the number of quotes being sought under the arrangement is appropriate and contributes to the requirement to achieve value for money.
Funds Availability 84. Officers are required to confirm Funds availability whenever seeking Proposal Approval for an order under a standing offer. Funds availability is not required to establish a standing offer if the standing offer contains no spending commitments, such as minimum spend clauses, fees for early terminations, contingent liabilities or other guarantees.
Simple and Complex Procurement Competencies 85. Nationally recognised qualifications for Simple and Complex procurement competencies may be obtained through face-to-face training, distance learning, recognition or a combination of these processes. From March 2005, the only Complex Procurement courses considered acceptable for meeting Defences competency requirements for the exercise of financial delegations are those that have been developed by Defence to meet the Public Sector Training Package 2004 requirements. The Directorate of Procurement Policy within Office of Special Counsel DMO is responsible for the content of Defence Portfolio procurement courses. The Defence Learning Services Network (DLSN), situated within the Directorate of Education and Training Enabling Services (DETES) manage procurement competencies within the Defence Portfolio and oversee the provision of procurement training and assessment by the Directorate of Corporate Training Administration and Delivery (CTAD). The DLSN is the issuing authority for procurement training facilitated by CTAD, as the Registered Training Organisation. Defence and DMO staff can obtain further information by contacting the Program Manager for Procurement at Ctad.trainingfacilitation@defence.gov.au or on 02 6266 5160 or the DLSN Manager on 02 6266 5286. The procurement training courses in the Defence Portfolio have been developed to align with the Public Service Training Package. Details of the courses available can be found at http://intranet.defence.gov.au/dsg/sites/CTAD/. The following qualification requirements can be a current or a previous qualification.
86.
87.
88.
89.
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Defence Procurement Policy Manual 1.4 Delegations for Procurement Qualification requirements for Simple Procurement (no Defence Purchasing Card used)
Proposal, Procurement and/or Contract Approvers Current Qualification
Previous qualifications

PSPPROC Unit 302A Undertake Basic Procurement
Certificate IV in Public Sector Procurement OR Graduate Certificate in Strategic Procurement OR Unit 301A Procure Goods and Services OR Statement of Competency Simple Procurement
Qualification requirement for Simple Procurement with Defence Purchasing Card (Less than $5,000)
Defence Purchasing Card e-learning proficiency
Qualification requirement for Simple Procurement with Defence Purchasing Card (More than $5,000)
Defence Purchasing Card e-learning proficiency AND Simple Procurement Competency (as for no Defence Purchasing Card)
Qualification requirements for Complex/Strategic Procurement by Proposal and/or Procurement Approver

Proposal and/or Procurement Approver Current Qualification
PSPPROC Unit 302A Undertake Basic Procurement AND PSPPROC Unit 407A/408A Establish Procurement Need and Develop Request Documentation
Unit 301A Procure Goods and Services AND Unit 401A Plan Procurement OR Certificate IV in Public Service Procurement (Complete) OR Statements of Competency in Simple Procurement AND Unit 2 (Specify, Define and Clarify Requests) AND Unit 3 (Plan Procurement) from Certificate IV in Public Sector Procurement OR Graduate Certificate in Strategic Procurement (Complete)
Qualifications for Complex/Strategic Procurement by a Contract Approver

Contract Approver Current Qualification
PSPPROC Unit 302A Undertake Basic Procurement AND PSPPROC Unit 407A/408A
Statement of Competency Simple Procurement AND Unit 4 (Implement a
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Establish Procurement Need and Develop Request Documentation AND PSPPROC Unit 409A Receive and Select Offers Procurement) from Certificate IV in Public Sector Procurement* OR
Certificate IV in Public Sector Procurement (Complete) OR Graduate Certificate in Strategic Procurement (Complete) OR Unit 301A Procure Goods and Services AND Unit 402A Request and Receive Offers AND 403A Award Contracts
* Unit 4 consists of four training modules: Module 4: Introduction to Contracts and the Law Module 5: Developing a Request Module 6: Negotiation in Procurement Module 7: From Offer to Contract Officers need to have attained competency in each of the modules to exercise Contract Approval
Additional Training 90. Additional courses are available for officials who exercise financial delegations and their managers. Procurement officers should consult the DETD Explorer website at http://intranet.defence.gov.au/dsg/sites/DETDExplorer/ComWeb.asp?page=55654 for available courses. DMO Procurement officers should also consult the DMO Institute.
Key References
Financial Management and Accountability Act 1997 (Cth) Financial Management and Accountability Regulations Commonwealth Procurement Guidelines Department of Finance and Deregulation Finance Circular No. 2011/01 Commitments to Spend Public Money (FMA Regulations 7 to 12) Defence Chief Executives Instruction - 2.1 Procurement DMO Chief Executives Instruction - 2.1 - Procurement (including the Annexes) FINMAN 2 - Financial Delegations Manual FINMAN 5 Financial Management Manual DMI (FIN) 01-0-024 - FMA Regulation 10 DMI(FIN) 01-0-025 Engagement of External Service Providers DMI(FIN) 01-0-029 Financial Delegations Management Framework in the DMO DMI(PROC) 130001 - Mandatory Procurement Policy Requirements for all Defence Materiel Organisation Acquisitions (Including Sustainment Procurements) to Contract Signature. DMI(PROC) 130002 - Mandatory Procurement Policy Requirements for Contract Changes
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Defence Procurement Policy Manual 2.1 Contract Law and Legal Advice
2.1
Introduction
1. 2.
Contract Law and Legal Advice
This chapter applies to all procurement undertaken in Defence and the DMO. As the procurement of goods and services is achieved through the formation of contracts, Procurement officers should be familiar with the key aspects of contract law. This chapter addresses:

the essential elements of a contract; contract terms and conditions; major cases affecting the procurement process; and requirements for obtaining legal advice.
Mandatory Policy
There is no mandatory policy for this chapter
Background Essential Elements of a Contract 3. Contract law is a complex body of law which is primarily based on common law principles but aspects of contract law are regulated by Commonwealth and State and Territory legislation. A contract is an agreement made between two or more parties which details the parties legal rights and obligations. In general terms, for a contract to be legally enforceable, each of the following elements must be satisfied:

Offer - the tenderer has made an offer to Defence; Acceptance - Defence has accepted the tenderers offer; Consideration - both parties have provided consideration for entry into the contract; and Intention - there is an intention to create legal relations.
4.
There are other factors that will render a contract legally unenforceable despite compliance with the rules of contract formation. These factors include:
non-compliance with required formalities (for example, dealings involving land are required to be in writing); one or both of the parties does not have the legal capacity to contract; the contract is void on the grounds of illegality; and there is no genuine agreement between the parties.
Offer 5. An offer is where one party indicates to another party of their willingness to enter into a contractual relationship on certain terms. As a general rule, if the offeree accepts the offer, a legally binding agreement between the parties will be formed. It is necessary to distinguish an offer from an invitation to treat.
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Defence Procurement Policy Manual 2.1 Contract Law and Legal Advice 6. An invitation to treat, is an expression by the person making that invitation that he or she is willing to receive offers. The display of goods on a shelf is an invitation to treat. A mere invitation to treat does not give rise to contractual obligations, although it may give rise to obligations to act fairly. When Defence seeks a quote or tender, whether orally or in writing, it invites potential suppliers to make an offer. The request for quote or tender by Defence is known as an invitation to treat. This process provides details of the proposed terms and conditions which are the basis on which Defence intends to do business. A response from a tenderer in the form of a quote/tender is an offer. Formal rules govern the validity of an offer, the rules most applicable to Defence include:

7.
8.
an offer may be conditional; an offer may be accepted at any time before it is withdrawn or expires. A legally valid offer is available for acceptance until the receiver is informed that the offer has been withdrawn or the predetermined period for acceptance (known as a validity period) has expired; an offer may be withdrawn at any time prior to its acceptance even if it has been stated that an offer will remain open for a specified period; an offer may lapse where a tenderer loses contractual capacity, if the offer is not accepted within the specified time limit or there is a failure to comply with a condition of the offer; an offer may be rejected. Once an offer is rejected, it may not subsequently be accepted; where the receiver of the offer makes amendments to the offer, this is known as a counter offer. A counter offer is a complete rejection of the initial offer. The party that made the original offer has to then decide whether to accept the counter offer, reject the counter offer or make another counter offer; and a request for information is not a counter offer. A request for further information or clarification does not indicate an intention to reject or vary the original offer. It indicates an interest in an offer where insufficient or unclear information has been given.
Acceptance 9. Acceptance occurs when agreement is reached on the contract terms, including the contract price, and acceptance is communicated to the person who made the offer. Formal rules govern acceptance of an offer, the rules most applicable to Defence include:

acceptance of an offer means that a contract will be formed; the offer and acceptance must correspond exactly. This means that the acceptance must be unconditional, i.e. the offer must be accepted in its entirety. If a person wishes to modify or accept part of an offer, then this is a counter offer rather than acceptance of the original offer; acceptance must be communicated in accordance with the notice requirements specified in the offer or, where none are specified, in a reasonable manner; the person making the offer cannot impose an agreement by default. An offer is not valid legally if it states that acceptance will be inferred by inaction or silence on the part of the person receiver; an acceptance that is specified to be subject to contract is not a counter offer. Provided that no different terms are stipulated, the acceptance is unconditional. The phrase subject to contract creates a presumption that, while parties may have finalised the contract details, there is no binding agreement until a formal written contract is entered into. However, this presumption can be rebutted depending upon the circumstances of the case and the conduct of the parties; and
Page 2.12
the postal acceptance rule. Where an offer is made and accepted by letters sent through the post, acceptance is effective the moment the letter accepting the offer is posted, even though it may never reach its intended destination. Unless the parties otherwise agree, the applicable law will be the law of the place where the acceptance was posted. When acceptance is communicated by telephone or fax, communication is deemed to be effective upon receipt. This means that, unless the parties otherwise agree, the applicable law will be the law of the place where the fax or phone call was received. It appears that email acceptance is only deemed to have occurred upon receipt. This is consistent with when receipt is deemed to have occurred under the Electronic Transactions Act 1999 (Cth). In any case, this is subject to what the parties may otherwise agree.
Consideration 10. 11. Not all promises are legally enforceable in a court of law. For a promise to be enforceable in a court of law, it must be supported by consideration. Consideration is something of value that is given by each of the parties in return for a promise being made. For example, when Defence signs a contract on behalf of the Commonwealth, it promises to purchase an item from the seller for an agreed price. The seller promises to transfer ownership of the item to the Commonwealth. While in most commercial situations consideration is evidenced in the form of the promise to pay money, strictly speaking, the element of consideration may be satisfied by something other than money provided it is of some ascribable value even if the economic value of this consideration is minimal. If one of the parties will not be providing consideration, for example, as is the case with a contractors confidentiality assurances or entry into a deed of undertaking, the agreement should be drafted in the form of a deed rather than a contract as this does not require consideration.
12.
13.
Intention to Create Legal Relations 14. There must be an express or implied intention by both parties that the contract should give rise to legal rights and obligations. Such an intention is generally implied where the contract is of a commercial nature. Notwithstanding this, in certain commercial situations the question whether the parties intended to create a contract may still arise, particularly if the parties have acted in a way which is ambiguous or have used a document the status of which is unclear e.g. a heads of agreement or a letter of intent. Ambiguity can be avoided by being clear in any correspondence between Defence and its potential suppliers. Defence personnel should not provide any undertakings to a tenderer indicating a contract may result from the tender activity, including a letter of intent/comfort or any correspondence that is subject to contract without complying with the requirement for approval of a letter of comfort in accordance with DMO Chief Executives Instruction 8.6 Contingent Liabilities and Defence Chief Executives Instruction 8.6 Contingent Liabilities seeking advice from specialist legal or contracting officers. For further information on financial approvals required prior to issuing letters of comfort or intent refer to Financial Management Guidance No 6 - Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort. Use of the words subject to contract can be used to create a presumption that there is no contractual relationship until a formal written contract has been signed by the parties. However, if this expression is used inconsistently during contract negotiations it may be that the parties have in fact formed a contract.
15.
16.
Circumstances in which Contracts are Invalid Consequences of an Invalid Contract 17. When the requirements for the formation of a contract are not present or are subsequently found by a court to be invalid, the contract will be either: Page 2.13
Void: this means that the agreement is regarded as having had no legal effect whatsoever from the beginning. Neither party can take any legal action under the contract; or Voidable: this gives the innocent party the discretion to elect whether to continue the contract.
18.
The consequences of a contract being void or voidable may be costly and may cause delay to Defence operations. It is important therefore to ensure that all formalities have been complied with when preparing and entering into contracts.
Legal Capacity to Contract 19. A contract is only valid where each of the parties has the legal capacity to enter into a contract. Legal capacity requires legal personality. A corporation has legal personality. If Defence enters into a contract with an individual person, that person must be over eighteen and must have legal capacity (i.e. the person must not be intoxicated, have brain damage or have a mental disorder). Prior to entry into a contract, Defence should ensure that it is, in fact, contracting with the correct legal entity. Particular complications may arise where Defence is purporting to contract with small corporation or with a company that is part of a corporate group. It is important to note that a company is identified by its ACN and not by its trading name and Procurement officers should:

20.
conduct a search on the ASIC register to check the company name and ACN; and ensure that these are the details which are included on any resulting contract.
21.
It is also important to note that an unincorporated association does not have the legal capacity to enter into a contract. The problem of legal capacity will be overcome if an unincorporated association registers under the Associations Incorporation Act of the relevant state or territory. However, it would be unlikely that Defence would be seeking to contract with associations. The Commonwealth is a single legal entity and Commonwealth agencies act on behalf of the Commonwealth and it is important to remember that it is not possible for a legal entity to contract with itself. Accordingly, different parts of the Commonwealth cannot contract with each other. Neither the Department of Defence nor the DMO is a separate legal entity for the purposes of entering into a contract. Where Commonwealth agencies wish to enter into an arrangement for the provision of goods and services, Procurement officers could use a memorandum of understanding, service delivery agreement or similar but these agreements are not legally enforceable. The Department of Defence has its own Australian Business Number (A.B.N.) (see chapter 3.7) and in most standard contracts the entity signing the contract is the Commonwealth of Australia represented by the Department of Defence. This approach remains applicable after prescription of the DMO, despite the creation of a new agency for the purposes of the FMA Act. It should be noted that failure by Defence to ensure the necessary financial delegations have been exercised does not affect the validity of the contract.
22.
23.
24.
Illegality 25. Any contract that has an illegal purpose or is supported by illegal consideration is void i.e. as if no contract has ever existed. A contract contrary to public policy may be treated similarly to a contract for an illegal purpose e.g. a contract to defraud revenue, a contract in restraint of trade or a contract expressly or impliedly prohibited by legislation. A contract must also not conflict with any Federal, State, or local Government by-laws or regulations. The legality of a contract will be determined from the subject matter of the contract rather than aspects of its performance or particular terms and conditions related to Commonwealth policy.
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Defence Procurement Policy Manual 2.1 Contract Law and Legal Advice Genuine Agreement 26. There must be genuine agreement between the parties for a contract to be legally enforceable. Factors which may compromise whether a valid contract exists include:

Fraud; Duress; Misrepresentation; Undue influence; Unconscionable conduct; and Mistake.
27.
If a person is induced to enter into a contract because of any of these factors that contract may not be binding on the parties and may be set aside. The ability to have a contract set aside may arise from either common law principles or legislation e.g. the Competition and Consumer Act 2010 (Cth).
Contracts in Writing 28. In virtually all instances contracts entered into on behalf of the Commonwealth will be in writing. Care should be taken by Procurement officers when making statements to potential suppliers/tenderers that could later be interpreted as being elements of an oral contract. In general, Procurement officers will be dealing with standard form written contracts (see chapter 2.3). Written contracts help to remove ambiguity that can provide the basis for disputes between the parties and provide evidence of the formation of a contract. Contracts relating to land must be evidenced in writing.
Contract Terms 29. The word term is used to describe every clause in the contract whether it be expressed as a clause, provision, stipulation, obligation, covenant, condition, warranty or innominate (sometimes referred to as intermediate) term. Contractual terms may be express or implied. Express terms are those terms in the written contract which the parties have expressly agreed. The parties usually discuss the terms of the contract prior to execution of the contract. Courts generally require the parties to be bound by the express terms of the contract. It is essential that the parties clearly state and record express terms that accurately reflect the intention of the parties agreement. Statements made by the parties during negotiations may be considered to be terms of the contract if a reasonable person would have concluded that the parties intended to be bound by the statements. Although most standard contracts include an Entire Agreement clause that states that the terms of the contract supersede all prior representations, communications, agreements, statements and understandings whether oral or in writing such clauses are not absolutely effective. An entire agreement clause cannot:

30.
preclude recourse to prior negotiations if a party is alleging misleading conduct; necessarily preclude recourse to prior negotiations for an argument of estoppel, although this is not settled. On balance it has been concluded that it cannot, provided the necessary ingredients of estoppel are present (chapter 6.6); prevent the incorporation of implied terms; and preclude subsequent variation of the contract after it has been executed.
31.
Implied terms are those which the parties have not set out in the written contract, but are regarded as being an implicit part of the contract in order to allow the contract to work. In order to allow some flexibility, a court may imply a term into a contract where the implied term will allow the reasonable and effective operation of the contract.
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Defence Procurement Policy Manual 2.1 Contract Law and Legal Advice Privity of Contract 32. Privity of contract is a rule by which only the parties to a contract can legally be bound by and entitled to enforce its terms. One exception to this is that where clauses are expressed to be for the benefit of a third party then in particular circumstances that third party may be able to enforce the obligation. In all other circumstances, only the parties to the contract have the ability to enforce the provisions of the contract against each other. Defence should therefore ensure that any third party obligations are provided by way of a deed e.g. a guarantee provided by a bank to secure performance by a contractor, a deed to novate a contract to a third party or a Subcontractor IP Deed.
Interpreting a Contract 33. When interpreting a contract, courts will generally give effect to how the parties words and conduct ought reasonably to have been understood by the other, rather than on the subjective states of mind of the parties. The intent of any statements or agreements between the parties should be clearly understood by both parties in order to minimise the potential for disputes or claims of mistake to arise during the contract.
Common Law and the Tendering Process 34. Until recently, contract formation under a tender process has been based upon the understanding that request documentation constitutes a pre-contractual invitation or an invitation to treat to another party or parties to make an offer. Until that offer is accepted and a formal contract entered into, no contractual obligations arise between the parties. This traditional model has been substantially modified in recent times in relation to Government tenders as the courts have recognised:
35.
that a tender can create a process contract or preliminary contract which constitutes both an invitation to treat and an offer that is capable of being accepted by a tenderer; and a duty for Government officials to afford procedural fairness to tenderers during a tender process in certain circumstances.
36.
As a result, Procurement officers should ensure that the request documentation:

clearly establishes that Defence is not legally bound until it signs a written agreement; sets out the rules by which the tender process is to be conducted and those rules must then be followed fairly and meticulously, especially those relating to the evaluation criteria; and includes sufficient background information for potential tenderers to prepare, price and lodge a tender. Procurement officers should ensure that the information given is accurate and consistent. At the same time it should be clearly stated that tenderers are to rely on their own information and investigations. The intent of this is to exclude the potential for a preliminary contract to be created.
37.
The ASDEFCON suite of tendering and contracting templates have been drafted to include these requirements.
When to Seek Legal Advice 38. The law relating to contracts is complex and it is not always easy to be fully aware of all of the issues relating to tendering, negotiation, entering into contractual commitments and contract management. Procurement officers should seek legal advice in the following instances:
39.
if there doubt whether a contract has been formed;
Page 2.16
actual or potential claims arising out of Defence procurements and contracting made against the Commonwealth (this includes letters of demand, threatened litigation and counter claims); contractual disputes; and the exercise of a contractual remedy against the contractor.
DMO Specific Requirements 40. To ensure the proper management of the Commonwealths legal risks, it is expected that DMO personnel responsible for procurements and contract management will normally seek legal advice in relation to the following kinds of matter:

contracting models and structures; contract change proposals valued at $2 million or more which alter the existing contract terms and the Commonwealths risk profile; complex intellectual property matters; any arrangement that presents a significant legal risk(s) to the Commonwealth arising out of DMO activities; advice on foreign and domestic legislation or arrangements (including regulations and legislative instruments) related to DMO procurement and processes; probity; legal policy; and activities for acquisition and sustainment projects valued at $20 million or more.
41.
In DMO, the following Defence Materiel Instructions set out circumstances in which Procurement officers must seek legal advice:
DMI (PROC) 13-0-001 Mandatory Procurement Policy Requirements for all DMO Acquisitions (including Sustainment Procurements) to Contract Signature; and DMI (PROC) 13-0-002 Mandatory Procurement Policy Requirements for Contract Changes.
42.
For further information about how to seek internal or external legal services, see the Defence and DMO Procurement Support Areas section at the front of this manual.
Key References
Competition and Consumer Act 2010 (Cth) DMO Chief Executives Instruction 8.1 Provision of Legal Services DMO Chief Executives Instruction 8.6 Contingent Liabilities Defence Chief Executives Instruction 8.6 Contingent Liabilities Department of Finance and Deregulation Financial Management Guidance No 6 - Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort Departmental Procurement Policy Instruction No 21/2009 Requesting Professional Services from the Office of Special Counsel Defence Materiel Organisation Defence Materiel Instruction (Procurement) DMI(PROC) 13-0-003 - Mandatory Procurement Policy Requirements for the engagement of the Office of Special Counsel (OSC) in DMO Contract Management Activities
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Defence Procurement Policy Manual 2.2 Types of Contract
2.2
Introduction
1. 2.
Types of Contract
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter outlines the types of contracts that should be considered by Procurement officers prior to soliciting responses from the market. Use of an appropriate contractual mechanism will assist the achievement of value for money and best practice in procurement.
Mandatory Policy
In order for the Contract Approver to confirm funds availability, the contract must specify the maximum amount payable under the contract, including the value of any contingent liabilities, incentive payments or cost reimbursement payments (if any).
Background 3. There are three categories of Defence procurement: Simple, Complex and Strategic (see chapter 1.3). At the Complex and Strategic procurement levels, Procurement officers will need to choose from the full range of available contract types. In some cases it may be appropriate to use a combination of contract types within the one contract. Defences standard contracting templates (see chapter 2.3) enable contracting under one or a combination of the contract types outlined below. Templates for alliance contracting, evolutionary acquisition and private financing are not available and require specialist contracting and legal advice to develop.
Choosing a Contract Type 4. The types of procurement methods available are open tender process, select tender process or direct source (including single supplier direct source) tender process. Further detail on selecting the appropriate procurement method is set out in chapter 3.1. Following the selection of the appropriate procurement method, Procurement officers should determine the most appropriate contracting methodology for the procurement being undertaken. The contracting methodology incorporates the process to be used to solicit responses from the market and determines the documentation or type of contract to be used. Further detail on selecting the appropriate contracting methodology is set out in chapter 5.3. Having chosen a procurement method and contracting methodology, consideration needs to be given to the type of contract adopted. Choices can be made from:

5.
6.
conventional contracts that adopt a firm price, variable price basis; contracts incorporating a wholly or partly cost reimbursement payment regime; target cost incentive contracts; alliance contracts; Public Private Partnerships; Evolutionary Acquisition approaches; and a contract formed by placing an order under a standing offer (see chapter 4.8).
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Defence Procurement Policy Manual 2.2 Types of Contract 7. Procurement officers should select a contract type that reflects the circumstances and risks associated with their project. A significant factor to be considered when selecting an appropriate type of contract is the risk inherent in the procurement and how this risk will be allocated between the contractor and Defence. Further detail on assessing levels of risk is set out in chapter 3.2. The purpose should always be to select the contract type(s) that best accommodate the full range of risks associated with the procurement and facilitate the most appropriate risk sharing between the contractor and Defence. Other issues to be considered when selecting the most appropriate contract type include:

8.
9.
the broad characteristics of the requirement; the complexity of the requirement; the asset/service mix of the requirement; the level of knowledge of the requirement already contained within Defence; the certainty of the requirement; the state of development of the required technology; and GST issues (for example, a contract that provides for milestone payments for the ongoing and repetitive procurement of a service or product may be a periodic or progressive supply contract see chapter 3.7).
Firm Price Contracts 10. In a firm price contract, the contract price is unalterable in all respects for the duration of the contract, except where the parties agree to a contract amendment which alters the contract price. Firm price contracts are sometimes referred to in Australia as fixed price contracts. This can cause confusion when dealing with overseas contractors particularly those from the United States. The term fixed price contract in the United States usually refers to a contract where the price can be varied within certain parameters. Firm price contracts provide maximum incentive for contractors to perform because the contractor bears any cost overrun. The cost-risk allocation to the contractor should not come at an excessive contingency premium to Defence when there is high reliability of the cost estimate (such as for off-the-shelf items or standard services) and when the market is competitive.
11.
12.
Use of a Firm Price Contract 13. Unless there are special circumstances, a firm price contract is appropriate for all standard consumable goods and services and any other Simple, Complex and Strategic procurement where delivery will occur within two years and exchange rate variation is not applicable. A firm price basis may also be used for contracts of more than two years duration where an exchange rate variation is not applicable and it is unlikely that the cost of labour and materials to be provided under the contract will increase or decrease within the contract period. It should be noted that industry exposure to cost escalation in firm price contracts includes the period from the base date to contract completion, not just for the duration of the contract. For this reason it is important to quickly evaluate tenders and enter into a contractual arrangement. The base date from which exchange rate variation is usually calculated is the date one month prior to the tender closing date.
14.
15.
16.
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Defence Procurement Policy Manual 2.2 Types of Contract Variable Price Contracts 17. Variable price contracts provide for the contractor to be paid a fixed fee for performance of the contract, regardless of the costs actually incurred, subject to certain variations detailed in the contract. Variable price contracts may allow for variations in:

exchange rates; and labour and/or material costs.
18.
An example of a variation clause is in ASDEFCON (Strategic Materiel) draft Conditions of Contract, clause 7.4.1, which provides for the variation of Milestone payments on account of changes to the cost of labour and materials in accordance with a formula contained in an attachment to the contract. Where variations in exchange rate may occur and the foreign currency component is not sufficient to justify payment in source currency, a contract allowing for variations in exchange rate should be used. Variable price contracts are normally used where there is an expectation that contract costs will vary due to factors beyond the reasonable control and responsibility of the contractor. The advantages and disadvantages of using variable price contracts are similar to using a firm price contract except that the contractor offsets some risk and, therefore, may be able to offer lower prices by avoiding unnecessary contingency.
19.
20.
Contracts that allow for Exchange Rate Variation 21. If the component of the total price payable in source currency is significant, the contract should be written in source currency. In this context significant generally means more than $1 million. Where the component of the total price payable in source currency is insignificant (i.e. generally less than $1 million) the contract should be written in Australian currency. Such contracts may be written to allow for variation in the price due to exchange rate movements as follows:
22.
Standard exchange rate variation option - This option is used for Strategic and higher value Complex procurements which will not be completed within 12 months of the base date and allows the contractor, in relation to imported components of the supplies, to be compensated for exchange rate variation which occurs between: the base date and the relevant date for delivery of the supplies; or the date on which the contractor settles the overseas subcontractors account; and 14 day exchange rate variation option - This option is used for lower value Complex procurements that will be completed within 12 months of the base date and allows the contractor, in relation to imported components of the supplies, to be compensated for exchange rate variation which occurs between the base date and the date 14 days after signature of the contract.
23. 24.
An example of an exchange rate variation clause is in ASDEFCON (Complex Materiel) draft Conditions of Contract, clause 6.4.1. When using ASDEFCON (Strategic Materiel) where the Contract Price will be payable in Australian dollars only, Procurement officers should utilise a clause that enables claims to be made for adjustments caused by exchange rate fluctuations. Defence is supplemented by the Department of Finance and Deregulation (DOFD) for exchange rate losses provided that the criteria stipulated in the Australian Government Foreign Exchange Risk Management Guidelines issued by DOFD are met. Groups determine their own arrangements for managing non-supplemented losses. Where the acquisition involves source currencies and the contract is intended to be written in Australian dollars, the contracting entity should check the applicable rules for managing non-supplemented losses in the DPPM Annex 3F with their Group Budget Manager.
25.
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Defence Procurement Policy Manual 2.2 Types of Contract 26. 27. Further guidance on the application of exchange rate variation is available in chapter 3.3, Annex 3F and from the Financial Investigation Service (FIS). DMO staff should also refer to Defence Materiel Instruction (DMI) (FIN) 4/2005 - Management of indexation and exchange variations to the project approval in Major Capital Equipment Projects.
Contracts that Allow for Variations in the Cost of Labour and/or Materials 28. Where the contract period exceeds two years and it is expected that contract costs may vary due to factors outside the contractors reasonable control, a contract allowing for variations in the cost of labour and materials may be appropriate. Defence uses standard price variation formulae and indices to determine variations in the cost of labour and materials under its contracts. Information on the price variation formulae and indices used by Defence can be obtained:

29.
for Strategic procurements, in ASDEFCON (Strategic Materiel); and for Complex procurements, in ASDEFCON (Complex Materiel).
30. 31.
DMO Procurement officers should refer to chapter 3.3 for guidance regarding the selection of appropriate indexes. Further guidance on the application of price variation formulae and indices is also available from Financial Investigation Service using the contact details at the front of this Manual.
Variable Quantity Contracts 32. A variable quantity contract may be used to agree fixed or variable labour rates, overheads, and in some cases profit, where the amount of labour required under a contract is unknown. By paying the contractor against agreed rates, Defence will only pay for the actual amount of effort expended under the contract and the risk to the contractor will be reduced. The agreed rates may be firm or variable. A maximum contract price must also be agreed in order for the Contract Approver to certify funds availability for the amount payable under a variable quantity contract.
Cost Reimbursement Contracts 33. Cost reimbursement contracts are cost sharing arrangements used in circumstances where the contract costs cannot be accurately determined due to high risk and uncertainty associated with the required supplies. Under this type of arrangement, Defence agrees to reimburse the contractor for the actual costs properly incurred in performing the contract, together with an agreed fee. The contractors fee may be a pre-agreed amount or determined as a percentage of actual costs. By reimbursing the contractor for the costs actually incurred in performing the work, risk allocation is shifted so that it is predominantly borne by Defence and not the contractor with this shift in risk to Defence being greatest where fee is calculated as a percentage of costs. As these contracts are virtually risk free to the contractor and provide Defence with significant cost risk and uncertainty, they should only be considered for high risk or developmental procurements and where they are used, they should be coupled with the following forms of cost control mechanisms:

34.
reimbursing only defined categories of allowable costs (and excluding certain costs); imposing limits on the recoverability of certain cost categories; specifying unit pricing for certain inputs (for example, fixed hourly labour rates); and controlling the scope of work through specific tasking arrangements.
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Defence Procurement Policy Manual 2.2 Types of Contract Types of Cost Reimbursement Contracts 35. A cost reimbursement arrangement can be structured in the following way:
Cost plus Margin. A Cost plus Margin contract can be converted into an incentive or a firm or variable price contract; Cost plus Fixed Fee; Cost plus Award Fee; and Cost plus Incentive Fee.
36.
As with target cost incentive contracts, it is not common practice in Defence procurement to use contracts that provide for payment to be made solely on a cost reimbursement basis.
Defence use of Cost Reimbursement Contracts 37. From Defences perspective, agreeing to pay the contractor on a cost reimbursement basis can have the following disadvantages:
the contractor has no incentive to keep costs down because all costs are paid by Defence; and Defence faces an increased administrative burden due to the need to manage the increased risk it faces, and to determine the integrity of the actual costs claimed by a contractor against the contract.
38.
Due to the increased risk to Defence, cost reimbursement payments should only be made in relation to high risk elements of work. Where a contract involves high cost risk or developmental aspects, it may be appropriate to pay for those aspects on a cost plus basis. To minimise the risk to Defence, and in order for the Contract Approver to certify funds availability for the amount payable under a cost reimbursement contract, the contract must specify the maximum amount payable under the contract as cost reimbursement payments. In addition, elements of the contract to be performed on a cost reimbursement basis must be clearly stated in the contract and fully understood by both Defence and the contractor.
39.
Target Cost Incentive Contracts 40. The target cost incentive contract is a variant of the traditional cost reimbursement contract but with further explicit cost controls and incentives designed to provide Defence with greater cost control and cost certainty. The primary incentive component of this contract type involves the pain share/gain share mechanism that operates to adjust the contractors fee according to its performance against an agreed target cost. An incentive contract is usually appropriate where there is a high degree of uncertainty in determining costs such that it would not be possible to utilise a firm or variable price contract, although not sufficiently uncertain to necessitate a cost reimbursement contract. Target cost incentive contracts should also avoid the need for the contractor to build major contingencies into the contract price. The essential elements of a target cost incentive contract are:
41.
a target cost - which should be the best estimate determined mutually by Defence and the contractor of what the costs will be when the work is completed; a target fee - which is the amount of profit payable without adjustment if the costs come out at target cost 1 ; and a pain share/gain share formula - which determines how the excess cost (over-run) or savings in cost (under-run) in relation to the target cost will be shared between the Defence and the contractor.
Target fee will generally represent the contractors profit margin plus an agreed amount on account of corporate overhead (ie overhead expenses not directly attributable to the contract). However, for some procurements, it may be appropriate for target fee to equal only profit.
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Defence Procurement Policy Manual 2.2 Types of Contract 42. If the actual cost exceeds the target cost, the contractor is paid its actual costs plus target fee less its proportion of the over-run (determined in accordance with the share formula). If the actual costs are less than the target, the contractor gets its costs plus target fee plus a proportion of the under-run. The sharing formula is normally expressed as a percentage ratio. For example, a 75/25 cost sharing formula means that the Defence will pay 75% and the contractor 25% of the costs in excess of the target cost. Conversely, if costs turn out less than the target cost, Defence and the contractor will share the savings in the same ratio. There is ample scope for variation in the terms to suit the circumstances and objectives of a particular procurement. For example:
43.
different share ratios may apply 2 : depending on the extent of the cost overrun or underrun; or according to whether a cost overrun or underrun and/or the type of costs (eg fixed or variable costs); there may be a buffer above and below the target cost before the pain share gain share mechanism applies; a price ceiling may be specified, above which one party (eg the contractor) bears 100% of the cost risk; or a price floor may be specified, below which one party (eg Defence) retains 100% of the cost savings.
Other Contracting Methodologies and Contract Types 44. In addition to firm price, variable price, cost reimbursement and target cost incentive contracts, Defence is employing more innovative and flexible contracting methodologies in its Strategic and certain complex procurements including through the use of performance based contracting, alliance contracting, private financing and evolutionary acquisition methodologies.
Performance Based Contracting 3 45. Performance based contracts (PBC) encourage contractors to meet the technical, schedule, cost and/or quality requirements detailed in their respective contracts. This is achieved through linking measurement of contractor performance to specified performance measures and/or accepting greater levels of risk. Contractor performance is measured in accordance with assessment (or performance) periods and by application of (generally weighted) key performance indicators (KPIs) 4 . If specified performance targets for the KPIs are not met then the contractor may forgo fee and/or suffer other consequences under the contract (for example, reduced contract term). From Defences perspective, a PBC is any contract that;
46.
has clearly defined and measureable outcomes directly traceable to users needs and aligned with Defences strategic objectives; focuses on the achievement of outcomes, rather than performance of individual activities ie what must be delivered, rather than how it is delivered;
The sharing of cost and risk through the pain share gain share mechanism should reflect the relative risk levels of the parties, the incentives that Defence considers should be provided to the contractor in the context of the projects goals and the extent to which the contractor may be entitled to reflect from contract requirements (eg under excusable delay mechanism). 3 Defence is currently embarking on a staged development / implementation of what have been termed new generation PBCs, commencing with the anticipated December 2010 release of ASDEFCON (Support) v3.0, and following which release this Chapter will be updated to include more expanded guidance on PBCs. Note, also, the reference to new generation PBCs recognises that while PBCs have been used in DMO for a number of years (particularly within the aerospace domain) the focus / design of these PBCs will likely be different to those implemented under this current reform initiative. To date, PBCs have primarily (and often exclusively) focused on achieving capability outcomes, whereas DMOs new generation PBCs will have the dual focus of (i) enhancing Defence preparedness requirements and (ii) reducing the total cost of ownership of the relevant material system. For further detailed discussion refer to Next Generation Performance-Based Support Contracts Achieving the Outcomes that Defence Requires (Dec 09) which is available from the Defence intranet. 4 KPIs used to measure performance should be specific, measureable, aligned, attainable relevant and timely and also generally limited in number to somewhere between 3 5 KPIs. Further guidance on setting appropriate KPIs is contained in chapter 6.2.
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Defence Procurement Policy Manual 2.2 Types of Contract
incentivises contractor achievement of outcomes through an integrated and aligned package of rewards / remedies (which may be financial or non-financial); specifies performance standards (KPIs) for measuring and assessing the contractors performance of outcomes; and contains clear lines of responsibility / accountability for the delivery of outcomes.
47.
The adoption of PBC concepts is not limited to any specific contract type ie all contracts (whether a firm price, variable price, cost reimbursement or target cost incentive contract) can effectively be structured as a PBC in the above described sense. If effective, PBCs will assist Defence achieve better value for money when acquiring, maintaining and enhancing military equipment including by achieving lower prices while successful contractors benefit through more reliable profits and greater continuity of work as a result of a series of rolling contract extensions (or award terms). In all cases, however, the PBC elements of a contract (eg at risk performance payments, technical KPIs and/or contract extensions) must appropriately reflect the risks, circumstances and objectives of the procurement such that the benefits / opportunities made available through the use of a PBC outweigh the costs / risks to Defence of establishing and implementing such an arrangement. For further guidance on the use of PBCs for Defence procurements of military equipment refer to the PBC discussion paper: Next Generation Performance-Based Support Contracts Achieving the Outcomes that Defence Requires (December 2009).
48.
Alliance Contracting 49. Alliance contracting is a non-traditional contracting methodology that allows a high degree of flexibility in achieving project outcomes. Alliance contracts are characterised by no-dispute clauses, except for specific events of default. The emphasis in alliance contracts is on building strong commercial relationships and aligning the interests of all participants so that the contract structure, including payment regime, motivates them to achieve a shared objective. The underlying premise is that open communication and trust between alliance participants enables:

early identification of risks; early resolution of issues; cost reduction through continuous improvement and innovation; and the provision of quality project outcomes with reduced costs of doing business for all participants.
50.
An alliance contracting approach should only be considered when the risks in a project are such that a traditional contracting approach is unworkable, and a cost-benefit analysis demonstrates that the benefits of managing risks and opportunities in an alliance contracting arrangement outweigh the costs of establishing and supporting the alliance. The costs of establishing an alliance are significant, sometimes prohibitive, and as such an alliance structure is rarely suitable for projects valued at less than $80 million. Before proceeding with an alliance acquisition strategy, specialist legal advice should be sought. For further information on alliance contracting refer to the Defence and Industry Policy Statement 2010 - Building Defence Capability: A Policy for a Smarter and More Agile Defence Industry Base.
51.
Private Financing 52. Private financing contracts are long-term services contracts, typically over 15 years duration, where Defence has decided that better value for money can be obtained through industry rather than Defence having ownership and lifecycle maintenance responsibility for major capital assets required to achieve a Defence output. Further information on the private financing procurement process is contained in chapter 4.4. Detailed guidance on private financing is also contained in the Private Financing Manual.
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Defence Procurement Policy Manual 2.2 Types of Contract Evolutionary Acquisition 53. Evolutionary acquisition involves the acquisition and early fielding of a well defined basic or initial system with a limited capability, followed by a series of enhancements that incorporate planned additional capability as well as improvements based on feedback from users. Further information on evolutionary acquisition is contained at chapter 4.5.
Key References
Financial Management and Accountability Act 1997 (Cth) Department of Finance and Deregulation, Australian Government Foreign Exchange Risk Management Guidelines Private Financing Manual DMI (FIN) 4/2005 - Management of indexation and exchange variations to the project approval in Major Capital Equipment Projects. Financial Management Guidance No.10 Guidance on Complying with the policies of the Commonwealth in procurement National Public Private Partnership Policy Framework and Guidelines ASDEFCON suite of tendering and contracting templates Defence and Industry Policy Statement 2010 - Building Defence Capability: A Policy for a Smarter and More Agile Defence Industry Base. Defence Procurement Policy Instruction 7/2010 Advice to Defence Materiel Organisation Staff Regarding Price Variation Indexes. Next Generation Performance-Based Support Contracts Achieving the Outcomes that Defence Requires (December 2009)
Page 2.28
Defence Procurement Policy Manual 2.3 Standard Defence Contracting Templates
2.3
Introduction
1.
Standard Defence Contracting Templates
The aim of this chapter is to outline the policy relating to the common templates used for procurement in Defence and the Defence Material Organisation (DMO).
Mandatory Policy
Where an approved Defence contracting template exists for the type of procurement being undertaken, Defence staff must use that template as the basis for developing request documentation. The Infrastructure Division suite of contracting templates must be used for construction procurements. Where Defence staff intend to use a contracting template other than an approved template referred to in this chapter, they must ensure that the template meets all of the mandatory Commonwealth and Defence procurement requirements and has been reviewed by a legal practitioner prior to tender release.
Overview 2. The aim of developing templates is to standardise, to the maximum extent practicable, the structure and the terms used by Defence when acquiring goods, services and facilities. This has the benefit of reducing administrative costs for both the Department and its contractors. It also enables Defence to adopt a standard portfolio approach to contracting in line with Industry and Government best practice. Defence has developed a range of tendering and contracting templates to suit most of the procurement situations encountered. Two particular Defence contracting template suites will be referred to in this chapter:
3.
the ASDEFCON (Australian Defence Contracting) suite of tendering and contracting templates (ASDEFCON suite), managed by Commercial Policy and Practice Branch within Office of Special Counsel, DMO; and the Facilities suite of contracts, managed by Infrastructure Division, Defence Support Group (DSG).
4.
Where an approved Defence contracting template exists for the type of procurement being undertaken, Defence staff must use that template as the basis for developing request documentation. These templates conform to policy and legal requirements. Where an official template is used in its approved form, it can be assumed to be legally sound and to conform to policy requirements for the purposes for which it was developed. While the ASDEFCON suite is designed to be used as is, tailoring of the clauses to meet project specific requirements is often necessary. Tailoring is allowed for project specific reasons but should generally be kept to a minimum and only undertaken in consultation with the contracting staff specialists identified for each of these contract suites. For further information on requesting professional services please refer to the current Defence Procurement Policy Instruction on Requesting professional services from the Office of Special Counsel Defence Materiel Organisation.
5.
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Defence Procurement Policy Manual 2.3 Standard Defence Contracting Templates ASDEFCON Suite of Tendering and Contracting Templates 6. Due to the dynamic nature of the ASDEFCON suite, including the number and type of templates that have and are continuing to be developed, this chapter will not summarise the available templates. The complete and current ASDEFCON template suite can be accessed online via the links listed in the Key References section at the end of this chapter. The ASDEFCON suite of tendering and contracting templates seek to:
7.
standardise Defence's business practices and procedures by providing documents that: support Commonwealth and Defence policies; reflect 'best practice'; and provide a framework for obtaining value for money and ensuring accountability; and lead contracting reform in Defence by taking into account the use of contracting options and strategies that reward performance.
8.
The ASDEFCON templates must not be used for construction procurements as they do not comply with the Australian Government Implementation Guidelines (Guidelines) for the National Code of Practice for the Construction Industry. Simple Procurement form AC565 Request for Quotation and form SP020 General Conditions of Contract for the Supply of Goods and Repair Services are the forms used to set out the conditions under which Defence conducts Simple Procurement. An ASDEFCON Template Selection Guide has been developed to assist Defence staff to choose the most appropriate ASDEFCON template. This Guide can be accessed on line on the Commercial Policy and Practice Branch intranet page.
9.
10.
Improvement of ASDEFCON Templates 11. 12. The ASDEFCON suite are dynamic documents that are updated to reflect the latest policy and other developments concerning tendering and contract law. Changes to an ASDEFCON template can be suggested by completing an ASDEFCON Document Change Proposal form, which can be accessed online via the links listed in the Key References section at the end of this chapter. Defence and industry personnel are invited to submit document change proposals using the proforma available on the Internet.
Defence Facilities Contracting Templates 13. Infrastructure Division has developed and manages a suite of contracting templates that complies with the Australian Government Implementation Guidelines (Guidelines) for the National Code of Practice for the Construction Industry (the Code). The Code sets out the responsibilities of all parties on construction projects funded by the Australian Government. The Guidelines for the National Code of Practice (the Guidelines) have been developed to assist in the interpretation and implementation of the Code. The Code defines the construction industry as including all organised activities concerned with demolition, building, landscaping, maintenance, civil engineering, process engineering, mining and heavy engineering. Activities which fall within the scope of the Code and Guidelines include:

14.
building refurbishment or fit out; installation of building security systems; fire protection systems; air conditioning systems; computer and communication cabling; and building and construction of landscapes.
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Defence Procurement Policy Manual 2.3 Standard Defence Contracting Templates 15. Activities which do not fall within the scope of the Code and Guidelines include:

mining operations; the maintenance of building systems; landscaping such as lawn mowing, pruning and other horticultural activities; and cleaning buildings.
Further information about the code and appropriate tendering and contracting templates can be obtained from the Infrastructure Division, or from http://www.deewr.gov.au/WorkplaceRelations/Policies/BuildingandConstruction/AusGovAgencie s/Pages/CodeandGuidelineselines.aspx 16. Infrastructure Division sponsors the Infrastructure Management website, and this website should be used when contracting for the delivery of Defence Facilities. The Infrastructure Management (IM) Suite of Contracts User Guide, including attachment A Risk Matrix, should be used to determine the best contract to use. This decision should be based on which contract is best suited to manage and mitigate the projects risk. The Infrastructure Division suite includes the following contracts:

Head Contract (HC1-2003); Managing Contractor Contract (MCC-1-2003); Medium Works Contract (MW-2-2004); Short Form Minor Works Contract; and Design Services Contract (DSC-1-2003).
17.
Defence adopts one of the above standard delivery methods at the inception of a project in order to effectively manage issues such as Life Cycle Costing, Ecologically Sustainable Development, Relationship Contracting and Risk Management.
Head Contract (HC-1-2003) 18. HC-1-2003 represents a flexible standard form which can be used for:

construct only delivery; documents and construct delivery; full design and construct delivery; lump sum or schedule of rates delivery; and major or medium works.
Managing Contractor Contract (MCC-1-2003) 19. The Infrastructure asset development model involves a two pass strategy for determining the viability of projects:

strategic business case; and detailed business case.
It is against this backdrop that MCC-1-2003 has been developed. MCC-1-2003 involves a two phase delivery method comprising an initial preliminary contract in the planning phase and a subsequent consolidated contract in the delivery phase. More specifically, under contract, Defence engages a Contractor to:

plan and design works in the planning phase; and complete the design of, commence, construct, commission, complete and handover the works in the delivery phase.
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Defence Procurement Policy Manual 2.3 Standard Defence Contracting Templates Medium Works Contract (MW 2-2004) 20. This contract was developed as a plain English flow chart contract, primarily for the delivery of construction work. This form of contract can be used either for the Head Contract, Design and Construct Contract, or Document and Construct Contract methods of delivery.
Short Form Minor Works Contract 21. This contract was developed as a plain English flow chart contract, primarily for the delivery of construction work to maximum value of $250,000. This form of contract can be used either for the Head Contract, Design and Construct Contract, or Document and Construct Contract method of delivery.
Design Services Contract (DSC 1-2003) 22. Design services will be procured by a dedicated Design Services Contract with Design Consultants.
Non Approved Defence Contracting Templates 23. Where Defence staff intend to use a contracting template other than an approved template referred to in this chapter, they must ensure that the template meets all of the mandatory Commonwealth and Defence procurement requirements (notably mandatory template advice contained in relevant DPPIs) and has been reviewed by a legal practitioner prior to tender release.
Key References
ASDEFCON suite of tendering and contracting templates available on the internet and through the Commercial Policy and Practice Branch intranet website. Infrastructure Management Defence Procurement Policy Instruction - Requesting professional services from the Office of Special Counsel Defence Materiel Organisation
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Defence Procurement Policy Manual 2.4 Not Used
2.4
Not Used
The contents of this chapter have been included where appropriate in chapter 5.4 Request Documentation.
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Defence Procurement Policy Manual 3.1 Procurement Methods
3.1
Introduction
1. 2.
Procurement Methods
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). The term procurement method is used to describe the manner by which Defence invites potential suppliers to participate in a particular procurement process. These procurement methods are consistent with the procurement process categories outlined in the Commonwealth Procurement Guidelines (CPGs). This chapter provides guidance on the following procurement methods:

open tender process; select tender process; and direct source tender process,
and the factors that should be considered when deciding which method should be used. 3. The term procurement method should not be confused with the contracting methodology that is selected to approach the market and engage the potential supplier. For example, the procurement method chosen may be open tender while the contracting methodology may be issuing a Request For Tender (RFT). Refer to chapter 5.3 for further information on contracting methodologies and refer to chapter 2.2 for further information on types of contracts. A reference to Procurement Approval should be construed as a Procurement Method Approval in the DMO. For further guidance on Covered Procurements, Non-covered Procurements and Defence/DMO Exempt procurements refer to the Definitions section and chapter 1.2. The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
4.
Mandatory Policy
The Procurement Approval delegation must be exercised prior to releasing request documentation. Procurement officers must ensure that all procurement method decisions are documented in accordance with the requirements in chapter 1.4. The method of procurement must consider the elements of Value for Money (VFM). In accordance with the CPGs, an open tendering process must be used for all covered procurements unless the conditions for direct sourcing or select tendering can be satisfied. The Defence Purchasing Card must not be used in place of a written contract and purchase order for complex procurements of any value. All open tenders must be published on AusTender. For all procurements, a select tendering process must only be conducted in three specific circumstances:

selecting suppliers from a multi-use list; issuing a request for tender to a list of suppliers that have responded to a request for expressions of interest; or issuing a request for tender to all suppliers that have been granted a specific licence Page 3.11
Defence Procurement Policy Manual 3.1 Procurement Methods or comply with a legal requirement where the licence or compliance with the legal requirement is critical to the conduct of the procurement. Covered procurements must not be direct sourced (including single source direct sourcing) unless the circumstances in paragraph 8.33 of the CPGs apply. Where a decision is made to conduct a direct source procurement process, Procurement officers must ensure that a written report is prepared and appropriately filed within the central filing system. The report must include:

the value and kind of property or services procured; and a statement indicating the circumstances and conditions that justify the use of a procedure other than an open or select tender process.
When using a direct sourcing tender approach the process must be non-discriminatory and ensure that a sufficient number of potential suppliers are invited to participate so as to ensure a sound value for money outcome. When approving a direct source tender recommendation based solely on the urgency of the requirement, the Procurement Approver must be satisfied that the urgency is genuine and unforeseen. Genuine urgency must not be confused with a lack of forethought or planning. All instances of single supplier direct sourcing must be fully justified. Where a direct source tender is conducted any offers received must still be examined to determine whether or not it provides the Commonwealth with value for money. Prior to accepting an offer from a tenderer, the Contract Approver must be satisfied that value for money will be achieved. When conducting a direct source tender process, the source evaluation report and recommendation must be supported by comprehensive documentation of the process that was undertaken and a clear audit trail of the reasons and justification for direct sourcing. Procurement officers must comply with Defence Instruction (General) Logistics 4-1-008 -
Rapid Acquisition of Technologies when undertaking rapid acquisitions. (DI(G)LOG - 4-1008).
Background 5. In Defence and the DMO, the selection of a suitable procurement method is necessary for satisfying:

the legislative requirement to comply with the CPGs; and the Defence and the DMO Chief Executives Instruction (CEI) requirement to obtain Procurement Approval.
Further information on the requirements for Procurement Approval are contained in chapter 1.4. 6. In order to comply with the CPGs, the method of procurement must consider the elements of Value for Money (VFM). Elements which enhance VFM are:
encouraging competition by ensuring non-discrimination in procurement and using competitive procurement processes; promoting the use of resources in an efficient, effective and ethical manner; and making decisions in an accountable and transparent manner.
Page 3.12
Defence Procurement Policy Manual 3.1 Procurement Methods 7. In Defence and the DMO, the Procurement Approval delegation must be exercised prior to releasing request documentation. The requirements of Procurement Approval are derived from Regulation 9 of the Financial Management and Accountability Regulations (FMARs). FMAR 9 provides that an approver must not approve a spending proposal unless satisfied after making reasonable inquiries, that the proposed expenditure will make proper use of Commonwealth resources (i.e an efficient, effective and ethical that is not inconsistent with the policies of the Commonwealth). This requires consideration of Commonwealth policies including those contained in the CPGs. Further information on the CPGs can be found in chapter 1.2. Further information on the requirements for Procurement Approval, including the contents of a Procurement Approval submission, is contained in chapter 1.4.
8.
Procurement Methods 9. Procurement methods available are:
open tender process this generally involves publishing a RFT inviting all potential suppliers that satisfy the conditions for participation to submit a tender; select tender process is an approach to the market that involves selecting suppliers from: a multi-use list; a list of suppliers that have responded to a request for expressions of interest; or a list of all potential suppliers that have been granted a specific licence or comply with a legal requirement, where the licence or compliance with the legal requirement is essential to the conduct of the procurement, and direct source tender process - this involves inviting a potential supplier or suppliers of Defences choice to submit tenders. There are strict conditions contained in paragraph 8.33 of the CPGs which apply to the use of direct sourcing for covered procurements.
Direct sourcing includes procurements previously referred to within Defence and DMO as restricted tenders (if the requirements for a select tender process are satisfied, this would also have previously constituted a restricted tender). Procurements previously referred to as sole source also fall within this category. 10. The CPGs encourage the use of competitive procurement processes and in many cases mandate the use of an open approach to the market. Consideration should be given to the scale, scope and relative risk of the procurement when determining an appropriate procurement method. The MPPs impose more onerous rules in relation to the selection of a procurement method for covered procurements. Refer to chapter 1.2 for further information. Use of the Defence Purchasing Card is not a method of procurement. The Defence Purchasing Card is a payment method and for Simple procurement it is an alternative to the use of a contract and purchase order. The Defence Purchasing Card must not be used in place of a written contract and purchase order for complex procurements of any value. Payment is made after determining the procurement method and will be necessary regardless of the method of procurement used.
11. 12.
Selecting a Procurement Method

Open Tender Process 13. An open tender process is used when maximum competition is sought or the market is unknown and is usually sought using a RFT. Open tenders must be published on AusTender. Refer to chapter 5.8 for further information on AusTender reporting requirements. While an open tender provides the most open and transparent method of procurement, the expense incurred by both Defence and industry needs to be taken into account when considering an appropriate method of procurement. Page 3.13
14.
Defence Procurement Policy Manual 3.1 Procurement Methods 15. In accordance with the CPGs, an open tendering process must be used for all covered procurements unless the conditions for direct source or select tender process can be satisfied. Refer to chapter 1.2 for information on determining whether a procurement is a covered procurement. All tenders received prior to the nominated closing date must be evaluated from any tenderers who satisfy the conditions for participation in the tender process and who meet any minimum content and format requirements.
16.
Select Tender Process 17. For all procurements, a select tender process must only be conducted in three specific circumstances:

selecting suppliers from a multi-use list; issuing a request for tender to a list of suppliers that have responded to a request for expressions of interest; and issuing a request for tender to all suppliers that have been granted a specific licence or comply with a legal requirement where the licence or compliance with the legal requirement is critical to the conduct of the procurement.
18.
The first two methods of select tendering require that an initial open approach to the market has been undertaken to identify suppliers eligible and interested in participating in the select tender process.
Selecting from a Multi-Use List 19. 20. 21. A multi-use list is a list, intended for use in more than one procurement activity, of pre-qualified suppliers who have satisfied the conditions for participation for inclusion on the list. Suppliers in a select tender process may be chosen from a multi-use list provided that the supplies sought are consistent with those described in the notice advertising the multi-use list. In these circumstances, a select request for tender may be released to some or all of the listed suppliers. The number of suppliers selected from the list should be consistent with an efficient procurement process. The multi-use list itself must:

22.
have been established through an open approach to the market; have been advertised on AusTender; be open to suppliers continuously or opened at least annually; and include all suppliers that have satisfied the conditions for participation as soon as practicable after such conditions have been met.
23.
Further guidance on multi-use lists is contained in chapter 4.3.
Selecting from an expression of interest 24. Where an expression of interest, invitation to register interest or request for proposal is released as an open approach to the market, the list of potential suppliers who lodge compliant submissions in response to that process may be used as the basis for subsequently inviting potential suppliers to submit tenders under a select tendering process. Where the expression of interest, invitation to register interest or request for proposal contains relevant requirements and evaluation criteria, responses received in relation to it may be used to:
25.
assess the extent to which a tenderers response meets the technical and performance specifications of the procurement; and Page 3.14
limit the number of potential suppliers subsequently invited to submit a tender having regard to the rating of each submission. The number of suppliers selected in this manner must be consistent with an efficient procurement process.
26.
If relevant requirements and evaluation criteria have not been specified in the expression of interest, invitation to register interest or request for proposal, then all suppliers who respond and that meet the conditions for participation must be invited to submit tenders. Further guidance on developing expressions of interest, invitations to register interest and requests for proposal is contained in chapter 4.9.
27.
Selecting on the basis of a licence or specific legal requirement 28. A select tendering approach may also be adopted by issuing a request for tender to a list of suppliers that have been granted a licence or who comply with specific legal requirements that exist independent of the procurement process, provided that:
the requirement for a licence or compliance with specific legal requirements is essential to the conduct of the procurement; and a complete list of these suppliers is maintained and available to be used for sourcing prospective suppliers.
29.
Under these circumstances, all suppliers identified on the list must be invited to submit tenders.
Direct Source Tender Process 30. Direct sourcing refers to a procurement process in which Defence has invited either a single potential supplier or a number of potential suppliers to submit a response without using an open procurement process. The circumstances in which direct sourcing may be used vary depending on whether or not the procurement is a covered procurement or non covered procurement. A direct source tender process should only be used under specifically defined circumstances, as detailed below and consistent with achieving best value for money. Where there are a number of potential suppliers for a Defence procurement, the Statement of Work and specifications for the procurement should not be developed in such a way as to effectively limit Defences procurement options to a direct sourcing tender process. There are some situations where the currently approved procurement process may need to be varied. An example is rapid acquisition, where goods or services are required within a short time frame due to unforeseen operational requirements. Where this is the case, a direct source procurement may be appropriate. All instances of direct sourcing must be fully justified.
31.
32.
33.
Direct Sourcing v Single Supplier Direct Sourcing (previously referred to as Sole Source) 34. Single supplier direct sourcing (the process formerly referred to as sole sourcing) is used in this chapter to refer to the situation where a single supplier is invited to tender. Accordingly, single supplier direct sourcing is a subset of direct sourcing, and the additional requirements outlined in paragraphs 38 - 40 apply in respect of approving the procurement method for these types of procurements. Unless otherwise specified, references to direct sourcing also include single supplier direct sourcing.
Direct Sourcing Non Covered Procurements or Defence/DMO Exempt Procurements 35. In some circumstances it may be appropriate to limit the number of potential suppliers to whom a Request for Tender (RFT) is released. Direct sourcing should only be used where there is a sound basis for identifying interested and eligible potential suppliers. When using a direct sourcing approach the process must be non-discriminatory and ensure that a sufficient number of potential suppliers are invited to participate so as to ensure a sound VFM outcome. This process has been previously referred to in Defence as restricted tendering. Page 3.15
Defence Procurement Policy Manual 3.1 Procurement Methods 36. Circumstances that may justify the adoption of a direct sourcing approach for a non covered procurement or a Defence/DMO Exempt Procurement (refer to chapter 1.2), include:
the existence of only a few known potential suppliers who can supply the required goods or services; a genuine urgency in the requirement; the existence of only a few known potential suppliers meeting Defence security requirements; or where VFM in the procurement process would not be achieved by using an open tender process, due to the expense involved.
37.
When approving a direct source tender recommendation based solely on the urgency of the requirement, the Procurement Approver must be satisfied that the urgency is genuine and unforeseen. Genuine urgency must not be confused with a lack of forethought or planning.
Additional Requirements for Single Supplier Direct Sourcing (previously referred to as Sole Source) - Non-Covered Procurements and Defence/DMO exempt Procurements 38. In the first instance, Procurement officers should apply the considerations listed in paragraph 8.33 of the MPPs to determine whether direct sourcing to a single supplier is justified. The following additional and specific grounds may also be used to justify a single supplier direct source procurement method in the case of a non-covered procurement or any Defence/DMO Exempt Procurement:
where a recent competitive approach to the market identified a clear winner and there are no reasons to believe the outcome would be different in a new approach to the market; where a potential supplier is recognised by Defence, from recent previous approaches to the market, as the only potential supplier of a Defence requirement; a genuine urgency in requirement i.e. goods or services are required to be delivered in a short timeframe to meet operational requirements and Defence is aware based on previous approaches to the market or market knowledge that a specific potential supplier is able to meet the requirement. This does not include the situation where poor planning has led to procurement delay; the need for compatibility with existing services and equipment; where Intellectual Property restrictions limit Defence to a specific potential supplier; where the cost of conducting a competitive process is excessive when compared to the scale, scope and relative risk and benefits of the procurement including any savings that would or could be made by conducting a competitive process; 1 where a requirement must be met by a specific potential supplier under existing warranty provisions, or other contractual arrangements exist which require the use of goods or services from a specific potential supplier; and where a purchasing area wishes to piggyback or otherwise procure supplies from a contractor selected under a tender process conducted by another area of Defence or another Commonwealth agency. In such a case, the purchasing area must be satisfied that its requirements are sufficiently similar to those set out in the tender documentation so that it can be satisfied that it is receiving value for money. The other Defence area or Commonwealth agency will also need to be satisfied that any piggybacking arrangement does not give rise to probity concerns (i.e. expanding their contract requirement beyond that indicated in the tender process).
39.
Utilising a single supplier direct sourcing method of procurement, by definition, limits a Procurement officers ability to ensure value for money is being obtained. Care should be taken to monitor the costs and conditions agreed in these procurements, with comparable services within the same or similar market place. Procurement officers should consult the Financial
Commonwealth Procurement Guidelines, para 5.7
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Defence Procurement Policy Manual 3.1 Procurement Methods Investigation Service (FIS) in Commercial Enabling Services, DMO (in accordance with DMH(PROC) 13-0-001 Mandatory Engagement of Financial Investigation Services), for price and cost analysis in single supplier direct source procurements. Guidance on FIS may be found in the latest Departmental Procurement Policy Instruction on Requesting Professional Services from the Office of Special Counsel Defence Materiel Organisation. 40. The increased risk of a single supplier direct source procurement may move an otherwise Simple procurement to a Complex procurement, requiring appropriate (Complex) delegate approval.
Direct Sourcing Covered Procurements 41. Defence must not direct source (including single source direct sourcing) a covered procurement (other than a Defence/DMO exempt procurement) unless the circumstances in paragraph 8.33 of the MPPs apply. For guidance on whether a procurement is a covered procurement or a Defence/DMO Exempt Procurement refer to chapter 1.2. A procurement process for a covered procurement that is consistent with the grounds for direct sourcing, is not required to meet the requirements for request documentation or time limits imposed by the MPPs. When direct sourcing due to an absence of competition for technical reasons in accordance with paragraph 8.33(d)(iii) of the MPPs, Defence would be expected to demonstrate the following:
42.
43.
that the requirements and specifications for the procurement have been developed based on a sound and unbiased understanding of market capabilities and commercial practices (more information regarding functional requirements and specifications is detailed in paragraphs 8.46 to 8.50 of the MPPs); and a comprehensive knowledge of the specific market has been gained through market research.
44.
If it is found, following comprehensive market research, that more than one potential supplier can provide the property or services required, then an open approach to the market should be undertaken. Where a decision is made to conduct a direct source procurement process for a covered procurement, paragraph 8.34 of the MPPs requires that for each contract awarded through direct sourcing Procurement officers must ensure that a written report is prepared which includes:

45.
the value and kind of property or services procured; and a statement indicating the circumstances and conditions that justify the use of a procedure other than an open or select tender process.
The Procurement officer must ensure that the report is appropriately filed within the central filing system. Financial Investigation of Single Supplier Direct Source Procurements All Procurements 46. Financial investigation is necessary for ensuring value for money in single supplier direct source tender processes. The objective of these investigations is to determine the reasonableness of the suppliers costings. Procurement officers should consult with FIS for price and cost analysis in direct source procurements (see para 39 for guidance on engaging FIS). DMO costing issues that need to be investigated include:

47.
the estimated labour and materials components; the labour rates proposed; overheads;
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the method of calculation used by the tenderer for the prices offered; whether the margins for contingencies and profit are reasonable; and the total price offered.
48.
The financial aspects of a tenderers offer should be compared with alternative product prices (if any) and with prices offered by the supplier to other customers. Advice can be sought by contacting FIS.
Value for Money in Direct Source Procurements 49. Where a requirement is confined to a single potential supplier or a limited number of potential suppliers, any offers received must still be examined to determine whether or not it provides the Commonwealth with VFM. Prior to accepting an offer from a tenderer, the Contract Approver must be satisfied that VFM will be achieved (see chapters 1.2 and 1.4). The source evaluation report and recommendation must therefore be supported by comprehensive documentation of the process that was undertaken and a clear audit trail of the reasons and justification for direct sourcing. To ensure objectivity and demonstrate VFM in direct sourcing, a number of strategies may be employed. These strategies include the use of independent advisers (eg legal, probity, financial); review teams (either internal or external to Defence); or seeking the assistance of the Office of Special Counsel, DMO. Further advice on determining VFM in a direct sourcing procurement process can be obtained by contacting the contracting specialists at the front of this Manual.
50.
51.
Reporting Methods of Procurement for Standing Offers in the DMO 52. The Procurement Approval for a contract raised under a standing offer may be different to the procurement method that is reported for the purposes of AusTender. For AusTender reporting, contracts formed under a standing offer arrangement are reported in the Contract Notice section of AusTender. For example, a decision to invite one supplier under a standing offer to quote may be approved as a direct source procurement for the purposes of Procurement Approval. However, if the standing offer was created following an open source tender process, then for the purposes of reporting on AusTender, the procurement method for any order placed under that standing offer arrangement (i.e the resultant contract) should be reported as open. The below table provides examples of circumstances where the DMO procurement method approval and AusTender Reporting Procurement Methods for purchases using a Standing Offers may differ.
Scenario Seeking quotes from all members of a Standing Offer. Internal Procurement Method Open Tender Procurement Method for AusTender Reporting The method that was used to establish the Standing Offer. For example, where the panel was established using an open process, the procurement method reported would be open. The method that was used to establish the Standing Offer. The method that was used to establish the Standing Offer. The method that was used to establish the Standing Offer.
53.
Seeking quotes from more than 1 member of a Standing Offer Seeking a quote from 1 member of a Standing Offer Seeking a quote from a Standing Offer comprising one supplier.
Direct Source
Direct Source Single Supplier Direct Source Open Tender (if the standing offer was established using an open process).
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Direct Source (if the standing offer was not established using an open process)
54.
The above table is not comprehensive and is intended to demonstrate how procurement method approval needs to be considered independently of AusTender reporting requirements. There will be instances where the Procurement Method approved is the same as the method reported on AusTender. Where the requirement can be satisfied by the scope of more than one Standing Offer Panel, the Procurement Approval submission should justify the use of the Standing Offer Panel selected to seek quotes from. This justification should be based on value for money considerations. Procurements officers should note that the obligation to obtain Procurement Approval is not a mandatory requirement for Defence procurements raised against an existing Standing Offer.
55.
56.
Record Keeping Maintaining an Audit Trail 57. The level of accountability and record keeping requirements are identical for all procurement methods and Procurement officers must ensure that all procurement method decisions are documented in accordance with the requirements in chapter 1.4. In particular, a decision to direct source should be based on a clear audit trail which sets out the reasons and justification for a determination that direct sourcing constitutes value for money. The justification for the direct source decision should be recorded in writing to allow the delegate to make a decision based on sound value for money principles (see chapter 1.2). For Complex and Strategic procurements, the justification for direct sourcing should be included in the endorsed Acquisition Strategy or other planning document for the project. Where such reasons do exist, this should be recorded on file in accordance with paragraph 8.34 of the CPGs. Consistent with the devolved procurement framework in Defence and Government, the Department of Finance and Deregulation has advised that determination of such justifications is by self assessment by the agency. In practical terms, this means the delegate must be satisfied with the justification for the purposes of the public record.
58.
59.
Rapid Acquisitions 60. Rapid acquisition is not a method of procurement, but a justification for compression of the timeframe that a procurement process would normally require and is a justification that is usually only available for a procurement in support of current operations. Submissions for a rapid acquisition must be made to a Proposal Approver at the Division Head level, including the reasons for the operational urgency. When exercising delegations for rapid acquisitions, delegates must assure themselves that there is a genuine operational urgency that the goods or services could not be obtained in time under open tendering procedures and that the shortening of the process will provide VFM. Rapid acquisition must not be used as a means of circumventing the normal Commonwealth and Defence procurement process or policy requirements. Procurement officers must comply with DI(G) - LOG 4-1-008 when undertaking rapid acquisitions. Guidance on the rapid acquisition process can be found in the Quality and Environment Management System (QEMS) at C.2.3 - Rapid Acquisition. Further detailed guidance on rapid acquisitions can also be obtained from DMO Operations Support on the DMO Intranet.
61.
Conducting Direct Source Procurement 62. Where it is determined that a direct source procurement is appropriate and justified, the Procurement officer should prepare standard request documentation as though the requirement
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Defence Procurement Policy Manual 3.1 Procurement Methods were going to open tender. For further information on contracting methodologies for direct source procurements refer to chapter 5.3. Factors Affecting Procurement Method 63. When deciding which method of procurement should be used, a variety of factors may be considered. These factors fall into three categories:

Government Procurement Policy (discussed in chapter 1.2); Market Related Factors; and Operational Related Factors.
64.
Each procurement is unique. Requirements vary in value, complexity, quantity, time available and location. Markets vary depending on the type of goods or services required and their location. This means that there are a variety of tests or criteria relevant to the choice of the procurement method for each requirement. The relevant Government Procurement Policy requirements are outlined in chapters 1.2 and 3.10. A selection of Market and Operational Factors are outlined in the table below.
Market Related Factors Extent of effective competition Specialisation Distribution, location of potential suppliers Potential supplier reliability Technical capacity and customer support systems Quality management and product reliability Bidding costs How wide is the market supplying your requirements? Does the whole market cater to your specialised requirements? Will your requirement need to be specially developed? Are you operating in a remote or regional location? Do all potential suppliers deliver to your location? Which potential suppliers can meet your requirements within required time frames? Can you get life of product support/spares, servicing, maintenance and repair? What are your quality control/assurance requirements? Can potential suppliers meet them? What will be the administrative cost of implementing the procurement method chosen for both Commonwealth and tenderers? Will savings generated by wider competition outweigh those costs? A low price is of little benefit if you dont get what you want when you want it
65.
Product availability Operational Related Factors Nature of supplies required/complexity
Are your requirements: commercial/commercial-off-the-shelf? To be imported? Made to specification local or offshore? Are there special terms and conditions required to protect the Commonwealths interests? Substantial negotiations anticipated? Research and development involved? etc. Do your requirements have to be compatible with any in service equipment? Do you want 1, 10 or 10 million? You may adopt different methods for each. Do you have a short or long delivery lead-time? Which potential suppliers can meet these requirements? Is it appropriate to standardise on a particular product? If so, widest possible competition should be obtained to achieve the best possible deal over the standardisation period. Which potential suppliers can meet your requirements? Are there any security implications which will limit the number of potential suppliers able to tender?
Compatibility Quantity, volume, scale Timing and planning objectives Standardisation policies
Operating and maintenance standards Security
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Defence Procurement Policy Manual 3.1 Procurement Methods Sources of Market Knowledge 66. Knowledge of the market is a critical factor in deciding the method of procurement. Sound market knowledge:

widens the choice of sources of supply; helps choose the right contractor; facilitates two way communication with potential suppliers; identifies opportunities for Australian and New Zealand industry involvement and development; and improves access for small and medium enterprises.
67.
By identifying potential suppliers and being aware of their capabilities, effective competition is assisted, therefore helping obtain value for money. Market research can range from a quick visit to local retail outlets, to hiring a consultant to undertake a specialist market survey. Sources of market information which should be utilised by Procurement officers include:

DMO Business Access Offices; Quality Assurance Representatives (see chapter 3.5); Industry Division within the DMO, which conducts a survey on a biannual basis to ascertain the business to business relationship between Defence and Industry; the Industry Assessment Branch of the Industry Division which operates the Defence Company ScoreCard System which provides information on company performance (chapter 3.8); networking with other Defence procurement areas or other agencies; telephone directories e.g. Yellow Pages; supplier catalogues, brochures and advertisements; Industry source books, indexes and associations; sales personnel; trade journals exhibits, fairs, and meet the buyer events; online inquiry e.g. supply systems using stock number; Defence standing offer arrangements (listed on AusTender); State Government departments; visits to potential suppliers; historical records retained in purchasing sections; and Defence Materiel (London) (CONDMAT ) and Defence Materiel Branch (Washington) (DEFMAT) market intelligence (see chapter 4.2).
Key References
Commonwealth Procurement Guidelines Department of Finance and Deregulation - Financial Management Guidance 13 - Guidance on the Mandatory Procurement Procedures Defence Instruction (General) Logistics-4-1-008 - Rapid Acquisition of Technologies DMH(PROC) 13-0-001 Mandatory Engagement of Financial Investigation Services AusTender website: www.tenders.gov.au DMO Operations Support Intranet site Page 3.111
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Defence Procurement Policy Manual 3.2 Risk Management in Procurement
3.2
Introduction
1.
Risk Management in Procurement
This chapter examines the management of risk in Defence procurement. In the Defence context, risk is concerned with the things that can go wrong to Defence projects and that may prevent the project from being a success. The Government considers that a successful project is a project that delivers a fit-for-purpose capability, as approved by Government, within the approved budget and schedule.
Risk Management Policy 2. Division One of the Commonwealth Procurement Guidelines (CPGs) state that effective risk management is integral to efficiency and effectiveness, enabling agencies to proactively identify, evaluate and manage risks, opportunities and issues arising out of procurement related activities. Risk management involves the systematic identification, analysis and treatment, and, where appropriate, acceptance of risks. Risk is a part of the environment within which agencies operate and proper risk management is an important element in achieving successful outcomes. Defence is committed to a comprehensive, coordinated and systematic approach to risk management. The resources expended in managing risk should be commensurate with the likelihood of a loss or benefit. In contracts, the risk should lie with the party best able to manage that risk. This may be the Commonwealth, the contractor or both.
3. 4.
Definition 5. Risk is defined as the chance of something happening that will have an impact upon objectives. A Project risk is a chance of something happening that could impact on the achievement of a successful project. Risk is measured in terms of the probability of an event occurring and its consequences.
Risk Issues in Public Sector Procurement 6. Sound risk management is an essential element of good corporate governance. A well developed and managed risk management plan will lead to informed decision-making to ensure the desired result is achieved. Access to electronic copies of HB254-2005 Governance, risk management and control assurance can be obtained via the Defence Library website. Public sector risk management involves making decisions that are capable of standing up to public scrutiny and Commonwealth accountability mechanisms. This requires that decisions are documented and that the processes for arriving at decisions are both transparent and visible. Procurement officers need to manage risk through all stages of the procurement cycle. If procurement is conducted in a high risk environment, this may compromise the achievement of value for money, both in terms of contract cost and the Commonwealth resources required manage the risk.
7.
8.
Simple Procurement and Risk Management 9. The level of risk in a Simple procurement should be minimal. The identification of a major risk may convert an otherwise Simple procurement into a Complex procurement. Written risk management strategies are not usually required for Simple procurements. For Simple procurements, the main risks are that the requirements are not well understood or articulated, and that the risks have not been adequately considered. Page 3.21
Defence Procurement Policy Manual 3.2 Risk Management in Procurement Complex and Strategic Procurement and Risk Management 10. As significant risks may occur during Complex and Strategic procurements a documented risk management plan is required. Failure to adequately identify the risks and develop adequate strategies to manage those risks may result in:

the selection of a contractors not capable of delivering the required outcome; contract cost overrun; delays in the delivery schedule leading to an overall time overrun on contract completion; failure to meet the desired quality of contract deliverable; non-achievement of identified requirement; and/or not meeting the sponsor/client's expectations.
11.
Some of the factors to be examined when identifying risk exposure include:

the maturity of the technology; the complexity of the requirement; is the requirement heavily dependant on Information Technology (IT); the extent of integration with other systems or services; can the requirement be met by Commercial off the Shelf (COTS) or Military off the Shelf (MOTS) products; inadequate or poorly written selection/evaluation criteria; poorly defined, outdated, or over defined, specifications; staff skills; is the contractor heavily dependent on a small number of key personnel; breach of ethics and probity in the tender evaluation process; ability of the contractor to meet the requirement; the timeframe identified for development/delivery (the longer the timeframe, the greater the risk); inadequate acceptance criteria; and in-service support requirements/costs.
Risk Management Processes 12. The risks identified, and the strategies to manage them, will be peculiar to the circumstances of each procurement. Using a formal risk management process will assist in the identification of the risks likely to be encountered and will document the appropriate strategies to manage those risks. This information is incorporated into a Risk Management Plan which is a dynamic document requiring regular review and updates. Below is a diagrammatic representation of the risk management processes.
13.
Page 3.22
Establish the Context
Communicate and Consult
Analyse Risks Assess Risks Evaluate Risks
Treat Risks
Establish the Context 14. Establishing the context for procurement risk management involves the identification and consideration of the objectives and the environment in which they are to be achieved. The risk management context should include the following steps:
set the scope and boundaries for the application of the risk management process by: defining the procurement objectives, constraints, and tolerances; defining the critical success factors for the procurement; defining the extent of the procurement in time, location and organisation; and defining the scope and schedule for the risk management activities to be carried out; define the structure for dealing with risk including: the roles and responsibilities of the various organisations participating in managing risk; the relationships between the activity and other activities or agencies; and the mechanisms to be used; develop criteria for risk analysis and evaluation. These should be clear statements of how identified risks will be assessed/rated, what level and type of risks can be tolerated and what needs to be treated. These should be based on the objectives and relate to the critical success factors for the specific procurement. These can be, but are not limited to the issues of safety, performance, cost, schedule and supportability. These criteria should reflect relevant policy as well as the interests of stakeholders; and establish/update the Risk Log to record and communicate risks and their associated assessment results and treatment decisions. The Risk Log provides a central database for information capture, collation and communication of risk related information to assist with the understanding and management of procurement risks while providing a documented record of risk related analysis and decisions.
Risk Identification 15. Risk can be identified using a variety of methods including:

risk management matrices (as set out in Annex 3A); process flow charts; application of risk analysis software; Procurement officer knowledge and experience; experience in similar procurements undertaken in the past;
Monitor and Review
Identify Risks
Page 3.23

consultation with users or subject matter experts; fault tree analysis; scenario planning; an understanding of the tenderers/contractors administrative and technical background; checklists; and risk workshops (brainstorming).
Risk Analysis 16. Procurement officers should analyse all possible areas of risk and assess the likelihood of an identified risk actually occurring and the possible consequences against applicable critical success factors if it does. The level of risk should be identified by referring to the risk evaluation criteria and then identifying where the risk sits in the risk matrix. Risks may then be categorised as extreme, high, medium or low. Individual Procurement areas must develop and use their own criteria to determine the level of risk associated with their own procurement projects. Criteria which may be adopted include:

17.
cost; schedule; performance; safety; supportability; environmental impact; security; and reputation.
18.
Individual Procurement areas should identify the key stages in the procurement process in order to determine when the benefits of the procurement significantly decline or may be outweighed by the risks.
Risk Evaluation 19. It is not possible to treat or reduce all risk to zero as no project/Defence area has limitless resources to devote to risk treatment. It is necessary to draw the line somewhere in terms of the level of risk that will be accepted or tolerated. Each identified risk needs to be evaluated to determine if it acceptable, unacceptable, to be treated or not to be treated. The previouslydeveloped evaluation criteria are used to determine the acceptability of a risk. In general, if a risk is not going to be treated, it is deemed to be accepted ie resources and effort will not be directed at actively managing the risk. Risks that are evaluated as acceptable are still important and should be retained in the Risk Log. Those risks that are not acceptable are then prioritised for treatment. Prioritising risks will assist to plan what risks will be treated first. Ideally this should be a simple process of listing risks in order of risk level from Extreme through to Low, with multiple risks at one level being considered as equal. Ongoing monitoring and review of these risks should be conducted to detect any change in their status. HANDY HINT Further guidance on risk management plans is contained in the Defence Materiel Organisation Quality and Environmental Management System (QEMS). Treating Risk 21. The outcome of the risk-evaluation step will be a prioritised list of risks that require treatment. In this step, projects/Defence areas need to consider what can be done to treat these risks, select Page 3.24
20.
Defence Procurement Policy Manual 3.2 Risk Management in Procurement a suitable treatment strategy, and implement it as an integrated project activity. There are a number of generic treatment options available, all of which should be considered in the initial deliberations. Be aware that a risk-treatment strategy might also introduce new risks that also need to be managed. 22. The treatment of risk encompasses the following steps:

determine Risk Treatment Options; appraise and Select Preferred Option/s; develop Risk Treatment Plans; integrate into Project/Contract Management Plans; and analyse Residual Risk Exposure.
23.
The management of risk is a continuing process, requiring re-evaluation of risks throughout the various stages of the procurement process. Risk may be effectively treated by:
identifying areas of risk in the procurement process and choosing appropriate methods of procurement; inserting appropriate contract clauses; producing and following through on a risk management plan; technical reviews; audits; systems design reviews; quality assurance; and enhanced communication with the tenderer/contractor.
Document, Monitor, and Review 24. It is imperative that a specified level of monitoring and review of risks be undertaken. This should include management review as well as periodic re-visiting of all risks and potential risk areas on a regular basis. This step consists of:

documenting risk management activities and decisions; monitoring and review; management review; and reporting.
25.
The purpose of risk monitoring and review is to ensure that:
the details of risks, including the assessment of their likelihood and consequences are current; any new risks are identified and subsequently managed, as early as possible; risk treatments have been implemented and are effective; and the risk-management processes are effective.
26.
Depending on the size of the procurement, monitoring and review processes may be as simple as setting a time for staff to review risks or as complex as requiring an external organisation to perform audits against established performance measurements. Risk management should not be viewed solely as a negative activity. Risk analysis assesses opportunities and accepts the risk when it is worth taking. In deciding whether to accept and manage a risk, a Procurement officer should consider possible gains to be made; and the loss that would be the consequence of taking the action or of not taking the action.
27.
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Defence Procurement Policy Manual 3.2 Risk Management in Procurement 28. Further guidance on risk management can be obtained from the DMO Risk Management Website.
Project Risk Score 29. The project risk score was introduced by the CEO Defence Materiel Organisation as a way of simply communicating the level of risk in a project over its lifecycle. The project risk score measures risk in major projects in two stages, the first is up to second pass approval and the second is the in-contract phase. Project risk score documentation includes Project Risk Scores Descriptors and Interpretation, Project Risk Scores Guidance Information and Benchmark Risk Scores at Lifecycle Gates. These documents can be found in the Key References section of QEMS.
30.
The Contract and Risk Management 31. Contracts can include several risk management mechanisms to assist in ensuring the contractors performance. Options available to assist the Defence protect itself against risk include:

indemnities and insurance (see chapter 3.15); and financial and performance guarantees (see chapter 3.15).
32.
The contract may also include specific clauses to ensure that what is delivered will satisfy the identified requirement. These clauses might relate to:

dispute resolution (see chapter 6.8); contract amendment (see chapter 6.7); quality assurance provisions (see chapter 3.5); Earned Value Management techniques (see chapter 3.4); compliance with standards; inspection and acceptance testing (see chapter 6.4); warranties (see chapter 6.5); environmental damage (see chapter 3.16); or requirements for the performance of the contract by specified contractor personnel.
Risk sharing 33. 34. In arranging contracts between Defence and tenderers each party should accept responsibility for the risks that they can best manage. In cases where it is not clear who is best able to manage the risk, it may be appropriate that the management of the risk is shared between Defence and the contractor. This is driven in part by a recognition of the fact that where the contractor takes on the risk this can equate with a higher premium passed onto Defence by the contractor in the form of a higher contract price.
Australian New Zealand Standard 35. Standards Australia, in conjunction with Standards New Zealand, has produced a number of risk management standards. Copies of these standards are available on the Standards Australia website.
Chapter Summary
Managing risk is an essential part of good management and is fundamental in procurement.
Page 3.26
Defence Procurement Policy Manual 3.2 Risk Management in Procurement Identification, analysis and treatment of risk in procurement will contribute significantly to successful outcomes. Risk management is as much about identifying opportunities as avoiding and mitigating losses. Risk should be considered at the earliest stages of procurement planning. Risk and its treatment should be monitored on a systematic basis throughout the procurement process. Risk management involves making decisions that are capable of standing up to public scrutiny and Commonwealth accountability mechanisms. Defence and contractors should accept responsibility for the risks that each can best manage. In cases where the risks are not clearly the responsibility of one party, the parties involved should agree to share them. The costs incurred in managing risk should be commensurate with the identified level of risk. Excessive effort and resources applied to risk avoidance may compromise the value for money objective. Defence may, where appropriate, obtain insurance coverage to cover risk.
Further Reading
The Defence Materiel Organisation Quality and Environmental Management System (QEMS) AS/NZS 4360: 2004 Risk Management Defence Risk Management Policy Comcover Policy Manual Commonwealth Procurement Guidelines Defence Chief Executives Instructions (CEIs), Part 8, Instruction 6 Indemnities and Instruction 7 Insurance Defence Environmental Policy (refer to chapter 3.16) Finance Circular 2003/02 Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letter for Comfort.
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Defence Procurement Policy Manual 3.3 Financial Policy and Advice in the Procurement Process
3.3
Financial Policy and Advice in the Procurement Process
Introduction
1. 2. This chapter applies to all procurement conducted in Defence and the Defence Materiel Organisation (DMO). This chapter addresses Commonwealth and Defence financial policy and some of the issues involved in seeking financial advice during the procurement cycle. Policy regarding financial viability and capability assessments and the use of the Financial Investigation Service does not apply to Infrastructure Division projects. Procurement officers using Infrastructure contracts should refer to the Infrastructure Management homepage for further guidance.
Mandatory Policy
Contractual or other arrangements must not be entered into that fix or otherwise alter the effects of changes in foreign exchange rates on the price of goods or services. Hedging of foreign currency exposure is prohibited by Commonwealth policy. Procurement officers must ensure that tenderers providing goods or services from overseas quote in the respective foreign currency for the overseas-sourced component of the contract. Procurement officers must comply with the mandatory requirements in Annex 3F when dealing with overseas tenderers and contractors. Procurement officers must ensure that financial viability and capability assessments of tenderers are undertaken for:

all major capital equipment acquisitions, including where sourced from overseas; all minor capital equipment acquisitions where the contract is considered strategically important; and any other purchase where there is a significant risk that the financial viability or capability of the preferred tenderer is or may become an issue.
DMO Procurement officers must seek the approval of FIS prior to inclusion in request documentation or contracts of Australian and United States (US) indexes outside the approved FIS lists referred to in Defence Procurement Policy Instruction (DPPI) 7/2010 Advice to Defence Materiel Organisation Staff Regarding Price Variation Indexes.
Commonwealth Foreign Exchange Policy 3. The Government has an overarching foreign exchange risk management framework that applies to foreign exchange exposures arising from Government entities. Under the framework, the proper management of foreign exchange is to be viewed from a whole of government perspective. That is, the Government has taken a decision to self insure its foreign exchange exposures and does not wish its entities (e.g. Departments) to breach this policy by hedging (except in special circumstances). Broadly, this means that Government entities must identify, measure, report and review their exposures. In September 2006 the Department of Finance and Deregulation (DOFD) issued Finance Circular 2006/06, Australian Government Foreign Exchange Risk Management Guidelines to be used as a policy directive by agencies in implementing the Governments framework.
Page 3.31
Defence Procurement Policy Manual 3.3 Financial Policy and Advice in the Procurement Process 4. It is Commonwealth policy that contractual or other arrangements must not be entered into that fix or otherwise alter the natural effects of changes in exchange rates on the price of goods or services. Hedging of foreign currency exposure is prohibited by Commonwealth policy. In special circumstances, the Minister for Defence may seek exemption from the hedging restriction from the Minister for Finance and Deregulation (Finance Minister). The Finance Minister, in consultation with the Treasurer, is able to grant an exemption from the hedging restriction, either on a case-by-case or a general basis. Where there is such a proposal, the Assistant Secretary, Financial Operations Branch, Defence CFO Group, should be contacted in the first instance.
5.
Entitlement to Supplementation 6. Overseas purchases introduce practical considerations for Government entities as budget appropriations (i.e. the purchase decision) are often made well in advance of the actual purchase. This gives rise to a foreign currency exposure, so that a purchases actual cost can be either higher or lower than the budgeted cost. Defence will be supplemented by DOFD for exchange rate losses provided that the criteria stipulated in the Guidelines for the Management of Foreign Exchange Risk are met. Where there is either supplementary funding or a return to the budget, the actual foreign exchange rate will be deemed to be the rate at which the foreign exchange funds payment occurred. A checklist for foreign exchange risk management is contained at Annex 3F. Further guidance on foreign exchange risk management policy can be obtained from the Defence CFO Group website or by contacting the Finance Operations Branch in the Defence CFO Group.
7.
8.
Price Basis and Price Variation Price Basis 9. The price basis of a contract provides the terms on which the contractor will be paid the contract price. Guidance on the types of price bases commonly used in Defence contracts may be found in chapter 2.2. A firm price basis does not allow for any variations in the contract price. A variable price basis allows for price variation as a result of variations in exchange rate and/or the cost of labour and materials. Where price variation for exchange rate will be allowed, appropriate clauses will need to be included in the contract. Clauses that can be used for:

10.
11.
Strategic procurements of supplies are contained in ASDEFCON (Strategic Materiel); Complex procurements of supplies are contained in ASDEFCON (Complex Materiel); and Strategic and Complex procurements of maintenance and through life support services are contained in ASDEFCON (Support).
12.
Where price variation for variations in the cost of labour and/or materials will be allowed, appropriate clauses, price variation formulae and price variation indices will need to be included in the contract. Defence uses standard, approved price variation formulae and indices and prefers broad-based output indices. However, specific recommended input indices may also be used. Clauses, price variation formulae and price variation indices for:

Strategic procurements of supplies are contained in ASDEFCON (Strategic Materiel); Complex procurements of supplies are contained in ASDEFCON (Complex Materiel); and Strategic and Complex procurements of maintenance and through life support services are contained in ASDEFCON (Support).
13.
Procurement officers should be cautious of any substitute price variation formulae proposed by a tenderer. If accepted, they may be difficult to compare with tenderers who have accepted Page 3.32
Defence Procurement Policy Manual 3.3 Financial Policy and Advice in the Procurement Process standard Defence formulae. Moreover, commercial price variation formulae are not drafted to protect the Commonwealths interests. 14. Where a tenderer proposes a non-Government index, Procurement officers should seek advice from the Financial Investigation Service. If an index is not independently compiled or objective, it should not be used. Procurement officers need to be aware that following the 2009-10 Budget, Defence projects will receive a fixed level of supplementation for cost escalations. Procurement officers should ensure that where indices for variation in the cost of labour and/or materials are proposed to be included in their contracts, the project has sufficient contingency in their budget to cover future increases in their agreed labour and materials indices. The Australian Government has made it clear that no additional funding will be allocated for projects. To assist with managing the risks associated with these new budgetary arrangements, DMO Procurement officers must comply with the requirements specified in paragraphs 21 24. Further guidance on exchange rate variation, variations in labour in materials, price variation formulae and price variation indices can be obtained from the Financial Investigation Service. Advice on price variation indices is also available from the Australian Bureau of Statistics on telephone 1300 135 070 or on the ABS website.
15.
16.
Late Payments 17. In accordance with Finance Circular 10/2008, for all written procurement contracts valued up to A$1million (GST inclusive) with small businesses, Defence must pay interest on late payments following receipt of a separate correctly rendered invoice. Chapter 6.4 contains more detailed information on Late Payments. Where interest on late payments is allowed, appropriate clauses must be included in the contract. The ASDEFCON suite of tendering and contracting templates includes the clauses necessary to comply with this requirement.
Overseas Contractors 18. Contractors providing goods or services from overseas must quote in foreign currency for the overseas-sourced component of the contract. Where the overseas-sourced component of a contract is of significant value, i.e. more than A$1 million, the contract price in relation to the overseas-sourced component should be paid in the applicable foreign currency. Contractors providing goods or services from overseas may, where a variable price basis is allowable, use the Defence-preferred Australian Bureau of Statistics indices or an equivalent authoritative overseas Producer Prices Index or Chain Price Index, Domestic Final Demand. Guidance on the suitability of proposed overseas indices can be obtained from Financial Investigation Service. Annex 3F details the mandatory requirements that must be met by Procurement officers when dealing with overseas tenderers and contractors.
19.
20.
Selection of Australian and US Indexes for Contracts - DMO Specific 21. FIS have approved a shortlist of Australian and US indexes to provide DMO Procurement officers with direction and guidance on appropriate indexes and to achieve consistency across DMO on the use of contract indexes. Indexes nominated by tenderers but not on the shortlist must be justified to the delegate as appropriate and representing value for money. Prior to the delegate exercising their delegation, any indexes not included in the FIS approved list of indexes will need to be reviewed and cleared by FIS prior to inclusion in a Request for Tender (RFT) or Contract. This is to prevent the proliferation of exotic and inappropriate indexes. The applicability and appropriateness of an index should be considered during the procurement strategy stage of a proposed procurement. The RFT price variation clause should be tailored as far as practicable to fit the requirements of the procurement. The nomination and application of Page 3.33
22.
23.
Defence Procurement Policy Manual 3.3 Financial Policy and Advice in the Procurement Process indexes outside the approved FIS lists referred to below must be approved by FIS prior to inclusion in an RFT or a contract. 24. For further information, DMO Procurement officers should consult Defence Procurement Policy Instruction (DPPI) 7/2010 Advice to Defence Materiel Organisation Staff Regarding Price Variation Indexes.
Financial Investigations 25. Financial information is one of the factors a Procurement officer should take into account when making a procurement decision. It will assist Procurement officers to make a value for money judgment, to assess the long-term financial viability of the tenderer and to identify areas of financial risk. A financial investigation provides a snapshot in time of financial issues and the findings may be inconclusive. Interpretation of financial information should be undertaken with care, as it may be incomplete, not directly comparable with other financial information, out of date or not indicative of long term trends. The normal rules of proper and ethical conduct, including the protection of commercial-inconfidence information, apply to all financial information contained in offers or obtained in a financial investigation.
26.
27.
Financial Investigation Services 28. Professional staff from the Financial Investigation Service in Commercial Enabling Services, DMO should undertake any detailed or complex financial investigation. The Financial Investigation Service should be engaged as early as possible in the procurement process.
Risks of not seeking advice from the Financial Investigation Service 29. The risks of not seeking timely professional financial advice may include:

unwarranted contract cost escalation; delays in delivery of the contracted requirement or failure to meet specifications; contractor default, for example which could be caused by bankruptcy during contract performance; errors in payments made to the contractor, particularly under price variation applications; adverse impact on the contracted requirement; failure in the comparative tender evaluation process leading to a poor selection of the contractor; failure to identify areas of contractual risk which prevents implementation of appropriate risk management strategies; forfeiture of entitlement to foreign exchange related no win/no loss supplementation; and not achieving best value for money in the procurement.
30.
The Commonwealth should not provide advice or assistance to tenderers on financial matters (e.g. calculations of quotations or hourly staffing rates) during a tender process. This is an improper use of Commonwealth resources and the Commonwealth may be held liable for any error made.
Financial Viability and Capability of Tenderers 31. An evaluation of the financial viability and capability of a tenderer is an assessment of the financial affairs of the tenderer undertaken for the purposes of a tender process and is not an investigation of the costs of performing a contract. Financial viability and capability in the context of Defence contracts refers to the ability of a tenderer, if it is to be awarded the contract, Page 3.34
Defence Procurement Policy Manual 3.3 Financial Policy and Advice in the Procurement Process to satisfactorily perform the contract to completion, on schedule, and without any reduction in the contract requirement. Undertaking a Financial Viability and Capability Assessment 32. Financial viability and capability assessments must be undertaken for:

all major capital equipment acquisitions, including where sourced from overseas; all minor capital equipment acquisitions where the contract is considered strategically important; and any other purchase where there is a significant risk that the financial viability of the preferred tenderer is or may be brought in to question.
33.
A financial viability and capability assessment should be conducted using the most practicable method available in the context of the particular procurement. Any assessment should be authoritative and as conclusive as possible with the information available, so that it will assist the Procurement officer to decide the course of action to be taken. Assessments based on financial ratios or computer based systems are acceptable, although where data input is required before a report can be generated the advice of the Financial Investigation Service should be sought. A financial viability and capability investigation may involve an examination of a tenderers:
34.
financial accounts over a number of years including financial ratio analysis and comparison with industry averages; funds statements, cash flows and working capital statements; liquidity and long term solvency position; management control systems, for example budgetary control and inventory management; cost estimating process; internal control provisions; organisational structure, ownership and related companies; legal situation, including current legal action against the tenderer; contingent liabilities; or finance facilities.
35.
In order to give Defence the right of access to a tenderers financial records to ascertain the ability to fulfil their responsibilities under any resultant contract, suitable clauses should be included in all request documentation. The contracting specialists listed at the front of this Manual can provide guidance on the inclusion of suitable clauses. Procurement officers should make reasonable enquiries to ensure that current financial information on the company is not already held, i.e. a recent financial investigation has been conducted by Financial Investigation Service.
36.
Use of Financial Viability and Capability Assessment Outcome 37. If an adverse financial viability and capability assessment is made, then Procurement officers should consider whether to:

seek advice from the Financial Investigation Service (if this has not already occurred); seek legal advice on the option to select another tenderer if appropriate; include a financial or parent company performance guarantee in the contract (where a financial guarantee will cover the risk); include provisions for liquidated damages; or
Page 3.35
proceed with the contract if the risk is judged to be acceptable in light of the overall importance of the contract.
38.
If a decision is taken not to award a contract to a tenderer on the basis of a financial viability risk, then this decision should be supported by an objective, professional and well documented assessment based on sound commercial best practice principles. Conversely, if a contract is awarded when there is a financial viability risk, then this decision must be fully documented to the same standard. Any assessment should be weighed against the risks of awarding/not awarding the contract to the assessed tenderer.
When to Seek Financial Advice 39. Simple Procurement does not require the services of the Financial Investigation Service as value for money judgements can be made largely on the basis of purchase price and compliance with delivery requirements. As contracts increase in value, risk and complexity, financial issues assume greater importance. In most Complex and Strategic Procurements, professional financial advice will be required. Professional financial advice can be sought at any stage of the procurement cycle. It is strongly recommended that the advice of the Financial Investigation Service be sought when:

40.
assistance is required for the establishment of capability funding; a high value and/or high risk single supplier direct sourcing process is the approved procurement method; a public private partnership is the approved procurement method; developing suitable price basis clauses and pricing schedules in request documentation that reflect the requirements of the Statement of Work and overall financial outcomes, and ultimately assist the evaluation of prices and any subsequent contract management issues; the tender evaluation stage requires advice to evaluate the financial aspects of an offer as part of a financial Tender Evaluation Working Group; an assessment of the appropriateness of non-standard price variation formulae, indices or price bases is required; there is little known about the tenderer or there are doubts about the tenderers long-term financial viability; the tenderer is seeking a substantial mobilisation payment; a common costing base is required in the comparative evaluation and assessment of offers; pre-negotiation cost investigation of competitive tenders is required; charge out rates need to be established for the use of Defence services, facilities and equipment; Defence is exposed to areas of high financial risk in the contract; the contract has a variable rather than firm price basis which exposes Defence to the risk of price escalation; the contract is over an extended period and/or the requirement evolves due to technological change, making it difficult to accurately estimate costs; the contract involves complex exchange rate variation or price variation claims; analysing foreign exchange considerations and alternatives; an alliance contract is established where all project transactions and costings are completely open book and subject to audit; the contract contains cost reimbursement clauses where actual costs require verification;
Page 3.36

the contract contains incentive contracting clauses (such as target cost estimate); contract change proposals vary the requirement or shift risk. This would include an investigation of issues such as the fairness and reasonableness of the price, the impact on other aspects of the contract and effect on required cash flow and delivery schedule; the contractor is experiencing difficulty in meeting contractual commitments; the contract is terminated or in dispute. Financial investigation helps establish the position of both parties; or arbitration or litigation require establishment of contract costs.
Financial Evaluation of Offers 41. In conducting a financial assessment of offers it is necessary to compare them against a common price basis. This allows the total cost of each offer to be calculated so that the offers can be compared. The Financial Investigation Service should be consulted when complex financial assessments of offers are being conducted. To achieve a common price basis, adjustments are necessary when:
42.
firm and variable prices are quoted, e.g. a variable price appears lower until allowance is made for cost movements in the price variation formula; offers submitted have different price components or indices in the price variation provisions; offers submitted have different overseas contents and exchange rate movements are expected to have a material effect on price adjustment for price variation; or proposed mobilisation and progress payments differ between offers. To evaluate offers on a consistent basis it may be necessary to use discounted cash flow techniques to calculate the value of the offer in todays dollars.
43.
It should not be necessary to adjust prices for comparison purposes where:
an offer is non compliant or excluded on grounds other than price, e.g. technical unsuitability; a variable price is higher than any firm price; or a variable price is significantly less than any firm price and would still be less after any adjustment.
44.
Prices should be quoted in base date dollars. The base date' is usually defined in the draft conditions of contract and should be the date one month prior to the date on which tenders close. Where pricing is available in foreign currencies, Procurement officers should select the best Australian dollar outcome at that time, using current rather than forecast foreign exchange rates. Contracts, agreements and arrangements that offer Australian dollar pricing but are impacted directly by movements in exchange rates should be considered foreign currency exposures and be managed in accordance with the guidance provided in paragraphs 3 to 8 above and Annex 3F. To determine whether an offer represents value for money, a comparison of relevant benefits and costs on a whole of life basis needs to be undertaken (see chapter 5.6). Financial investigation is necessary for ensuring value for money in single supplier direct sourcing procurement processes.
45.
46. 47.
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Key References
Guidelines for the Management of Foreign Exchange Risk issued by the Department of Finance and Deregulation ASDEFCON (Complex Materiel) ASDEFCON (Strategic Materiel) ASDEFCON (Support) Defence Procurement Policy Instruction 7/2010 Advice to Defence Materiel Organisation Staff Regarding Price Variation Indexes
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Defence Procurement Policy Manual 3.4 Earned Value Management
3.4
Introduction
1. 2. 3.
Earned Value Management
This chapter applies to all procurement undertaken in the Defence Materiel Organisation (DMO) and is available for use by other Defence Groups. Earned value management (EVM) represents a set of best practice project management principles that integrate cost, schedule and technical performance. EVM should be applied from the beginning of the Project. When properly applied, EVM provides an early warning of performance problems, improves the definition of project scope, prevents scope creep, communicates objective progress to stakeholders, and keeps the project team focused on achieving progress. EVM may be used in contracts to gain an objective understanding of a contractors technical and managerial performance throughout the life of the contract.
4.
Mandatory Policy
The use of EVM is mandatory for DMO acquisition contracts valued at $20 million or more unless:

the procurement has been categorised as low risk; and the Division Head has approved the decision not to use EVM.
The percentage of the contract price to be paid by earned value must not exceed 30% without Division Head approval. DMO staff must comply with the following policy documents, which are available on the DMO Earned Value Management intranet site:

Earned Value Management System Review Handbook; Integrated Baseline Review Handbook; Guide to Earned Value Payments; AS 4817 Project performance measurement using Earned Value; and DMO Supplement to AS 4817.
Use of Earned Value Management by DMO 5. An EVM system provides both DMO and contractors with performance data that:

illustrates performance against a detailed plan of the entire contractual scope of work; reflects an objective measure of contract progress; aids in forecasting future cost and schedule outcomes; and assists informed and timely decision-making by providing an early indication of possible problem areas.
6.
EVM encourages better planning by contractors and focuses both DMO and contractors on contract performance.
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Defence Procurement Policy Manual 3.4 Earned Value Management Application of Earned Value Management to DMO Contracts 7. A projects EVM requirement, if any, will appear in its Equipment Acquisition Strategy or equivalent planning documentation. Projects must apply EVM to all DMO acquisition contracts valued at more than $20 million. The main driver for using earned value is risk. The use of EVM is mandatory for all DMO acquisition contracts valued at $20 million or more unless:

8.
the procurement has been categorised as low risk; and the Division Head has approved the decision not to use EVM.
The relevant information to support the decision should be provided in a submission which outlines the type of contract (e.g. production), an assessment of the schedule, technical and cost risks, and an assessment of the contractors alternative method for measuring, monitoring and managing performance. 9. For the purposes of this chapter 'production contracts' means acquisition contracts where design or integration work is not required, For example, the procurement of COTs or MOTs equipment that is constructed using an established production process and modification is not required. The criticality of the procurement, the anticipated contract duration and the project risk profile are to be considered when deciding whether earned value requirements should be applied to a contract or subcontract(s). With regards to the risk profile, the risk items to be considered should include: contract cost, duration, capability importance, schedule, technical issues, payment method, reporting requirements and project resources. The higher the risk assessment, the greater the need to implement a earned value management system that will facilitate early notification of departures from the contracts technical, schedule and cost requirements. Even in projects of low technical complexity, there are schedule risks to deliver capability by the prescribed in-service date, or cost risks associated with pressures to complete within the current project budget. EVM may not need to be applied to certain production contracts. In some cases, the contract may be for a large quantity of similar products, constructed using an established production process that would not warrant the implementation of an alternative performance measurement system. In instances such as these, alternative objective performance measures could be considered. Projects should seek formal advice from the Director Program Management Office in instances where the policy threshold is met or exceeded but an earned value management requirement is not considered to be necessary.
10.
11.
Earned Value Management Requirements in Request Documentation 12. ASDEFCON (Strategic Materiel) and ASDEFCON (Complex Materiel) Volume 2 contain conditions of tender response requirements and Statement of Work provisions relating to earned value. Further guidance on these provisions can be obtained from the Earned Value Management FAQs for Tender Evaluation and the Earned Value Management System Review Handbook available on the DMO EVM intranet site.
Payment by Earned Value 13. The preferred method of payment is milestone payments and this should be pursued in preference to a mix of payment by earned value and milestone payments. However, ASDEFCON (Strategic Materiel) does contain options for projects subject to EVM requirements to elect to base contract payments on a mix of earned value payments and milestone payments. If used, the ratio of earned value payments to milestone payments requires careful consideration to ensure the appropriate balance between technical achievement and cash flow requirements. The percentage of the contract price to be paid by earned value must not exceed 30% without Division Head approval.
14.
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Defence Procurement Policy Manual 3.4 Earned Value Management 15. Guidance on payment by earned value may be found in the Guide to Earned Value Payments available on the DMO EVM intranet site. It also describes the steps to be followed in order to verify a contractors earned value payment claims. The assessment includes in-depth review and verification of supporting evidence, earned value performance reports, control accounts and performance data.
Tender Evaluation and Contract Negotiation 16. Guidance can be obtained from the Earned Value Management FAQs for Tender Evaluation available on the DMO EVM intranet site.
Contractor Reviews The Integrated Baseline Review 17. Once the project is in contract, project managers are responsible for the conduct of the Integrated Baseline Review in order to review the technical merits and resourcing of the plan and to assess the risk associated with the baseline. Guidance on the conduct of integrated baseline reviews is available from the Integrated Baseline Review Handbook available on the DMO EVM intranet site.
The Earned Value Management System Review Process 18. Assessment of compliance with the contractual requirements and acceptance of the contractors EVM system is the responsibility of the project manager. Guidance on the conduct of EVM system reviews is available from the Earned Value Management System Review Handbook available on the DMO EVM intranet site.
System Assurance Activities 19. Once the contractors EVM system is assessed as compliant it is important that a program be instigated to ensure that the system continues to maintain compliance. Project managers are responsible for determining, based on a risk assessment, the frequency and scope of System Assurance Reviews. Further information on the risk factors to consider and the methods of conducting the assurance can be found in the Earned Value Management System Review Handbook.
Data Reporting and Analysis 20. Contract performance information, in the form of earned value performance reports, should be provided by the contractor at mutually agreed intervals (monthly as a minimum). All relevant project office personnel are responsible for reviewing contractor earned value performance reports (including the contractors written analysis). Detailed guidance on the analysis of earned value performance reports can be found in the Earned Value Data Analysis Guide.
21.
Key References
ASDEFCON (Strategic Materiel) ASDEFCON (Complex Materiel) Volume 2 AS 4817 Project performance measurement using Earned Value DMO Supplement to AS 4817 Earned Value Management System Review Handbook Integrated Baseline Review Handbook
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Defence Procurement Policy Manual 3.4 Earned Value Management Guide to Earned Value Payments Earned Value Data Analysis Guide Project Performance Management Guide Earned Value Management FAQs The EVM references in the Chapter are all available on the DMO EVM intranet site.
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Defence Procurement Policy Manual 3.5 Quality Assurance
3.5
Introduction
1.
Quality Assurance
This chapter outlines the Quality Assurance mechanisms employed by Defence to mitigate risk in the procurement of goods and services and to ensure that contractors meet their contractual obligations in relation to quality.
Defence Policy 2. Responsibility for the development of Defence Quality Assurance policy lies with the Defence Quality Assurance Forum chaired by Director Policy and Process Improvement within the Defence Materiel Organisation. Defence Quality Assurance policy is detailed in Defence Instruction (General) Logistic 02-1 Defence Quality Assurance and Departmental Quality Assurance Instructions. It is consistent with the Commonwealth procurement policy of incorporating risk assessment to the application of Quality Assurance. The principal objective of the policy is to ensure that quality is planned for and then designed and built into the supplies. Quality Assurance requirements need to be monitored throughout the contract process to ensure compliance. They should also be verified prior to final acceptance of the supplies. Quality Assurance is in place to ensure that supplies are fit for the stated purpose and pose no hazard to personnel, public safety or the environment in accordance with Service Technical Regulations. This is achieved by:
3.
4.
5.
ensuring all quality requirements leading to the acceptance of supplies have been achieved; ensuring the Statement of Work including contract specifications are adhered to; managing the risks associated with the supplies; ensuring that there is clear evidence of contractor management process controls in place, including subcontractor control; and ensuring confidence in the contractors quality management and quality control performance.
6.
By maintaining quality, buyers and suppliers increase the likelihood that supplies will conform to requirements, thereby reducing the risks arising from non-conformance. The means by which quality can be assured include:

a quality system certified to the AS/NZS ISO 9001:2000; quality plans; special conditions of contract; product inspection and testing; customers audit and surveillance activities; contractor guarantees; and normal commercial practices such as warranties.
7.
Procurement officers should carefully consider the type of Quality Assurance required before specifying it in tenders and contracts as both under and over specification of quality requirements can be costly. In determining how quality should be assured, Procurement officers
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Defence Procurement Policy Manual 3.5 Quality Assurance should take into account the level of risk arising from the likelihood and consequence of nonconformance, as well as the value of the procurement. 8. Quality Assurance is part of an overall risk strategy that reduces the risk of receiving noncompliant supplies and Procurement officers should seek guidance from appropriate technical and design approval authorities. Regulatory and safety requirements will also affect the assessment of risk and may prescribe specific Quality Assurance procedures. Procurement officers should also seek advice from an authorised Quality Assurance Representative. Authorised Quality Assurance Representatives are Defence staff who posses the necessary competencies to undertake Quality Assurance related activities. Procurement officers who are not aware of their local area authorised Quality Assurance Representative should contact their Defence Group Quality Assurance Representative. A list of Defence Group Quality Assurance Representative is available from the Directorate of Policy and Process Improvement Quality Assurance within the Defence Materiel Organisation.
9.
Quality Assurance Responsibilities 10. The Directorate of Policy and Process Improvement within DMO has responsibility for the formulation and promulgation of Defence Quality Assurance policy.
Quality Assurance Representatives 11. Quality Assurance Representatives are delegated the authority to undertake required Quality Assurance tasks. They are responsible for:
providing Quality Assurance advice and services in accordance with Defence Quality Assurance policy and Departmental Quality Assurance Instructions; and actioning, when delegated the management of non-conforming supplies.
Procurement officers 12. Procurement officers are responsible for applying the Defence policy for Quality Assurance by:
undertaking a risk assessment based on the complexity, criticality, likelihood and consequence of failure, value of the procurement and considering environmental and safety issues in order to determine the most appropriate Quality Assurance requirements to be included in Defence procurement contracts; selecting tenderers who can be expected to satisfy contractual requirements for quality, Quality Assurance requirements and management of subcontractors quality; managing the requirements for quality audits, and quality surveillance of the contractors activities relating to the contracted supplies; ensuring that Quality Assurance tasks are conducted by suitably qualified staff; and accepting supplies when satisfied that all quality management requirements have been met.
13.
Guidance on the development of Quality Assurance tasking statements can be obtained from Departmental Quality Assurance Instruction No. 006 -Developing a Quality Assurance Tasking Statement.
Defence Contractors 14. Contractors are ultimately responsible for the quality of their supplies and those of their subcontractors provided under a Defence contract. This is achieved by:

applying all aspects of their operations so as to satisfy quality management of the contract; providing evidence that supplies conform to the contracted specified requirements;
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Defence Procurement Policy Manual 3.5 Quality Assurance
ensuring subcontractors adhere to quality management requirements prescribed under the subcontract and ensuring that all work performed under a subcontract meets the requirements of the quality system to be applied by the contractor; and providing supplies that conform to the specified contract requirements.
Risk Assessment 15. In selecting the means for assuring quality of supplies, the focus of the risk assessment is based on the likelihood and consequences of failure. Factors contributing to risk assessment include:

technical complexity of supplies; design, production and delivery processes; maturity of the technologies involved; capability and maturity of the tenderer; and operational criticality of the supplies.
Selecting the Means of Assuring Quality 16. There are a number of options available to the Procurement officer for assuring the quality of supplies and the particular option chosen must be based on the risk assessment undertaken. For example, an ISO 9001:2000 certified quality system for low value-low risk procurements (such as office stationery supplies) is not cost effective. However, when procuring maintenance services for an operationally critical piece of equipment of moderate value, it would be appropriate for the Procurement officer to require an ISO 9001:2000 certified quality system as a minimum requirement.
Quality Assurance and the ASDEFCON Templates 17. Guidance on determining the different levels of procurement is contained in chapter 1.3.
ASDEFCON (Strategic Materiel ) 18. ASDEFCON (Strategic Materiel) contains clauses for the conditions of tender and conditions of contract that detail the quality requirements including that both tender and contract deliverables be provided.
ASDEFCON (Complex Materiel ) 19. Care should be taken when using ASDEFCON (Complex Materiel) for the procurement of supplies. The quality assurance clauses contained in ASDEFCON (Complex Materiel) should be read in conjunction with the Quality Assurance Type clauses detailed in this chapter to ensure that the appropriate clauses are used. The type of goods or supplies being procured may require the replacement of the existing clauses with a more appropriate quality assurance type clause.
Standard Conditions of Contract for the Procurement of Goods and Services 20. Standard Conditions of Contract for the Procurement of Goods and Services are used for most Simple procurements. These conditions include a Quality Assurance requirement at clause 7. Depending on the Quality Assurance requirements of the procurement activity specific Quality Assurance clause types may be included with the Standard Conditions of Contract for the Procurement of Goods and Services. Care should be taken when including additional Quality Assurance requirements to an otherwise Simple Procurement, as the inclusion may change the procurement from a Simple to a Complex one.
21.
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Defence Procurement Policy Manual 3.5 Quality Assurance Selection and Modification of Quality Assurance Type clauses 22. Assistance in determining the appropriateness of the quality assurance type clauses can be gained from an authorised Quality Assurance Representative within the Procurement officers local area. If this resource is not available Procurement officers should contact their Defence Group Quality Assurance Representative who will be able to provide advice or support. A list of Defence Group Quality Assurance Representatives is available from the Directorate of Policy and Process Improvement Quality Assurance within DMO. The assistance of a Quality Assurance Representative should be sought where there is a requirement to tailor the Quality Assurance type clauses to the specific needs of projects.
23.
Quality Assurance Requirement Type Clauses 24. Quality Assurance requirement clauses have been developed for use in applying Quality Assurance to contracts other than ASDEFCON (Strategic Materiel). The clauses are available on the DEFWEB.
Quality Assurance Requirements Clauses Types 25. Each clause type has been developed to satisfy different procurement requirements. The core features of each of the Quality Assurance requirements clause type are outlined in the following paragraphs: Type 1: the Type 1 clause is for procurements that require new or re-design with a follow-on production phase. Type 1 specifies Certification to IS0 9001:2000 including design and development capability that is applicable to work involving design, development and production. These Quality Assurance requirements are typically applicable to procurements where the successful outcome of a requirement specified in functional or performance terms is largely dependent on the processes used by the contractor. The contractor is required to submit a quality plan detailing how the management system is to be applied to the contracted work. Type 2: the Type 2 clause is used where there is an established design that requires a production or repeatable overhaul type of activity and specifies Certification to ISO 9001:2000 excluding design and development capability (a permissible exclusion under ISO 9001:2000). The contractor is required to submit a quality plan detailing how the management system is to be applied to the contracted work. Type 3: this Quality Assurance requirement is applicable to supplies where quality can be ensured through Final Inspection and Test but where adequate evidence of the required inspection and test cannot be provided with the procurement but is established after production. The contractor is required to submit a Final Inspection and Test Plan based on the contracted work. Type 4: this type of Quality Assurance requirement is applicable to those supplies that must be certified as complying with a particular standard, for example, results of laboratory analysis, certified marine or aerospace parts, etc. The contractor is required to submit a Certificate of Conformance certifying that the supplies conform in all respects with the contracted requirements and provide with the supplies any Test Certificates nominated in the contract, traceable to a testing organisation accredited by the National Association of Testing Authorities. Type 5: this Quality Assurance requirement is used in lieu of Type 2 requirements where there are mitigating reasons why the selected contractor does not have Certification to ISO 9001:2000 (excluding design and development capability). Type 5 requires the development of a quality plan detailing how quality is to be managed in relation to the contract work. As an example, this Quality Assurance requirement can be used for those small to medium enterprises carrying out repetitive repair and overhaul work for Defence. It is important that an authorised Quality Assurance Representative be involved in the assessment and approval of the contractors quality plan.
26.
27.
28.
29.
30.
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Defence Procurement Policy Manual 3.5 Quality Assurance 31. Type 6: this Quality Assurance requirement is typically applicable to low value-low risk procurements, such as commercially available supplies when used for non-critical applications. Normal commercial practices and warranties are acceptable.
Contractor delivered quality plan 32. An important contract deliverable of Quality Assurance requirement types 1, 2 and 5 is a Quality Plan. The Quality Plan details how the contractors quality system is to be applied to the processes involved in the provision of the supplies being procured. The requirements for the content of a Quality Plan are included within the Quality Assurance requirement type clauses. The Quality Plan should be specific in setting out the quality practices, resources, activities and responsibilities relevant to a particular contract. The contract work should be linked with the relevant quality system procedures, instructions and standards/specifications.
33.
Assistance with the selection and/or tailoring of quality requirements 34. Assistance with quality requirements selection and tailoring should first be sought from an authorised Quality Assurance Representative in the Procurement officers local area. If this resource is not available Procurement officers should contact their Defence Group Quality Assurance Representative who will be able to provide advice or support. A list of Defence Group Quality Assurance Representatives is available from the Directorate of Policy and Process Improvement Quality Assurance within the Defence Materiel Organisation. Further information on Quality Assurance Requirements Type Clause Templates is contained in Departmental Quality Assurance Insurance number 002 Quality Assurance Requirements Type Clause Templates .
35.
Certification of Contractors Quality System Recognition of Certification 36. Where the Quality Assurance requirements call for the contractor to operate a certified quality system, the system must be certified by an approved certification body acceptable to the Commonwealth. Within Australia and New Zealand, this is a third party certification body accredited under the Joint Accreditation System of Australia and New Zealand. In other cases, advice on the acceptability of the certifying body should be sought from Directorate Policy and Process Improvement Quality Assurance within DMO. A register of Joint Accreditation System of Australia and New Zealand accredited certification bodies can be found at http://www.jasanz.com.au. The certification process does not, however, ensure the contractors quality management system is applied to a particular contract or that the certification scope is appropriate for a specific contract. The purchasing area is responsible for ensuring:

37.
the appropriateness of the certification scope to the contract work; and that the contractors quality system is applied to the contract.
Scope of Certification 38. Recognition of a certified quality system is conditional on the scope of the certification meeting the contract requirements. That is, the certification must:

meet the quality system standard required by the contract; cover the type of supplies sought by the contract; and include the site at which the contract work is to be undertaken.
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Defence Procurement Policy Manual 3.5 Quality Assurance Security Clearances for Certifying Bodies 39. The access arrangements for third party certification bodies for auditing Defence contractors who possess national security classified information are detailed in an agreement between the Defence Security Authority and Joint Accreditation System of Australia and New Zealand dated March 1997. Should third party certification body auditors require access to security classified information the provisions of the agreement are to be observed. Details of the agreement are available from the Defence Security Authority.
Complaints about Third Party Certified Systems 40. Departmental Quality Assurance Instruction No. 004 - Application of Third Party Certification to Defence Contracts details the process to be followed regarding complaints.
Sourcing of Testing and Calibration Services for Measuring Equipment 41. Under the conditions of the Memorandum of Understanding between the Commonwealth and the National Association of Testing Authorities, Australia, Defence is required, to the maximum extent possible, to use National Association of Testing Authorities, Australia accredited laboratories or laboratories accredited by organisations with which National Association of Testing Authorities, Australia has a mutual recognition agreement, to satisfy its testing needs. The Defence Test and Evaluation and Calibration policies contained in Defence Instruction (General) Operational 43-1 Defence Test and Evaluation Policy and Defence Instruction (General) Logistics 08-7 Calibration Policy respectively, provide guidance on specific areas of testing services. All products and services are required to be evaluated for conformance and where such conformance requires written test data as a precondition to acceptance, or forms part of a Certificate of Conformance, the data is required to be presented, to the maximum extent possible, in an endorsed report from a Testing Facility accredited by National Association of Testing Authorities, Australia for the classes of test undertaken. For overseas sourced products or services, an endorsed Test Report from a Testing Facility accredited by an agency or association with which National Association of Testing Authorities, Australia has a mutual recognition agreement is acceptable. There are circumstances when the National Association of Testing Authorities, Australia requirements cannot be complied with. For example, where the ADF is operating under contingency arrangements it may not always be able to have its deployable calibration facilities fully comply with National Association of Testing Authorities, Australia requirements due to poor environmental conditions in the area of operations. Similarly, products such as fuel purchased overseas in support of operations may not meet our testing requirement obligations.
42.
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Quality Assurance Arrangements with Foreign Governments 45. When Defence supplies are purchased in another country, either directly or by subcontract, Quality Assurance at source may be necessary. In some cases it may be economical and/or expedient to negotiate with the Quality Assurance Authority of the Defence organisation in the source country to perform or arrange the performance of Quality Assurance services. This is generally referred to as Government Quality Assurance. The policy and process to request and receive Government Quality Assurance is documented in Departmental Quality Assurance Instruction No. 003 - Establishing Quality Assurance Services with Foreign Governments.
46.
Quality Assurance Representatives 47. Individuals may be appointed as Quality Assurance Representatives by their managers, subject to those individuals having the required skills and completing the required training detailed in Departmental Quality Assurance Instruction - Quality Assurance Prerequisites and Training.
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Defence Procurement Policy Manual 3.5 Quality Assurance Quality Assurance Training 48. All Defence staff involved in Quality Assurance audit and surveillance of procured supplies shall meet the mandatory prerequisites for the Quality Assurance activities for which they are involved. These requirements, along with details of recommended training courses, are stated in Departmental Quality Assurance Instruction - Quality Assurance Prerequisites and Training.
Chapter Summary
Quality Assurance is an important tool in the management of procurement risk. Quality Assurance requirements should be stipulated in contracts on a case-by-case basis commensurate with the assessed risk of the procurement. Appropriate Quality Assurance clauses are built into the ASDEFCON suite of tendering and contracting templates and additional clauses are also available.
Further Reading
Further reading on the application of quality assurance to procurement is available from the following sources: Defence Instruction (General) Logistics 02-1 Defence Quality Assurance Defence Instruction (General) Logistics 08-7 Calibration Policy Defence Instruction (General) Operational 43-1 Defence Test and Evaluation Policy Departmental Quality Assurance Instructions
The following standards and guides for quality systems and quality plans should be applied as appropriate AS/NZS ISO 9000:2000, Quality management systems Fundamentals and vocabulary AS/NZS ISO 9001:2000, Quality management systems Requirements AS/NZS 9004.5:1998, Guidelines for quality plans AS 3925.1-1994 (ANSI/IEEE 730.1-1989), Software quality assurance plans AS ISO 10006:2003, Quality management systems Guidelines for quality management in projects HB 90.9-2000: Software Development Guide to ISO 9001:2000
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Defence Procurement Policy Manual 3.6 Intellectual Property
3.6
Introduction
1. 2.
Intellectual Property
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). Intellectual Property (IP) will be a consideration in almost all Complex and Strategic procurements in Defence. Defence and Australian industry need IP to access and use technologies that enable them, jointly or separately, to:

develop a capability edge and a strategic advantage for Australia; sustain self-reliance through the effective and efficient operation, repair, maintenance and development of capabilities; and minimise the costs of operation, support and development.
Mandatory Policy
Procurement officers must seek legal advice before entering into an arrangement for joint ownership of Foreground IP. Where Defence elects to retain ownership of Foreground IP, appropriate clauses must be included in the request for tender documentation and the negotiated contract. Where Defence does not own Foreground IP, Procurement officers must obtain appropriate licensing rights, including the right to sub-license Foreground IP. Procurement officers must ensure that Defence obtains access to all technical data that is required in order to exercise its IP rights under the contract. Procurement officers must comply with the Defence IP Policy 2008. Procurement officers must not download freeware or shareware software from the internet or use software purchased over the counter during Defence time and/or on Defence assets without first seeking specialist legal or contracting advice on the impact of acceptance of the licensing terms and obtaining written approval of the licence terms.
What is Intellectual Property 3. 4. IP is a group of statutory, common-law and equitable rights that afford protection to intellectual and creative effort. The main types of IP recognised under Australian law are:

patents; copyright; trademarks; designs; plant breeders rights; circuit layouts; and domain names. Page 3.61
Defence Procurement Policy Manual 3.6 Intellectual Property 5. Of these, copyright and patents are the most commonly encountered in delivering Defence capability. Additional information on the forms of IP can be found in the Defence Intellectual Property Manual. Like any other type of property, IP can be owned, bought, sold (assigned) or licensed. The existence of IP that is not owned by Defence may prevent Defence from undertaking certain activities unless permission is obtained from the owner of the IP. IP may be embodied in (and its relevant protections applicable to) technical data, Confidential Information, inventions, or other supplies. For example, IP may be embodied in reports and notes, computer software, data, specifications, designs, drawings, models, photographs or other images. It is necessary to ensure that Defence not only obtains sufficient and appropriate IP rights to undertake certain activities, but that Defence has the ability to undertake such activities by having a physical copy of the technical data. For example, the right to copy a report (a licence to the copyright) is significantly less valuable where Defence does not possess a copy of the report (the technical data) to which the IP relates.
6.
7.
8.
Defence Categories of IP 9. In the context of Defence procurement, IP is often categorised as being Background, Foreground or Third Party.
Background Intellectual Property 10. Background Intellectual Property (Background IP) is IP which is embodied in or relates to the supplies that exists prior to the commencement of the contract or is brought into existence other than in performance of the contract. For example, the IP associated with unmodified off-theshelf equipment is Background IP because such equipment is already developed before Defence enters the contract.
Foreground Intellectual Property 11. Foreground Intellectual Property (Foreground IP) is IP which is created under or otherwise in connection with the contract. For example, if the contract involved development or design work, then the IP resulting from such work would be Foreground IP. Third Party Intellectual Property 12. Third Party Intellectual Property (Third Party IP) is IP which is embedded in or is necessary to the supplies, but which is owned by a party other than Defence, the contractor or one of the contractors major subcontractors. Third Party IP may be necessary in order to support (use, maintain, modify, develop, manufacture and dispose of) Defence capability. For example, the IP needed could be copyright, that is, rights to copy documentation and software, and rights to copy and build equipment components or even the whole equipment. When evaluating tender responses, tender evaluation teams should be aware of the risks associated with tenderers that rely heavily on third party products and IP. If a successful tenderer does rely on third party IP, the Commonwealth representative should ensure that the necessary Third Party IP rights have been acquired prior to contract signature.
13.
14.
Confidential Information 15. While Confidential Information is not strictly a form of IP, IP and other information (such as trade secrets) can be classed as confidential in order to protect that material from unauthorised disclosure to others. Confidential Information is often information which is sensitive or has commercial significance and which is not publicly available. Company technical data is often in this category. Such information is best protected by a written confidentiality agreement. Page 3.62
Defence Procurement Policy Manual 3.6 Intellectual Property Confidential Information may be used by or disclosed to third parties only if the owner of that information has agreed to such an arrangement. 16. A draft IP Deed of Confidentiality is available in the ASDEFCON (Strategic Materiel) template at Annex B to Attachment I.
Defence Policy 17. The Defence Intellectual Property Policy 2008 (Defence IP Policy 2008) is the current IP policy and replaces the previous policy, Developing and Sustaining Defence Capability: Defence Intellectual Property Policy 2003. The Defence IP Policy 2008 is consistent (and aligns) with the whole of government approach to IP management for Financial Management and Accountability Act agencies, contained within the Statement of IP Principles for Australian Government Agencies. The current Defence IP policy promotes continuous improvement in IP management practices throughout the whole of Defence. The policy sets out the general responsibilities for managing IP across Defence. A copy of the policy is available electronically at http://intranet.defence.gov.au/dmoweb/sites/DMOLegal/comweb.asp?page=69111&Title=Intelle ctual%20Property
18.
Ownership of Intellectual Property 19. Procurement officers should determine the ownership of Foreground IP on a case by case basis in acquisition and support contracts. In most instances, Defence will not require ownership of Background IP and Third Party IP but will instead seek appropriate licensing rights. An Intellectual Property Needs Analysis (IPNA) may be required to identify the IP needs (including ownership) of complex and strategic procurement. The IPNA outlines any Background IP owned by the Commonwealth, how IP acquired under the proposed procurement will be managed and any potential IP issues. The IPNA may also include an assessment of what IP may be required compared to the IP rights that may be available. An IPNA Process Template is available on the Commercial Policy and Practice Branch website. Factors that should be considered when determining who is best placed to own Foreground IP include:

20.
21. 22.
identification of the party in the best position to exploit the Foreground IP; consideration of national security issues; estimation of the technological maturity of the supplies; analysis of future applications for the supplies; recognition of existing legal obligations; and assessment of value for money.
23.
Circumstances in which it may be appropriate for Defence to own Foreground IP include where:
national security and strategic objectives may demand strict control over dissemination of IP provided by ownership if other measures such as control of export licences and limited access according to security classifications are considered to be insufficient; the technology is immature. Defence may need to retain ownership to keep its options open for the future development and application of the technology. As the technology and its application matures, it may become beneficial to assign IP ownership to industry as part of developing particular applications; IP has multiple applications. Defence may wish to retain ownership of the IP to ensure exploitation of the full range of possible or desirable applications of the technology. In this case, Defence might license suitable licensees to commercialise particular applications of the technology; and Page 3.63
Defence Procurement Policy Manual 3.6 Intellectual Property
prior obligations regarding joint or other ownership of IP and its commercialisation may preclude the vesting of IP ownership by Defence to any other parties.
24.
Where Defence elects to retain ownership of Foreground IP, appropriate clauses must be included in the request for tender documentation and the negotiated contract. Where appropriate, these clauses may allow for the contractor or major subcontractors to be granted a licence to Defence owned Foreground IP. It is strongly recommended that ownership of Foreground IP created under Defence contracts vest in one party upon its creation (i.e. Foreground IP should be owned by either the Commonwealth or the contractor). Joint ownership of IP complicates management and administration of the IP and involves greater potential for disputes over IP rights. Joint ownership should be avoided and legal advice sought before entering any such arrangement.
25.
Licensing of Intellectual Property 26. Where Defence does not retain ownership of Foreground IP, appropriate licensing rights, including the right to sub-licence Foreground IP, must be secured to ensure that the capability can be developed and sustained. A license for IP allows the licensee to do certain things with the IP as described in the licensing agreement. A broad licence should also be sought, including the right to sublicense, for Background IP. The scope of the licence for both Foreground IP and Background IP required by Defence will vary based upon the particular needs of the project and circumstances of the procurement. For Third Party IP, a licence on the best available commercial terms should be obtained.
27. 28.
Technical Data 29. Procurement officers must ensure that Defence obtains access to all technical data that is necessary to enable it to exercise its IP ownership and licensing rights under the contract. Defence contracts should nominate the delivery requirements for technical data including the form in which the data should be provided.
Commercialisation of Intellectual Property 30. Defence Science and Technology Organisations (DSTOs) Business and Commercialisation Office has responsibility for managing the Department of Defences Patent Portfolio and associated database.
Defence Intellectual Property Manual 31. The Defence Intellectual Property Manual (Defence IP Manual) is the principal reference document for the management of IP issues for the whole of Defence. The Defence IP Manual provides a whole-of-life IP Management Framework and offers practical guidance for improved implementation of IP issues. This manual is currently being updated to align with the Defence IP Policy 2008. A draft version of this manual is available at: http://intranet.defence.gov.au/dmoweb/sites/DMOLegal/docs/DefIPManual122009V1_12.pdf
Software Licensing 32. Software licences can often be a useful means of securing appropriate IP rights. Many software products are readily available over the counter or the internet by way of Shrink Wrap, Click Wrap or online Web Wrap licences. These forms of mass-market licence agreements involve many legal issues and should be avoided. Defence employees must not download freeware or shareware software from the internet or use software purchased over the counter during Defence time and/or on Defence assets without first seeking specialist legal or contracting advice on the impact of acceptance of such licensing terms and obtaining written approval to commit Defence to the licensing terms and conditions.
33.
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Defence Procurement Policy Manual 3.6 Intellectual Property 34. Procurement and Contract Approvers should only approve the procurement of software products or services by way of these types of licences in exceptional cases and after the Directorate of Contracting Policy and Support Services, Business Management Branch, Chief Information Officer Group (CIOG) has been consulted. Procurement officers should also be aware that within Defence the use of Information and Communications Technology (ICT) facilities is also governed by policy and guidelines issued from the Directorate of Procurement and Contracting Services, CIOG. The Department of Finance and Deregulation also has developed a wealth of guidance and model templates for procurement of Information Technology. Refer to chapter 4.3 for further information.
35.
36.
Contractual Provisions 37. The ASDEFCON suite of tendering and contracting templates contains a variety of IP clauses to suit the particular requirements for which each template is designed. The ASDEFCON templates and guidance on selecting the correct template (the Template Selection Guide) can be found on the Commercial Policy and Practice Branch website.
Methods of Protecting Intellectual Property through Contract 38. Contractors may protect their IP by proposing options such as:
escrow, which involves Defence and the contractor entering into a written legal undertaking to keep items (e.g. technical data) in the custody of a neutral party until certain pre-defined conditions are met. Such arrangements are used in limited situations such as where the technical data is commercially sensitive at the time of contract signature but becomes less sensitive over time; a sunrise clause, which is a clause that allows Defence to exercise IP after a certain date or after the occurrence of a pre-defined condition; and a right of first offer clause, which allows the original contractor to submit an offer for a new Defence requirement that involves the original contractors IP prior to offers being requested from other potential suppliers who would then have access to the original suppliers IP. The contract sets out the circumstances in which the contractor has the right of first offer and the criteria against which the suppliers offer will be assessed.
39.
If these options are proposed, Procurement officers should seek legal advice.
Key References
Attorney-Generals Department - Statement of IP Principles for Australian Government Agencies Defence Intellectual Property Manual Defence Intellectual Property Policy 2008
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Defence Procurement Policy Manual 3.7 Defence Procurement and the GST
3.7
Introduction
1. 2.
Defence Procurement and the GST
This chapter applies to all procurements undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter provides general information about the operation of the Goods and Services Tax (GST) in the context of Defence procurement. It describes the basic concepts associated with the operation of the GST and outlines some common GST issues that may arise in Defence procurement. Further detailed information on the application of the GST to Defence is contained in the Department of Defence Tax Handbook Goods and Services Tax.
3.
Mandatory Policy
The GST on taxable supplies must be taken into account when developing tender and contract documentation for Defence procurements. Procurement officers must ensure that taxation issues are appropriately addressed in contracts. To ensure that the legal and financial implications are considered, the Australian Defence Organisation Customs Office must be contacted where any variations are made to standard GST clauses which require the supplier to be the importer and be responsible for all duties and taxes associated with importation.
What is the GST 4. The GST is an indirect broad-based consumption tax of 10% imposed on most supplies of goods and services, as well as a broad range of other things. The GST is essentially a tax on the end-consumer of supplies. It is applied at every stage of the supply chain and is remitted to the Australian Taxation Office (ATO) by entities registered for the GST, including Commonwealth agencies. Registered suppliers, including Commonwealth agencies, can obtain input tax credits for the GST paid on acquisitions made in carrying on their enterprise, provided they hold a valid tax invoice. As the GST is a consumer-based tax, it is the end consumer (individuals or unregistered business) that ultimately incurs the GST. Procurement officers must ensure that the GST on taxable supplies is taken into account when developing tender and contract documentation for Defence procurements. Defence is liable to pay GST on most goods and services it purchases (except those deemed to be GST-free, input taxed or out of scope); and is able to claim input tax credits for the GST it pays in relation to creditable acquisitions or creditable importations. Defence is also required to charge GST on any taxable supplies which may involve the supply of goods, services, intellectual property, real property and many other transactions where Defence receives consideration (monetary or non monetary).
5. 6.
Charging GST 7. In order to charge GST, suppliers must have an Australian Business Number (ABN) and be registered for GST with the ATO.
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Defence Procurement Policy Manual 3.7 Defence Procurement and the GST Australian Business Number 8. Entities that carry on an enterprise in Australia, including Commonwealth agencies, are entitled to have an ABN. Each Commonwealth agency has been allocated a separate ABN that is used to identify which government agency has entered into a particular transaction. The Department of Defence ABN is 68 706 814 312. The DMO also uses this ABN. The GST Act requires a supplier of goods and services to quote its ABN on invoices in all business dealings. Most suppliers that Defence uses have registered for an ABN and the GST. The provision of a suppliers ABN on an invoice or other relevant documentation can be used to verify whether they are registered for GST through checking the Australian Business Register.
9.
Goods and Services Tax Registration 10. 11. In practice, contractors cannot charge GST or claim an input tax credit on GST unless they are registered for GST. All businesses with an ABN are entitled to register for GST. Although it is possible to have an ABN and not be registered for GST, businesses with an annual turnover of $75,000 or more and non-profit organisations with an annual turnover of $150,000 or more must register for GST. The Australian Business Register is an online database that contains certain information provided by businesses when they register for an ABN. The database can be searched to verify GST details for ordering and invoicing. This includes information pertaining to an entitys GST registration status. Where a contractor fails to quote an ABN on an invoice submitted in relation to a Defence contract, they may be able to provide Defence with a Statement by a supplier (NAT 3376) form as an alternative. Without either an ABN or a Statement by a supplier form, Defence may come under a legislative obligation to withhold 46.5% from any payments due and remit this amount to the ATO. It should be noted that there are several reasons why a contractor may not quote an ABN and the Defence Tax Management Office should be contacted on 1800 806 053 or via e-mail at taxation.management@defence.gov.au to confirm that Defence is required to withhold 46.5% in the circumstances of a particular payment. Contractors that are registered for GST must charge GST at every point in the supply chain and forward the collected amount to the ATO. In the case of most supplies of goods and services, suppliers are refunded the GST from the ATO in the form of an input tax credit. At the final point in the supply chain, i.e. the sale to a consumer, GST is charged and is not refundable.
12.
13.
14.
15.
Taxation Codes in ROMAN 16. All relevant codes for processing GST and ABN Withholding Tax have been identified for ROMAN and are available for use. For Cost Centre Code and Account Code information please refer to the appropriate CFO authorised documentation. Tax codes are available at:http://intranet.defence.gov.au/find/tax/gst/index.html#codes.
Requirement to Issue Tax Invoices 17. To obtain payment which includes GST from the Commonwealth, a supplier is required to submit a valid tax invoice with each claim for payment. The GST Act outlines the requirements that must be met in order for an invoice to be a valid tax invoice. The requirements in this regard were changed and simplified in 2010. Guidance on the requirements for a valid tax invoice can be found in the Tax Handbook - Goods and Services Tax. The GST amount identified on the tax invoice represents the amount of GST that Defence will be entitled to claim as an input tax credit from the ATO when it lodges its monthly Business Page 3.72
18. 19.
Defence Procurement Policy Manual 3.7 Defence Procurement and the GST Activity Statement. It should be noted that a valid tax invoice must be held by Defence before it lodges its Business Activity Statement in order for it to claim an input tax credit for the amount of GST paid. Therefore, the tax code P1 should only be used to enter a payment into the ROMAN System where a valid tax invoice is held. GST Transitional Rules 20. For Defence personnel involved in larger, longer-term Defence projects, it is important to note that transitional arrangements for the GST are in place for transactions that span beyond 1 July 2000. The transitional rules mean that some pre-8 July 1999 contracts were GST-free until 30 June 2005 (or an earlier review opportunity arose). From 1 July 2005, those contracts will generally attract GST unless the supplies are input taxed or GST-free within the meaning of the GST Act. Defence personnel managing contracts predating the implementation of GST into Australia where the contracts have not been reviewed to incorporate GST clauses should seek specialist advice from the Defence Tax Management Office.
GST in Defence Contracts 21. In accordance with Defence Chief Executives Instruction (CEI) 1.3 Meeting Tax Obligations and DMO CEI 2.9 Tax Management, Procurement officers must ensure that taxation issues are appropriately addressed in contracts.
Standard GST clauses 22. Standard Defence contracting templates for the procurement of goods and services contain clauses that set out the procedure and obligations associated with the payment of GST under the contract. In particular:
to obtain payment of a GST amount from Defence, the supplier is required to submit a valid tax invoice with each claim for payment; the supplier is required to identify the amount of GST claimed on the tax invoice as a separate line item; where the supplier incorrectly states or otherwise revises the amount of GST paid or payable by Defence, the supplier may be required to issue Defence with an adjustment note in accordance with the GST Act; and in the event that either party is assessed by the ATO as having made a taxable supply under or in connection with the contract, the recipient will be entitled to recover from the supplier the amount of GST paid or payable to the ATO upon presentation of a valid tax invoice.
23.
The standard clauses also ensure that Defence is able to recover GST from the supplier if Defence makes a taxable supply to the supplier in connection with the contract. This provision is required because, although the GST Act makes the provider of a taxable supply liable to account for GST, it does not provide the provider with a statutory right to collect GST from the recipient of the supply.
GST Inclusive and Exclusive Contracts 24. Some contracts will be entered into on a GST inclusive basis in Defence, while other contracts will be entered into on a GST exclusive basis. Regardless of whether a contract is entered into on an inclusive or exclusive basis, it should clearly state which basis applies. Standard GST clauses contained in ASDEFCON (Strategic Materiel) adopt a GST exclusive basis as it allows tender prices submitted from overseas and Australian suppliers to be more easily compared during tender evaluation. For Complex and Simple procurements, relevant Defence contracting templates (including ASDEFCON (Complex Materiel), ASDEFCON (Services) and Form SP20) provide for contracts to be entered on a GST inclusive basis, in line with standard practice for most commercial transactions.
25.
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Defence Procurement Policy Manual 3.7 Defence Procurement and the GST GST and Imports 26. 27. The importation of goods into Australia is generally subject to GST. For further information, refer to the Tax Handbook Good and Services Tax, chapter 8. The GST is payable by Defence if it is the importer of the goods, and not by the overseas supplier. However, Defence will be able to claim GST input tax credits for the GST paid on all creditable importations. The GST is generally paid in the same way and at the same time as customs duty. Defence is approved to defer payments of GST on imports. Therefore deferral of GST will occur automatically when the Defence ABN is included on the customs entry form. As Defence has been given approval to defer GST, the Australian Customs Service (Customs) will release the goods after payment of any customs duty or charges. Customs will record the deferred GST liability on each shipment as it is cleared. The standard GST clauses contained within the ASDEFCON suite of tendering and contracting templates often require the supplier to be the importer and be responsible for all duties and taxes associated with importation. The ADO Customs Office must be contacted where any variations are made to these clauses to ensure that the legal and financial implications are considered. The ADO Customs Office can be contacted on (03) 9282 6937 or via e-mail at ado.customs@defence.gov.au.
28. 29.
30.
Resident Agent 31. Despite Defence preference not to have an agent interposed between itself and a contractor, the GST Act allows a non-resident (that is, an overseas GST registered entity) to appoint a resident agent to act on its behalf in relation to GST matters under a contract. Where such an arrangement is in place, it is the resident agent who is liable to pay GST to the ATO on taxable supplies made by the non-resident. The appointment of a resident agent will not relieve a supplier from registering in its own capacity for an ABN and for GST where it satisfies the registration requirements of the GST Act. The primary reason that the GST Act allows an overseas entity to appoint a resident agent is the view held by the ATO that it is easier to enforce Australian taxation legislation upon a resident of Australia as opposed to a non-resident. ASDEFCON (Strategic Materiel) and ASDEFCON (Support) include a standard resident agent clause that provides a mechanism by which the resident agent appointed by a supplier is recorded in the contract. The clause is also designed to clearly indicate to the supplier that the appointment of a resident agent will not relieve it of its liabilities or obligations under the contract, including responsibility for ensuring the resident agent complies with the suppliers contractual GST requirements. Where a resident agent is appointed, this clause provides for Defence to make all payments due to the supplier through the resident agent.
32.
33.
Procurements made on a Progressive or Periodic Basis 34. Under the normal rules relating to the attribution of GST payments, an entity accounting for GST on a non cash basis is required to account for the entire amount of GST payable on a taxable supply when:

any of the consideration for the supply is received; or an invoice is issued for the supply,
whichever occurs in the earlier tax period. 35. These normal rules may not apply where a supply is made on a progressive or periodic basis and consideration is made on a progressive or periodic basis. In these circumstances, each progressive or periodic component of the supply is treated as a separate supply. The supplier is liable to pay only the portion of the GST amount that has accrued on each progressive or periodic component, when each tax invoice is issued or part consideration is received. This Page 3.74
Defence Procurement Policy Manual 3.7 Defence Procurement and the GST means that where a contract involves a number of milestones or other payments, Defence is only required to pay the GST associated with each progressive claim for payment. Defence is not required to pay the entire amount of GST applicable to the contract when the first payment falls due. Reverse Charge Arrangements 36. The GST Act provides a mechanism by which the parties to a contract can agree that the GST payable on a taxable supply is reverse charged to the recipient of that supply (which, under Defence contracts, would normally be the Commonwealth). However, this mechanism has risks for Defence, which unless managed properly, could expose the Commonwealth to additional liability. Accordingly, before entering into a reverse charge agreement the Defence Tax Management Office should be consulted.
GST and Foreign Military Sales 37. Defence Materiel Manual (Finance) (DMM (FIN)) 01-0-004 Foreign Military Sales Financial Management Manual provides further information regarding the application of GST to FMS cases.
Other GST Considerations 38. Defence may be liable for withholding tax on payments to non-residents where intellectual property or know-how is provided to the Commonwealth. This cost of up to 11.1% should be factored into the cost of the project and the Defence Tax Management Office should be notified to ensure amounts are appropriately remitted to the ATO. Where the provision of IP and knowhow occurs in conjunction with the provision of services, an allocation of the consideration between the IP/know-how and the service components may be appropriate. Care should be taken to ensure that appropriate tax clauses are inserted into the contract. Other withholding tax obligations could arise where a non-resident company performs construction activities in Australia on an installation or construction project. This will usually involve satisfying certain compliance obligations only. The Defence Tax Management Office should be notified to ensure that the appropriate documentation is provided to the ATO.
39.
Reimbursement of Defence Expenses 40. Defence is able to claim an input tax credit where:
an employee of Defence incurs expenses in connection with the carrying on of the enterprise of the Australian Defence Organisation; such expenses are reimbursed; and the employee obtains a tax invoice where the GST exclusive value of the supply is greater than $75 (if the GST exclusive value of the supply is less than $75, evidence of the acquisition, such as a cash register docket, will be required).
41.
If the employee acquires GST-free supplies, no input tax credits will be available to Defence in relation to these acquisitions, as no GST will have been paid. Common GST-free supplies include fresh food and medical supplies.
GST Advice 42. As a matter of policy, Defence personnel should not provide advice to potential suppliers, including non-resident potential suppliers, on GST issues including the requirement to register for an ABN and for GST. Suppliers should seek independent advice from a third party advisor with respect to their obligations, if any, under the GST Act. Defence personnel who require specialist GST advice should contact the Defence Tax Management Office on 1800 806 053 or via e-mail at: taxation.management@defence.gov.au.
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Defence Procurement Policy Manual 3.7 Defence Procurement and the GST
Further Reading
Australian Taxation Office, Statement by a supplier form (NAT 3376) Defence Chief Executives Instruction 1.3 Meeting Tax Obligations DMO Chief Executives Instruction 2.9 Tax Management Department of Defence Tax Handbook - Goods and Services Tax Defence Materiel Manual (Finance) (DMM (FIN)) 01-0-004 Foreign Military Sales Financial Management Manual ASDEFCON suite of tendering and contracting templates Defence Tax Management Office website
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Defence Procurement Policy Manual 3.8 Defence Materiel Organisation Company ScoreCards
3.8
Introduction
1. 2.
Defence Materiel Organisation Company ScoreCards
This chapter applies only to procurement undertaken in the Defence Materiel Organisation (DMO). The purpose of this chapter is to provide guidance on the objective, application and operation of the DMO Company ScoreCard Program. The DMO Company ScoreCard Program is a contractor performance measurement tool issued by DMO to contractors which have DMO contracts meeting particular threshold requirements.
Mandatory Policy
Project Managers must report the performance of their prime contractor and significant subcontractors against the Company ScoreCard Program where the contract meets one of the following conditions:
a DMO capital acquisition contract (including contractual cost and options) that has a value that exceeds $10 million; a DMO in-service support contract or standing offer that has a value of $5 million or greater in a single contract or cumulatively over the life of the contract, including any extensions provided for in the initial contract; or a DMO contract, valued at less than the above thresholds, that is considered to be operationally sensitive, militarily significant or may lead to subsequent contracts.
The DMO Company ScoreCard Program information must not be used to prevent a company from participating in a tender process.
Objective 3. 4. 5. The objective of the Company ScoreCard Program is to provide DMO with an understanding of a contractors performance in the delivery of DMO contracts. A Company ScoreCard measures a contractors performance as either the prime contractor or a significant subcontractor for specific contracts within a six-month reporting period. Company ScoreCards are aimed at:

formalising corporate knowledge of a particular contractors performance; encouraging better performance through active dialogue between contractors and DMO; and improving the ability of DMO procurement staff to make informed source selection decisions during tendering processes.
6.
A significant subcontractor is defined in terms of:

size and complexity of deliverables; cost and risk to DMO; being a key element of a projects critical path; or delivering key capabilities to the Australian Defence Force. Page 3.81
Defence Procurement Policy Manual 3.8 Defence Materiel Organisation Company ScoreCards Application of Company Scorecards 7. Project Managers must report the performance of their contractor against the Company ScoreCard Program where the contract meets one of the following conditions:
a DMO capital acquisition contract (including contractual cost and options) that has a value that exceeds $10 million; a DMO in-service support contract or standing offer that has a value of $5 million or greater in a single contract or cumulatively over the life of the contract, including any extensions provided for in the initial contract; or a DMO contract, valued at less than the above thresholds, that is considered to be operationally sensitive, militarily significant or may lead to subsequent contracts.
8.
For Requests for Quote, Requests for Proposal or Requests for Tender, where the expected value of the contract will exceed the financial thresholds specified above, the Company ScoreCard provisions for the Conditions of Tender and the Statement of Work should be included. These provisions can be found in the relevant clauses in the ASDEFCON suite of tendering and contracting templates. For each six-month reporting period, Project Managers are responsible for populating the Company ScoreCard database with contractor performance assessments. The information provided is cleared by the System Program Office Director and the relevant Director-General. Relevant Division Heads are responsible for endorsing the assessments included in a Company ScoreCard within 10 working days of the scheduled completion date of the round.
9.
Contractor Review of Company ScoreCards 10. The DMO provides contractors with their respective Company ScoreCards bi-annually. Each contractor is given the opportunity to reflect on its performance report and to provide comments to the DMO within 20 working days. Contractor comments will be incorporated into the ScoreCard database to form the final version of the Company ScoreCard.
Use of Company ScoreCard information 11. Information contained in a Company ScoreCard should only be used for tender evaluation and source selection purposes. If a Procurement officer wishes to use the information for another purpose advice should be sought from DMO Legal. The information must not be used to prevent a company from participating in a tender process, for example, by using ScoreCard data to develop a list of potential suppliers that a direct source tender will be issued to. Company ScoreCard information can be used from the date the ScoreCard is released by the CEO DMO. Release of the ScoreCard data will be advised by DEFGRAM. Information contained in a Company ScoreCard remains valid for a period of three years to allow performance to be trended over time.
12.
Compiling the Company ScoreCard Assessment 13. DMO uses the Company ScoreCard system to monitor, assess and report contractor performance in areas considered fundamental to the successful delivery of supplies. Company ScoreCard assessments occur over two six-monthly reporting periods per year (April September and OctoberMarch).
Performance Parameters 14. Performance is measured against the categories and criteria set out in the following documents:

Company ScoreCard Performance Measurement Worksheets Acquisition; and Company ScoreCard Performance Measurement Worksheets - Sustainment.
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Defence Procurement Policy Manual 3.8 Defence Materiel Organisation Company ScoreCards 15. The Company ScoreCard Performance Parameters address the following five critical areas of contractual performance:

Technical Performance; Cost; Schedule; Contracting; and Relationships.
16.
Further information regarding the parameters can be found in the Worksheets.
Assessment Ratings 17. Contractor performance is assessed against the Company ScoreCard Performance Parameters criteria using ratings that range from Very Good to Unsatisfactory. The Company ScoreCard analysis is illustrated by a traffic light colour rating which also includes commentary on the contractors performance. The traffic light rating system colour code is as follows:
18.
Assessment Ratings Very Good Indications Contractor performance meets all contracted requirements and exceeds some or all requirements providing benefit to DMO.
As Contracted
The contractor is meeting all contractual requirements.
Marginal
The contractor is not meeting some contractual requirements.
Unsatisfactory (showing improvement) Unsatisfactory
The contractor is failing to meet contractual requirements, but there is improvement and the possibility of recovery. The contractor is failing to meet contractual requirements and there is a low likelihood of recovery. This indicates that the assessment category is not applicable to the project or contract.
Not Applicable
19.
Additional information on the operation of the Company ScoreCard Performance Parameters can be obtained from:
the Company ScoreCard Program website, located in the Industry Resources section (Policy or Business link) of the DMO Internet site; or by contacting the Company and Industry Performance Directorate located within DMO General Manager Commercial Group.
Use of Company Scorecards During Tender Evaluation 20. DMO and Defence may use all available information sources to assess the current and past performance of a tenderer and the significant proposed subcontractors, where identified in the tender, during tender evaluations and source selection considerations. These sources include:
tenderers and significant proposed subcontractors Company ScoreCards or reference sites; other past performance information provided by the tenderer in its tender; and
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Defence Procurement Policy Manual 3.8 Defence Materiel Organisation Company ScoreCards
company information held by the Australian Securities and Investments Commission (ASIC), such as any registered debts or securities that may effect the performance of tenderers.
21.
Official copies of Company ScoreCards, to be used for tender evaluation purposes, may be obtained from the Company and Industry Performance Directorate.
New Players 22. Where a tenderer or a proposed significant subcontractor is not known to DMO or does not have a Company ScoreCard history, a referee report/references are to be requested through the request for tender and provided in the tender response. For the referee report/reference provided by an entity external to both DMO and the tenderer, to have relevance and value for evaluation purposes, it should be able to give feedback about the tenderers performance in delivering the specified contract. Following consultation and examination of the referee report/reference a Company ScoreCard will be developed based on the information provided by the reference site. The tenderer is to be offered 20 working days to comment on these ratings. Guidance on reviewing the performance of nominated reference sites can be obtained from the Company ScoreCard Program website in the Industry Resources section (Policy or Business link) of the DMO Internet site.
23.
24.
360 View ScoreCard Program 25. The 360 View ScoreCard is a separate but related performance monitoring, reporting and improvement tool administered by the Company and Industry Performance Directorate for industry to report on its relationship with DMO. DMO uses the 360 View ScoreCard Program to promote and support a culture of evaluation and business improvement. The DMO will use the 360 View ScoreCard Program to provide a consolidated view of its project management and contract performance from an Industry perspective, and as a measurement tool to assist in the development and management of its people, policies and practices. The 360 View ScoreCard cycle of measurement and reporting DMOs performance covers two six-month periods: October-March and April-September. This cycle aligns with the Company ScoreCard reporting process.
26.
27.
Further Assistance 28. Assistance on the policy underpinning the Company ScoreCard and 360 View ScoreCard Programs can be obtained from the Company and Industry Performance Directorate. The Directorate also provides training, associated with the use of the Company ScoreCard database, for Project and Systems Program Office staff involved in assessing and reporting contractor performance.
Key References
Company ScoreCard website
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Defence Procurement Policy Manual 3.9 Defence Security Requirements
3.9
Introduction
1. 2.
Defence Security Requirements
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter discusses the protection of classified material concerned with national security during the procurement process. Guidance on the use and protection of commercial-inconfidence information is contained in chapter 3.11. A reference in this chapter to classified material includes classified information and classified assets.
Mandatory Policy
Procurement officers must seek the Defence originators approval prior to the release of official material owned or originated by Defence to a business which is a member of the Defence Industry Security Program (DISP). Procurement officers must ensure that Defence Security Authority (DSA) confirmation has been received by the contractor (and any subcontractors) and they have the appropriate level of security clearance and accreditation prior to releasing classified material. Hard copy RESTRICTED information must not be released to contractors who are not DISP members unless the DSA confirms the recipient holds a RESTRICTED security clearance, and the terms of the Security Instructions to Accompany RESTRICTED Material (excluding caveat, communications security material, cryptographic and accountable material) released to Australian defence industry can be met. Procurement officers must ensure that a contractor, who is not a member of the DISP, receiving the RESTRICTED information signs the appropriate portion of the Security Instructions and Undertaking for the Protection of RESTRICTED Material Released to Australian defence industry and returns it to the sender. Classified information in electronic form must not be released unless the contractor has an appropriately accredited Information and Communications Technologies (ICT) system. Standard security clauses must be included in Requests for Tender, Requests for Proposal, standing offers and contracts. For procurements relating to Defence projects involving assets categorised as major or important and above, the security classification and categorisation guide must be included in the request documentation to assist potential contractors in assessing any physical or ICT infrastructure security costs.
Role of Procurement Officers 3. Procurement of goods and services often involves tenderers and contractors accessing classified material. Procurement officers play an important role in the tendering and contract management process and are responsible for ensuring that classified material is appropriately protected. Procurement officers need to be aware of, and should consider the potential national security implications of the proposed tendering and contractual arrangements. This is to ensure that Page 3.91
4.
Defence Procurement Policy Manual 3.9 Defence Security Requirements security classified material entrusted to tenderers and contractors is adequately protected. In doing so, Procurement officers are responsible for:
ensuring that, if required, contractors obtain and maintain membership of the DISP and appropriate accreditation; ensuring that security related clauses are included in all contracts; gaining approval from the DSA for security related contract clauses (including the suitability of standard ASDEFCON clauses) when an external service provider will provide security related goods or services; obtaining confirmation from the DSA of a contractors suitability to have access to Defence weapons or explosive ordnance; and ensuring that contracts clearly specify that contractors who fail to comply with Defence Security Manual (DSM) requirements are in breach of contract.
5.
Individuals who disclose official information without a clear need to know and appropriate authorisation may be liable to prosecution under the various Commonwealth laws governing the disclosure of official information.
Defence Security Manual 6. The DSM is the authoritative source of policy on minimum Commonwealth and Defence security requirements where purchasing and contracting activities have a security component. The DSM is available on the Defence intranet. People wishing to obtain access from outside the Defence intranet should contact the DSA on (02) 6266 1732.
Defence Industry Security Program 7. If a requirement is identified for an Australian tenderer or contractor to:

store or transport Defence weapons or explosive ordnance; store or handle specified levels of Defence classified material or categorised assets; provide security services; or have access to national security classified or sensitive Defence information, ICT systems or materiel, including weapons and explosive ordnance,
the tenderer or contractor may need to be sponsored for entry into the DISP. The DSA in the applicable State or Territory can confirm membership status or advise of entry requirements. For further information refer to DSM Part 2:42 - Defence Industry Security Program. Security Clearances 8. If a contract will require personnel to have access to classified material, the request documentation should include advice that tenderers will be required to undergo a personnel security clearance process if the tender is successful. In the vast majority of cases, request documentation should not stipulate a requirement for tenderers employees to hold a current personnel security clearance. Instead, a statement should be included advising that contractors are required to undergo a personnel security clearance process if the bid is successful. If any external service provider is unsuccessful in getting the required personnel security clearances, and such clearances are required by the contract, the contract may be terminated. Where an urgent requirement exists there is a need to bring a contract into effect urgently, for example, procurements satisfying direct source justification on the basis of urgency outside the areas control, it may be appropriate to specify that tenderers employees hold current personnel security clearances. The minimum security clearance required for access to classified material is BASELINE RESTRICTED. To acquire this level of clearance contracted personnel will need to be sponsored by a Defence employee. The Defence employee will be required to provide
9.
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Defence Procurement Policy Manual 3.9 Defence Security Requirements justification for the issue of a security clearance. Contracted personnel undergoing the security clearance process for RESTRICTED clearance are required to provide:

personal details about themselves, their partner and their parents; a copy of their birth certificate; and a copy of their naturalisation certificate, if applicable.
10. 11.
The contracted personnel will be subject to a police and background check and may be required to attend an interview with the DSA, if deemed necessary. For further information of security clearances, refer to the DSM Part 2:40 - Personnel Security Clearance Process.
Release of Classified Material 12. Official material owned or originated by Defence can be released to a contractor who is a member of the DISP, but the originators approval must be provided before the release can occur. Contractors who are not DISP members can, if the need exists, access hard copy RESTRICTED information. However, RESTRICTED information must only be released if the DSA confirms the recipient holds a RESTRICTED security clearance, and the terms of the Security Instructions to Accompany RESTRICTED Material (excluding caveat, communications security material, cryptographic and accountable material) released to Australian Defence Industry can be met. Procurement officers must ensure that a contractor, who is not a member of the DISP, receiving the RESTRICTED information signs the appropriate portion of the Security Instructions and Undertaking for the Protection of RESTRICTED Material Released to Australian Defence Industry and returns it to the sender. Classified information in electronic form (i.e. computer disks, thumb drives and emails) must not be released unless the contractor has an appropriately accredited ICT system; for further information see the DSM Part 2:4 - Facilities and ICT Systems Security Accreditation.
13.
14.
15.
Foreign Tenderers or Contractors 16. In the case of a foreign tenderer or contractor, Procurement officers should note that, under most circumstances, only companies from those countries with which Australia has a bilateral security instrument for the reciprocal exchange of classified information are eligible for access to Australian security classified information. Defence Instruction (General) OPS 13-4 - Release of Classified Defence Information to Other Countries provides further guidance. Details of a foreign companys security clearance status can only be obtained from and confirmed by the DSA. For further information on the release of classified information, refer to the DSM, Part 2:30 Classification and Protection of Official Information.
17.
Security Classification and Categorisation Guides 18. For procurements relating to Defence projects involving assets categorised as major or important and above, the Security Classification and Categorisation Guide (SCCG) must be included in the request documentation to assist potential tenderers in assessing any physical or ICT infrastructure security costs. For further information refer to DSM Part 2:41 - Security for Projects and Capability Planning.
Access to Defence Facilities 19. Contracted personnel may require access to Defence facilities to perform work under a contract. Entry to the majority of Defence facilities requires personnel to either hold an access pass or be Page 3.93
Defence Procurement Policy Manual 3.9 Defence Security Requirements escorted by the holder of an appropriate pass. Contractors will normally hold a yellow pass. To facilitate the issue of an access pass to contracted personnel, Procurement officers should contact the Defence Support Group Pass Office, who will provide the required forms and other relevant information. 20. Defence access passes cannot generally be issued to a person who does not currently hold Australian citizenship. Waivers to the nationality rule will only be granted in specific circumstances following a request from an officer at the Group Head level to DSA. Access rights may be revoked if the contracted personnel use the access for any purpose other than that for which it was granted, i.e. to undertake work in accordance with a specific contract. Where it is believed that contracted personnel are misusing their access, Procurement officers should report this misuse to their security officer in the first instance. Further information on access is contained in the DSM, Part 2:61 Access Control and Identity Management.
21.
22.
Facility Security Accreditation and ICT System Security Accreditation 23. Prior to information being allowed to be stored in or accessed from a contractors facility, the facility must be accredited to a level that will satisfy Defences protective security requirements. The DSA is the only agency that has the authority to provide advice as to a facilitys accreditation status. Detailed information on facility security accreditation and ICT system security accreditation is contained in the DSM, Part 2:4 - Facilities and ICT Security Systems Accreditation. Procurement officers should be aware that it could take more than three months for a company facility or ICT system to be accredited. It is therefore important to factor this into the tendering or contracting schedule. It is equally important to recognise the costs both to Defence and Industry associated with accreditation.
24. 25.
Security Clauses in Tendering Documentation 26. Standard security clauses must be included in Requests for Tender, Requests for Proposal, standing offers and contracts. The ASDEFCON suite of tendering and contracting templates include mandatory security clauses that have been cleared for use. The ASDEFCON suite can be accessed online on the Commercial Policy and Practice Branch DMO website at: http://www.defence.gov.au/dmo. Standard clauses will often require some modification to accommodate:

27. 28.
select tenders; access to Defence weapons and explosive ordnance; tenders involving TOP SECRET, caveat or Communication Security (COMSEC) information; or outsourcing of security functions.
29. 30.
In the above circumstances, Procurement officers should contact the DSA to ensure that proposed standard clauses are suitable for their tender/contract specific requirements. Failure to fulfil the above requirements may cause unnecessary delays or expense to the procurement process.
Security Performance during Contract Execution 31. Contract managers are responsible for monitoring the security procedures of the contractor to ensure compliance with security policy and notifying the DSA of any security deficiencies or incidents. Page 3.94
Defence Procurement Policy Manual 3.9 Defence Security Requirements Further Information 32. Further information on Defence security matters as they relate to contracting matters can be obtained from the Project Operation and International Visits section of the DSA or from the Regional DSA office in the applicable State or Territory. Security authority contact details are located in the DSM - Part 1, Annex A.
Key References
Defence Security Manual Defence Instruction (General) OPS 13-4 Releasability of Classified Defence Information to other countries ASDEFCON suite of tendering and contracting templates Defence Security Authority website.
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Defence Procurement Policy Manual 3.10 Interacting Policies
3.10
Introduction
1. 2.
Interacting Policies
This chapter applies to all procurement conducted in Defence and the Defence Materiel Organisation (DMO). This chapter refers to core Government policies that may interact with procurement. This chapter draws attention to key Commonwealth policies that must be adhered to in order to satisfy Regulation 9 of the Financial Management and Accountability Regulations 1997 (Cth) (FMARs) and the Commonwealth Procurement Guidelines (CPGs). This chapter does not reproduce the relevant policy but is intended to direct Procurement officers to source documents and other chapters of this Manual that might be relevant to their specific procurement. The responsibility of ensuring that an individual procurement is compliant with Commonwealth procurement policy remains with the relevant procurement delegates in accordance with chapter 1.4. The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
3.
Mandatory Policy
Procurement delegates must ensure that their procurement is compliant with Commonwealth policies, in particular the policies listed in the Interacting Policy Table on the Department of Finance and Deregulation (DOFD) website prior to exercising their delegation. Proposal approver delegates must not approve a proposal to spend public money that is inconsistent with the terms of any Australian Government approval or decision relevant to the procurement. Value for Money must be assessed within the framework of Commonwealth policies and any procurement must not be inconsistent with policies of the Commonwealth. Clauses giving effect to the Fair Work Principles must be included in all approaches to the market for covered procurements. Procurements involving the construction of facilities or other infrastructure projects must be conducted in consultation with Infrastructure Division in the Defence Support Group. Defence Procurement officers must ensure that procurements conducted do not breach any trade sanctions currently in place. All external legal services must be engaged through the Defence/DMO Legal Panels. Procurement officers must comply with Defence security policy. Commonwealth agencies must not purchase goods and services from contractors that do not comply with the requirements of the Equal Opportunity for Women in the Workplace Act 1999 (Cth) (Equal Opportunity Act).
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FMA Regulation 9 4. FMAR 9 provides that an approver must not approve a spending proposal unless the approver is satisfied, after reasonable inquiries, that giving effect to the spending proposal would be a proper use of Commonwealth resources. Proper use is defined in s44(3) of the Financial Management and Accountability Act 1997 (Cth) (FMA Act) as the efficient, effective and ethical use of Commonwealth resources that is not inconsistent with the policies of the Commonwealth. In Defence and DMO, consideration by the Proposal, Procurement and Contract Approvers satisfies the requirements of FMAR 9. For further information refer to chapter 1.4. DoFD issues a list of policies that interact with Procurement Policy to assist in assessing compliance with Commonwealth policy. This list can be found on the DOFD website. All of these policies are dealt with in detail in the Defence and DMO Chief Executives Instructions (CEIs), elsewhere in this Manual or in the ASDEFCON suite of tendering and contracting templates (ASDEFCON) as appropriate. This list of policies published by DOFD is not an exhaustive list of Commonwealth policies for the purposes of section 44 of the FMA Act and FMAR 9. In this context, the policies of the Commonwealth is a broad undefined concept and term and should be interpreted broadly applying its ordinary dictionary meaning. Among other things, it is likely that any Cabinet decision relevant to a spending proposal will constitute a Commonwealth policy, though the terms of that decision will be relevant. If that decision establishes a course or line of action it will generally be a policy for the purposes of section 44 and FMAR 9. Accordingly, Proposal approver delegates must not approve a proposal to spend public money that is inconsistent with the terms of any Australian Government approval or descision relevant to the procurement.
5.
6.
Australian Industry Participation 7. The Australian Government has agreed to strategically apply the Australian Industry Participation (AIP) National Framework to large Commonwealth tenders (generally above $20 million), by requiring tenderers to prepare and implement AIP Plans for certain procurements. Defence implements both the Australian Industry Capability (AIC) and Global Supply Chain (GSC) programs, and other industry support measures. As a result, the Department of Innovation, Industry, Science and Research has determined that the AIP program does not apply to Defence procurements. 1 For further information refer to chapter 3.12.
8.
Coordinated Procurement 9. The Government may decide that for certain goods or services a whole-of-government arrangement will deliver better value for money than individual agency contracts. These wholeof-government arrangements are referred to as coordinated procurement contracting arrangements. Refer to chapter 4.3 for further information.
Employment and Workplace Relations Fair Work Principles 10. Potential suppliers of goods and services to the Australian Government are required to comply with all relevant workplace laws, which include the Fair Work Act 2009 (Cth) or any applicable workplace relations laws (including obligations under awards, industrial instruments and employee superannuation entitlements, etc), occupational health and safety laws and workers compensation laws.
Refer to section 1.3 of the Australian Industry Participation Plans in Commonwealth Government Procurement: User Guide for Agencies January 2010
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Defence Procurement Policy Manual 3.10 Interacting Policies 11. The Fair Work Principles are designed to ensure that Government procurement decisions promote fair, cooperative and productive workplaces in which employees are treated fairly and with respect for freedom of association and their right to be represented at work. Accordingly, for all covered procurements, Defence and DMO must not enter into a contract with a tenderer who:
has not fully complied with judgements for breaching relevant workplace relations laws, occupational health and safety laws, and workers compensation laws (note: a reference to judgements includes any penalty or order but does not extend to infringement notices issued by workplace inspectors or a provisional improvement notice issued by an occupational health and safety inspector); is a textiles, clothing or footwear manufacturer that is not accredited with the Homeworkers Code of Practice, or not seeking such accreditation; and/or supplies cleaning or building management services and does not provide their employees with appropriate training, supervision, equipment and materials, a written duty schedule for each site, and adequate staffing.
Clauses giving effect to these principles must be included in all approaches to the market. The ASDEFCON suite of tendering and contracting templates includes the clauses necessary to comply with this requirement. Construction 12. Procurements involving the construction of facilities or other infrastructure projects are subject to a range of legislative and policy instruments including the National Code of Practice for the Construction Industry and scrutiny by the Public Works Committee. In Defence, these procurements must be conducted in consultation with DSG, Infrastructure Division. Specialist construction advice and templates incorporating Commonwealth Construction policy is available on the Infrastructure Management website or by contacting the Director Construction Contracts on 02 6266 8082.
Environmental 13. Australian Government environmental policy includes - Measures for Improving Energy Efficiency in Government Operations and the National Packaging Covenant. More information on these policies can be found in FMG 10. In addition, there are a range of other environmental legislative and policy requirements that may impact on procurements undertaken in Defence outlined in chapter 3.16.
Hazardous Substances (Excluding Explosives and Radioactive Materials) Policy 14. Procurement officers must comply with the Australian Customs legislative requirements when purchasing and importing supplies which are, or may contain, hazardous substances. The legislation for dealing with hazardous substances for Defence procurements and for Industry is the Occupational Health and Safety Act 1991 (Cth) and the Occupational Health and Safety (Safety Standards) Regulations 1994 (Cth). The Occupational Health and Safety (Safety Standards) Regulations (Cth) list a number of hazardous substances which are prohibited from use and must not be used in any circumstances unless exempted by the Commonwealth Safety, Rehabilitation and Compensation Commission. Where a procurement potentially involves hazardous materials, Procurement officers must refer to the Defence Safety Manual SAFETYMAN. The management of asbestos is a specific issue that should be considered in procurement of capital equipment. For further information on the management of asbestos see SAFETYMAN, Volume 1, Part 5. Advice on hazardous substance management is available from a number of Defence and Government sources including:
15.
16.
Australian Safety and Compensation Council;
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Comcare; Defence Environment and Heritage; Defence Occupational Health, Safety and Compensation Branch, with specific information through the Defence Centre for Occupational Health; and Individual Group and Service OHS areas and subject matter experts.
17.
DMO has a specific standardised system for the management of hazardous materials. Defence Materiel Manual (Risk) 09-0-018 V1.0 Safety Management System Hazardous Material Management Policy includes mandatory requirements regarding procurement, standard operating procedures, training and disposal. It also includes tools and checklists to facilitate implementation.
Financial 18. 19. 20. 21. Information on financial policies, including Foreign Exchange Risk can be found at chapter 3.3. Information on Private Financing can be found at chapter 4.4. Information on Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort can be found in Defence CEI 8.6, DMO CEI 8.6 and chapter 3.15. Information on the 30 Day Payment Policy for Small Business can be found at chapters 3.3, 5.4 and 6.4.
Information Communications and Technology (ICT) 22. Procurement officers should be aware of and comply with, the Limitation of Liability policy for ICT and Communications Technology contracts outlined in Finance Circular 2006/03 Limited Liability in Information and Communications Technology Contracts. Procurement officers should also be aware of and comply with the ICT SME Participation Procurement Policy found at Small and Medium Enterprise (SME) participation procurement policy The Department of Finance and Deregulation has created and supports a suite of templates for the procurement of ICT products and services. Further information on ICT Procurement can be found in chapter 4.3.
23.
International Obligations Trade Sanctions 24. Procurement officers must ensure that procurements conducted do not breach any trade sanctions currently in place. Information on current trade sanctions can be found on the Department of Foreign Affairs and Trade website.
International Agreements 25. Complying with Australian Law, including the CPGs, will ensure that Defence Procurement officers meet all obligations under Australias current free trade agreements.
Export Control 26. Where Defence acquires equipment from overseas, or equipment that is manufactured in Australia under licence from an overseas manufacturer, the export to Australia of the equipment is subject to certain controls. Further information can be found at chapter 4.2 and from the Defence Export Control Office.
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Defence Procurement Policy Manual 3.10 Interacting Policies Legal Legal Services 27. Legal Services must be procured in accordance with the Legal Services Directions 2005 (Cth) produced by the Attorney Generals Department. Further information on obtaining Legal Services can be found in the Defence and DMO Procurement Support Areas section at the front of this manual.
Intellectual Property 28. Information on Intellectual Property can be found in chapter 3.6. DMO Legal is the Defence Business Process Owner for IP. To obtain DMO Legal services refer to the current DPPI regarding the requesting of professional services from the Office of Special Counsel DMO.
Security 29. Procurement officers must comply with Defence security policy within the Defence Security Manual. Further information can be found at chapter 3.9.
Social Inclusion Disability Strategy 30. The Commonwealth Disability Strategy provides a strategic framework for inclusion and participation by people with disability in Commonwealth Government policies, programs and services. The procurement of property or services from a business that primarily exists to provide the services of persons with a disability is now exempt from the Mandatory Procurement Procedures, which means that those businesses are not required to devote resources to preparing tenders and can now be engaged directly by agencies to deliver the services of persons with a disability.
31.
Aboriginal and Torres Strait Islander People 32. A new Indigenous Opportunities Policy was announced on 25 February 2010 and reads as follows. For the purpose of promoting employment and training opportunities for Indigenous Australians, officials must:
consult with the Department of Education, Employment and Workplace relations, the Commonwealth Indigenous Coordination Centres or equivalent Commonwealth Office, and community council or group, as appropriate, in the planning stages of those projects; and in each procurement process under those projects, require each tenderer to submit as part of their tender a plan for providing training and employment opportunities to local Indigenous communities and the use of local indigenous potential suppliers that are small and medium enterprises.
33.
Tenderers submitting tenders where the expenditure is over $5 million ($6 million in construction) in a region with a significant Indigenous population will be required to develop an Indigenous Training, Employment and Supplier plan as part of its tender. Procurement officers should ensure that specifications are not biased, restrictive or written in such a way as to discriminate against potential Aboriginal and Torres Strait Islander suppliers. Further information can be found at: http://www.deewr.gov.au/Indigenous/Employment/Pages/StrengtheningProcurementPolicies.as px
34.
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Defence Procurement Policy Manual 3.10 Interacting Policies Equal Opportunity for Women in the Workplace Policy 35. Commonwealth agencies must not purchase goods and services from contractors that do not comply with the requirements of the Equal Opportunity for Women in the Workplace Act 1999 (Cth) (Equal Opportunity Act). Companies that have not complied with this Equal Opportunity Act are named annually in Parliament. A list of non-complying companies is available on the Equal Opportunity for Women in the Workplace Agency website. Procurement officers may continue to seek or consider offers from companies listed as noncompliant with the Equal Opportunity Act, provided that the company is compliant at the time of contract signature. When offers are received, the Procurement officer must check if any tenderers are on the list of non-complying companies. If a tenderer is non-compliant its offer must either be excluded from further consideration or the tenderer be advised that it must comply with the Equal Opportunity Act and produce a letter indicating compliance from the Equal Opportunity for Women in the Workplace Agency in order to be considered for the contract.
36.
Other Policy Obligations 37. In addition to policies that interact with procurement through FMAR 9, the CPGs also refer to other important obligations that must be considered when undertaking procurement. The majority of these obligations are detailed in the relevant Defence or DMO CEI, this Manual and ASDEFCON. A complete list can be found on the DOFD Website.
Key References
In this chapter the key references and links are incorporated into the applicable paragraph or chapter.
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Defence Procurement Policy Manual 3.11 Confidential Information
3.11
Introduction
1. 2.
Confidential Information
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter provides guidance on:
The identification and classification of confidential information contained in contracts and generated through the contract performance (referred to in Defence as commercial-inconfidence information); and the circumstances in which the law will recognise that certain information has the necessary character of confidential information and impose a duty on the person to keep the information confidential.
3.
This chapter does not address the identification and disclosure of commercial-in-confidence information where disclosure is required:
or authorised by law including under legislation such as the Privacy Act 1988 and the Freedom of Information Act 1982 (see chapter 3.14); because the information is classified and protected under Defence security provisions (see chapter 3.9); or to an Australian court or tribunal as part of a discovery process (see chapter 5.10).
4.
This chapter does not deal with the consequences of a breach of an obligation of confidence. Specific legal advice should be sought from Defence Legal or DMO Legal in such circumstances.
Mandatory Policy
In accordance with the Commonwealth Procurement Guidelines (CPGs), Procurement officers must ensure that tender documents and contracts include provisions that notify potential suppliers and contractors to the public accountability requirements of the Commonwealth, including disclosure to the Parliament of the Commonwealth of Australia and its Committees. Tender documents must notify tenderers of Defence policy on commercial-in-confidence information. Commercial-in-confidence information must be protected from unauthorised disclosure. Within Defence it should only be disclosed to Defence staff with a specific need to access the information. Procurement officers must comply with the mandatory requirements in Financial Management Guidance No 3 (FMG 3)- Guidance on Confidentiality of Contractors
Commercial Information July 2007.

Approval must be sought from an appropriate officer who has the legal authority to bind Defence through indemnification prior to signing a Non Disclosure Agreement (NDA). Further information regarding the Defence or DMO policy on indemnities is contained in Defence Chief Executives Instruction (CEI) 8.6, DMO CEI 8.6, and chapter 3.15. Defence personnel must not sign NDAs offered by another party, such as a potential supplier, tenderer or contractor without seeking legal advice and clearance from Defence Page 3.111
Defence Procurement Policy Manual 3.11 Confidential Information Legal or DMO Legal. NDAs must not be worded in a way which seeks to abolish the legislative and administrative requirements of accountability and transparency that Defence is subject to, most notably under the Financial Management and Accountability Act 1997 (Cth) and its regulations.
Background 5. In Defence procurement, there are two main circumstances where information would attract an obligation for parties to a contract to maintain confidentiality: through the law of confidentiality (confidential information) or through the terms and conditions of the contract (commonly referred to as commercial-in-confidence information). The focus of this chapter is the identification and treatment of commercial -in-confidence information. The identification of commercial-in-confidence information is important as it determines how the information should be handled. Subject to very few exceptions, such as illegality, the law of contract enables the parties to agree to keep any information confidential. Accordingly, the parties have a wide discretion to agree to keep information confidential, even if it would not be recognised as confidential under the law of confidentiality. A breach of these obligations entitles the innocent party to bring a claim for damages for breach of contract. The CPGs require agencies to consider, on a case by case basis, what might constitute commercial-in-confidence when designing any contract. The CPGs also require agencies to include provisions in tender documents and contracts that alert potential suppliers to the public accountability requirements of the Commonwealth, including disclosure to Parliament and its Committees.
6.
7.
Commercial-in-Confidence Information
8. In recent years Parliamentarians, Auditors-General and Ombudsmen, among others, have raised concerns in relation to the classification of government contracts as commercial-inconfidence and the subsequent limitations placed on access to contracts. 1 As a result government agencies, including Defence, are being encouraged to refine their processes with respect to the classification and treatment of commercial-in-confidence information. This chapter aims to assist Procurement offices in ensuring that the classification and protection of commercial-in-confidence information is consistent with Government policy on this issue.
Treatments of Information in Tenders, Standing Offers and Contracts Classification of Information in Tenders 9. In accordance with Financial Management Guidance No 3 - Guidance on Confidentiality of Contractors Commercial Information July 2007 (FMG3), Procurement officers should treat all information provided by tenderers or potential suppliers as confidential prior to the award of a contract and, for unsuccessful tenderers, after the contract award. All request documentation issued by Defence for Complex and Strategic procurements should advise potential suppliers that:
10.
information received and documents produced during the tender process will be treated as commercial-in-confidence; specific tender information in any resulting contracts may be treated as commercial-inconfidence depending on the nature of the information. In general, this should be limited to the information that meets the confidentiality test and description listed in paragraph 18.
Refer to the Australian National Audit Office Report No. 38 of 2000-2001 -The Use of Confidentiality Provisions in Commonwealth Contracts
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they are required to identify the information it requires to be kept confidential in its tender responses; as a Commonwealth agency, Defence is subject to particular accountability requirements and any resultant contract and related material may be disclosed to Parliament and its committees; and the Freedom of Information Act 1982 is applicable to Defence procurement activities (see chapter 5.7).
11.
All Defence request documentation and contracts/standing offers for Complex and Strategic procurements should also contain provisions that set out:
the information that will be considered by the parties to be commercial-in-confidence information; the restrictions on disclosure of commercial-in-confidence information to third parties; the Commonwealths right to disclose commercial-in-confidence information where disclosure is required by law or statutory or portfolio duties; and the Commonwealths right to disclose commercial-in-confidence information to the extent that is necessary to exercise its intellectual property (IP) rights.
12.
Commercial-in-confidence provisions for use in Defence contracts are contained in the ASDEFCON suite of tendering and contracting templates.
Classification of Information in Contracts (including Standing Offers) 13. In contrast to information provided in tenders, the classification of provisions and information included in a contract or standing offer should be considered on a case by case basis prior to the award of the contract or standing offer. Procurement officers should ensure that tenderers are required to identify in their tenders any provisions of the proposed contract/standing offer that they believe should be classified as commercial-in-confidence. Procurement officers should also identify any contract/standing offer provisions that they believe should be classified as commercial-in-confidence to protect Defences commercial interests. Procurement officers should comply with paragraphs 16 24 when determining whether to agree to information being classified as commercial in confidence. Where an amendment to the contract or standing offer is signed which includes information that is commercial-in-confidence, the relevant provisions of the contract/standing offer should be marked as commercial-in-confidence and a file record should be kept of the reasons for the confidentiality.
14.
15.
Determining whether a Contractors Information should be classified as Commercial-in Confidence 16. Procurement officers and tenderers/contractors often agree to keep particular information contained in tenders, contracts and related material confidential. The information may be confidential to either party. This is usually done by including a clause in the contract restricting the use and disclosure of certain information which is specified (often in an Attachment to the contract) as commercial-in-confidence information. Commonwealth guidance on the identification of commercial-in-confidence information is contained in FMG 3 which emphasises the importance of ensuring that a contractors information is only kept confidential where there is a sound reason. It is important that Procurement officers consider each claim for confidentiality on its merits and in isolation from considerations about what kind of information was regarded as confidential for another procurement.
17.
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Defence Procurement Policy Manual 3.11 Confidential Information The Confidentiality Test 18. In accordance with FMG 3, Agencies may decide that a contractors information is confidential if it meets each of the following four initial criteria set out below (the Confidentiality Test):
Criterion 1: that the information to be protected must be identified in specific rather than global terms (for example, a request for inclusion of a clause stating that all information is confidential would not satisfy this criterion); Criterion 2: that the information must be commercially sensitive and not already in the public domain; Criterion 3: that the consequences of disclosure have a real risk of damaging the owners commercial interests which would cause unreasonable detriment to the contractor or other third party (e.g. disclosure of pricing information containing a contractors profit margin); and Criterion 4: that the information was provided under an understanding that it would remain confidential. (The terms included in the request documentation, the terms of the draft contract and any request by a tenderer for the inclusion of confidentiality provisions in response to the request documentation will be relevant considerations.).
19.
Particular circumstances in which it may be appropriate for Defence to keep information confidential include when:

the disclosure of information would be contrary to the public interest; the Commonwealth or the supplier owns IP; or tenderers/contractors seek protection of particular commercial information.
Guidance on the kinds of information that may meet the confidentiality test 20. FMG 3 identifies five categories of information that may, depending on the individual circumstances of the procurement, meet the requirements of the confidentiality test. However, it is important for Procurement officers to assess each claim for confidentiality on a case by case basis. Information identified in FMG 3 that may constitute confidential information includes:

internal costing information or information about profit margins; pricing structures (where this information would reveal whether a potential supplier was making a profit or loss on the supply of a particular good or service); IP, including trade secrets and other IP matters where they relate to a potential suppliers competitive position; proprietary information, for example information about how a particular technical or business solution is to be provided; and artistic, literary or cultural secrets. These may include photo shoots, historic manuscripts, or secret indigenous culture.
21.
FMG 3 also lists types of commercial information that would not generally be considered commercial-in-confidence, including:

performance and financial guarantees; indemnities; the price of an individual item, or group of items of goods or services; liquidated damages, service credits and rebates clauses; performance measures that are to apply to the contract; clauses which describe how IP rights are to be dealt with; and payment arrangements.
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Defence Procurement Policy Manual 3.11 Confidential Information 22. It is important to note that most pricing information, insurance and liability regimes, IP regimes, specifications, warranty provisions, financial guarantees, security or liquidated damages provisions will not be commercial-in-confidence. Such provisions must meet the FMG 3 criteria detailed above before they are classified as commercial in confidence. Information which is agreed to be commercial-in-confidence information may also be IP which may be licensed and protected under the IP provisions of the contract (see chapter 3.6 and the Defence Intellectual Property Manual). Generally under Defence contracts, classification of information as commercial-in-confidence will not have the effect of restricting the Commonwealths use of such information under the IP rights contained in the contract. For further guidance on the classification of information as commercial-in-confidence, procurement officers should refer to:

23.
24.
FMG3; the Interim Defence Contracts Register on-line guidance; and the relevant contracting specialist found at the front of this manual.
Public Interest Issues 25. Public interest issues should be considered when deciding whether to protect particular information as commercial-in-confidence. This analysis will be different for supplier information than it will be for government information. Information provided by tenderers/contractors about their private, personal or business affairs may be confidential and the courts will uphold that confidentiality unless it considers that disclosure is in the public interest. Conversely, the law will not grant protection for government information unless the disclosure of that information would injure the public interest. Accordingly, disclosure may not be required if the disclosure would be prejudicial to the ordinary business of government. Decisions regarding confidentiality in this regard should be made on a case by case basis.
26.
27.
Period of Confidentiality 28. Procurement officers should be aware that the obligation to keep commercial-in-confidence information confidential may come to an end in various ways. One option is for the parties to agree that a period of confidentiality should apply to the information. The receiving partys obligation of confidence may also come to an end if:
the other party expressly or impliedly releases the receiving party from the obligation of confidence; or the information becomes public knowledge (otherwise than as a result of the breach of contract).
Determining whether Government Information should be kept Confidential 29. 30. Procurement officers may also apply the above criteria to determine whether Government information should be kept confidential. Instances in which Procurement officers may wish to regard particular Government information as commercial-in-confidence include government proprietary information (e.g. research or specifications produced by DSTO and included in a contract) or other contract information the Commonwealth considers sensitive (e.g. negotiated contractual provisions such as liability and indemnity regimes that differ substantially from standard Defence practice). Contractual or standing offer provisions that reflect standard Defence contracting templates should never be classified as commercial in confidence. Procurement officers should also identify any confidential Australian Government information and consider including: Page 3.115
31.
a requirement for tenderers to sign confidentiality undertakings prior to being given access to confidential information; an evaluation criterion that allows Defence to assess a tenderers ability to comply with the confidentiality requirements included in the request documentation; confidentiality clauses in the draft contract; and contract/standing offer provisions that they believe should be classified as commercial in confidence to protect Defences commercial interests.
32.
If during the planning stages, Procurement officers have assessed their procurement as likely to involve confidentiality issues, they should:
invite tenderers to specify in writing what information they seek to have categorised as commercial-in-confidence; include an evaluation criterion allowing claims for commercial-in-confidence to be taken into account as part of overall value for money assessment; and include a commercial-in-confidence clause in the draft contract (for example, clause 10.4 in ASDEFCON (Strategic Materiel), ASDEFCON (Complex Materiel) and ASDEFCON (Support).
Defence Tender and Contract Requirements 33. Procurement officers should apply the FMG 3 criteria detailed above and negotiate with the preferred tenderer, where appropriate, to ensure that contractual or standing offer provisions or particular information are appropriately classified as commercial-in-confidence. The reasons for agreement to confidentiality arrangements should be documented. The information considered by the parties to be commercial-in-confidence should be listed in an attachment to the contract/standing offer along with the reasons for the confidentiality. Most information will lose its commercial-in-confidence classification over time. During the term of a contract, contract managers should consider reviewing the classification of confidential information where this is practical.
34.
Disclosure of Commercial-in-Confidence Information 35. Commercial-in-confidence information should be protected from unauthorised disclosure. Within Defence it should only be disclosed only to Defence staff with a specific need to access the information eg, for tender evaluation or contract management purposes. Unless permitted under the relevant contract or required by law, statutory or portfolio duties (including Parliamentary reporting), commercial-in-confidence information should not be disclosed to third parties without:
36.
obtaining the permission of the entity seeking to protect the commercial-in-confidence information; and putting in place appropriate protection mechanisms, for example a deed of confidentiality and fidelity or non-disclosure agreement, if required by that entity.
37.
These requirements are reflected in the commercial-in-confidence provisions of standard Defence contracting templates for Strategic and Complex procurement. These templates require the disclosing party to first obtain the written consent of the party for whom the information is confidential before disclosing the information to a third party unless:

the disclosure of the information is required by law or statutory or portfolio duties; or the disclosure is necessary to enable Defence to exercise its IP rights under the contract.
38.
The party from whom the consent is sought may place restrictions on the disclosure of commercial-in-confidence information, including a requirement that a deed of confidentiality be signed by the third party prior to release of the commercial-in-confidence information. Page 3.116
Defence Procurement Policy Manual 3.11 Confidential Information Deeds of Confidentiality and Fidelity/Non-Disclosure Agreements 39. A deed of confidentiality and fidelity or a non-disclosure agreement (NDA) are documents that are used to ensure that the parties signing them keep specified information confidential, and may be:
a tripartite deed, i.e. a deed between Defence, the supplier and the third party. Tripartite deeds are used to set out the respective rights and obligations of all three parties in relation to the particular disclosure and use of the information; or a two way deed between either the third party and the party for whom the information is confidential, or the third party and the disclosing party.
40. 41.
The ASDEFCON (Strategic Materiel), (Complex Materiel) and (Support) templates contain a standard two-way deed of confidentiality. Entering into a deed of confidentiality and fidelity or a non-disclosure agreement places clear restrictions on the use, disclosure and return of commercial-in-confidence information. The agreements also normally require the third party that receives the information to give indemnities for any loss or damage suffered by the disclosing party or the party for whom the information is confidential as a result of any unauthorised disclosure of the information.
Signing of Non-Disclosure Agreements by Defence Personnel 42. There are circumstances in which Defence personnel will be requested to sign an NDA. Examples of such circumstances include, but are not limited to:
Systems Program Offices requesting that members of a tender evaluation team sign a NDA prior to the start of a tender evaluation process in an attempt to ensure that sensitive information provided in tenders is not disclosed; Companies requesting that Defence personnel sign NDAs prior to obtaining access to commercial in confidence information; and Companies requesting that Defence personnel sign blanket NDAs for any information, whether it is commercial in confidence or not, and seeking expressly or by implication, to override duties held by Commonwealth officers.
No Obligation to sign NonDisclosure Agreements 43. Defence personnel (Australian Public Service (APS) and Australian Defence Force (ADF)) should be aware that they are under no obligation to sign NDAs in a personal capacity. Duties and obligations of confidentiality, and appropriate sanctions for breach of those duties, are placed on both the APS and the ADF by the Public Service Act 1999 (Cth)(PS Act) (in the case of the APS), the Defence Force Discipline Act 1982 (Cth)(DFD Act) (in the case of the ADF), the Privacy Act 1988, the Crimes Act 1914(Cth) and the respective Defence and DMO CEIs. Section 70 of the Crimes Act 1914 makes it clear that current or former Commonwealth officers are not to disclose any information that they are or were, at the time of ceasing to be a Commonwealth officer, bound not to disclose. The definition of Commonwealth officer includes public servants, members of the ADF and persons performing services for or on behalf of the Commonwealth. For Section 70 to apply, a duty of non-disclosure must be established at law. Public servants have common law and equitable duties of non-disclosure and a legislative duty under section 13 of the PS Act. Members of the Australian Defence Force have a common law and a legislative duty under Section 58 of the DFD Act. Section 13 of the PS Act sets out the APS code of conduct. That code provides that APS employees must not make improper use of inside information in order to gain a benefit or advantage for themselves or any other person. Section 13 also requires APS employees to comply with all applicable Australian laws when acting in the course of their employment. Various sanctions are provided by section 15 of the PS Act in the event of a breach of the code of conduct. These include termination of employment, reduction in classification and reduction in salary. Page 3.117
44.
45.
Defence Procurement Policy Manual 3.11 Confidential Information 46. Defence personnel should be aware that if they choose to sign a NDA personally, they are potentially exposed to a risk of being personally liable for any loss or damage suffered should the confidentiality be breached. For this reason, Commonwealth officers should avoid signing NDAs in a personal capacity. NDAs should not be used internally within Defence to ensure confidentiality. Areas wishing to ensure that confidentiality is maintained should brief employees as to their obligations and provisions of their employment. For example, it is appropriate for staff in tender evaluations to be reminded of their obligations under either the PS Act or the DFD Act and requested to acknowledge these responsibilities before proceeding. In accordance with the Defence Security Manual, Commanders and Managers are responsible for the security of information under their control and determining which of their staff need to know and will require access to official information. Defence personnel who have previously signed NDAs should ensure that they comply with the terms of that agreement to avoid any potential liability.
47.
48.
Signing on Behalf of the Commonwealth 49. There are occasions where a third party may insist on having a NDA in place prior to the release of information. This may be the case even when the confidentiality duties and obligations of Defence personnel have been explained. In order for Defence to pursue its objectives in these cases, a NDA may need to be signed. If this is the case, the NDA should be signed on behalf of the Commonwealth and not in the employees personal capacity. Amongst other undertakings, the NDA is likely to contain indemnity provisions. Approval must be sought from an appropriate officer who has the legal authority to bind Defence through indemnification prior to signing a NDA. Further information regarding the Defence or DMO policy on indemnities is contained in Defence CEI 8.6, DMO CEI 8.6 and chapter 3.15. Defence personnel must not sign NDAs offered by another party, such as a potential supplier, tenderer or contractor without seeking legal advice and clearance from Defence Legal or DMO Legal.
50.
51.
NonDisclosure Agreements Subject to Certain Conditions 52. As a Commonwealth agency, the Department of Defence is subject to legislative and administrative requirements of accountability and transparency, most notably under the Financial Management and Accountability Act 1997 (Cth) and its regulations. These include requirements of disclosure to Ministers, other Commonwealth representatives, Federal Parliament and its committees, publication of information (eg on AusTender), and legislative obligations under other Acts, such as under the Freedom of Information Act 1982 (Cth). NDAs must not be worded in a way which seeks to abolish these obligations. NDAs must contain clauses acknowledging that there are circumstances where Commonwealth officers may be required to disclose information held in confidence, but only to the extent of and where required by the law or statutory or portfolio duties.
53.
External Service Providers 54. Section 70 of the Crimes Act 1914 applies to persons performing services for, or on behalf of, the Commonwealth. External service providers such as professional service providers, consultants or contractors are not employed under the PS Act and so the requirements of that Act do not apply. Procurement officers should ensure there are appropriate NDA requirements in all external service provider contracts. Information about the legal requirements for NDAs, including example templates, may be obtained from Deputy Counsel Knowledge Management, DMO Legal on (02) 6265 2994.
55.
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Defence Procurement Policy Manual 3.11 Confidential Information Disclosure to Parliament 56. Defence is committed to ensuring access by Parliament and its committees to Defence contracting information. Generally all contracting information is to be made available on request except in a very limited range of circumstances, such as where national security issues arise. Defence officers should be aware that Parliamentary committees have significantly greater authority than the public to obtain access to information held by Defence. Accordingly, the marking of a document, including a tender or contract, or specific parts of a document, as commercial-in-confidence will not generally prevent access by Parliament or its committees to the information. However, there may be circumstances in which a person may not consider it appropriate to disclose information or documents to a committee where it is not in the public interest and may seek to withhold information on the grounds of public interest immunity. In certain circumstances, public servants, with the authority of the Minister, may claim public interest immunity and seek to decline to provide information on the grounds that its disclosure to a committee would not be in the public interest. Where Parliament or a committee seeks information, Defence should be prepared to provide all the information it reasonably can. There may be some instances where commercial-inconfidence information can be provided to a Parliamentary committee without requiring public disclosure. Further advice on this issue can be obtained from the relevant Help Desk found at the front of this manual.
57.
58.
Senate Order 59. The CPGs require all agencies to comply with Senate Order (No 192). The Senate Order requires agencies to publish on their website, every six months, a list of all agency contracts valued at or over $100,000 entered into, or remaining active at the date of publication. In addition, Chief Executives are required to advise portfolio ministers of any sensitivity in relation to disclosure before publishing information on contracts entered into by their agency. Refer to chapter 5.8 for further information. Specific guidance on the listing of contracts on the internet is provided by Department of Finance and Deregulation in the publication Guidance on the Listing of Contract Details on the Internet (Meeting the Senate Order on Departmental and Agency Contracts) January 2004. The contract list for Defence and DMO is available in the Publications area of the Industry Resources section of the Defence Materiel Organisation website.
60.
61.
Confidential Information
62. As discussed above, in the event that information is not specified as commercial-in-confidence information in the contract, Procurement officers need to be aware of the circumstances in which the law will still recognise an obligation of confidentiality. Where such a duty exists and is breached, the confider (person who imparts the information) may bring an action for breach of confidence. In order for the information to be protected as confidential information, it must:

63.
be able to be specifically identified and not just in global terms; have the necessary quality of confidence (Element one); and the information was imparted in circumstances involving an obligation of confidence (Element two).
What is Confidential Information? Element one: Does the information have the necessary quality of confidence? 64. This requirement is essentially a negative requirement which is satisfied if the information is not in the public domain.
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Defence Procurement Policy Manual 3.11 Confidential Information 65. However, it is often difficult to determine whether the information is secret as the information will not cease being confidential simply because it is known by someone other than the confidant and owner of the information. Recognised factors relevant to whether commercial information is confidential to a business include:

the extent to which the information is known outside of that business; the extent to which it is known by employees and others involved in that business; the extent of measures taken to guard the secrecy of the information; the value of the information to that business and to its competitors; the amount of effort or money expended by the business in developing the information; and the ease or difficulty with which the information could be properly acquired or duplicated by others.
66.
The key consideration in determining if the information is confidential is whether the information is sufficiently secret so that another party wanting to use that information would have difficulty obtaining it except by improper means. There are also some threshold criteria which need to be satisfied before the information will be protected as confidential. These include that the information is not trivial i.e. it must have (or be capable of having) some commercial value and the information must be sufficiently developed that it is capable of being realised.
Element two: Was the information imparted in confidence? 67. The test of whether the information was imparted in circumstances in which an obligation of confidence can be implied is whether, in the circumstances, a reasonable person in the position of the recipient of the information would have realised that upon reasonable grounds the information was being given in confidence. Generally, the information is confidential at the time it is imparted. Information may have been imparted in confidence even though it was not solicited by the recipient. It is not necessary for there to be a contractual relationship between the parties in order for an obligation of confidentiality to arise. The courts will readily infer an obligation of confidentiality if the information is disclosed in circumstances in which both parties are pursuing common objects, such as contractual negotiations. A common situation in which an obligation of confidence arises is where confidential information has been disclosed in the course of pre contract negotiations for a contract that is never signed.
68. 69.
Key Elements of Breach of Confidence 70. A breach of confidence will occur when there is an unauthorised use of confidential information (in order to be confidential information elements one and two above need to be satisfied). It is not necessary for the information to be disclosed, all that is required is that there is an unauthorised use of part of the confidential information. Proceedings may also be commenced before the breach has occurred if there is a threatened risk of misuse. The unauthorised use of information must have caused harm to the person whom the information is confidential. It is generally not a problem for individuals or companies to show harm has occurred since exposure to public discussion and criticism may be sufficient to demonstrate harm. However, a more stringent standard applies to the protection of Government information. A Government agency will not be able to make a successful claim of confidentiality where the use of the information will:

71.
expose the government to public discussion and criticism; or constitute disclosure of information that is already in the public domain.
72.
In order for a claim for confidentiality of Government information to be upheld it will be necessary that disclosure is likely to injure the public interest. Examples include where the disclosure will prejudice national security, international relations or the business of government.
Page 3.1110
Defence Procurement Policy Manual 3.11 Confidential Information Defence to an Action for Breach of Confidence 73. It is important for Procurement officers to note that there are some important defences to an action for breach of confidence. These include:
where disclosure is required under the Privacy Act 1988 (Cth) or Freedom of Information Act 1982 (Cth); disclosure to the Commissioner of Taxation of confidential bank documents relating to income earned by customers under the Income Tax Assessment Act 1936 (Cth); certain disclosure under State and Territory laws including health legislation and whistleblower legislation; where there is a court order for discovery of the confidential information; where there is just cause or excuse for disclosing the information; or where the public interest in disclosure outweighs the interests in preserving confidentiality.
Remedies for breach of Confidence 74. Remedies that may be awarded by a court for breach of confidence include:

an injunction preventing further use or disclosure of the confidential information; damages (either as an alternative to or in addition to an injunction); an account of profits (which awards any profits made by the defendant arising from the use of the plaintiffs information); and the delivery or destruction of the confidential information.
If a Procurement officer considers that there may have been a breach of confidence in relation to a procurement or a contract, the Procurement officer should seek legal advice from Defence Legal or DMO Legal, as the case requires.
Key References
Commonwealth Procurement Guidelines Department of Finance and Deregulation Financial Management Guidance (FMG) 3 - Guidance on Confidentiality of Contractors Commercial Information Guidance on the Listing of Contract Details on the Internet (Meeting the Senate Order on Departmental and Agency Contracts Government Guidelines of Official Witnesses before Parliamentary Committees Defence Intellectual Property Manual ASDEFCON (Complex Materiel) ASDEFCON (Strategic Materiel) ASDEFCON (Support)
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Defence Procurement Policy Manual 3.12 Australian Industry Capability
3.12
Introduction
1. 2.
Australian Industry Capability
This chapter applies to procurements undertaken in Defence and the Defence Material Organisation (DMO). This chapter provides guidance on Industry Development and Australian Industry Capability policy for procurements, including an overview of the Defence Industry Policy and the Australian Industry Capability (AIC) program.
Mandatory Policy
An AIC Plan must be developed for all procurements when:

an applicable Industry Requirement has been identified; or the value of any one contract related to the capability exceeds $50 million.
For all other procurements which do not meet the above thresholds, an AIC Schedule must be developed. Acceptance of an AIC Plan addressing Industry Requirements must be based on value for money principles. Request for Tender (RFT) documentation must specify that tenderers offer the use of Australian defence industry where an Industry Requirement is specified and where it is cost effective to do so.
Australian Industry Participation 3. The Australian Government requires that the Australian Industry Participation (AIP) National Framework be applied to large Commonwealth tenders (generally above $20 million), by requiring tenderers to prepare and implement AIP Plans for certain procurements. Since Defence implements the Australian Industry Capability (AIC) and Global Supply Chain (GSC) programs, and other industry support measures, the AIP program does not apply to Defence procurements. 1
Defence Industry Policy 4. The Defence and Industry Policy Statement 2007 sets out the Governments Defence Industry Policy. The Government recognises the important role that defence industry plays in support of ADF capability, from the provision and maintenance of military equipment to the delivery of a wide range of support services. Growing the capacity and competitiveness of local defence industry will require ongoing investment in skills development, workforce growth and improved productivity. The Government will remain closely engaged with Australian defence industry to ensure that it provides the maximum support possible to the ADF while maintaining control of cost, schedule and quality. Total self-sufficiency in defence industry capabilities would be impractical for a nation of Australia's size, and is not necessary in any event. Rather, the Government is committed to ensuring that certain strategic industry capabilities remain resident in Australia.
5.
Department of Innovation, Industry, Science and Research - AIP Plan User Guide for Procuring Agencies, paragraph 1.3
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Defence Procurement Policy Manual 3.12 Australian Industry Capability 6. Defence Industry Policy places emphasis on managing the industrial capabilities required to meet Australias strategic military self-reliance needs. It reflects the current operational, procurement and economic environment in which Defence operates, including the ADFs increased operational tempo, the continued focus on best value for money procurement and the nationwide workforce skill shortfalls. The Defence Industry Policy seeks to address three key policy underpinnings:
7.
ADF support - delivering industry capability to support the ADF. The ADF needs to be supported and sustained by a robust defence industrial base; Strategic to retain those industry capabilities and skills required to meet Australias sovereign, military and self-reliance requirements namely those essential industry capabilities required in support of ADF operational capability; and Commercial to create the commercial environment to provide essential local industry with opportunities to openly compete for domestic and international defence work, based on best value for money principles.
8. 9.
The strategic and commercial industry objectives, as required under the Defence Industry policy, are managed through the AIC program. The AIC program requires companies to provide local industry with opportunities to openly compete for appropriate work, and apply value for money principles when securing goods and services. To this end, tenderers/contractors will be required to establish clearly defined processes and associated programs to identify and manage opportunities for local industry to openly compete for work. Defence will not stipulate the type or level of work to be competed or won by Australian industry. This requirement will extend to second and third level subcontractors for major systems and platforms.
Australian Industry Capability (AIC) Program 10. The AIC program has two objectives:
the generation and sustainment of indigenous industrial capabilities essential to meeting Australias sovereign military self-reliance needs, as required in support of ADF operational capability; and the creation of competitive opportunities for local industry to provide goods and services, domestically and internationally, as part of global supply chains based on best value for money.
11.
The AIC program is intended to ensure Australian industry receives the opportunity to compete for defence industry business on its merits. It is to be applied uniformly across all types of procurement activities undertaken by all Groups within Defence. Where requested in procurement documentation, tenderers will be expected to respond to AIC requirements through the preparation of an AIC Plan, which will then be formalised as part of the final contract.
12.
Open and transparent AIC costs 13. Defence does not want to pay a premium for the AIC program. Therefore, any acceptance of an AIC Plan addressing the industry requirement must be based on value for money principles. Accordingly, Defence requires open and transparent reporting of the costs and risks associated with the delivery of nominated AIC outcomes, as specified in the tender. These costs will be formally considered as part of the procurement approval process. AIC delivery costs that are not clearly identified within tender documentation including documentation provided by second and third level subcontractors, may result in the tender being assessed as non compliant.
14.
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Defence Procurement Policy Manual 3.12 Australian Industry Capability Foreign Military Sales 15. Acquisitions obtained via Foreign Military Sales (FMS) are not exempt from the AIC Program. Under FMS, Defence may also seek to establish Global Supply Chain (GSC) arrangements directly with the Original Equipment Manufacturer (OEM) through the establishment of a GSC Deed between the Commonwealth and the OEM or Defence may articulate the agreed AIC outcomes within a Deed with the preferred tenderer. The purpose of the GSC Deed is to facilitate the participation of Australian industry in the OEMs global supply chain. An annex to the GSC Deed, developed in negotiation with the preferred tenderer should detail the activities to be undertaken and the associated costing.
Government to Government Agreements 16. Acquisitions obtained under Government to Government agreements are not exempt from the AIC program. Prior to finalising the acquisition agreement, the project should seek advice from DMO Industry Division if a GSC Deed or any other deed with the preferred tenderer is required. If this is the case, then a GSC Deed will be developed in agreement with the OEM. A contract will then be established, either directly or through the foreign Government, to implement the agreement.
Industry Division Involvement 17. Procurement officers should consult with the DMO Industry Division (Industry Division) in the planning stages for the procurement, to discuss industry aspects, including whether or not Defence will seek to establish a GSC Deed. Industry Division will provide advice and assistance with the application of the AIC program at each stage of the procurement process. The Industry Division point of contact is the Director AIC Implementation: Phone (02) 62652922.
AIC Program Requirements 18. For all procurements, Australian industry participation should be maximised on a value for money basis.
AIC Plan 19. An AIC Plan must be developed for all procurements when:

an applicable Industry Requirement has been identified; or the value of any one contract related to the capability exceeds $50 million.
20.
For all other procurements which do not meet the above thresholds, an AIC Schedule must be developed. The AIC Schedule is found in Appendix 1 of the AIC Plan.
Industry Requirements 21. Industry Requirements are mandated by Defence and reflect those industry capabilities deemed to be essential to the delivery of the specific platform, system or services. Request for Tender (RFT) documentation must specify that tenderers offer the use of Australian defence industry where an Industry Requirement is specified and where it is cost effective to do so. An applicable Industry Requirement will be identified in consultation with Industry Division and included in the appropriate RFT documentation in the form of an AIC Plan or AIC Schedule. There are three types of Defence mandated Industry Requirements:
22.
strategic industry capability these are capabilities which confer a national security and strategic advantage to Australia by being resident in Australia; which if denied, may affect the way the ADF operates. Priority Industry Capability (PICs) These are a narrower subset of strategic industry capabilities that confer an essential national security and strategic advantage by being resident in-country. Page 3.123
Project Specific Industry Capability (PSICs) Industry capabilities that the project prefers to be resident in-country such as maintenance and sustainment activities.
23.
If a company fails to address the Industry Requirements within its response to a RFT, then the tender should be classed as non-compliant and it may be set aside from further consideration in the selection process. Procurement officers should seek advice from Industry Division regarding whether an Industry Requirement is applicable to the procurement that they are undertaking. More information on Industry Requirements is available in the AIC Toolkit and PIC Factsheets.
24.
Commercial Opportunities 25. For all contracts valued above $50 million contractors should provide local industry with commercial opportunities to compete for appropriate work and to apply clearly defined value for money principles when securing goods and services. Defence will not stipulate the type or level of work to be competed or won by Australian industry. If local industry is found to offer a competitive, value for money solution, Defence would expect those firms to be engaged to provide the nominated goods or services. Companies are required to establish clearly defined processes and associated programs to identify and manage opportunities for local industry to openly compete for work. This requirement will extend to second and third level subcontractors for major systems and platforms. For certain procurements identified by Industry Division, Defence will require the overseas company to allow Australian industry to compete on a value for money basis in delivery of goods and services into their global supply and support chains. Industry Division, will advise projects when this requirement is to be met.
26.
27.
Further Information 28. 29. Further guidance regarding all elements of the AIC Program can be obtained from the AIC website. The Industry Division point of contact is the Director AIC Implementation Phone: (02) 62652922.
Waiver from an AIC Plan 30. There will be circumstances where a project, by its very nature, delivers the outcomes of the AIC program without implementing an AIC Plan. If a project assesses that this is the case they should contact Industry Division in the first instance to see if they have a case for a waiver from the requirement for an AIC Plan. If it is established that there is a case for a waiver, the Project Officer is to request a waiver by writing to Head Industry Division through the Executive Director Industry Operations stating the reasons why an AIC Plan is not considered to be necessary. Reasons for a waiver include:
31.
that the majority of the work to be performed under the contract must by its nature be conducted in Australia to fulfil the requirements of the Statement of Work; work performed off shore is not of strategic significance to Australia or is incapable of being performed in Australia; or management of an AIC Plan would increase overall management costs with little or no additional value.
It is important to note that an AIC Plan waiver will not remove the AIC obligation within the procurement.
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Defence Procurement Policy Manual 3.12 Australian Industry Capability Industry Assistance 32. Defence recognises that it can be difficult for industry to find the right entry to Defence procurement activities. Similarly, it can be difficult for AIC practitioners to source the necessary information and tools to implement the AIC program. For this reason the Defence+Industry ePortal has been developed which provides access links to information, contacts and opportunities within Defence. Managing and complementing the ePortal are the DMO Business Access Offices (BAO) around Australia. BAOs are able to provide advice on industry procurement policies and practices. They can help to identify the most appropriate points of contact for doing business with Defence as they relate primarily to Small to Medium Enterprises operating in the Defence market. They are also able to provide assistance to identify appropriate Defence project staff. A further guide for industry on how the DMO engages with industry to support defence capability can be found in the DMO publication, Doing Business with Defence. Information regarding Defence and the DMO's planned procurement for the forthcoming year is available in the Annual Procurement Plan which is available on the AusTender website. The Department of Finance and Deregulation publication Selling to the Australian Government A Guide to Business February 2009 .
33.
34. 35. 36.
External Agency Support 37. There are a number of other organisations and groups that can assist companies seeking to engage with Australian and New Zealand (ANZ) industry including the following:
The Australian Industry & Defence Network (AIDN) acts as the focal point of contact between SME and Defence nationally. The Industry Capability Network (ICN) provides a service to industry that includes responding to queries on, and identifying, potential ANZ suppliers capable of providing goods and services. The New Zealand Defence Industry Association; Australian Business Limited (ABL) can facilitate Defence and industry liaison. The Australian Industry Group (AIG) can also facilitate industry liaison. The Defence Teaming Centre (DTC) in Adelaide assists companies collaborate to win business; and The various State and Territory governments also have units which can assist in providing information on local industry capabilities. Details are available on the Defence+Industry ePortal.
Involvement of New Zealand Industry in AIC 38. Australia and New Zealand (NZ) have a special relationship embracing cultural, political, economic and strategic interests. This relationship has been embodied in a number of government-to-government arrangements. The following government-to-government arrangements influence Defence purchasing activities:
Australia New Zealand Closer Economic Relations Trade Agreement requires Defence to ensure that its purchasing processes and practices provide the opportunity for NZ industry to participate in Australian Defence procurements on an equal footing with Australian industry. There are provisions in the Agreement that allow for the protection of Australian essential security interests and Intellectual Property; Australia New Zealand Closer Defence Relations Arrangement requires the two defence forces to investigate ways of combining capabilities and ensuring inter-operability to provide a more efficient and cost-effective defence capability;
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Government Procurement Agreement between the Australian, State and Territory and NZ governments encourages competition in government procurement. The agreement enables potential ANZ suppliers to compete on an equal footing for government contracts. Defence does not discriminate against a potential NZ supplier on the basis of origin; and Cooperation in Defence Logistics Support Agreement establishes that logistics support may be provided by one defence force to the other and that one force may access the others industrial base.
39.
In accordance with the above agreements, industry in Australia and NZ is regarded as a single defence industrial base. NZ industry should therefore be treated on the same basis as Australian industry with respect to some of the commercial requirements of an AIC program. However NZ industry will be excluded when considering any export facilitation program, such as involvement in the GSC Program. With respect to Industry Requirements, strategic or national security implications may also result in these capabilities being restricted to Australian industry. This will be determined on a case by case basis and clearly specified in solicitation documentation.
40.
Key References
Commonwealth Procurement Guidelines Defence Capability Development Handbook ASDEFCON Suite of Templates Defence 2000 Our Future Defence Force Defence and Industry Policy Statement 2007 AIC Toolkit AIC Priority Industry Capability Factsheet Doing Business with Defence 2007
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Defence Procurement Policy Manual 3.13 Ethics in Procurement
3.13
Introduction
1. 2.
Ethics in Procurement
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter provides guidance and advice on ethics related requirements for Procurement officers when undertaking procurement, including:

the legislative and policy framework; probity; and conflict of interest.
Mandatory Policy
Procurement officers must comply with the Financial Management and Accountability Act 1997 (Cth), the Financial Management and Accountability Regulations 1997 (Cth), the APS Values and APS Code of Conduct set out in sections 10 and 13 respectively of the Public Service Act 1999 (Cth) and the Commonwealth Procurement Guidelines (CPGs) when undertaking procurement activities. Procurement officers must comply with Defence Chief Executives Instruction (CEI) 6.2 (Defence officers) or DMO CEI 6.2 (DMO officers) and Defence Instruction (General) PERS 25-6 Conflicts of Interest and Acceptance of Offers of Gifts and Hospitality when dealing with gifts and hospitality from potential suppliers and contractors. Procurement officers must comply with Defence Instruction (General) - PERS 25-4 Notification of Post Separation Employment and Defence Instruction (General) - PERS 25-6 - Conflicts of Interest and Acceptance of Offers of Gifts and Hospitality when dealing with issues relating to post separation employment. DMO personnel must also comply with the Defence Material Instruction (Personnel Management) - 001 Dealing with Conflict of Interest in the Workplace when managing conflict of interest issues that arise in the course of employment. Defence employees must always behave ethically and fairly throughout the procurement process. Defence employees exercising delegations must conduct due diligence to ensure that the requirements of ethics and fairness have been applied during the procurement process. Procurement officers must consider developing a legal process or probity plan for any Complex or Strategic procurement activity.
Legislative and Policy Framework Legislation 3. Paragraph 6.17 of the CPGs states that ethics are moral boundaries or values within which officials work. Ethical behaviour encompasses the concepts of honesty, integrity, probity, diligence, fairness, trust, respect and consistency. Ethical behaviour identifies and avoids conflicts of interest, and does not make improper use of an individuals position. Defence employees must always behave ethically and fairly throughout the procurement process and Page 3.131
Defence Procurement Policy Manual 3.13 Ethics in Procurement comply with all Commonwealth legislation and policy. A procurement conducted in an ethical manner enables purchasers and potential suppliers to deal with each other with mutual trust and respect. 4. The legislative requirements for Procurement officers to act ethically when undertaking procurement activities stem from two main sources: the Public Service Act 1999 (Cth) (Public Service Act) and the Financial Management and Accountability Act 1997 (Cth) (FMA Act). When conducting procurement activities, Procurement officers must comply with the APS Values (section 10) and Code of Conduct (section 13) of the Public Service Act including subsections: Section 10 APS Values. (d) (e) the APS has the highest ethical standards; and the APS is openly accountable for its actions, within the framework of Ministerial responsibility to the Government, the Parliament and the Australian public.
5.
Section 13 APS Code of Conduct (1) (7) (8) (10) An APS employee must behave honestly and with integrity in the course of APS employment; An APS employee must disclose, and take reasonable steps to avoid, any conflict of interest (real or apparent) in connection with APS employment; An APS employee must use Commonwealth resources in a proper manner; An APS employee must not make improper use of: (a) (b) inside information; or the employees duties, status, power or authority,
in order to gain, or seek to gain, a benefit or advantage for the employee or for any other person; and (11) 6. An APS employee must at all times behave in a way that upholds the APS Values and the integrity and good reputation of the APS.
The concept of ethical behaviour is reinforced in Section 44 of the FMA Act and Regulation 9 of the Financial Management and Accountability Regulations 1997 (FMAR). In particular, section 44 of the FMA Act requires the Chief Executive to manage Defence in a way that promotes proper use of Commonwealth resources, where Proper use is defined as an efficient, effective and ethical use that is not inconsistent with the policies of the Commonwealth.
Government Policy 7. In addition to the above legislative requirements to behave ethically, the two primary documents outlining Government policy on conducting procurement in an ethical manner are the CPGs and the Department of Finance and Deregulations Financial Management Guidance No. 14 Guidance on Ethics and Probity in Government Procurement - January 2005 (FMG 14). To ensure compliance with these policies, Defence employees should:
8.
recognise and deal with any conflicts of interest, including perceived, potential and/or actual; deal with potential suppliers, tenderers and contractors equitably; consider seeking advice where probity issues arise; comply with all duties and obligations, including Defences rules and policies in relation to gifts or hospitality, post-employment separation and sponsorship, the information privacy principles of the Privacy Act 1988 (Cth), the security provisions of the Crimes Act 1914 (Cth) and the Public Service Act Section 13;
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Defence Procurement Policy Manual 3.13 Ethics in Procurement
not seek or accept personal benefit when dealing with potential suppliers, tenderers and contractors; always consider accountability and transparency throughout the procurement process; and be scrupulous in their use of public property.
Probity 9. The fundamental way in which Defence implements and monitors ethics in procurement is through probity, meaning good process. A good tender process is one in which clear procedures, consistent with Commonwealth legislation, policies and principles and the legitimate interests of tenderers, are established, understood and observed from start to finish. All tenderers are to be treated equitably in accordance with these procedures. There are four essential principles to promoting probity which should be considered throughout the whole tendering process:

10.
value for money; impartiality and fairness; dealing with conflicts of interest; and transparency and accountability.
11.
Accurate record keeping is an important part of ensuring transparency and accountability. Procurement officers should ensure the tendering process is well documented. Decisions should be made in a clear, open and transparent manner which enables them to be understood and defended. For more information on Defence record keeping policy, refer to chapters 5.1 and 5.4 and POLMAN 3.
Legal Process and Probity Plans and Probity Briefings 12. 13. Procurement officers must consider developing a legal process or probity plan for any Complex or Strategic procurement. Prior to undertaking any Complex or Strategic procurement tender evaluation, all officers involved in the tender evaluation should be briefed on their probity obligations in accordance with the probity plan.
Use of Legal Process / Probity Advisers and Auditors 14. The terms legal process adviser and probity adviser are often used interchangeably. However, a key difference is that a legal process adviser is engaged to provide legal advice on the development and implementation of the procurement process in addition to the more usual probity advice provided by a probity adviser about the conduct of the procurement process. An advantage of a legal process adviser can be that legal professional privilege is maintained in the advice provided by the legal adviser. In the rest of this chapter, the term probity adviser is used to denote both a legal process adviser and a probity adviser. Probity advisers and probity auditors perform different functions. Depending on the particular procurement activity, it may be appropriate to engage either or both. Probity advisers provide independent advice and assistance during a procurement process. They are normally engaged at the beginning of the procurement process. A probity auditor is independent of the procurement process and is engaged to review a procurement activity at a particular point in the process (eg at the completion of the tender evaluation) to verify whether the processes undertaken were consistent with the legal process and probity framework put in place to govern the procurement. It is important for Procurement officers to ensure that the roles of a probity adviser and probity auditor are clear and that there is no duplication between the services provided.
15. 16.
17.
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Defence Procurement Policy Manual 3.13 Ethics in Procurement 18. Obtaining probity advice or conducting a probity audit should not be confused with obtaining legal advice. Both legal and probity advice may be required in relation to a procurement activity.
Probity Advisers 19. Probity advisers can provide the following services:
legal process and probity advice on tender planning, request, evaluation, negotiation and recommendation processes and assistance to comply with the CPGs and Defence procurement policy; provision of advice/briefs to the procurement teams on probity principles; advice and/or assistance in the preparation of a legal process or probity plan (although responsibility for compliance with and the outcomes from the plan still rests with the project team manager); advice and assistance on the development of conflict of interest and confidentiality declarations; advice and/or assistance with procedures to ensure probity, for example processes dealing with communications with tenderers and third parties, information security, confidentiality, conflicts of interest, records and information management, setting up data facilities etc. Whenever possible, probity procedures already established by other projects should be reused in order to avoid developing new documentation and to encourage continuous improvement; advice on tender documentation, tender evaluation documentation and any probity issues that may arise during the tender process; and advice on the robustness of the final recommendation process and report.
20.
Procurement officers may seek legal process or probity advice and engage a probity adviser prior to conducting the following procurement activities:
where an offer definition or other risk reduction process is being used to assist in making a source selection decision in a procurement; for projects using the project alliancing/alliance contracting methodology; and where parallel negotiations will be conducted with two or more tenderers.
21.
Legal process or probity advice may also be useful in other circumstances, including where:

the integrity of the procurement process may be questioned; there has been a history of controversy and litigation; the project is politically sensitive and vulnerable to controversy; the nature of the market place makes tenderer grievances more likely; it is an innovative project where tenderers are likely to be concerned about protecting their intellectual property; the project is highly complex; a single supplier direct source acquisition strategy is being used; and an in-house option tender is being considered.
22.
The probity adviser cannot perform probity auditing services for the same procurement activity. This would be a conflict of interest because normally part of the work undertaken by the probity auditor would be to audit the activities of the probity adviser.
Probity Auditors 23. Probity auditors provide independent opinions on probity issues that arise during the tendering process and confirm, in writing, whether the concluded process has met all probity Page 3.134
Defence Procurement Policy Manual 3.13 Ethics in Procurement requirements. The audit findings are provided by the auditor in a written report, including any non compliance with probity requirements. 24. A probity auditor can be engaged to audit different stages of a procurement activity. For example, it may be appropriate to have a probity audit conducted prior to requests for tender being issued, before contracts are signed and at the end of the procurement activity. A probity audit may be required where:

25.
concerns are raised about a procurement process by an aggrieved tenderer; the integrity of the process has been questioned; or there is political controversy surrounding the procurement activity.
Where to obtain probity adviser or probity auditor services 26. 27. For preliminary probity advice, Defence Procurement officers should contact the Office of the Inspector General and DMO Procurement officers should contact the Office of Special Counsel. Procurement officers seeking to engage a probity adviser for the life of the procurement process can also seek external probity advisers through various panels. In DMO, Procurement officers should contact DMO Legal. Procurement officers in Defence Groups should contact Defence Legal or seek to access the Defence Support Group Consultancy Services Panel (Panel 2). For probity auditing services, DMO Procurement officers should contact DMO Legal in the first instance, and Defence Procurement officers should contact the Office of the Inspector General and lodge a management task with the Assistant Secretary Management Audit (ASMA). For more information on probity, refer to the Australian National Audit Offices Better Practice Guide - Fairness and Transparency in Purchasing Decisions: Probity in Australian Government Procurement August 2007.
28.
29.
Conflicts of Interest 30. Conflicts of interest refers to any situation where there is, or may appear to be, a conflict between an employees personal interests and their public duties and responsibilities that can prejudice their impartiality. Defence employees are expected to avoid, or take steps to avoid, any actual, potential or perceived conflicts of interest. There are many kinds of conflicts of interest, but they can generally be categorised into the following:

31.
gifts and hospitality (including travel and accommodation); holding interests or investments in companies, or their competitors, doing business with Defence; post separation employment; and sponsorship by private sector companies.
32. 33.
For further information on conflicts of interest, Procurement officers should refer to FMG 14. DMO personnel must comply with the Defence Material Instruction (Personnel Management) 001 Dealing with Conflict of Interest in the Workplace when managing conflict of interest issues that arise in the course of employment.
Gifts and Hospitality 34. Defence employees must not accept or solicit gifts, any benefits or hospitality for themselves or any other person or group. Offers of gifts, benefits or hospitality that could give rise to actual or perceived conflicts of interest should not be accepted. Any gifts, or offers of gifts should be reported on a relevant organisational gift register. Page 3.135
Defence Procurement Policy Manual 3.13 Ethics in Procurement 35. Procurement officers must comply with Defence Chief Executives Instruction (CEI) 6.2 (Defence officers) or DMO CEI 6.2 (DMO officers) and Defence Instructions (General) PERS 25-6 - Conflicts of Interest and Acceptance of Offers of Gifts and Hospitality when dealing with gifts and hospitality from potential suppliers, tenderers and contractors.
Post Separation Employment 36. Defence employees wishing to take up employment with private sector organisations must consider whether there might be potential for a real or apparent conflict of interest. Where a conflict exists or is perceived to exist, Defence employees must fully inform Defence of the situation before accepting employment. Procurement officers must comply with Defence Instruction (General) PERS 25-4 - Notification of Post Separation Employment and Defence Instruction (General) PERS 25-6 - Conflicts of Interest and Acceptance of Offers of Gifts and Hospitality when dealing with issues relating to post separation employment.
37.
Private Sector Sponsorship 38. Defence employees must not accept or seek sponsorship or commercial endorsement relating to events, functions, products or businesses when this could give rise to a perception of real or potential conflict of interest for Defence or another party. Refer to Defence Instructions (General) PERS 25-6 - Conflict of Interest and Acceptance of Offers of Gifts and Hospitality, Defence CEI 2.12 Receiving and Providing Sponsorship and to the Ethics Matters in the Defence Resource Management Handbook for more information.
39.
Key References
Public Service Act 1999 (Cth) Financial Management and Accountability Act 1997 (Cth) Financial Management and Accountability Regulations 1997 (Cth) Commonwealth Procurement Guidelines DOFD Financial Management Guidance No. 14 Guidance on Ethics and Probity in Government Procurement January 2005 Defence Chief Executives Instruction (CEI) 6.2 Receiving and Gifting Gifts Defence Chief Executives Instruction (CEI) 2.12 Receiving and Providing Sponsorship DMO Chief Executives Instruction(CEI) 6.2 Gifting Public Property and Receiving Gifts and Benefits Australian National Audit Office (ANAO) Better Practice Guide - Fairness and Transparency in Purchasing Decisions: Probity in Australian Government Procurement August 2007 Defence Resource Management Handbook, Ethics Matters Defence Workplace Relations Manual Chapter 7, Part 5 Defence Instruction (General) PERS 25-2- Employment and Voluntary Activities of ADF Members in Off-Duty Hours Defence Instruction (General) PERS 25-3 - Disclosure of Interests of Members of the Australian Defence Force Defence Instruction (General) PERS 25-4 - Notification of Post Separation Employment Defence Instruction (General) PERS 25-6 - Conflicts of Interest and Acceptance of Offers of Gifts and Hospitality
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Defence Procurement Policy Manual 3.13 Ethics in Procurement Departmental Personnel Instruction 1/2006 Financial and Other Private Interest Statements by Defence Senior Executive Service Officers Defence Materiel Instruction (Personnel) 1/2007 Post Separation Employment Policy Defence Materiel Instruction (Personnel Management) 001 - Dealing with Conflict of Interest in the Workplace APS Ethics Advisory Service
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Defence Procurement Policy Manual 3.14 Legislation Affecting Procurement
3.14
Introduction
1. 2.
Legislation Affecting Procurement
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter details key Commonwealth, State and Territory legislation that may affect Commonwealth procurements, including:

consumer protection legislation; superannuation legislation; workers compensation legislation; taxation legislation; privacy legislation; anti-discrimination legislation; occupational health and safety legislation; and environmental legislation.
3.
This chapter does not address the Financial Management and Accountability Act 1997 (Cth), or the Financial Management and Accountability Regulations 1997 (Cth). For further information on this legislation refer to chapters 1.2 and 1.4. The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
Mandatory Policy
Any Defence contract for services must require the contractor, its officers, employees, agents and subcontractors to comply with Defence Instruction (General) Personnel 35-3 Management and Reporting of Unacceptable Behaviour. Procurement officers must ensure that contracts comply with applicable legislative requirements, including those outlined in this chapter.
Implications for Defence Contracts 4. Specific clauses often need to be included in tender and contract documentation to cover issues such as privacy, occupational health and safety and superannuation as a consequence of legislative requirements in these areas. Standard Defence templates will normally include such clauses, but advice should be sought from a procurement or legal specialist if you consider that further clauses may be necessary. Where the applicability of specific legislation is uncertain, Procurement officers should seek legal advice.
5.
Applicability of State and Territory Legislation 6. The application of State and Territory laws to the Commonwealth is a complex area of the law involving questions of Commonwealth immunity and statutory interpretation. Consideration needs to be given to whether the State or Territory legislation is intended to have the effect of binding the Commonwealth and whether the Commonwealth is in fact bound. Page 3.141
Defence Procurement Policy Manual 3.14 Legislation Affecting Procurement 7. For contractual dealings, it is generally accepted that the Commonwealth can be bound by State and Territory legislation as long as there is no inconsistency with a Commonwealth law and the State and Territory law intends to bind the Commonwealth. This means that when setting up a contract, consideration may need to be given to the possible applicability of relevant State laws, e.g. State environmental and planning laws and laws relating to contracts and rental arrangements. Procurement officers should seek legal advice where the applicability of State and Territory laws is uncertain.
Consumer Protection Legislation 8. 9. Key legislation relating to Commonwealth procurement includes the Competition and Consumer Act 2010 (Cth) (CCA) and the Sale of Goods Acts in each State and Territory. The CCA is the successor to the Trade Practices Act 1974 (Cth) (TPA), with a series of legislative amendments coming into force as at 1 January 2011 with the aim of creating a uniform consumer law regime in Australia. As at 1 January 2011 each of the States and Territories have repealed their respective Fair Trading Acts and implemented the CCA as law in their jurisdictions.
10.
Competition and Consumer Act 2010 11. The objectives of the CCA are to promote competition and fair trading and to provide consumer protection. The CCA operates to imply terms into certain contracts for the supply of goods relating to title, merchantable quality, fitness for purpose and misleading description of goods. Specific definitions of goods, consumer and corporation in the CCA need to be met before the CCA will apply to a contract. As such, the above CCA implied terms may not apply to many Simple procurements and will not generally apply to most Complex and Strategic procurements. Schedule 2 of the CCA, known as the Australian Consumer Law, contains national consumer protection and fair trading laws (such as those dealing with misleading and deceptive conduct) which have been implemented by each State and Territory. Given the limited potential application of the TPA to Defence, the changes associated with the introduction of the CCA should have little impact upon existing processes and procedures. The introduction of CCA has served primarily to restructure the TPA with the aim of providing greater clarity. The CCA regulates a range of activities designed for consumer protection and prohibits discrimination likely to substantially lessen competition such as:

12.
13.
Misuse of market power; Exclusive dealings; Resale price maintenance; Acquisitions that would substantially lessen competition; Unconscionable conduct; Misleading or deceptive conduct; and False or misleading representations.
14.
Where Commonwealth agencies carry on the activities of a business either directly or indirectly, they are bound by the CCA (section 2A). The current legal position is that the CCA does not apply to the Commonwealth in relation to the procurement, sustainment and disposal of goods or services acquired for the defence of the Commonwealth. These are functions of the Commonwealth and do not amount to the carrying on of a business. In short the current legal position is that Defence, in respect of its procurement activities, is not carrying on a business for the purposes of the CCA. Notwithstanding this, it is good practice to recognise that all interactions with tenderers during the tender process, including briefing
15.
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Defence Procurement Policy Manual 3.14 Legislation Affecting Procurement sessions and negotiations, are potentially challengeable by them whether or not this challenge occurs under the CCA 16. Further, this does not mean that Procurement officers are excused from the need to ensure that all information given to tenderers is accurate and consistent, that all conditions in the tender documentation are adhered to, and that all communications are consistent with those conditions.
Sale of Goods Acts 17. The Sale of Goods Acts in each State and Territory imply certain warranties as to title, quality and fitness for purpose in contracts of sale. Implied warranties include:

the right of the seller to sell the goods; the goods correspond with the description; and the goods are of merchantable quality and are fit for the purpose for which they were sold.
18.
These warranties may be applicable to all contracts unless excluded or modified by the terms of the contract. Defence does not normally agree to exclude the warranties implied in the Sale of Goods Acts are not excluded. Where a tenderer wishes to modify clauses in the contract documentation issued by Defence, Procurement officers should be cautious about accepting clauses which attempt to modify or exclude the provisions of the CCA or the Sale of Goods Acts and legal advice may need to be sought. For example, a clause that states all conditions, warranties and liabilities implied by statute, common law or otherwise are excluded should not be included in a contract.
19.
Contracts pre-1 January 2011 20. Contracts executed prior to 1 January 2011 will continue to be subject to both the TPA and the relevant State or Territory Fair Trading Act. Legal advice should be sought in cases where Procurement officers are unsure as to whether the contract they are dealing with falls under the CCA, under the TPA, or neither.
Superannuation Legislation 21. Under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SG Act), an employer is required to provide a minimum level of superannuation support for all employees. The SG Act also provides for an extended definition of the terms employer and employee for the purposes of the Act. Some contractors and consultants are employees for superannuation guarantee purposes only due to the fact that they work under a contract which is wholly or principally for their labour. These contractors and consultants are not common law employees and are therefore not entitled to join the Public Sector Superannuation Accumulation Plan. The Australian Government Employees Superannuation Trust (AGEST) is the appropriate fund in these cases. To determine whether there is an obligation to make provision for superannuation contributions for individuals (that is, whether an individual is an employee or an independent contractor), Procurement officers need to understand the nature of the arrangements they are entering into with contractors. In this regard, Australian Taxation Office Superannuation Guarantee Rulings (SGR) SGR 2005/1 (who is an employee), SGR 2005/2 (work arranged by intermediaries) and SGR 2009/2 (meaning of the terms ordinary time earnings and salary or wages) are all relevant for determining who is an employee and upon what basis employer superannuation contributions are to be calculated for the purposes of the SG Act. If there is a superannuation liability, it is then the responsibility of the Procurement officer to calculate the extent of the superannuation contribution and raise a purchase order for the calculated amount. For further advice on superannuation liability for contracted personnel, Procurement officers should contact the Directorate of Superannuation on (02) 61272540. Page 3.143
22.
23.
24.
Defence Procurement Policy Manual 3.14 Legislation Affecting Procurement Taxation 25. Defence may have an obligation to withhold a percentage of the invoiced amount when making payments against invoices submitted by contractors, depending on the status of the contractor and any agreements they may have with the Australian Taxation Office. Refer to chapter 3.7 for further information on GST. In accordance with Schedule 1 of the Taxation Administration Act 1953 (Cth), Defence may be required to withhold 46.5% of all payments where a contractor fails to provide their Australian Business Number. This provision applies to all contracts. There are circumstances however where a person need not have an Australian Business Number and Defence is not required to withhold 46.5%, that is:
26.
the supply is made to Defence in their capacity as an individual, in the course of an activity that is a private recreational pursuit or hobby; the supply is wholly of a private or domestic nature; the contractor (or the supplier that they represent) is non-resident and not carrying on an enterprise in Australia; or the whole of the payment that they (or the supplier that they represent) will receive for the supply is exempt from income tax.
27.
The Defence Tax Management Office recommends obtaining and holding on file a signed Statement by Supplier form (ATO form number NAT 3346-04.2008) to confirm the reason the contractor has not provided an Australian Business Number. Defence may incur additional taxation obligations to withhold Pay As You Go taxation instalments, against invoices submitted by the contractor when entering into a contract with certain legal entities, particularly natural persons, sole traders and partnerships. This may occur in the following circumstances:
28.
the contractor, whether holding an Australian Business Number or not, enters into a voluntary agreement with the Australian Taxation Office to make its payments subject to Pay As You Go withholding; or the contractor is deemed to be an employee of Defence for taxation purposes.
29.
Where the contractor has elected to have its invoices subject to Pay As You Go instalments, Defence is required to withhold either 20% or another amount agreed between the Commissioner of Taxation and the contractor under a withholding agreement. The contractor is obliged, under its withholding agreement, to advise Defence of the amount of Pay As You Go taxation to be withheld in respect of invoices lodged by them. Before agreeing to action any request to withhold an amount of less than 20%, a copy of the withholding agreement is to be obtained by the Procurement officer. A copy of the withholding agreement must be maintained, on file, for a minimum period of five years after the final payment has been made against the contract. Where a contractor is deemed to be an employee of Defence, Pay As You Go taxation amounts will be required to be withheld by Defence from payments made under the contract. The employee/employer relationship test, set out in chapter 4.10, is to be used to determine if a contractor is deemed to be an employee of Defence for taxation purposes. Further advice and information about Pay As You Go taxation, withholding agreements and payment summary requirements can be obtained from the Defence Taxation Management Office phone 1800 806 053 or via email at taxation.management@defence.gov.au.
30.
31.
Workers Compensation 32. Employers are obliged by legislation to provide workers compensation coverage, for their employees, against injuries incurred during the course of employment.
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Defence Procurement Policy Manual 3.14 Legislation Affecting Procurement 33. Defence standard templates contain clauses to ensure that the contractors employees are covered for workers compensation purposes by the contractor. The standard clauses may not cover situations where Defence is contracting with natural persons (individuals) who are unable to obtain workers compensation insurance. In these circumstances, it would be appropriate to ensure that the individual has appropriate personal injury insurance. When contracting with a natural person, Procurement officers should apply the employee/employer relationship test set out in chapter 4.10 to assist in determining if the contractor will be deemed to be an employee of the Commonwealth for workers compensation purposes. Where it is considered that a contractor, who is a natural person, is an employee of the Commonwealth for workers compensation purposes, that contractor will be covered under the Safety Rehabilitation and Compensation Act 1988(Cth) as are other Commonwealth employees. Comcare, the workers compensation insurer for the Commonwealth, provides safety, rehabilitation and compensation services to Commonwealth agencies. Further advice on whether contracted personnel will be covered by the Commonwealth workers compensation scheme can be obtained from Comcare by telephone on 1300 366 979, via email at claims.help@comcare.gov.au or on the Comcare website.
34.
35.
36.
Privacy Act Requirements 37. The Commonwealth Procurement Guidelines (CPGs) require agencies to ensure that service providers are aware of their obligations under the Privacy Act 1988 (Cth) (Privacy Act) at an early stage, by including appropriate advisory provisions in requests for tender, expressions of interest and other tendering documentation. The ASDEFCON suite of tendering and contracting templates include clauses to fulfil this requirement. The National Privacy Principles set out minimum requirements for business and private sector organisations, including contracted service providers and subcontractors, in relation to the collection, use, disclosure, quality, security, openness, access and correction of personal information. These principles, like the Information Privacy Principles in section 14 of the Privacy Act that apply to Commonwealth agencies, reflect the Organisation for Economic Co-operation and Development data protection principles. The National Privacy Principles are to be applied in conjunction with the Information Privacy Principles. It is a requirement of the Privacy Act that contracted service providers, and subcontractors engaged by them, do not breach the Information Privacy Principles, National Privacy Principles 7-10 and section 16F (Information under Commonwealth contract not to be used for direct marketing) of the Privacy Act when engaged under contract to the Commonwealth. A contracted service provider, for the purposes of a government (Commonwealth or State) contract, is defined in section 6 of the Privacy Act as:
38.
39.
40.
an organisation that is or was a party to the government contract and that is or was responsible for the provision of services to an agency or a State or Territory authority under the government contract; or a subcontractor for the government contract.
What is required of Defence? 41. Section 95B (Requirements for Commonwealth contracts) of the Privacy Act applies to contracts entered into by Defence from 21 December 2001 onwards. The section requires Defence to include provisions in its contracts to ensure that contracted service providers do not perform an act, or engage in a practice, that would breach an Information Privacy Principle if that act was performed, or the practice engaged in, by Defence.
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Defence Procurement Policy Manual 3.14 Legislation Affecting Procurement 42. Defence is also required to include provisions in its contracts to ensure that such acts or practices are not authorised by a subcontract, which is defined in subsection 95B(4) of the Privacy Act as: a contract under which a contracted service provider for the Commonwealth contract is engaged to provide services to: (a) (b) another contracted service provider for the Commonwealth contract; or any agency,
for the purposes (whether direct or indirect) of the Commonwealth contract. 43. Section 95B of the Privacy Act also applies where contracted service providers and subcontractors are located overseas. The Privacy Commissioner has jurisdiction to investigate a complaint made in relation to services or activities of overseas contracted service providers. Section 95B of the Privacy Act does not apply where the services being provided under the contract are not connected with the function of Defence. Contracted service provider obligations under a contract will continue to apply in relation to relevant information after the contract has come to an end. It is important that contracted service providers and their subcontractors are made aware of the long term nature of the requirements and are encouraged to make appropriate arrangements (e.g. in relation to the ongoing storage of relevant information).
44.
Contracts pre-21 December 2001 45. 46. Contracts entered into prior to 21 December 2001 that do not contain privacy clauses are subject to the National Privacy Principles from 21 December 2001 onwards. Where privacy clauses in a contract are consistent with the National Privacy Principles, and the contractor breaches a privacy clause in the contract, they may be deemed to have breached a National Privacy Principle. The Privacy Commissioner has jurisdiction to investigate and take appropriate action. Where there is an inconsistency between the National Privacy Principles and a Commonwealth contract, privacy clauses in the contract will prevail. Therefore, privacy clauses in Commonwealth contracts entered into prior to 21 December 2001 are enforceable even where they are inconsistent with the National Privacy Principles. Unless extended, Defence is not required to amend contracts they have entered into prior to 21 December 2001. However, it is preferred that contracts be reviewed and amended where they are not consistent with the new legislative provisions unless there are specific reasons for not doing so. Similarly, where there is an inconsistency between section 16F of the Privacy Act and the provisions of a Commonwealth contract, unless the contractor is required to undertake direct marketing to meet the requirements or obligations of the contract, then the contractor should be made aware of obligations not to engage in any such act.
47.
48.
49.
Clauses to Meet Privacy Act Obligations 50. 51. Contracts entered into, or extended, after 21 December 2001 must comply with the requirements of section 95B of the Privacy Act. Defence must include privacy clauses in their contracts to ensure that contractors are aware of their obligations to comply with the Information Privacy Principles, the National Privacy Principles 7-10 and section 16F of the Privacy Act. The ASDEFCON suite is compliant with this requirement. It is not sufficient to only include a blanket clause in a contract stating that the contractor must not breach their privacy obligations in relation to the Privacy Act. Detailed or practical provisions for each requirement are required in order to make a contractor fully aware of their responsibilities under the contract.
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Defence Procurement Policy Manual 3.14 Legislation Affecting Procurement 52. The contractors obligations under the National Privacy Principles may be varied by a contract to allow the contractor to undertake an act or practice that would allow it to meet the requirements or obligations of the contract, so long as the agency abides by the section 95B requirements of the Privacy Act. Obligations of the contractor to protect any personal information continue after the completion or termination of the contract.
53.
Health Privacy 54. The Privacy Act has been extended to cover the private health sector throughout Australia. The National Privacy Principles promote greater openness between health service providers and consumers in the handling of health information, and include a general right of access for consumers to their own health records. Health service providers are also required to have documentation available clearly setting out their policies for the management of personal information.
Complaints Handling 55. The Privacy Commissioner handles and investigates complaints under the Privacy Act, and has wide ranging powers including the ability to obtain information and take evidence under oath. Even where a contractor is subject to an approved privacy code, the Privacy Commissioner retains jurisdiction to investigate the contractor in relation to its obligations under the Privacy Act. Where the complaint concerns an act or practice of a contractor, it is the contractor, not the contracting agency, who is the respondent in the investigation. Under certain circumstances, the contracting agency may be substituted for the contractor as respondent in the event of a dispute. This happens where the contractor is no longer available such as in the event of death, bankruptcy or where the contractor ceases to exist. The Privacy Commissioner is required to give the contracting agency the opportunity of appearing before the Privacy Commissioner and to make an oral and/or written submission concerning the proposed substitution of the contracting agency as respondent.
56.
Anti-Discrimination Legislation 57. There are a number of Commonwealth Acts dealing with discrimination in the workplace. These Acts apply to all Australian employers and employees including contract workers, employment agencies and unions. Procurement officers need to be aware that the legislation is not only applicable to Defence as an employer of military and civilian personnel, it also applies when selecting potential suppliers of goods and services. Defence cannot discriminate against a potential supplier contrary to the legislation and should ensure that the potential supplier is compliant with the legislation. Anti-discrimination legislation which must be complied with includes:

58.
59.
Racial Discrimination Act 1975 (Cth); Sex Discrimination Act 1984 (Cth); Human Rights and Equal Opportunity Commission Act 1986 (Cth); Disability Discrimination Act 1992 (Cth); and Age Discrimination Act 2004 (Cth).
An overview of the anti-discrimination laws is contained in Defence Instruction (General) Personnel 34-2 - Complaints of Discrimination and Harassment through the Australian Human Rights Commission. 60. Defence policy contained in Defence Instruction (General) Personnel 35-3 - Management and Reporting of Unacceptable Behaviour also defines discrimination as a category of unacceptable behaviour. For further information see paragraph 65 below. Page 3.147
Defence Procurement Policy Manual 3.14 Legislation Affecting Procurement Occupational Health and Safety and Contractors 61. Contractors who provide goods, equipment or services when working on Defence premises must comply with the requirements of the Occupational Health and Safety Act 1991 (Cth) (OH&S Act). An exception to this is if the contractor is undertaking construction or maintenance work which is deemed to be in control of the contractor. In such instances, the relevant State or Territory Occupational Health and Safety legislation is to be complied with. Whether or not a contractor is in control of a workplace is a question of fact in each case. Where there is doubt, the obtaining of legal advice should be considered. The OH&S Act also imposes specific obligations on manufacturers, suppliers, erectors, and installers. The Occupational Health and Safety (Safety Standards) Regulations 1994 (Cth) detail how the obligations of the OH&S Act are to be fulfilled. Specifically Part 4 Plant and Part 6 Hazardous Substances cover most goods and equipment provided to Defence. In the case of Hazardous Substances and some other parts of the regulations, e.g. Confined Spaces, there is supplementation within the Occupational Health and Safety Code of Practice 2008 and related guidance material. In certain cases there are no prescribed Commonwealth legislative safety requirements (outside the general Duty of Care). In accordance with the OH&S Act, section 4 unless the regulations state otherwise, the Commonwealth is not bound by State and Territory Occupational Health and Safety legislation. An example of this is in the transport, storage and handling of Dangerous Goods. The Australian Radiation Protection and Nuclear Safety Act 1998 (Cth) applies to Commonwealth employment which includes members and employees of Defence. For information on these legislative requirements or Defence Radiation Policy contact the Radiation Safety section, Joint Logistics Command. Defence policy on radiation hazard management is contained in Defence Safety Manual (SAFETYMAN) Vol 1, part 4. The Defence authorised policy on contractor safety management is SAFETYMAN, Volume 1, Part 1. Chapter 8 Contractor Safety Management. A booklet entitled Contractor Safety Management has been prepared by the OHS Branch to assist in complying with this policy. A copy is available on the Defence OH&S website (Publications). Within Defence and DMO, the responsible Group/Organisational Executive is to ensure that the contractor follows Occupational Health and Safety standards that are consistent with those of the Defence organisation through the implementation of a contractor safety management system. Contract safety management is achieved through:
62. 63.
64.
65.
66.
67.
the selection of contractors that meet Occupational Health and Safety criteria (specified in request documentation); the contract containing appropriate safety clauses and information on explicit safety arrangements; the contractors safety management plan that includes: safe work practices; risk assessments; consultation mechanisms; incident reporting; sub contractor management; induction safety training; and site safety training; and monitoring of the contractors Occupational Health and Safety performance.
68.
The obligations of Defence and the contractor under the OH&S Act and common law should be specified in all contract documents so that there are no misunderstandings about who is Page 3.148
Defence Procurement Policy Manual 3.14 Legislation Affecting Procurement responsible for the various aspects of Occupational Health and Safety in the workplace. Policy advice on safety issues can be obtained from SAFETYMAN. Unacceptable Behaviour 69. The OH&S Act, section 16 imposes a duty on Defence to take all reasonably practicable steps to protect the health and safety of its employees. The OH&S Act, section 17 also imposes a duty on Defence to take all reasonably practical steps to protect the health and safety of third parties. This requirement would extend to contractors in the workplace. The requirement to take reasonably practical steps to protect the health and safety of employees and third parties would include the provision of a workplace that is free from harassment, bullying and other forms of unacceptable behaviour. Defence Instruction (General) Personnel 35-3 (DI(G)Pers 35-3) Management and Reporting of Unacceptable Behaviour applies to contractors who, under the conditions of contract with Defence must comply with the Instruction. DI(G) Pers 35-3 requires Defence service contracts to include in the conditions of contract a requirement that the contractor, its officers, employees, agents and subcontractors comply with the Instruction. In accordance with DI(G) Pers 35-3 all Defence personnel must undertake annual equity awareness training. The requirement applies to contractors who provide their service in the Defence workplace. Contractors who do not provide their service in a Defence workplace, or infrequently visit the Defence workplace, are not required to complete the training. Contract managers must exercise professional judgment in assessing the training requirement for contractors with a high level of interaction with Defence personnel, but who either do not perform their service in, or infrequently visit, the Defence workplace. Contract managers are responsible for providing access to the training and for ensuring the contractor has met this requirement. It is important that contractors and their subcontractors are made aware of the training requirement. In situations where the contract manager has determined that training will be necessary, this obligation should be included in the contract. A complaint of unacceptable behaviour against a contractor that is not resolved informally must be managed in accordance with the Resolution of Disputes clause in the contract. Any subsequent action against the individual arising from the dispute resolution is the responsibility of the contractor. For further information on Defences policy on unacceptable behaviour visit the Fairness and Resolution website at http://www.defence.gov.au/fr/.
70.
71.
72.
73.
Environmental Legislation 74. The Environment Protection and Biodiversity Conservation Act 1999 (Cth) and other environment legislation have implications for Procurement officers. These issues are addressed in chapter 3.16.
Key References
Age Discrimination Act 2004 (Cth) Australian Radiation Protection and Nuclear Safety Act 1998 (Cth) Competition and Consumer Act 2010 (Cth) Disability Discrimination Act 1992 (Cth) Environment Protection and Biodiversity Conservation Act 1999 (Cth) Human Rights and Equal Opportunity Commission Act 1986 (Cth) Occupational Health and Safety Act 1991 (Cth) Occupational Health and Safety (Safety Standards) Regulations 1994 Page 3.149
Defence Procurement Policy Manual 3.14 Legislation Affecting Procurement Privacy Act 1988 (Cth) Racial Discrimination Act 1975 (Cth) Sale of Goods Acts and Fair Trading Acts in each State and Territory. Sex Discrimination Act 1984 (Cth) Trade Practices Act 1974 (Cth) Defence Safety Manual SAFETYMAN ASDEFCON (Services) ASDEFCON (Shortform Services) Australian Taxation Office Superannuation Guarantee Ruling 2005/1, 2005/2, 2009/2 Department of Finance and Deregulation - Superannuation Circulars 2006/3 and 2006/4 Defence Instruction (General) Personnel 34-2 - Complaints of Discrimination and Harassment through the Australian Human Rights Commission. Defence Instruction (General) Personnel 35-3 - Management and Reporting of Unacceptable Behaviour
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Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance
3.15
Introduction
1. 2.
Indemnities, Limitation of Liability and Insurance
This chapter applies to procurement undertaken within Defence and the Defence Materiel Organisation (DMO). This chapter provides guidance and advice on indemnities, contractual limitation of liability and insurance obligations in procurement contracts. It assumes that a risk analysis of the contract has already been undertaken and a risk management strategy devised (see chapter 3.2). The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
Mandatory Policy
Prior to agreeing to provide an indemnity to a contractor, Procurement officers must refer to, and comply with the relevant Defence or DMO Chief Executives Instructions (CEI). Procurement officers within Defence must comply with CEI 8.6 Contingent Liabilities (including Indemnities, Guarantees, Warranties and Letters of Comfort) and Schedule F8-6 of FINMAN 2. Procurement officers within DMO must comply with DMO CEI 8.6 - Contingent Liabilities (including Indemnities, Guarantees, Warranties and Letters of Comfort) and Annex A to DMO CEI 8.6. Procurement officers must never include a Defence indemnity in request documentation or provide a Defence indemnity as an alternative to the contractor obtaining readily available insurance. Defence indemnification of a contractor must only be considered after consultation with the Defence Legal Service or DMO Legal (unless the indemnity is contained in a procurement type that is exempt under Defence CEI 8.6 or DMO CEI 8.6). Procurement officers must consider the full potential cost to the Commonwealth of any indemnity, guarantee, warranty or letter of comfort provided by the Commonwealth, and if required, have that amount authorised under Financial Management and Accountability Regulations 1997 (Cth) (FMAR) 10. For procurements undertaken in Defence, if FMAR 10 is triggered, written agreement from the Finance Minister, or their delegate, must be obtained before the Proposal Approver can approve a spending proposal under FMAR 9. For procurements undertaken in the DMO, if FMAR 10 is triggered, written agreement from the Finance Minister, or their delegate, must be obtained prior to obtaining Contract Approval. If it becomes apparent after tender release (i.e. after Proposal Approval has been exercised) that the resultant contract may contain a Commonwealth provided indemnity, warranty or guarantee or the preferred tenderer requires a letter of comfort, then the necessary FMAR 10 approval must be sought as soon as possible prior to Contract Approval. A new Proposal Approval for the purposes of FMAR 9 must also be exercised following the FMAR 10 approval and prior to Contract Approval. Procurement officers must undertake a risk assessment prior to agreeing to any limitation of liability in a contract. If there is a compelling reason to agree to limit a contractors liability, the liability cap must, wherever possible, be of a limited scope and with specified maximum liabilities, both in relation to each event that can cause liability to occur and the number of those events. Procurement officers seeking extensions in cover (Comcover) or requiring additional Page 3.151
Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance insurance to cover losses over the liability limit must contact the Defence Insurance Office. Where a tenderer proposes to self insure against a particular risk, Procurement officers must undertake a risk assessment to ascertain whether or not the tenderer has the financial resources to adequately cover all liabilities likely to occur during the life of the contract. In the DMO, where the tenderer proposes to limit its liability to the Commonwealth, Procurement officers must comply with the Liability Risk Management Process. For DMO contracts valued at $2m or more when there is to be an increase in the value of the contract exceeding $20m or 20% of the contract value the requirements detailed in chapter 1.4.
Indemnities Commonwealth Policy 3. An indemnity is where one party agrees to hold another party harmless against some possible future loss or liability and usually relates to general risks such as personal injury, property damage, claims by third parties and intellectual property risks, such as claims for infringement of copyright by a third party. The Commonwealth policy regarding indemnities is that the Commonwealth should seek appropriate indemnities from a contractor in relation to the procurement. Commonwealth policy on the granting of indemnities to a contractor is contained in Department of Finance and Deregulation Financial Management Circular 2003/02 - Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort and Financial Management Guidance No. 6 (FMG 6) - Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort. This document summarises when the Commonwealth will give an indemnity, reporting and disclosure requirements and risk management considerations and obligations.
4.
Indemnity Provisions 5. Indemnities are one of the most common legal tools used by Defence to transfer risk. Indemnities are contained in all standard Defence contracting templates including the ASDEFCON suite of tendering and contracting templates, the SP020 - Purchase Order and Contract for the Supply of Goods and Repair Services and the Defence Support Group Property Disposal Contract. In Defence contracts, the contractor provides indemnities to Defence which vary based on the risk profile and complexity of the contract. It is important to note that a cap or limitation of a contractor's liability under a contract can work, in effect, as an indemnity by Defence in favour of the contractor. Further guidance on limitation of a contractors liability is contained in paragraphs 15-34 below. Indemnity provisions are usually structured as follows:

6. 7.
8.
the parties protected (typically, the Commonwealth, its officers, employees and agents); the risk that is the subject of the indemnity (typically, Commonwealth property damage or personal injury of those indemnified or claims against the Commonwealth by third parties); and exceptions where the indemnity does not apply (typically if the loss or claim that eventuates is caused by a fault on the part of the Commonwealth or its personnel, rather than the contractor). Page 3.152
Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance 9. The structure of indemnities can vary considerably and is determined by factors including the appropriateness of transferring risk, the types of risks to be covered and whether it is sensible or fair to impose an indemnity. Commonwealth policy states that as a general principle, risks should be borne by the party best placed to manage them. 1 An indemnity clause is usually of no practical value unless the indemnifier is in a position to make good the indemnity if it is called upon i.e. is financially able to pay any claims associated with the indemnity. Paragraphs 35 - 79 below examine in detail a tool which may provide comfort that a contractor can meet its liabilities and any indemnities granted under the contract, namely, insurance.
10.
Defence Indemnities to Contractors 11. Prior to agreeing to provide an indemnity to a contractor, Procurement officers must refer to, and comply with, the relevant Defence or DMO CEIs. Procurement officers within Defence must comply with Defence CEI 8.6 - Contingent Liabilities (including Indemnities, Guarantees, Warranties and Letters of Comfort) and Schedule F8-6 of FINMAN 2. Procurement officers within DMO must comply with DMO CEI 8.6 - Contingent Liabilities (including Indemnities, Guarantees, Warranties and Letters of Comfort) and DMO CEI 8.6, Annex A. It may be necessary in circumstances where a contractor is exposed to risks over which it has no control, or which would otherwise make the contract uneconomical for the contractor, for Defence to grant an indemnity. As an indemnity is a contingent liability and necessarily involves a potential payment in the future, the granting of an indemnity to a contractor is likely to trigger the requirements of FMAR 10 (see chapter 1.4 for further guidance on FMAR 10). In the DMO, where a limitation of liability creates a contingent liability, the limitation of liability must be approved in accordance with Annex B to DMO CEI 8.6. Defence should only provide an indemnity to a contractor in rare and exceptional circumstances, at the request of a contractor, and only after a rigorous risk assessment. Procurement officers must never include a Defence indemnity in request documentation or as an alternative to the contractor obtaining readily available insurance. Defence indemnification of a contractor must only be considered after consultation with the Defence Legal Service or DMO Legal (unless the indemnity is contained in a procurement type that is exempt under Defence CEI 8.6 and DMO CEI 8.6). Where an indemnity is given by Defence, Defence should have a right to be subrogated to the contractor's rights of recovery from third parties in the event the indemnity is called upon. This means that Defence has the right to "step into the shoes" of the contractor for the purpose of pursuing recovery from third parties. This occurs when third parties are responsible for the loss or damage indemnified and conduct any indemnified claims made against the contractor by third parties. To enable Defence to do this, the contractor should be under an obligation to:

12.
13.
14.
mitigate all indemnified losses; not make any admissions of liability or compromise (settle) the claim without Defence's consent; and provide Defence with all reasonably required assistance to determine the amount of any indemnified loss and to defend third party indemnified claims.
Limitation of Liability Commonwealth Policy 15. A limitation of liability is an arrangement where future liabilities that a party may incur are capped to an agreed amount. The Commonwealth Procurement Guidelines (CPGs) recognise that in some circumstances it may be necessary to limit a contractors liability in order to achieve a sound value for money outcome in the procurement process. If there is a compelling reason to agree to limit a contractors liability, the liability cap must, wherever possible, be of a limited
Paragraph 6.9 of the Commonwealth Procurement Guidelines
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Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance scope and with specified maximum liabilities, both in relation to each event that can cause liability to occur and the number of those events. 16. Agreeing to limit a contractors liability through an indemnity, liability cap or similar arrangement may result in direct and/or indirect costs to Defence. These potential costs should be taken into account when assessing value for money. Request documentation should include a draft contract with clear liability provisions, with tenderers required to indicate compliance against each clause of the draft contract, including the liability provisions. The cost of any alternative clauses proposed should be clearly identified by the tenderer. Agreements to limit a contractors liability to the Commonwealth or a third party that take the form of an indemnity, guarantee, warranty or letter of comfort provided by the Commonwealth, come within the scope of a contract agreement or other arrangement under which public money is payable or may become payable. Procurement officers must consider the full potential cost to the Commonwealth of any indemnity, guarantee, warranty or letter of comfort provided by the Commonwealth, and if required, have that amount authorised under FMAR 10. For procurements undertaken in Defence, if FMAR 10 is triggered, written agreement of the Finance Minister, or their delegate, must be obtained before the Proposal Approver can approve a spending proposal under FMAR 9. For procurements undertaken in the DMO, if FMAR 10 is triggered, written agreement of the Finance Minister, or their delegate, must be obtained prior to obtaining Contract Approval. If it becomes apparent after tender release (i.e. after Proposal Approval has been exercised) that the resultant contract may contain a Commonwealth provided indemnity, warranty or guarantee or the preferred tenderer requires a letter of comfort, then the necessary FMAR 10 approval must be sought, prior to Contract Approval. In Defence, a new Proposal Approval for the purposes of FMAR 9 must also be exercised following the FMAR 10 approval and prior to Contract Approval. Further guidance on the treatment of indemnities and liability caps under the FMA regulations can be found in the Finance Circulars 2011/01 Commitments to spend public money (FMA Regulations 7-13), 2003/02 - Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort and FMG 6. Further guidance on limitation of liability in Information and Communications Technology (ICT) contracts can be found in Finance Circular 2006/03 - Limited Liability in Information and Communications Technology Contracts.
17.
18.
19.
20. 21.
22.
23.
Defence Policy 24. Defence has a preference for liability under its contracts to be determined according to principles of Australian common law. In appropriate circumstances, request documentation for higher risk Complex and Strategic procurements may contain draft limitation of liability provisions. A common misunderstanding (especially with overseas contractors) is that liability determined according to common law principles is unlimited. This is not the case. For a loss to be recoverable under Australian common law the following conditions will usually need to be met:
25.
a causal connection must exist between the breach or negligent act of the contractor and the loss suffered by Defence; the loss must not be too remote; and Defence must have taken reasonable steps to mitigate its loss.
26.
Where a tenderer proposes to limit its liability on an alternative basis to Australian common law principles, the proposal should be considered on its merits and in the context of value for money considerations. Page 3.154
Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance 27. Procurement officers should not usually accept any limitation of a contractors liability in relation to:

personal injury or death; third party property damage; breach of IP rights, confidentiality, privacy or security obligations; fraud or dishonesty; unlawful or illegal acts; or indemnities provided by the contractor under the contract.
28.
Any other limitation of a contractor's liability for third party claims should also be avoided. Such a limitation can, in effect, work as an indemnity by Defence in favour of the contractor. For example, if a third party successfully sues Defence for damage caused by the acts of a contractor, Defence will be liable to the third party. Defence's ability to recover the amount of damages payable to the third party from the contractor will be limited by any liability cap in the contract.
Selecting an Appropriate Limitation of Liability Cap 29. Tenderers often seek to limit their liability to a particular specified sum or to a multiple of the contract price. Prior to agreeing to any limitation of liability a risk assessment must be undertaken to ensure that the liability cap proposed takes into consideration the likelihood and consequences of all relevant risks. A tenderer may also seek to limit its liability to the amount that is recoverable under its insurance policies. There are significant risks associated with including a provision of this nature and specialist advice must be sought before including such a clause in a Defence contract.
30.
Liability Risk Assessment 31. For Defence and DMO a liability risk assessment (LRA) may need to be undertaken at various stages of the Defence procurement process, including:

prior to procurement; where a tender process is necessary for a procurement, as part of the evaluation of a tenderer's proposal; during negotiation of the contract; and at the time of any contract change proposal.
32. 33.
In the DMO, where the contractors liability to the Commonwealth is to be limited, Procurement officers must comply with the Liability Risk Management Process outlined below. For DMO Procurement officers, advice from DMO Legal is not required to be obtained where the limitation of liability regime reflects the standard ASDEFCON clauses without material change and the Liability Risk Management Process has been followed.
Liability Risk Management Process 34. The DMO and Australian Industry Group have collaborated to adopt, to the greatest extent possible, an agreed approach to the methodology to be employed when conducting such liability risk assessments. The following papers set out the process for use by Defence and Industry when conducting the part of the risk assessment for Defence procurement that is used in determining the allocation of liability between contractual parties:
Liability Risk Management Process - this sets out the liability risk assessment methodology;
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Liability Risk Assessment Template accompanies the Liability Risk Management Process to facilitate the conduct of a liability risk assessment; and Limitation of Liability Discussion paper contains general information on the background to the development of both the liability risk assessment methodology and the liability risk assessment template.
35. 36.
These papers can be accessed through the Commercial Policy and Practice Branch website. The adoption or acceptance of any regime purporting to limit the liability of a contractor to the Commonwealth must comply with existing Commonwealth and Defence legislative and policy requirements governing risk and liability in Commonwealth procurement, including the CPGs and Defence and DMO CEIs.
Insurance 37. The Commonwealth policy regarding insurance is that the Commonwealth carries its own risks and insures for them. This is done under the Comcover arrangement. Where necessary, it is possible to insert a condition in a contract requiring the contractor to take out suitable insurance. The ASDEFCON Suite of Tendering and Contracting templates contain core insurance clauses that should be included in any RFT documentation.
Defence Insurance Cover 38. Defence insures against many risks through the Commonwealth's self managed insurance schemes known as Comcover (general insurance) and Comcare (workers' compensation insurance). These schemes insure Defence's own losses and liabilities. Contractors are not usually covered under Comcare (see chapter 3.14). The Comcover insurance arrangements do not provide insurance coverage to contractors nor will Comcover consent to adding contractors as additional insureds. Accordingly, if a tenderer requires insurance for its own potential losses and liabilities it must obtain its own insurance. It should be remembered that Defence's own insurances are subject to limits, exclusions and high deductibles. In the event that Defence's insurances cover a loss or liability suffered by Defence, insurers expect to have the right to pursue any third party responsible for the loss or liability. This is called the insurer's rights of subrogation. Comcover expects Defence to act prudently when entering into contracts with contractors, and whenever possible, include indemnity clauses indemnifying the Commonwealth together with insurance clauses to support the indemnity given. Procurement officers should ensure that, where appropriate, indemnity clauses are also flowed down into any subcontracts. For further information regarding insurance provided under Defences polices placed with Comcover contact the Defence Insurance Office on 1800 990 900 or email definsurance@defence.gov.au.
39.
40.
41.
42.
Insurance Coverage for Contract Indemnities and Limitation of Liability 43. Comcover policy does not cover any liability under any indemnity beyond that for which Defence would have otherwise been liable. This exclusion does not apply to indemnities contained in a contract where the contract was entered into prior to 1 July 2004 (see subrogation clause 2.9.12 Comcover insurance policy Part 2 Policy Terms and Conditions). In addition, Defences Comcover policy relates only to the insurable risks for which Defence is responsible. If a proposed liability cap relates to insurable risks for which another Commonwealth agency is responsible, Comcover may need to consult that agency. Clauses that limit the liability of a contractor also limit Comcovers rights to seek recovery if an insured property loss occurs and this will prejudice Defences entitlement to receive a full Page 3.156
44.
45.
Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance settlement under the policy. Defence would then be required to bear any losses above the liability limit. 46. Procurement officers should not assume that damage to Commonwealth property caused by a contractor above the liability cap will be covered by either the contractors or Defences insurance policies. An important component of the relevant Subrogation clause 2.10.10 is: If Comcover accepts a claim under the policy, Comcover will have your rights of recovery to the extent of the claim payment made by Comcover to you. If an amount is recovered then Comcover will be entitled to deduct from that amount any administrative or legal costs incurred or paid by Comcover in funding the recovery action. In certain circumstances Comcover may consider extending coverage to cover additional liability provided the activity covered by the indemnity is regarded properly as part of Defences core business and provided the risk (both the chance and the potential cost exposure) can be regarded as an acceptable insurable risk. However, before doing so Comcover will need to be satisfied that the circumstances warrant the extension, particularly where the indemnity requires Defence to insure liabilities pertaining to other parties liabilities that those parties would normally be expected to insure themselves against. There should be compelling reasons for Comcover to agree to issue cover to the other parties. Further guidance can be obtained from Comcover Member Guidance Coverage of Contract Indemnities located under useful links at http://intranet.defence.gov.au/dsg/sites/Insurance/ Procurement officers seeking extensions or additional insurance cover must contact the Defence Insurance Office on 1800 990 900 or via email definsurance@defence.gov.au for advice on Comcover requirements. Procurement officers must ensure that any legislative requirements of the FMA Act section 44, FMARs 9, 10, 11 and 14 and relevant Defence and DMO delegations (see chapter 1.4, Defence CEI 8.6 and DMO CEI 8.6) are satisfied before contacting the Defence Insurance Office. The following documentation will be required by the Defence Insurance Office before any formal submission is made to Comcover:

47.
48.
49.
50.
51.
a description of the activity covered by the indemnity; the relevant contract clauses(s); a risk management report recording the reasons why an indemnity should be issued and identifying the physical and financial exposures to Defence as a result of issuing the indemnity; legal advice on what the potential exposure could be; and supporting documentation confirming Defence has complied with requirements of the FMA Act, FMARs and any relevant FMA delegations.
Why do we Require Contractors to have Insurance? 52. Defence will usually require a contractor to have insurance for two main purposes:

to ensure that the contractor will be able to perform its obligations under the contract; and to ensure that if the contractor breaches the contract or otherwise incurs a liability that the contractor will have the financial resources available to meet that liability.
Contractor Self Insurance 53. In the context of the second point in para 50, it is relevant to consider the financial capacity of the tenderer. For example, if Defence is dealing with a large, financially secure entity insurance may not be required for this purpose. In such cases, it may be acceptable for the contractor to rely on "self insurance", either by retaining and managing the risk or, by transferring it to a related company set up to act as insurer to the contractor (a "captive insurer"). For example, it Page 3.157
Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance is not uncommon for large corporates to self insure professional indemnity risks. Similarly, most governments have self insurance schemes of one type or another. For example, most Australian States or Territories have a Treasury Managed Fund which self insures the risks of that State or Territory. However, even if the tenderer is financially strong, insurance may still be desirable in order to facilitate payment in the event of a claim by Defence against the contractor. 54. Where the tenderer is financially weak or its ongoing financial capacity is questionable, insurance becomes very important as it provides security that the contractor will be able to meet its liabilities to Defence, particularly under any indemnities provided by the contractor to Defence. Where a tenderer proposes to self insure against a particular risk, the Procurement officer must undertake a risk assessment to ascertain if the tenderer has the financial resources to adequately cover all liabilities likely to occur during the life of the contract. When assessing the financial capacity of a tenderer to meet its self insured liability, consideration should be given to all potential liabilities to which the contractor may be exposed, not simply those associated with the contract being considered at the time. Where it is agreed that a tenderer will self insure, any resultant contract should reflect this agreement by:
55.
56.
deletion of the insurance requirements from the contract or reference to a captive insurer of the contractor; and inclusion of an acknowledgment from Defence that self insurance or the use of a captive insurer to meet the insurance requirements of the contract is acceptable.
What Insurances Should be Required from the Contractor? 57. Consideration should be given to the whole contract. Procurement officers should be very careful when transferring risks from one party to another by contract as most commercial insurance policies will not cover parties for contractually assumed risks. Defence may require a contractor to take on legal risks the contractor would not otherwise assume. These are contractually assumed risks. These risks may not always be acceptable to contractors as it may expose them to added liability. The following table outlines circumstances that arise in this situation and the correct procedures to deal with them.
If the contractually assumed risk is acceptable to the contractor the risk is not acceptable to the contractor the risk is that Defence may be liable Defence would be liable if the event occurred Defence is insured under *Comcover for this event Defence is not insured under *Comcover Then the contractor bears the risk burden, though correspondingly the cost may rise. A value for money judgment needs to be made by Defence. Procurement officers should consider whether Defence would be liable for the risk if there were no contract. Defence must exercise great caution in assuming such risks. is the event insured under Comcover? shifting risk to the contractor might not be the best approach and may incur extra cost to Defence. if there is no Comcover insurance, a risk assessment should be made and consideration given to whether the contractor should contractually assume the risk.
58.
* For information on coverage provided under the Comcover policy contact the Defence Insurance Office on 1800 990 900 or email definsurance@defence.gov.au.
59.
Contracts sometimes include terms that require a contractor to insure against all risks, for example, in respect of an indemnity which has been given earlier in the contract. This may not be possible. All insurances are likely to be subject to exclusions and limitations. Accordingly, such clauses can fail totally and be unenforceable. When including insurance requirements in Defence contracts, Procurement officers must be specific and realistic with respect to the risks Page 3.158
Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance to be insured by the contractor. Legal advice should be sought in relation to any contract involving significant insurance provisions. Types of Insurance Policies 60. Examples of insurance policies that Defence commonly requires contractors to obtain include:
workers compensation insurance the contractor should be required to effect workers compensation insurance to cover its liability at general law and under statute to its employees and their dependants for injuries or illnesses sustained in the course of the employee's employment; professional indemnity insurance this type of insurance covers liabilities of the contractor arising from a breach of duty owed in a professional capacity under the contract or at common law. For example, professional indemnity insurance is required where the contractor provides design or architectural services, engineering services, medical services, accounting services or legal services. For specialised activities, specialised professional indemnity policies may be required. For example, medical service providers require medical malpractice insurance and ship designers require naval architecture insurance. Professional indemnity policies are usually 'claims made' policies, this means that the policy must be current when the claim is reported/made i.e. if an incident is reported a week after the policy expires no claim exists even if the incident occurred whilst the policy was current. Generally in the commercial market a 'run off' professional indemnity policy would be in place for 7 years after the business operations cease. If the contractor is continuing their business after the Defence contract ends the professional indemnity policy should be continued and an additional 'run off' policy is not required. public liability insurance this type of insurance covers loss of or damage to third party property and personal injury, illness or death caused to a third party (other than the contractor's employees); and product liability insurance this type of insurance covers the liability of the contractor for loss of or damage to third party property or injury, illness or disease caused to any person (other than the contractor's employees) arising out of products supplied, distributed, installed, repaired, manufactured or altered by the contractor. Public and products liability policies are generally 'occurrence' policies, this means that provided the policy was in place when the incident occurred the policy would respond. It is important to note the trigger events in each policy that will give rise to a claim under the policy.
61.
Subject to a risk assessment, other policies which may be considered for individual contracts include, but are not limited to:
motor vehicle insurance if the contractor will use motor vehicles in performing the contract, motor vehicle insurances should be required covering third party injury or death and third party property damage; aviation and marine liability insurances if the contract involves the use of aircraft or marine vessels, consideration should be given as to whether aviation and/or marine liability insurances are required. These insurances can include cover for liability for loss of, or damage to, third party property and injury or death of third parties and passengers; business interruption insurance this type of insurance covers the insured for increased costs of working and loss of profits in the event of insured loss of, or damage to, property; property insurance this type of insurance covers the risk of loss of or damage to property owned by the insured or in which the insured has an insurable interest (for example, as a financier). This type of insurance is to be distinguished from liability insurances which insure the liability of the insured to third parties. This policy is often effected in conjunction with business interruption cover and called an industrial special risks policy; marine cargo or transit insurance this type of insurance covers goods in transit. It can cover goods being transported by air, ship, road or train;
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contractor's "all risks" insurance or contract works insurance this type of insurance covers the risk of loss of, or damage to, contract works. It can also include cover for liabilities arising in the course of the contract works, in which case it is usually called contractor's all risks insurance; advanced consequential loss insurance this type of insurance can be purchased in conjunction with contract works insurance to cover losses such as loss of rent and increased costs of completion caused by a delay in the completion of the works; aviation and marine hull insurances this type of insurance covers loss of, or damage to, aircraft or marine vessels used by a contractor in performing the contract; directors and officers insurance this insurance covers directors and officers for their legal liability to third parties for breach of their directors duties or duties as officers; and charter services this type of policy can cover hull, war risks and allied perils, hijacking, confiscation and kindred perils and passenger liabilities for charter services.
In some circumstances, tender responses will offer corporate/group insurance policies to meet the insurance requirements specified in the request documentation. Where a tenderer proposes a corporate/group insurance policy, specialist legal advice should be sought. Naming the Commonwealth as an Insured 62. Defence does not generally require that the Commonwealth be named as an additional insured on a contractor's liability policies. The Commonwealth has its own insurances to cover its liabilities to third parties arising from its own acts or omissions and does not need to rely on a contractor's insurances. Accordingly, to require the contractor to insure the Commonwealth would lead to a situation of unnecessary double insurance. Further, it is generally extremely difficult, often impossible, for a contractor to have its insurances extended to include cover for the Commonwealth as an insured. However, in some limited circumstances it may be appropriate to have the Commonwealth named on an insurance policy taken out by a contractor to assist in obtaining payment under the insurance in the event of a liability arising. Such insurance policies may include:
63.
certain liability policies for the Commonwealths vicarious liability for the acts or omissions of the contractors; property insurances, if the Commonwealth has, or will have, an interest in the property insured. If the Commonwealth owns or has an interest in the property concerned or is making progress payments for contract works, the Commonwealth should be named as a loss payee on the relevant insurance policy. This means it will receive any monies paid out by the insurer under the policy. Where it is not named on the insurance policy, the Commonwealth will not be able to enforce the insurance policy directly against the insurer and may have to advise the insurer of its claim as an interested party 2 and aviation policies where Defence pilots are operating aircraft that are hired, leased or subleased from a person or organisation.
64.
If the Commonwealth is to be named, Procurement officers should ensure that the Commonwealth is the named party. The Department of Defence is not itself a legal entity.
Noted or Insured? 65. There has been recent case law in Australia which suggests that mere notation in the absence of other terms in the insurance policy giving rights to the noted parties, may provide no benefit. So where it is important for the Commonwealth or another party to be insured, it is not sufficient for that party to be merely "noted" on the schedule to the insurance. The schedule should state that the party is insured for its liability, or insured for its respective rights and interests in the property insured. The policy should also contain a provision in which the insurer agrees to treat the policy as if a separate policy had been issued in respect of each named insured.
22
Refer to ANAO Audit Report No. 23 2008-09 Management of Collins-class Operations Sustainment para 4.53 for further information.
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Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance Cross Liability, Non-Imputation and Severability Clauses 66. It is usually preferable that each party has their own separate insurance cover. Though in any case a risk analysis is required. Where a policy of insurance insures more than one party (i.e. Insurer X is insuring both A & B), it is proper to require that the policy include certain provisions to protect the rights of each insured including:
A cross liability clause. This is where Insurer X agrees to insure the liability of A and B in relation to potential liability issues between A & B. Insurer X will also be insuring the liability of A and/or B against third parties. A non-imputation clause. Where Insurer X agrees to not attribute the acts or omissions of A to B for the purposes of determining whether the insurance cover is available. A clause in relation to non disclosure. Under insurance law, A & B must disclose/reveal all relevant information for the purposes of the insurance contract. If A fails to do so, Insurer X may agree to not impute/attribute that failure to B (or vice versa) who disclosed/revealed all information. A waiver of subrogation clause.
67.
Cross-liability, non-imputation and severability clauses should be negotiated into the contract when there are products liability and property policies.
Waiver of Rights of Subrogation. 68. When an insurer pays a claim it is usually subrogated to the insured's rights of recovery against third parties who are legally responsible for the loss or liability of the insured. This means that Defence can pursue the insured's legal rights against those parties. The insurer should be asked to waive its rights of subrogation against other named insureds. This protects insureds from paying multiple excesses for the one loss or occurrence. It is appropriate to seek a waiver of subrogation in favour of the Commonwealth in respect of property policies where the Commonwealth is a named insured. The insurer should not be asked to waive its rights of subrogation against the Commonwealth except to the extent that the Commonwealth is an insured under the policy.
69.
70.
Reputable Insurers 71. Contractor insurances should deal with reputable insurers with a security rating of "A" or better as awarded by a recognised rating agency such as Standard & Poors, Moody's or AM Best. The contractor should be asked to provide evidence of the security rating of its insurers with the exception of insurers of statutory insurances such as workers compensation. If the contractor's insurers do not meet the required security rating, Procurement officers should consider whether insurers with the required security rating are available. Before insurers with a lower insurance rating are accepted, Procurement officers should consider the increased risk that insurers will be unable to meet any claim. Obviously, the greater the risk insured, the greater this consideration. Appropriate advice should be sought if in any doubt as to the availability or suitability of insurance.
72.
Territorial and Jurisdictional Limits 73. Some policies, particularly liability policies, will have a territorial limit identifying the territory in which the event or occurrence giving rise to the claim must occur. This is a geographical limit. Defence should consider whether the geographical limit of a particular policy is wide enough to cover all locations where events giving rise to claims may occur. For example, a public liability policy with a territorial limit of Australia will not cover occurrences in the Solomon Islands. Some policies also have jurisdictional limits which identify which courts' decisions will be covered by the policy. For example, if the policy has a jurisdictional limit of Australia, then a judgment given by a court of the United States will not be covered by the policy. If there is a Page 3.1511
74.
Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance chance that litigation may be brought in a country outside of the jurisdictional limit of the policy, then Defence should seek to have the jurisdictional limit extended. Approval of Policy Terms 75. Defence should have the right to approve the terms of insurances held by a contractor in other than Simple or low risk Complex procurement contracts. The terms of a policy can dramatically affect the coverage provided by that particular policy. For example, Procurement officers should ensure that there are no unacceptable exclusions and that levels of deductibles and excesses are acceptable. Contractors often resist providing copies of their policies for review, especially where corporate/group policies are proposed. In Complex or Strategic Procurement contracts, Defence should insist upon inspecting the insurance policies and approving the terms. The most resistance is likely to be experienced with respect to professional indemnity policies. Defence does not need to see the full professional indemnity policy. Terms setting out the overall limits of cover can be excluded. However, Defence needs to see the general terms of the policy (particularly exclusions) and the definition of professional services covered. If this definition is not wide enough, the policy may not respond to cover breaches of duty by the contractor in respect of the services to be provided to Defence. In Complex or Strategic Procurement projects, if a contractor has a justifiable reason why it cannot provide its insurances consideration can be given to:
76. 77.
78.
offering to inspect the policies in lieu of copies being provided this can be done by an adviser to the Commonwealth and the inspector may be required to give undertakings of confidentiality.
79.
In Simple or low risk procurement contracts where contractors are unwilling to provide copies of their policies, Procurement officers could accept:
accepting a detailed summary of the cover from the contractors insurance broker confirming that the policies meet contractual requirements and do not contain any unusual terms as well as a certificate of currency ; or accepting a certificate of currency. However, certificates of currency may not accurately represent the terms of cover.
Certificates of Currency 80. Contract managers should also request contractors to provide a certificate of currency for each insurance. This confirms that the policy is still current. However, certificates of currency should be viewed with some caution as it is a summary only and is overridden by the actual policy in the event of any inconsistency.
Other Contract Provisions 81. The contractor should be required to give notice to Defence whenever an insurer of any of the insurances taken out in compliance with the contract, gives the contractor a notice of cancellation or any other notice in respect of a required policy of insurance. Clauses may also be inserted in Defence contracts to:
place a requirement on the contractor to give notice to Defence whenever it serves a notice on its insurers of an intention to cancel a policy or fails to renew a policy; provide Defence with the right to claim insurances should the contractor fail to effect the required insurances or supply proof that they have been effected and maintained in accordance with the provisions of the contract. Usually, this type of provision also provides that Defence can recover the cost of claiming on the insurances as a debt due and payable from the contractor;
Page 3.1512
place a requirement on the contractor to inform Defence whenever it becomes aware of any actual, threatened or likely claims under any of the insurances required to be maintained under the contract. This requirement should only apply to claims which could materially reduce the coverage under a policy, or which may involve the Commonwealth. Defence does not need to be made aware of all minor claims; place a requirement on the contractor to ensure that subcontractors carrying out work under the contract are insured as required by the contract. However, the contract should not relieve the contractor of liability for the acts or omissions of its subcontractors, regardless of whether the subcontractors hold insurance; and cover off the situation where particular risks under the contract become uninsurable. For example, the parties may have a right to terminate, or may be obliged to meet to determine other risk management initiatives in order to manage the risk.
Ensuring Compliance with Insurance Provisions 82. It is important that Defence, in particular contract managers, implements procedures to check that insurances are maintained as required by any procurement contract which has a duration of greater than 12 months. Contractors should be required to provide certificates of currency and/or copies of policies on each renewal date. If these terms are not enforced, there is the potential that they will not be complied with and the protections which the insurance requirements of the contract are intended to afford Defence, may be wholly or partially illusory. Defence should be particularly mindful of "claims made" policies which must be maintained after the end of the contract, for example, professional indemnity insurance.
Uninsured Risks and Good Risk Management 83. It is important to remember that insurance is only one tool in any overall risk management strategy. Whatever insurance is required of the contractor or held by Defence there will nevertheless be uninsured risks under any contract which must be managed by other risk management techniques. Even those risks that are insured should be the subject of risk management as:

insured events are often undesirable (for example, personal injury); insured events are often partially uninsured (for example, there will usually be an excess or deductible); the cost and continued availability of the insurance will often be affected by the frequency with which the risk eventuates; and insurance companies sometimes require risk management practices to be adopted under the policy with failure to do this jeopardising the ability to claim under the policy.
Key References
Commonwealth Procurement Guidelines Defence Chief Executives Instruction 8.6 Contingent Liabilities (including Indemnities, Guarantees, Warranties and Letters of Comfort) DMO Chief Executives Instruction 8.6 Contingent Liabilities. Defence Chief Executives Instruction 8.7 Insurance DMO Chief Executives Instruction 8.10 Insurance Financial Management Guidance No. 6 Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort September 2003 Finance Circular 2003/02 - Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort Finance Circular 2006/03 - Limited Liability in Information and Communications Technology Page 3.1513
Defence Procurement Policy Manual 3.15 Indemnities, Limitation of Liability and Insurance Contracts Finance Circular No. 2011/01 Commitments to Spend Public Money (FMA Regulations 7 to 12) Comcover Insurance Policy Comcover Member Guidance Coverage of Contract Indemnities Department of Communications, Information Technology and the Arts A guide to limiting contractor liability in ICT contracts with Australian Government agencies
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Defence Procurement Policy Manual 3.16 Environment in Procurement
3.16
Introduction
1.
Environment in Procurement
This chapter is applicable to all procurement activities undertaken by Defence and the Defence Material Organisation (DMO) and provides guidance on the activities required to be undertaken by their contractors. Purchasing decisions have the potential to impact on the environment, including through the emission of Greenhouse gases and the consumption of natural resources. Accordingly, this chapter addresses:

2.
relevant legislative requirements interacting with procurement; core Commonwealth environmental policies which interact with procurement; and Defence environmental policy requirements.
Mandatory Policy
Procurement officers must comply with Defence Instruction (General) DI (G) ADMIN 403 - Assessment and approval of Defence actions under the Environment Protection and Biodiversity Conservation Act 1999 (DI (G) ADMIN 403), including the requirement to obtain approval, through Defence Support Group (DSG) from the Minister for Environment Protection, Heritage and the Arts prior to undertaking an action that has, will have or is likely to have a significant impact on the environment. Under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) Defence must not take an action that has, will have or is likely to have an adverse impact on the National Heritage values of a National Heritage place or the Commonwealth Heritage values of a Commonwealth Heritage place without obtaining prior approval. In accordance with the Commonwealths Energy Efficiency in Government Operations Policy (EEGO,) Procurement officers must consider energy efficiency in procurement. Procurement officers must undertake consultation with the Director of Environmental Impact Management in DSG to ensure that their procurement has been assessed as unlikely to have significant environmental impacts and will align with Commonwealth legislative requirements and the Defence Environmental Policy. Procurement officers must procure office equipment that complies with the US EPA Energy Star standard, where available, be fit for the purpose and cost effective and enable power management features as part of the supply of new appliances and equipment. Procurement officers must ensure that the procurement of commercial vehicles is undertaken using the Green Vehicle Guide, Items entering the Defence inventory, or services procured by Defence, must be free from ozone depleting substances and specified synthetic greenhouse gases. Where avoidance is impracticable, approvals must be obtained from regulators and those supplies containing such substances must be fully identified to users and handlers to ensure they are adequately trained, and the nature and extent of the associated hazard is clearly displayed. Procurement officers must ensure that contractors hold required licences and comply Page 3.161
Defence Procurement Policy Manual 3.16 Environment in Procurement with the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 (Cth) (OP&SGG Act). Any contractor handling a scheduled substance on behalf of Defence must be required to produce all relevant licences to the Contract Manager before being permitted to work.
Legislative Framework 3. The Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) imposes requirements on all Australian Government agencies, including Defence and the DMO, regarding management of their activities. It is important that Procurement officers have an understanding of the activities which require approval and actions which may incur sanctions under the EPBC Act as in some instances Defence and DMO officers may be personally liable for offences under the EPBC Act. Defence has developed internal guidance on determining whether or not an activity is likely to be assessed as having a significant impact on the environment. Procurement officers must comply with DI (G) ADMIN 403, including the requirement to obtain approval (through Defence Support Group) from the Minister for Environment Protection, Heritage and the Arts prior to undertaking an action that has, will have or is likely to have a significant impact on the environment. Approval may be required for a wide range of actions referred to in the EPBC Act and approvals may be required under other environmental legislation. The activities requiring approval include those activities with a significant impact on:

4.
a World Heritage property; a National Heritage place; a Ramsar wetland; the Great Barrier Reef; Commonwealth Marine Areas; listed threatened species, endangered communities or migratory species; and the environment;
Approval is also required for actions involving certain nuclear technologies. 5. If the Minister determines that the proposed action is a controlled action and, requires their approval, the approval granted will often be subject to conditions. It is a serious civil offence to contravene a condition and may constitute a criminal offence where there is a significant environmental impact and the person is reckless about whether the action or omission will contravene a condition. Procurement officers should be aware that even if a proposed action does not require Ministerial approval under the EPBC Act, it may still require internal Defence consideration and approval via an Environmental Clearance Certificate (see DI(G) ADMIN 40-3)
6.
Application of Environmental Legislation and Defence Environmental Policies to Contractors 7. The EPBC Act also creates offences for any person taking action on Commonwealth land that is likely to have a significant impact on the environment unless otherwise approved by the Minister or exempted from needing approval. State environmental laws also apply to the activities of contractors in most circumstances. Accordingly, there is the potential for Defence contractors to commit offences under environmental legislation. Defence contractors should be required to meet applicable environmental standards while carrying out work on Defences behalf on Defence facilities or land. In accordance with DI(G) ADMIN 40-3 and DI(G) ADMIN 40-2 Environment and Heritage Management in Defence, all Defence contracts should include an obligation to comply with Defence environmental policies and relevant Defence Instructions (General) (DI(G) Page 3.162
8.
Defence Procurement Policy Manual 3.16 Environment in Procurement ADMIN40-2). The ASDECON suite of tendering and contracting templates (ASDEFCON) includes these requirements where relevant.
Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 (Cth) (OP&SGG Act)
9. The OP&SGG Act gives effect to Australias international obligations under the Montreal Protocol and establishes measures to protect the ozone layer and to minimise emissions of synthetic greenhouse gases. The OP&SGG Act puts in place:
10.
a system of controls on the manufacture, import, export and distribution of substances that deplete ozone in the atmosphere; specific controls on the use of products that contain such substances or use such substances in their operation; and a regulatory framework for the end use of such scheduled substances within both the Refrigeration and Fire Protection Industries; and directives to organisations to replace ozone depleting substances to the extent that such replacements are reasonably possible within the limits imposed by the availability of suitable alternate substances, and appropriate technology and devices.
11. 12.
The controlled substances are listed in Schedule 1 of the OP&SGG Act. Although there is the potential for State and Territory ozone protection legislation to apply, several States and Territories are in the process of repealing State and Territory regulation in this area. However, Procurement officers should check the status of State and Territory legislation in the jurisdiction in which the work will be performed. Commonwealth legislation requires that all Procurement officers who are responsible for the management (purchase, handling or use) of scheduled substances comply with the requirements of the Ozone Protection and Synthetic Greenhouse Gas Management Regulations 1995 (Cth) and the OP&SGG Act. This includes requirements on importing and exporting, record keeping, storage, disposal and obtaining permits, licences and trading authorisations. Procurement officers must ensure that contractors hold required licences and comply with the OP&SGG Act. Any contractor handling a scheduled substance on behalf of Defence must be required to produce all relevant licences to the Contract Manager before being permitted to work. The ASDECON suite of tendering and contracting templates (ASDEFCON) includes these requirements where relevant.
13.
14.
Key Commonwealth Environmental Policies Energy Efficiency 15. Defence is required under the Energy Efficiency in Government Operations Policy (EEGO) to consider energy efficiency in purchasing decisions. The EEGO Policy is available at http://www.environment.gov.au/sustainability/government/eego/publications/pubs/eegopolicy.pdf. Key requirements are as follows:
16.
revised energy intensity portfolio targets by 2011-2012 financial year of 7,500 megajoules/person/annum for office tenant light and power and 400 megajoules/m2/annum for office central services;
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Defence Procurement Policy Manual 3.16 Environment in Procurement
a revised framework for agencies to identify, monitor and manage their energy consumption by specifying minimum energy performance standards (typically 4.5 stars Australian Greenhouse Building Rating) in contracts, leases, etc for new buildings, major refurbishments and new leases over a certain threshold. All new leases of buildings >2000m2 and > 2years duration are required to have a Green Lease Schedule in place between tenant and landlord to set targets for achieving the 4.5 AGBR rating or an alternative cost effective rating. There are some exceptions where it is impractical or not cost effective to achieve this rating which will require application for exemption from the Government; stakeholder engagement through industry workshops and energy forums; provides help desk support to provide advice and clarify agency reporting requirements; and communications and existing building strategy requiring Defence to report on its aggregate energy consumption to the Defence Minister and the Department of Environment, Water, Heritage and the Arts and to determine how Defence can implement the minimum energy performance measures to meet the revised targets.
National Packaging Covenant 17. Defence encourages the purchase of recycled goods and improvement of environmental outcomes through the use and recovery of recycled packaging. Guidance on the management of packaging waste is contained in the National Packaging Covenant (NPC). Procurement officers should apply the principles of the NPC in internal operations in relation to:

18.
Purchase of raw materials; Purchase of packaged goods and paper; Disposal of used packaging and paper; and Materials recovery and the purchase of recovered materials.
19.
In addition, Defence is required to report on its progress against Key Performance Indicators which measure Defences performance on meeting minimum targets relating to increasing the amount of recycled post consumer packaging recycled, increasing the recycling of difficult or non-recycled materials (including plastics, coded (4) to (7) and non recyclable paper & cardboard packaging and ensuring that no new packaging goes to landfill. The Environmental Code of Practice for Packaging is an integral part of the current NPC, promoting excellence in packaging that is designed to have a minimum net impact on the environment (in terms of waste, water, energy and emissions) while preserving the integrity of the product. Adoption of the Environmental Code of Practice for Packaging within Defence facilitated through the Defence Packaging Committee.
20.
Defence Environmental Policies 21. Procurement officers should:

purchase environmentally sustainable goods and services; consider whole-of-life issues; re-use and re-allocate assets in preference to purchasing new assets; minimise wastage; consider energy and water efficiency when appropriate in procurement activities; and use the Environmental Purchasing Guide checklists for environmental evaluation guidance (refer to para 35); The Defence Environmental Policy and objectives can be accessed at: http://www.defence.gov.au/Environment/. Page 3.164
Defence Procurement Policy Manual 3.16 Environment in Procurement Defence Environmental Management System 22. Defence has an Environmental Management System aimed at improving Defences management of environmental risk and guided by the International Standards Organisation (ISO) 14001:2004 standard. This management system is integrated with other Defence business processes, and supports the Australian Defence Forces capability while managing its environmental risks. The Defence Environmental Management System is implemented at three levels: corporate; groups and services; and sites. As an element of the Environmental Management System, Defence should identify the environmental impacts of its activities, products and services. Purchasing has been identified in the corporate Environmental Management System as having an environmental impact.
23.
Ecologically Sustainable Development Strategy 24. The Ecologically Sustainable Development (ESD) Strategy provides guidance for the application and integration of ESD principles in all phases of the life cycle of Defence land, Defence capability, business practices, buildings and other assets. The policy sets out a number of strategic initiatives to achieve ESD in Defence and can be accessed at: http://intranet.defence.gov.au/environment/esd/main.htm
Key Considerations In Conducting Environmental Purchasing 25. Consistent with Commonwealth procurement policy, when purchasing goods and/or services, Procurement officers should give consideration to whether the goods and/or services:
are required in the first place, or if there is an alternative, reuse or reallocation option - all purchases should be defensible; meet environmental best practice in energy efficiency and/or consumption; are environmentally sustainable in terms of manufacture, use and disposal; are reusable or recyclable; are designed for ease of recycling, re-manufacture or to otherwise minimise waste; and are designed and made for reliability, long life and/or easily upgraded or updated.
26.
Evaluation of the environmental effects of all procurements is to be considered and included in the request documentation as specifications or contract conditions where appropriate. Tenderers may be requested to provide information against specific environmental criteria. Care should be taken when specifying a criterion as essential or mandatory as noncompliance may result in those tenders being excluded from further consideration (refer to chapters 5.4 and 5.6 for further information regarding essential requirements). Sustainable Environmental Management is an integral element of capability development and equipment acquisition. The project office needs to consider the environmental impacts, including heritage impacts, of its activities and purchases. Environmental risks must be identified and evaluated and management strategies developed to minimise environmental impacts. An environmental management plan may be an appropriate way to minimise these impacts. Procurement officers must undertake consultation with the Director of Environmental Impact Management in DSG during development of the plan to ensure the project has been adequately assessed as unlikely to have significant environmental impacts and will align with Commonwealth legislative requirements and the Defence Environmental Policy. More information on key considerations such as whole of life costing, resource efficiency in production and use, waste and disposal issues are available on the Defence Environmental Intranet site at http://intranet.defence.gov.au/environment/greenprocurement/main.htm.
27.
28.
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Defence Procurement Policy Manual 3.16 Environment in Procurement Whole of Life 29. The Commonwealth Procurement Guidelines (CPGs) require that the value for money of a good or service be considered on the basis of whole-of-life costing including assessing the relative costs and benefits of each proposal throughout its life (see section 4.1 of the CPGs). For example, purchasing that does not consider the operating costs (such as energy consumption for an appliance) or consideration of the cost of disposal at end-of-life as part of the value for money decision making process, is unlikely to meet the objectives of Government procurement or environment policies. Whole of life considerations are fundamental to environmental purchasing as factors such as the manufacture, maintenance, and disposal of the goods or services purchased need to be considered in order to determine the full environmental impact and associated life cycle costs of the procurement. Specifically, Procurement officers should consider factors such as availability of warranties and cost of servicing, into account, as well as the initial cost, likely running costs (energy star rating) and disposal options in developing a definition of the whole of life cost. For example, while an appliance with a higher star rating may be more expensive in terms of its initial purchase price, it may be less expensive in the long run when compared with a cheaper appliance with a lower energy efficiency rating. To inform the value for money decision making process, it may be appropriate to request information from tenderers on the environmental benefits of goods and services and how those benefits or risks have been enhanced or mitigated (for example how the product or service has been designed to minimise risk).
30.
31.
32.
33.
Environmental Purchasing Guide 34. The Environmental Purchasing Guide includes environmental purchasing checklists to help Procurement officers take account of relevant energy and environmental issues when procuring goods and services. Procurement officers are strongly encouraged to incorporate the Environmental Purchasing Guide and environmental purchasing checklists into their existing purchasing systems or use it for stand-alone environmental evaluation. The toolkit is made up of environmental checklists and environmental specifications and is available at: http://www.environment.gov.au/settlements/#checklists.
Environmental Impacts 35. In addition to the EPBC Act, there may be other legal obligations that must be considered prior to procurement. Procurement officers may find it helpful to consult the Legal Obligations Registers (LOR) prior to the commencement of procurement activities to determine other environmental requirements which may apply. There is a separate LOR for each State and Territory and these also include relevant Commonwealth requirements. These can be accessed at: http://intranet.defence.gov.au/environment/legal_registers/main.htm. When planning to procure goods and services, Procurement officers should consider those National Environmental Protection Measures outlined in The National Environment Protection Measures (Implementation) Act 1998 that are likely to apply to Defence, e.g. goods and/or services that involve or require:

36.
the movement of controlled waste between States and Territories; used packaging materials; the assessment of site contamination; the use of a polluting substance; or the use of diesel vehicles.
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Defence Procurement Policy Manual 3.16 Environment in Procurement 37. 38. Defence guidance on the application of National Environment Protection Measures can be obtained from the Director of Environment Impact Management on (02) 6266 8067. Procurement officers must ensure that the procurement of commercial vehicles is undertaken using the Green Vehicle Guide.
Water Efficiency 39. Where relevant, Procurement officers must include water efficiency in planning, specifying and conducting procurement in accordance with the Defence Water Management Strategy. Water efficiency should be considered in the procurement of the following key products/services:

domestic water using appliances; plumbing equipment and services; landscaping products and services, e.g. water efficient irrigation systems; and plant material used in landscaping e.g. native species requiring less water.
40.
Where relevant, the latest products rated by the Governments Water Efficiency Labelling and Standards (WELS) Scheme, which sets minimum water efficiency standards for plumbing products, sanitary ware and whitegoods, should be used.
Waste Management and Reduction 41. Under the new National Waste Policy 2009 (NWP), all agencies are required to embody and promote sustainable procurement principles and practices within their own operations and delivery of programs and services to facilitate certainty in the market requiring, as far as practical, considerations such as waste management, use of reprocessed materials, resource recovery and responsibility for goods and materials at end of life to form part of Commonwealth purchasing decisions. Where practicable, Procurement officers should consider waste management, use of reprocessed materials, resource recovery and responsibility for goods and materials at end of life when making procurement decisions.
42.
Heritage 43. Procurement officers should ensure they take into account matters affecting the environment, including heritage values, when formulating requirements. Under the EPBC Act Defence must not take an action that has, will have or is likely to have an adverse impact on the National Heritage values of a National Heritage place or the Commonwealth Heritage values of a Commonwealth Heritage place without obtaining prior approval (through DSG). A list of Defence places that have National and/or Commonwealth Heritage values and further guidance of Defences heritage obligations is available from the Defence Heritage Management website at: http://www.defence.gov.au/environment/heritage.htm.
44.
Pollution Prevention 45. The Defence Pollution Prevention Strategy (DPPS) has assessed that the risk of significant impact on the environment and health of Defence personnel from the procurement of assets (refers to plant, equipment, machinery, weapons, vehicles, vessels and aircraft) and infrastructure is high if not managed correctly. Procurement officers should ensure that purchasing activities take account of Defences liability associated with the use of hazardous substances and the management of waste streams. The DPPS details the potentially hazardous substances that can affect people and the environment (land, air, water). Procurement decisions should consider pollution impacts, with Capital Equipment and Asset procurement to include design, development, management and disposal specifications which avoid or minimise these risks.
46.
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Defence Procurement Policy Manual 3.16 Environment in Procurement Ozone Depleting Substances and Synthetic Greenhouse Gases 47. Defence is required by law to phase-out ozone depleting substances and manage synthetic greenhouse gases. Defence is committed to ensuring that the handling and use of ozone depleting substances and synthetic greenhouse gases is controlled in a manner which prevents or minimises any damaging emissions to the atmosphere. Defence policy requires that goods and services procured by Defence are to be free from ozone depleting substances or, where avoidance is impracticable, the use of those substances is clearly identified and the nature and extent of the hazard is clearly displayed. Standard Defence contracting templates for the procurement of goods and services (including ASDEFCON) contain a clause requiring contractors to comply with this policy. Further information on ozone depleting substances and synthetic greenhouse gas policy can be found in the following Defence documents:
48.
49.
Defence Instruction (General) LOG 4-3-022 The Ozone Depleting Substance and Synthetic Greenhouse Gas Manual; and Defence Logistics Manual (DEFLOGMAN) Volume 3, -Ozone Depleting Substances and Synthetic Greenhouse Gas Manual.
50.
Defence policy in this area focuses on the phasing out of ozone depleting substances from the inventory whenever a suitable and safe alternative is available. If the use of a particular ozone depleting substance is unavoidable for a specific application, a management plan is required. Defence policy recognises that there are some substances which will be regarded as essential for Defence use, i.e. those ozone depleting substances for which there is no acceptable replacement substance, and which are required to maintain systems. In those cases where the potential for hazard has been defined and it is not feasible to replace the ozone depleting substance with a non-ozone depleting alternative, the contractor shall ensure that the location and nature of the hazard involved is clearly indicated and documented in order that appropriate precautions can be taken in the handling, operation and maintenance of the equipment once it is introduced into service. Such information should be visible not only on the item itself, but also on any higher assembly in which the item is incorporated and in all related technical documentation. In such cases a management plan is required.
51.
Biosecurity 52. Where relevant, Procurement officers should consider design features of vehicles / equipment and clothing that help reduce the risk of spreading of pests and disease (not human-human). Defence policy relating to managing biosecurity risks is provided in Management of Biosecurity and Overabundant Native Species Risks on the Defence Estate 2009.
Key References
Environment Protection and Biodiversity Conservation Act 1999 Environment Protection and Biodiversity Conservation Regulations 2000 Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 Ozone Protection and Synthetic Greenhouse Gas Management Regulations 1995 Energy Efficiency in Government Operations Policy Environmental Purchasing Guide: An Australian Government Initiative Environmental policy on the Environment Australia website National Waste Policy: less waste, more resources Defence Instruction (General) DI (G) ADMIN 403 - Assessment and approval of Defence actions under the Environment Protection and Biodiversity Conservation Act 1999 Page 3.168
Defence Procurement Policy Manual 3.16 Environment in Procurement Defence Instruction (General) ADMIN 40-2, Environment and Heritage Management in Defence Defence Instruction (General) LOG-4-3-022 The Ozone Depleting Substance and Synthetic Greenhouse Gases Manual Defence Logistics Manual (DEFLOGMAN) Volume 3, The Ozone Depleting Substances and Synthetic Greenhouse Gases Manual Defence Sustainable Water Management Strategy Defence Environment website Management of Biosecurity and Overabundant Native Species Risks on the Defence Estate 2009 Green Vehicle Guide
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Defence Procurement Policy Manual 4.1 Partnering and Teaming Arrangements
4.1
Introduction
1.
Partnering and Teaming Arrangements
Partnering and teaming arrangements are strategies that may be adopted to facilitate cooperation between Defence, its contractor and their subcontractors. These arrangements do not form part of the contract between Defence and the contractor and it is important to ensure that they do not affect the contractual obligations of either Defence or its contractors. Partnering and teaming arrangements should not be confused with project alliancing.
Partnering Arrangements 2. Partnering is a management strategy under which the parties agree to focus on developing cooperative working relationships in order to avoid adversarial approaches to resolving problems. A partnering relationship is based on teamwork and commitment from each of the entities contributing to it.
Partnering objectives 3. Partnering is designed to support the achievement of several objectives:
the enhanced delivery of products and services to Defence through more effective and efficient communication channels; the adoption of best practice business processes and systems as may be agreed by the contributing parties; and the engagement of industry in ways that enables support to Defence more cooperatively than may occur in adversarial contracting relationships.
Benefits of partnering 4. Benefits that may be gained through partnering include:
both parties are focused on achieving common goals, and are better placed to be able to work cooperatively towards them; problems that arise are able to be communicated to other parties and dealt with more expeditiously than may ordinarily be the case; a reduction in adversarial relationships resulting in reduced administrative costs; the creation of a better environment for innovative ideas to be suggested and implemented as a consequence of open communication channels; and the capacity for risks to be identified and allocated appropriately early in the procurement process.
Partnering agreements 5. Defence supports the use of partnering agreements for Complex and Strategic procurements. Defence is currently extending the use of partnering agreements beyond capability acquisition projects, as partnering principles have general application to longer-term contractual relationships where there are advantages in minimising adversarial conflicts. A partnering agreement is usually specific to a particular contract, although similar general conditions may be applied to other contracts. There may be circumstances, especially in the case of a proposed single supplier direct source arrangement, where it is appropriate to enter into a partnering agreement before contract signature. Any such agreement must include a clause stating that the agreement is subject to contract. This will provide Defence with legal protection against tenderer claims in the event that the contract is not entered into. To avoid the Page 4.11
6.
Defence Procurement Policy Manual 4.1 Partnering and Teaming Arrangements contractual relationship being inconsistent with the partnering arrangements between the parties, the contract should be drafted, and where necessary amended, to reflect the partnering relationship between the parties. Representations made in a partnering workshop, or forming part of the partnering arrangement, and which are relied upon by the parties should be incorporated into the contract. Similarly, it is important to ensure that dispute resolution procedures in the contract are consistent with the issue resolution process set out in the partnering agreement. 7. A partnering agreement is not a contract but is designed to promote more effective contract management, relationships and outcomes. It does not replace a contract, lessen or reduce requirements or decrease the responsibilities of Defence or the contractor. Annex 4A contains an example of a partnering agreement that may be used as a model that can be adapted to meet particular circumstances. Procurement officers should seek advice from the contracting specialists listed at the front of this Manual when preparing a partnering agreement.
Who are the partners to a partnering arrangement? 8. The participants or partners in a partnering relationship comprise those stakeholders directly involved in the project. They are Defence as customer, the contractor and relevant subcontractors and consultants. It is important to ensure that all the significant stakeholders participate in the partnering process, not only the contracting parties. HANDY HINT It is important to note that a partnering relationship, whether long term or not, does not create a legal relationship such as a legal partnership, a joint venture or any other form of legal entity. Thus the partnering agreement is a mission statement that declares the overall goals in a single statement. Partnering principles 9. Partnering principles which have been successfully applied involve all stakeholders in:

facilitating better personal relationships and a sense of common purpose; formalising a joint resolution process, where decision makers always hear both sides of the story; resolving issues and problems at the lowest practicable level; and developing mutual respect between all stakeholders.
10.
Implementation of these principles leads to:

a team approach to the contract outcomes; resolution of issues before they become disputes; pro-active planning and early identification of risks; increased prospects for a successful project; a more cooperative, productive and enjoyable working environment; and a win-win outcome.
11.
The working relationship under an effective partnering arrangement will provide for less formality and more flexibility and will enhance the management provisions outlined in the formal contract document. However, it remains important for significant issues arising under partnering relationships to be formally documented and any agreements impacting on the terms and conditions to be implemented by contract amendment.
Partnering process 12. For partnering to be successful there must be a commitment to the process at all levels within each stakeholders organisation. Several steps are involved in the partnering process: Page 4.12
Defence Procurement Policy Manual 4.1 Partnering and Teaming Arrangements
an invitation. One or more of the parties must invite the other parties to enter into a partnering arrangement; agreement to enter into a partnership arrangement. Defence, the contractor, subcontractors and other stakeholders agree to enter into a partnering relationship; a partnering workshop. This is an opportunity for the parties to determine an appropriate partnering agreement, an issue resolution process, and a joint evaluation process to monitor and evaluate performance; implementation of a joint venture evaluation process. On a regular basis, the partners should use an agreed joint evaluation process to evaluate their performance against the objectives; and final evaluation. At project completion the partners should meet to evaluate their performance over the life of the project and record any lessons learnt.
13.
Procurement officers establishing a partnering agreement should:

include details of the planned project partnering process in any briefing to tenderers; foreshadow in the particular request documentation, Defences preference for partnering relationships; obtain senior management commitment to partnering for the project in the form of a mission statement; and immediately prior to, or immediately following contract signature, hold a team-building workshop to develop a partnering agreement to be signed by all stakeholders. This will usually involve a facilitator. The partnering agreement should include an issue resolution process, pro-active problem identification mechanisms and mechanisms for monitoring the achievement of the mission objectives.
Teaming Arrangements 14. The terms partnering and teaming arrangement are not interchangeable. A teaming arrangement is an affiliation (not necessarily a formal arrangement) of companies brought together to be better able to meet a requirement. This arrangement is often established precontract. In most cases, a company will not be obliged to be a member of an exclusive team but may be a member of several teams. For Complex and Strategic procurements, Defence has often advocated the formation of teams between potential suppliers to tender for Defence business. Defence policy is not to involve itself in the actual composition of the teams, as it is a matter for the commercial judgement of those involved. An exception is where Defence advises in its tender documentation that a particular subcontractor must be engaged in the work under any resultant contract because of the nature of the requirement. Where Defence nominates a particular subcontractor in request documentation, tender documents should be released to that subcontractor at the same time.
15.
Mandating subcontractors 16. Mandating subcontractors should be avoided unless it is absolutely necessary for the performance of the proposed contract. By mandating a particular subcontractor, Defence will limit the commercial freedom of tenderers and may not achieve value for money. In addition, Defence may be exposed to greater risk where the mandated subcontractor fails to perform under a subcontract as Defence may be prevented from claiming loss or damages due to the fact that the subcontractor was mandated by Defence. To counter this, at least in part, Defence should make it clear in the request documentation and at negotiations that bidding for the role of prime contractor, despite the mandating of a subcontractor(s), implies full responsibility for the management and performance of that subcontractor(s). Those bidding for the role of prime contractor should prepare their bids and pricing on this basis.
17.
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Defence Procurement Policy Manual 4.1 Partnering and Teaming Arrangements 18. Circumstances in which a subcontractor may need to be mandated include:
where a company is the only provider for a particular item required for incorporation in the supplies and Defence wishes to prevent the formation of exclusive teaming arrangements that limit competition at the tendering stage; or where Defence has entered into a previous contract with the provider of a particular item and is contractually bound to secure the item from the supplier.
19.
The firmness of the teaming arrangements will depend on the phase of the acquisition process. In general, Procurement officers should not promote any arrangement in which local companies lock themselves into exclusive arrangements with an overseas supplier in the early phases of the tendering process. Exclusive teaming arrangements could deny local firms the flexibility and opportunity of being involved subsequently with the successful tenderer.
Advice on Partnering and Teaming Arrangements 20. Procurement officers seeking further advice on partnering and teaming arrangements should contact the appropriate Defence and DMO Support Areas found at the front of this manual.
Chapter Summary
Partnering is a management strategy in which the parties agree from the outset to focus on cooperation, problem solving and conflict avoidance procedures. Defence supports the extension of partnering agreements beyond capability acquisition projects to reflect a whole-of-life approach to capability management. Partners to the process can enter into a partnering agreement, which is simply a formal commitment between Defence, its contractor and other relevant stakeholders to work together to avoid adversarial confrontation. It does not replace the relevant contract and is not a legally binding document. Partners in the process are Defence, the contractor, its subcontractors and consultants. If Partnering is to succeed, commitment at all levels within each stakeholders organisation is required. From the partnering process, stakeholders develop mutually agreed procedures for timely resolution of issues or conflicts at the lowest possible management level. Several stages are involved in the partnering process: an invitation to enter into a partnering arrangement, an agreement to enter into a partnering arrangement, a workshop, implementation of a joint evaluation process, and a final evaluation. A teaming arrangement is an affiliation of companies brought together to be better able to meet a requirement. In general, tenderers should not be encouraged to lock themselves into exclusive arrangements in the earlier phases of the tendering process.
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Defence Procurement Policy Manual 4.2 Overseas Procurement
4.2
Introduction
1. 2.
Overseas Procurement
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter provides guidance on the procurement of supplies from overseas, and in particular addresses the following:
the role of Defence Materiel (DEFMAT) Branch in Washington, United States of America (US), and the Counsellor Defence Materiel (CONDMAT) in London, United Kingdom (UK); the procedures for purchasing goods and services from overseas suppliers through the DEFMAT and CONDMAT offices; the Foreign Military Sales (FMS) process and associated risks; and export compliance.
Mandatory Policy
Defence and DMO Procurement officers must comply with Defence Materiel Handbook (Procurement) DMH (PROC) 13-0-002 Engaging CONDMAT and DEFMAT in the conduct of Procurement when engaging DEFMAT and CONDMAT. Procurement officers must use DEFMAT as the single point of contact for establishing or amending FMS cases. DMO Procurement officers must undertake a risk assessment for the purposes of entering into an indemnity arrangement as part of the establishment of an FMS case in accordance with DMO Chief Executives Instruction 8.6: unless:

the procurement is for spares or repairable items; and a risk assessment was previously undertaken for procurement of the higher assembly.
Procurement officers must also obtain Financial Management and Accountability Regulation (FMAR) 10 delegates approval for the indemnity arrangement in accordance with FINMAN 2 Schedule F2-1 (for Defence) and DMD Chief Executives Instruction (CEI) 2.1. Under the standard terms and conditions of an FMS case, Procurement officers must obtain approval prior to transferring FMS procured goods or services to a third party. Where foreign currency bank accounts are maintained as part of commercial arrangements or acquisition of military equipment, the accounts must not be used to store money in a foreign currency purchased before a payment is due. DMO Procurement officers must comply with the Defence Materiel Manual (Finance)(DMM(FIN)) 01-0-004 Foreign Military Sales Financial Management Manual when managing financial aspects of FMS.
Page 4.21
Background 3. The acquisition of any new capability is likely to involve the procurement of elements from overseas, in particular from the US. For this reason, it is important that Procurement officers have a clear understanding of:

the different methods of overseas procurement; the common legal restrictions on the importation of overseas military equipment; and the risks that these procurement methods pose to Defence.
4.
There are a number of ways in which Defence procures equipment and military technology from overseas. In particular, certain supplies will often be purchased from overseas as part of a wider procurement in which the remaining goods or services are provided by a domestic supplier. There are various types of procurement used for the foreign element of the procurement, including:

a commercial arrangement between Defence and an overseas supplier; and a direct government-to-government arrangement between Defence and the US Government under the FMS program. Under these arrangements, the US Department of Defense acts on Australias behalf in negotiating a FMS contract with US corporations and there are standard terms and conditions (including liability arrangements) that form part of any FMS contract.
5.
With some exceptions, the same legislative and policy framework applies to overseas purchases through DEFMAT and CONDMAT offices as applies to other Defence procurements. Both the Financial Management and Accountability Act 1997 and the Commonwealth Procurement Guidelines (CPGs) apply to the procurement of goods and services from overseas. Procurement officers should note that if the goods or services being procured are purchased outside Australian territory, for consumption outside Australian territory, then the Mandatory Procurement Procedures of Division 2 of the CPGs do not apply. The requirements of Division 1 of the CPGs still apply. These include obligations such as demonstrating value for money, nondiscrimination and transparency. For further information refer to chapters 1.2 and 3.10. Procurement officers should also note that DEFMAT and CONDMAT offices have access to favourable freight rates through their contracted freight forwarders. This is an important aspect to consider when assessing offers from Australian companies or agents of US suppliers.
6.
7.
The role of DEFMAT and CONDMAT Offices 8. The DEFMAT and CONDMAT offices are the first point of contact for all matters relating to Defence projects, acquisition and through-life support of Defence equipment, and Industry issues. DEFMAT Washington has responsibility for these matters in the US and Canada, while CONDMAT London has responsibility in the United Kingdom and Europe. Prior to engaging the services of DEFMAT or CONDMAT, Procurement officers should consider whether:
9.
the proposed procurement is likely to involve suppliers from a DEFMAT or CONDMAT jurisdiction; and the complexity of the procurement means that it is appropriate for DEFMAT or CONDMAT to manage the procurement directly or to provide assistance as part of a wider effort by the domestic acquisition team.
10.
In general, the kinds of Simple procurement carried out by DEFMAT or CONDMAT involve an approved arrangement with a particular supplier (i.e. under a standing offer) or a direct purchase from an Original Equipment Manufacturer (OEM). Strategic and certain Complex Page 4.22
Defence Procurement Policy Manual 4.2 Overseas Procurement procurements are not generally suitable to be progressed independently by a CONDMAT or DEFMAT office although these offices may well provide assistance on various aspects of the procurement. 11. Circumstances in which it may not be appropriate for a procurement to be conducted independently by DEFMAT or CONDMAT include where the procurement involves:

significant negotiation on commercial or technical matters; developmental requirements; or potential or known integration risks.
12.
The key DEFMAT and CONDMAT activities relate to the support of the capability management and materiel aspects of Defence business, with particular emphasis on:
the overall management of Simple and lower end Complex procurements including exercising Procurement, Contract and Contract Signatory approvals on behalf of the domestic project; market research and testing; providing comprehensive local market knowledge and expertise; developing or assisting in the development of request documentation; conducting approaches to the market; conducting or assisting in the conduct of tender evaluation and contract negotiations, including the provision of facilities at overseas missions; facilitating cost investigation under reciprocal memorandums of understanding (MOU); the issue of End User certificates and provision of advice on Export Licences in their areas of jurisdiction; coordinating and providing advice in relation to freight support; and assistance with contract management, the delivery of supplies and processing of invoices.
13.
Defence and DMO Procurement officers must comply with Defence Materiel Handbook (Procurement) (DMH (PROC) 13-0-002) Engaging CONDMAT and DEFMAT in the conduct of Procurement when engaging CONDMAT and DEFMAT.
Purchasing through Counsellor Defence Materiel Offices Obtaining Relevant Approvals 14. Procurement delegation requirements for purchases through DEFMAT and CONDMAT are the same as those for all procurements, as outlined in chapter 1.4. Additional requirements and specific responsibilities for obtaining Proposal approval, Procurement approval, Contract approval and Contract signatory are contained in DMH (PROC) 13-0-002.
Overseas Visits and Contract Approval 15. As part of the tender evaluation process for a particular procurement, Procurement officers in Australia may be required to have discussions directly with the overseas-based tenderer. The following practices should be adopted where DEFMAT or CONDMAT staff will be required to exercise Contract Approval and Contract Signatory. DEFMAT and CONDMAT offices are to be advised as early as possible of forthcoming visits by Australian Procurement officers to overseas-based tenderers to enable their input prior to the visit. Where the relevant DEFMAT or CONDMAT office is to exercise Contract Approval and Contract Signatory, a representative from that office should be included in the discussions held with the overseas-based tenderer.
16.
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Defence Procurement Policy Manual 4.2 Overseas Procurement 17. If a Procurement officer is not available from the DEFMAT or CONDMAT office, and unless other arrangements are made, tenderers should be advised that any discussions of contractual arrangements are not formal contract negotiations or agreements. If appropriate, the Procurement officer in Australia should forward a brief to the DEFMAT or CONDMAT office detailing the issues discussed as part of the visit, as there may be areas of local knowledge that the DEFMAT or CONDMAT offices can assist with, such as terms and conditions specific to countries.
Price and Availability Data 18. When sourcing supplies from overseas, Procurement officers should bear in mind the Defence policy on agency relationships set out in chapter 4.10. Procurement officers may approach Australian agents or brokers of the overseas manufacturers to obtain information relating to supplies but should advise CONDMAT or DEFMAT of all suppliers who have been approached. To ensure value for money is achieved, Procurement officers should also task the CONDMAT or DEFMAT office to obtain price and availability data direct from the overseas manufacturer. Because of the administrative burden otherwise placed on the overseas manufacturer, Procurement officers should not approach agents or brokers of overseas manufacturers on a routine basis for price and availability details. Where Procurement officers make price and availability enquiries directly, they should not commit the Commonwealth to a purchase or otherwise reduce the leverage that CONDMAT or DEFMAT would have in price negotiations.
19.
20.
Limitation of Liability 21. If in the process of conducting procurement a tenderer proposes a limit to its liability, Procurement officers must conduct a risk assessment to inform any decision about whether limiting the tenderers liability is appropriate, unless the procurement fits into one of the exemptions for FMS cases discussed in paragraphs 36 and 37 below.
Purchasing in Foreign Currency 22. Procurement officers should ensure that overseas purchases quoted and paid for in foreign currency, as an alternative to Australian currency, are considered in accordance with Defence policy (refer to chapters 2.2, 3.3 and Annex 3F).
Contract Management Requirements 23. In instances where a Procurement officer in Australia contracts directly with an overseas supplier, the Australian Procurement officer must forward details to the DEFMAT or CONDMAT office of any post contract actions required of that office and a copy of the resultant contract. Types of post contract actions falling under this requirement might include arranging for inspection or shipment of the supplies and payment to the supplier. In all such instances Procurement officers in Australia should consult with DEFMAT or CONDMAT before including any contract conditions in a contract that DEFMAT or CONDMAT is to administer, particularly in regard to payment terms, dispatch arrangements and export licences. For such contracts, the contractual authority will remain the Australian purchasing authority and it will be responsible for resolving any queries regarding technical requirements and the interpretation of contractual conditions. DMO Procurement officers must comply with the Defence Materiel Manual (Finance)(DMM(FIN)) 01-0-004 Foreign Military Sales Financial Management Manual when managing financial aspects of FMS.
24.
25.
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Defence Procurement Policy Manual 4.2 Overseas Procurement Foreign Military Sales FMS Case Procurement Process 26. Procurement officers must use DEFMAT Washington as the single point of contact for establishing or amending FMS cases. However, once the FMS case is established, case sponsors then become responsible for the direct management of their case, with DEFMAT officers providing ongoing facilitation. FMS cases are established using the following processes:
27.
the Procurement officer in Australia forward a complete statement of requirement (SOR) to DEFMAT using a request for a Letter of Request. A template SOR is contained in the Electronic Supply Chain Manual (ESCM); the Letter of Request (LOR) is sent to the US Government by the Director Foreign Military Sales within DEFMAT; and the US Government responds with a Letter of Offer and Acceptance (LOA) which following the signature of both parties and the payment of a deposit by the Commonwealth forms the FMS contract. There is a template minute addressed to DEFMAT(W) advising of acceptance of the LOA by Defence contained in the ESCM.
28.
Further guidance on the FMS process is contained in Defence Instruction (General) Logistics (DI(G) LOG 43002) - Procurement of Materiel and Services from the United States of America under the Foreign Military Sales Program. The procurement of goods and services via an FMS case is an exception to the requirement to obtain an export licence under International Traffic in Arms Regulations (ITAR) as the FMS case initiates a DSP-94 - Authority to Export Defense Articles and Defense Services sold under the Foreign Military Sales Program. Accordingly, once Defence has obtained a LOA from the US Government, Procurement officers do not need to obtain an export licence from the Department of State (refer to the Export Compliance section of this chapter). Procurement officers should note that not all purchases of goods or services from the US can be conducted on a commercial basis by dealing with American suppliers. In some circumstances, items may only be available from the US Government itself. Examples include sensitive American technology such as missiles and cryptographic and electronic warfare equipment. These items may be purchased from the US Government through the US FMS program.
29.
30.
Benefits and Risks of the FMS Program 31. For non-sensitive items, the choice between procuring through FMS or directly through American commercial sources will depend upon the circumstances in each case. The decision to source an item through FMS or from American commercial sources is not always clear cut as there are advantages and disadvantages associated with either approach. Foreign Military Sales can be an attractive option because:
32.
the US Department of Defense acts on Australias behalf in negotiating a contract once the Foreign Military Sales is established and often has better bargaining power with large American corporations than the Commonwealth would have under a direct commercial arrangement; economy of scale price reductions can often be achieved through piggybacking on US Department of Defense (and other countries) requirements and orders; some sensitive items can only be procured via FMS; it assures the Australian Defence Force of interoperability with, and long term support from, the US Department of Defense; and
Page 4.25
in support of operations, the US may divert assets previously assigned to US Department of Defense units to assist in meeting these operational imperatives.
33.
However, there are significant additional risks associated with the use of FMS arrangements which Procurement officers should be aware of. FMS arrangements involve substantial changes to the standard contractual risk allocation in favour of the US Government. Under an FMS arrangement the following specific risks should be considered:
the US Government procures the items on terms and conditions that conform to US Department of Defense regulations and procedures. There may be a disparity between the acceptance procedures applied by the US Government and those used by Defence to satisfy itself as to the condition of goods. Accordingly, it is important that any specific requirements regarding the condition of the equipment is identified in the LOR; FMS contracts are a type of cost reimbursement contract (see chapter 2.2) as the US Arms Export Control Act 1976 (US) requires that the FMS Program is conducted at no cost to US Department of Defense. As a result, the total price of items procured is billed to Defence even if that cost exceeds the amount estimated in the LOA. This places additional responsibility on Procurement officers to ensure that value for money is achieved; Defence assumes the risk of delay with the United States Government only being required to use its best efforts to advise Defence where the delays may substantially affect delivery dates; The indemnification and limitation of liability arrangement in an FMS arrangement differ greatly from the standard Commonwealth position; Defence bears the risk of the costs of cancellation or deletion of items from the FMS case; and the US Government has no liability for infringement or violation of intellectual property or technical data rights and there are almost no warranties which benefit Defence.
34.
In considering whether better value for money will be achieved via FMS or commercial procurement, Procurement officers should note that quotes cannot be pursued from both US commercial suppliers and through FMS channels (to the same supplier). However, alternative US suppliers using commercial procurement can be competed against an FMS case. For further information on the FMS process and policy, refer to the Defense Institute of Security Management website.
35.
Limitation of Liability 36. While in Defence (as opposed to DMO) there is no mandatory requirement for Defence officers to conduct a risk assessment in respect of FMS procurement, a risk assessment is considered best practice (refer to FINMAN 5 Chapter 8.6 Contingent Liabilities (including indemnities, guarantees, warranties and letters of comfort). DMO Procurement officers must undertake a risk assessment for the purposes of entering into an indemnity arrangement as part of the establishment of an FMS case in accordance with DMO Chief Executives Instruction 8.6: unless:

37.
the procurement is for spares or repairable items; and a risk assessment was previously undertaken for procurement of the higher assembly.
38.
Procurement officers should use the template Liability Risk Assessment (LRA) for FMS cases at Annex H to DMO Legal FMS Legal Practice Guide - Liability Risk Assessments and Delegate Approvals for Foreign Military Sales Acquisitions. DMO Procurement officers must also undertake a remoteness and materiality assessment for the purposes of FMAR10 approval. See DMO CEI 8.6 Annex A. DMO officers do not need to seek legal advice prior to approving a contingent liability in the case of FMS procurement. Legal advice on the standard FMS indemnity is contained in the Page 4.26
39. 40.
Defence Procurement Policy Manual 4.2 Overseas Procurement DMO Legal FMS Practice Guide Liability Risk Assessments and Delegate Approvals for Foreign Military Sales Acquisitions available at: http://intranet.defence.gov.au/dmoweb/sites/DMOLegal/docs/DMOLegal_FMSLegalPracticeGui de.doc. 41. Procurement officers must also obtain FMAR10 authorisation in accordance with Defence CEI and DMO CEI 2.1 and obtain delegate approval for providing the indemnity.
Need to obtain Approval for Sale, Transfer or Disposal 42. Under the standard terms and conditions of an FMS case, Procurement officers must obtain approval prior to transferring FMS procured goods or services to a third party. Procurement officers should be very careful to adequately provide for the intellectual property rights needed for the provision of through life support by a contractor or upgrade work in the FMS case. Control of the supplies and technology cannot be transferred to third parties (Australian or other foreign industry) unless authorisations have first been obtained from the Department of State. Advice on retransfers is provided by the Directorate Export Control Systems in Commercial Industry Programs Division in DMO and detailed advice on US export control policy is contained in the Defence Materiel Handbook (Supplier Management) 05-2-001 United States Defence Export Controls Guidance. Additional assistance with FMS cases and contact with the sponsoring US Service can be obtained from Support Office Foreign Military Sales (SOFMS) or the Director of Foreign Military Sales at the Australian Embassy in Washington.
43.
44.
Export Compliance
Export Licences 45. Under the ASDEFCON suite of tendering and contracting templates, the contractor is responsible for obtaining all export licences or other approvals required to perform the contract. In addition, under the ASDEFCON (Strategic Materiel) and ASDEFCON (Support) templates the contractor is required to notify the Commonwealth Representative of certain events, including making an application for an export licence or other approval and upon becoming aware of the grant, refusal, revocation or qualification of an export licence or other approval. In some Defence contracts Defence, is required to provide the contractor with assistance (if requested) to facilitate the contractor obtaining an export licence (including providing a certificate as to the end use of the supplies). So, for example, where Defence acquires equipment from overseas, or equipment that is manufactured in Australia under licence from an overseas manufacturer, the export to Australia of the equipment is cannot occur with a written assurances. The written assurances is required from the Australian government, to the exporting foreign government, that the equipment will not:

46.
47.
be transferred to a third party without permission from the foreign government; be used for purposes associated with either chemical, biological or nuclear weapons, or missiles capable of delivering such weapons; or be transferred if the Commonwealth knows or suspects that they are intended or likely to be used for such a purpose.
Exports from the United Kingdom 48. In the United Kingdom, in order to export military goods and technology, a contractor:
needs to obtain an export licence from the Secretary of State under the Export Control Order 2008 (UK) noting that the export of military goods and technology is prohibited unless an exemption applies or a licence has been obtained;
Page 4.27
may need to make a separate application to obtain F680 clearance from the UK Ministry of Defence Export Policy and Assurance area. This is generally required if the export involves classified goods (and in some other limited circumstances); and will generally need to obtain end user undertakings or consignee undertakings or other documentation, such as a purchase order or relevant pages from the contract from Defence. Procurement officers should be aware that if such undertakings are requested by a contractor, these undertakings normally need to accompany the associated export licence application.
Export from the United States of America 49. As discussed above, the export of equipment or military technology from the US may be done via a contract between Defence and an overseas commercial supplier or via a government to government FMS arrangement. Different rules apply to commercial arrangements between Defence and an overseas supplier depending on the intended use of the exported goods or services, so that the export of:
50.
defense articles or defense services are regulated by the US State Department, through the International Traffic in Arms Regulations (US) (ITAR). The items which are covered by ITAR are specified on the US Munitions List; and items with a predominantly civilian use are regulated by the Export Administration Act (US) (EA) and associated regulations. the export of these items is far less regulated than under ITAR and, for example, does not involve end user certificates or agreements.
International Traffic in Arms Regulations 51. The ITAR is a regulatory regime controlling the export and import of defense articles and defense services and gives effect to the US Presidents power to control this area under the Arms Export Control Act, section 38. Under ITAR, any persons (including corporations) who manufacture or export defense articles or furnish defense services are required to register with the US Directorate of Defense Trade Controls in the Department of Defense. In addition, Procurement officers need to be aware of the licensing regime under ITAR. This requires exporters of defense articles, (such as contractors to Defence), to obtain the approval of the US Directorate of Defense Trade Controls prior to the export unless one of the limited exemptions applies. Procurement officers should ensure that if an export licence is required to be obtained under ITAR that the time to obtain the licence has been factored into the contract schedule. It is the contractors responsibility to ensure it is registered with the Directorate of Defense Trade Controls and that it has obtained all necessary export licences prior to exporting from the US defense items or defense services. However, Procurement officers need to be aware that contractors are required to provide the following documentation as part of an export licence application and will require assistance in complying with these requirements:

52.
53. 54.
a copy of the purchase order, letter of intent or other appropriate documentation; an executed non-transfer and use certificate (Form DSP-83) if the application relates to the export of significant military equipment, including classified hardware or classified technical data or is otherwise required (the US Office of Defense Trade Controls has the discretion to require a non-transfer and use certificate for the export of any defense articles or defense services).
55.
Where an overseas procurement is being undertaken, it is best practice for Procurement officers to consider including a question regarding company compliance with ITAR and its security regime for dealing with sensitive technical data as part of the Conditions of Tender.
Page 4.28
Defence Procurement Policy Manual 4.2 Overseas Procurement Requirements for Non-Transfer and Use Certificates 56. 57. Form DSP-83 needs to be executed by Defence and the contractor (as well as any foreign consignee). The certificate states that, except as specifically authorized by prior written approval of the Department of State, the foreign consignee and foreign end-user will not re-export, resell or otherwise dispose of the significant military equipment enumerated in the application outside the country named as the location of the foreign end-use or to any other person. The instructions for completing the DSP-83 require precise quantities of the articles or data to be shown on the certificate and for each item to be clearly identified with type, model number, make and, where known, US military designation or national stock number. Components and spare parts should be fully identified as well as the resulting item in which they will be used. Major components should be separately valued.
58.
Complying with the Terms of the Export Licence 59. ITAR provides that the written approval of the US Directorate of Defense Trade Controls must be obtained prior to reselling, transferring, transhipping or disposing of a defense article to an end user, end use or destination that is not stated on the export licence. This means that it is important for Procurement officers to check the terms of the export licence prior to moving an item or transferring an item for the purposes of modifications or upgrades.
Deemed Export 60. 61. Procurement officers should be aware of the risk in being deemed to have exported military goods, services or technical data to a country to which the United States will not permit exports. Section 126.1 of ITAR prohibits the export and sale of defense articles and services to certain countries. These countries are listed on the US Department of State, Directorate of Defense Trade Controls website and Procurement officers should access the following list as this is updated on a regular basis: http://www.pmddtc.state.gov/regulations_laws/itar_official.html. Procurement officers need to be aware that the item or technical data may be deemed to have been exported to a country if Defence proposes to conduct upgrades of equipment in one of these countries, use subcontractors from one of those countries or even if Defence employs someone born in one of these countries. An illustration of this problem is where Defence may be deemed to have exported technical data to an individual born in one of these countries by allowing them to use a computer where technical data is stored even if the individual has not been given the key to the encryption.
62.
Additional Requirements for the Export of Technical Data 63. Procurement officers should be aware that there are additional requirements which apply to the provision of defense services (including the provision of technical data) to foreign persons. This means that even if a contractor has obtained an export licence in relation to equipment, a contractor needs to satisfy additional requirements in order to provide defense services in support of this equipment. Procurement officers should note that there are certain exceptions relating to the provision of maintenance services and export of associated technical data to Australia. Contractors need to obtain the approval of the US Department of State which is usually obtained by submitting a proposed Technical Assistance Agreement (TAA) or, less commonly, a Manufacturing License Agreement (MLA). In exceptional circumstances, the US Directorate of Defense Controls will, on request, consider granting a licence for the export of the technical data. Refer to the Defence Export Control Office for further information. A non-transfer and use certificate is required to be provided if the MLA or TAA relates to significant military equipment or classified defense articles. However, the US Department of State may also require that a non-transfer and use certificate is provided where the agreement Page 4.29
64.
65.
Defence Procurement Policy Manual 4.2 Overseas Procurement does not relate to significant military equipment or classified defense articles. If a licence is to be issued, a completed Form DSP 83 will be required. 66. It is important that Procurement officers assist in the development of the TAA prior to its approval and that they ensure that the TAA or MLA does not contain any IP rights or clauses. Contractors will sometimes attempt to include restrictive IP or technical data clauses in TAAs or MLAs which will often be more restrictive that the rights being sought by the Commonwealth through the relevant acquisition or sustainment contract. Procurement officers should ensure that TAAs and MLAs deal only with the necessary export control requirements, with other matters such as IP rights and access to technical data being dealt with in the contract or a separate IP deed.
End User Assurances 67. As discussed above, contractors will request that Defence provide an end user certificate containing assurances to the exporting foreign government regarding restrictions on the transfer (which includes sales and any change in ownership or possession of the equipment) and future use of the equipment by third parties. Obtaining approval of the end user certificate can be a lengthy process that can delay an export application and delivery schedules should be planned with this in mind. The end user certificate is signed on behalf of the Minister of Defence. The Minister has delegated authority to sign end user certificates to specific officers within Defence (see DI(G) LOG - 4-4-004 Export and import of Defence and dual-use goods and the use of Government end user assurances). Procurement officers should consult with the Defence Export Control Office (DECO) for advice on end user certificates and non transfer certificates. The DECO can be contacted by telephone on 1800 661 066 or by email: deco@defence.gov.au.
68.
69.
Practical Tips on Completing End-User Assurances 70. Detailed advice on completing end-user assurances is contained in Defence Materiel Handbook (Supplier Management) 05-2-001. Procurement officers should be aware of the following matters when completing end-user assurances:
the description and quantities of goods should be specific - this should be concise, identify the original military use of the goods as well as a description of the intended use by Defence and include model or type numbers where relevant; the stated purpose of the goods and technology should reflect Defences future use requirements; the end-user should be specified as the Commonwealth of Australia represented by Department of Defence to permit the transfer between various parts of Defence and other government agencies as required; any end-user assurances given should be recorded and, if required, included in a compliance plan for auditing purposes; the need for end-user certificates to only be signed by those with authority to do so; if the end-user assurances require official endorsement these should be provided to DECO; whether IP schedules need to be updated once items are exported; and the need to direct contractors to the standard clauses and provisions.
Banking and Foreign Exchange Arrangements 71. Where foreign currency bank accounts are maintained as part of commercial arrangements or acquisition of military equipment, the accounts must not be used to store money in a foreign currency purchased before a payment is due. This practice is referred to as hedging. Refer to chapter 3.3 for further information on Commonwealth Foreign Exchange Policy. Page 4.210
Key References
Export Control Order 2008 (UK) Arms Export Control Act (US) Chief Executive Instruction 2.1 - Procurement DMO Chief Executive Instruction 2.1 - Procurement DMO Chief Executive Instruction 2.8 - Foreign Military Sales Defence Instruction (General) Logistics - 4-4-004 Export and import of Defence and dual-use goods and the use of Government end user assurances Defence Instruction (General) Logistics - 43002 - Procurement of Materiel and Services from the United States of America under the Foreign Military Sales Program Defence Materiel Instruction (Finance) DMI (FIN) 01-0-024 Obtaining FMAR 10 Authorisation Defence Materiel Manual (Finance) DMM(FIN) 01-0-004 Foreign Military Sales Financial Management Manual Defence Materiel Handbook (Procurement) DMH (PROC) 13-0-002 Engaging CONDMAT and DEFMAT in the conduct of procurement activity Defence Materiel Handbook (Supplier Management) 05-2-001 United States Defence Export Controls Guidance. DMO Legal Practice Guide Liability Risk Assessments and Delegate Approvals for Foreign Military Sales Acquisitions Information DEFGRAM No 196/2010 Organisational Change Counsellor Defence Materiel Washington
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Defence Procurement Policy Manual 4.3 Whole of Government Procurement Contracts, Arrangements and Initiatives
4.3
Whole of Government Procurement Contracts, Arrangements and Initiatives
Introduction
1. 2. This chapter applies to all procurements undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter provides an overview of the types of whole of government arrangements that should be considered by Procurement officers when selecting a contracting methodology, including:

Coordinated Procurement; Cooperative Procurement; Information communication and technology (ICT) procurement; and Multi Use Lists.
Refer to chapter 5.3 for further information on contracting methodologies.
Mandatory Policy
Procurement officers must use the whole-of government mandated arrangements specified by the Department of Finance and Deregulation (DOFD). Where the Government establishes a coordinated procurement arrangement for certain goods or services, Defence must use the contract established under the arrangement unless an exemption is provided. Defence must use the Microsoft Volume Sourcing Agreement (VSA) for sourcing all Microsoft products. Defence must only engage a provider of telecommunications carriage services (as defined in the Telecommunications Act 1997) that has signed an Australian Government Telecommunications Agreement (AGTA) Head Agreement. Procurement officers must refer to and comply with the DOFD Good Procurement Practice booklet (GPP) 05 Establishing and Using Multi-Use Lists when establishing or using a multi-use list To establish a multi-use list, a request inviting potential suppliers to apply to be included on the multi-use list must be published on AusTender in accordance with the Commonwealth Procurement Guidelines (CPGs) paragraph 8.17. A multi-use list must be established through an open approach to the market that meets the requirements of the mandatory procurement procedures set out in the CPGs, which enables potential suppliers to apply for inclusion on the list where they can demonstrate they meet the conditions for participation. Defence must use the Communications Multi-Use List (CMUL) when procuring specialist communications suppliers to assist in the development and implementation of advertising and information campaigns where total costs exceed $250 000 (including GST). Defence must also comply with the process and approval requirements set out in the DOFD guidance document Business Planning Processes for Campaign Information and Advertising Activities when procuring such campaign advertising.
Page 4.31
Defence Procurement Policy Manual 4.3 Whole of Government Procurement Contracts, Arrangements and Initiatives
Background 3. Whole of Government arrangements have been established to achieve the following outcomes:
benefit Financial Management and Accountability Act 1997 (the FMA Act) agencies when procuring property and services; give effect to Government policy decisions; improve consistency and control; and deliver savings and efficiencies.
4.
Whole-of-government arrangements may take the form of a contract, standing offer, and/or template documentation. The DOFD website (Whole-of-Government Procurement - DOFD) provides a consolidated list of contracts and arrangements and provides Procurement officers with information on the arrangements that are in place. Procurement officers must use the mandated arrangements specified in that list when procuring the goods or services covered by these arrangements. The list also contains optional standard documentation and cooperative arrangements that other agencies are able to use for procurement purposes. Multi-use lists, when available to more than one agency, could also be considered a whole-ofgovernment arrangement. Multi-use list available for use by Defence can be searched on AusTender.
5.
Coordinated Procurement 6. 7. Procurement officers should be aware that certain categories of goods and services are required to be purchased through co-ordinated purchasing arrangements. Where the Government has established a coordinated procurement arrangement for certain goods or services, Defence must use the contract established under the arrangement unless an exemption is provided. An exemption will only be granted if both the Minister for Defence and the Minister for Finance are satisfied that Defence has a special need for the alternative supply. Where a contract exists that is the subject of an ongoing scoping study by the Department of Finance and Deregulation and the contract does not have a valid extension option, such contracts may be extended for a period of up to 12 months where the extension represents value for money. Further guidance is provided in DPPI 29/2009 Coordinated (Whole-ofGovernment) Procurement Arrangements and Defence Tendering and Contracting Documentation. Where a coordinated procurement arrangement that affects Defence is created, this will be promulgated through a Departmental Procurement Policy Instruction (DPPI) or DEFGRAM. Procurement officers should ensure that they check for the most up to date document. Existing DPPIs on this subject are DPPI 5/2008 Coordinated (Whole-of-Government) Procurement Arrangements for Telecommunication and DPPI 29/2009 Coordinated (Whole-of-Government) Procurement Arrangements and Defence Tendering and Contracting Documentation and DPPI 17/2010 Coordinated Procurement (Whole-of-Government) Arrangements and Defence/Defence Materiel Organisation Tendering and Contracting Documentation.
8.
9.
Cooperative Procurement 10. Cooperative Procurement involves the establishment of a contract or standing offer arrangement for use by more than one agency. This can be achieved by either a joint approach to the market, or one agency establishing an arrangement that allows access by other agencies. For guidance on cooperative procurement arrangements see the DOFD website.
Page 4.32
Defence Procurement Policy Manual 4.3 Whole of Government Procurement Contracts, Arrangements and Initiatives Information Communication and Technology (ICT) Procurement 11. There are a number of whole of government arrangements and contracting templates for the procurement for ICT goods and services including:

Microsoft Volume Sourcing Arrangement; Australian Government Telecommunications Arrangements; ICT Management Consultant Multi Use List; ICT Multi Use List; Source ICT Model Contracts; and Government Information Technology and Communications Framework
12.
In Defence, the procurement of ICT is conducted primarily by the Chief Information Officer (CIO) Group. Refer to the CIOG Website for further information on all of these arrangements. The Defence and DMO Procurement Support Areas section of the DPPM also contains contact information for CIOG. Further guidance is also contained in the Guide to ICT Sourcing for Australian Government Agencies published by DOFD.
Microsoft Volume Sourcing Agreement (VSA) 13. The Microsoft VSA provides pricing and licensing conditions for the supply of Microsoft products to FMA Act agencies and Commonwealth Authorities and Companies Act 1997 bodies (excluding Government Business Enterprises). Defence and the DMO must use the Microsoft VSA for sourcing all Microsoft products.
Australian Government Telecommunications Arrangement (AGTA) 14. The Australian Government Telecommunications Arrangement (AGTA) (previously referred to as Whole of Government Telecommunications Arrangements WoGTA) is a standing offer between the Commonwealth and service providers. Under this arrangement, agencies must only engage a provider of telecommunications carriage services (as defined in the Telecommunications Act 1997) that has signed an AGTA Head Agreement before the provider can provide such services to Australian Government agencies. A full list of the current signatories is available at: http://www.finance.gov.au/procurement/ict-procurement/australiangovernment-telecommunications-arrangement/service-providers.html. Some services such as specialised military and classified telecommunications, which are used only by military and/or intelligence agencies, may be exempted from coordinated procurement arrangements. Defence Legal or DMO Legal should be consulted for specific advice.
15.
Source ICT Model Contracts 16. The Source ICT model contracts provide templates for Australian Government agencies to develop sound commercial agreements efficiently and effectively for a range of simple ICT procurements. It is expected that this will encourage good business practices and minimise the risk of conflict and disagreements between agencies and tenderers.
Government Information Technology and Communications (GITC) Framework 17. 18. The GITC Framework is a legal framework that has been developed as a cooperative effort between Australian industry representatives and the Australian Government. The GITC Framework is based on standard Terms and Conditions for the purchase of products and services in the information technology (including major office machines) and telecommunications fields. The framework is designed to assist government buyers and potential suppliers to develop contracts in the most efficient and effective manner. GITC4 differs from Source ICT in that GITC4 allows one to build a customised contract from a list of clauses.
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Defence Procurement Policy Manual 4.3 Whole of Government Procurement Contracts, Arrangements and Initiatives 19. Further information about the use and operation of the GITC Framework template can be obtained at http://www.gitc.finance.gov.au.
Multi-use Lists 20. A multi-use list is a list, intended for use in more than one procurement process. The list consists of pre-qualified suppliers who have satisfied the conditions for participation for inclusion on the list. A multi-use list may be used by requiring inclusion on the list as an essential criterion or condition for participation in an open tender process or as a basis for choosing suppliers for a select tender process. Procurement officers must refer to and comply with the DOFD Good Procurement Practice booklet (GPP) 05 Establishing and Using Multi-Use Lists when establishing or using a multiuse list.
21.
22.
Reporting Requirements for Multi Use Lists 23. 24. To establish a multi-use list, a request inviting potential suppliers to apply to be included on the list must be published on AusTender, either continuously or annually. A multi-use list must be established through an open approach to the market that meets the requirements of the mandatory procurement procedures set out in the CPGs, which enables potential suppliers to apply for inclusion on the list where they can demonstrate they meet the conditions of participation. The request for inclusion on a multi-use list must be published either:

25.
continuously on AusTender; or annually on AusTender.
Specific Multi Use Lists 26. Defence must use the Communications Multi-use List (CMUL) when procuring specialist communications suppliers to assist in the development and implementation of advertising and information campaigns where total costs exceed $250 000 (including GST). A list of CMUL members is available at www.tenders.gov.au/cmul. DOFD has issued the guidance document Guidelines on Information and Advertising Campaigns by Australian Government Departments and Agencies (March 2010) which sets out the steps for campaign development and approval. Defence must comply with these processes and approvals. It should be noted that these processes also include mandatory consultation with the Minister of the agency, the Auditor-General, DOFD, the Interdepartmental Committee on Communications and the Secretary for Defence/Chief Executive Officer DMO. Defence has also established a Whole of Government Multi-use list for various Security Compliance and Performance Review Services for use when procuring Security Compliance and Performance Review suppliers to assist in the development and implementation of security compliance and/or security performance reviews.
27.
28.
Key References
Department of Finance and Deregulation Good Procurement Practice booklet (GPP) 05 Establishing and Using Multi-Use Lists Department of Finance and Deregulation Guidelines on Information and Advertising Campaigns by Australian Government Departments and Agencies (March 2010) Department of Finance and Deregulation Guide to ICT Sourcing for Australian Government Agencies Page 4.34
Defence Procurement Policy Manual 4.3 Whole of Government Procurement Contracts, Arrangements and Initiatives Department of Finance and Deregulation website: http://www.finance.gov.au/procurement/ictprocurement/australian-government-telecommunications-arrangement/agta-framework.html Government Information Technology and Communications Framework website: DPPI 5/2008 - Coordinated (Whole-of-Government) Procurement Arrangements for Telecommunication DPPI 29/2009 - Coordinated (Whole-of-Government) Procurement Arrangements and Defence Tendering and Contracting Documentation
Page 4.35
Defence Procurement Policy Manual 4.4 Public Private Partnerships
4.4
Introduction
1.
Public Private Partnerships
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO) having an estimated capital cost in excess of $50 million and where there is an opportunity for entering long-term contracts (i.e. 15-30 years), involving asset based procurement. This chapter outlines the policy applicable to Public Private Partnership (PPP) Projects where the public sector purchases services from the private sector under an arrangement where the private sector is responsible for the up front investment in capital assets and their subsequent operation, support, maintenance and refurbishment. This chapter replaces the previous Private Financing Chapter. This chapter provides a broad overview of the PPP process. Due to the complex nature of PPP activities, projects considering using PPP should consult the Public Private Partnerships Branch in the Defence Support Group (DSG).
2.
3.
Mandatory Policy
The PPP delivery method must be considered for all project proposals having an estimated capital cost in excess of $50 million and where there is an opportunity for entering long-term contracts (i.e. 15-30 years) involving asset based procurement. All projects meeting the above criteria must consult with PPP Branch in the Defence Support Group for the provision of advice on the suitability of a project proposal for delivery under PPP Arrangements. All projects reaching the Project Assessment PPP Suitability checklist stage must consult with the Corporate Finance Review Unit, in Defence Chief Finance Officer Group, for an independent review of financial and budgetary impacts. Procurement staff must comply with the following legislation and policy documents:

Financial Management and Accountability Act 1997 (Cth); Public Works Committee Act 1969 (Cth); Commonwealth Procurement Guidelines (Cth); National PPP Policy and Guidelines (December 2008) (Cth); and Project Assessment PPP Suitability checklist.
Background 4. Under a PPP arrangement the private sector is responsible for the provision of a capability and the design, construction, operation, maintenance and financing of the associated assets needed to deliver that capability. This whole of life integration under the responsibility of one party should deliver operational and/or financial advantages over a traditional procurement. PPP arrangements should be performance based, with payment being conditional on the private sector delivering a specified output based service to a required standard. Payment under a PPP arrangement generally begins when delivery of the output required actually commences. Therefore, there is a strong financial incentive for the company to continue to Page 4.41
5.
Defence Procurement Policy Manual 4.4 Public Private Partnerships provide the service to the required level. The services are generally self monitored by the contractor and if the service is not provided the company will not be paid and in turn may not be able to repay its debts or provide a return to shareholders. National Public Private Partnership Framework 6. On 29 November 2008, the Council of Australian Governments (COAG) endorsed the National PPP Policy and Guidelines and noted that the new framework would effectively replace the existing PPP policy and guidance applied by Australian State and Territory Government agencies. The new policy and guidelines replace Australian Government PPP and Department of Finance and Deregulation (DOFD) policy and guidance (FMG 16, 18, 19 and 21) with the exception of Financial Management Guidance No. 17 (FMG 17) - Public Private Partnerships: Business Case Development. The PPP delivery method must be considered for all major capital equipment and infrastructure projects having a capital cost exceeding $50 million and where there is an opportunity for entering long-term contracts (i.e. 15-30 years) involving asset based procurement. Such projects must be examined to verify if a PPP arrangement may offer better value for money over traditional procurement options. This should be determined as early in the life of the project as possible. PPP arrangements are most likely to be appropriate where there is:

7.
8.
a medium to high level of certainty of the capability required; and a whole of life requirement involving a mix of assets and services.
9.
Where the Australian Government considers that a project involves National Security issues, the National PPP Policy and Guidelines may not apply. Agency Chief Executives may put in place measures which allow such an exemption. Where an exemption is granted Agencies should:

identify the particular issues relating to the project which raise concerns; determine alternative measures necessary to address those concerns; and document the reasons for exemption from the National PPP Policy and Guidelines and obtain approval from their Chief Executive to use the alternative measures.
Public Private Partnership Suitability 10. Value for Money is the core principle to consider in deciding whether to use PPP arrangements. Value for Money should be assessed on a whole of life and whole of Government basis. Value for Money may be achieved through PPP arrangements when there is:

increased efficiency through appropriate risk transfer to the private sector; cost savings achieved through innovation; synergies achievable through a whole of life approach to design, construction and maintenance; or additional revenue from third party use.
11.
The Defence Committee requires consideration of PPP suitability at First Pass approval stage for all Major Capital Equipment and facilities projects Defence Capability Development Handbook. Before deciding to use PPP arrangements, the projects operational issues must be examined in a consistent and objective manner. It is required that:
12.
the ability to deploy and sustain ADF elements and execute an operation is not to be prejudiced; and the application of combative force is to remain solely with the ADF.
Page 4.42
Defence Procurement Policy Manual 4.4 Public Private Partnerships 13. PPP arrangements may be less appropriate where the asset acquired under the arrangement is designed or substantially modified for deployment in military operations. This is likely to reduce the amount of risk that can be transferred to the private sector. The appropriateness of using a PPP arrangement should be initially assessed by considering the operational impact, practicality and financial viability of progressing a PPP option. As a minimum, a Project Assessment PPP Suitability checklist will need to be completed for all applicable procurements. The checklist can be found at on the Finance Website Where a project has characteristics identified in the Medium to High Potential range for a majority of the checklist questions (i.e. greater than 50%), it is possible that the project will be able to achieve a value for money outcome under a PPP arrangement. In this case, a PPP option and associated detailed risk assessment should be considered as part of the project Interim Business Case. For projects with an infrastructure component, a Corporate Services and Infrastructure Requirement (CSIR) Part 1 and CSIR Part 2 must be completed. The CSIR Part 2 has the Project Assessment PPP Suitability checklist attached. Refer to Defence Support Group (DSG) Infrastructure Management for further guidance.
14.
15.
Interim Business Case 16. The key stages involved in any capital investment decision consist of:
government approving the preferred procurement method, generally at the point of seeking First Pass approval through the National PPP Policy and Guidelines Interim Business Case (including scoping study and Procurement Options Analysis); government approving the investment (and funding as required); and delivering the project: Release of Expressions of Interest, Request for Tender, selection of shortlisted tenderers, contract negotiations and contract execution (Commercial Close and Financial Close).
17.
The National PPP Policy and Guidelines Interim Business Case approval must be obtained from the Minister for Defence and the Minister for Finance and Deregulation before proceeding with any PPP proposal involving projects valued at $20 million or more but below $50 million. Either the Minister for Defence or the Minister for Finance and Deregulation can refer the proposal to Cabinet for approval. PPP proposals involving assets over $50 million require Cabinet approval. For projects involving infrastructure, all Defence works estimated to cost $15 million or more are to be referred to the Public Works Committee (PWC) before contracts can be awarded and works commence. The terms Works and Public Works have the meaning given to them in Sections 5 and 5AA, respectively of the Publics Work Committee Act 1969 (Cth). Generally work means architectural or engineering work including construction, alteration, refurbishment, repair, fitting out, demolition and the preparation of land for works. Guidance on the process and requirements in development of the Interim Business Case can be obtained from the National PPP Policy and Guidelines and FMG 17. The key steps of the Interim Business Case are:

18.
19. 20.
refinement of project scope and documentation of Project Plan; communication with project stakeholders; further development of risk analysis; development of the Public Sector Comparator and PPP Suitability Assessment Checklist; Procurement Options Analysis; assessment of market interest (market sounding activity); and recommendation and submission to government.
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Defence Procurement Policy Manual 4.4 Public Private Partnerships 21. Development of the Interim Business Case is a complex task that needs to be carried out by suitably experienced staff or with assistance from external specialists (members from the PPP Panel within Infrastructure Division). The Interim Business Case includes financial modelling and development of a Public Sector Comparator. A Public Sector Comparator provides an indicative cost of delivering the capability through Defence purchasing the asset (as in a traditional procurement) and providing the service delivery by the most cost effective means. This may include contracting out maintenance support of the asset. A Public Sector Comparator provides a financial measure against which the PPP cost of meeting a specification can be compared. Further information regarding the Public Sector Comparator can be found in FMG 17 Appendix A. Defence's established practices and strategies for engaging the market in a procurement process in accordance with the Commonwealth Procurement Guidelines are applicable where a PPP arrangement is pursued. A dual tender process using PPP and an alternate contracting model should not be used. Establishing a preferred procurement method prior to engaging the market creates certainty and reduces transaction costs for the public and private sectors.
22.
23.
Tendering Process 24. 25. 26. Most PPP procurements will adopt a two-stage tendering process involving an Expression of Interest and Request for Tender. The National PPP framework uses the term Request for Proposal. The term used within Defence and the DMO is Request for Tender. Due to the complexity of PPP procurements, project teams should engage suitably experienced probity/legal process advisers to assist and provide advice on process and procedures including conflict of interest matters.
Expression of Interest and Shortlisting 27. The documentation released in the Expression of Interest should contain enough information to attract all relevant consortia, request sufficient information to ensure that a preliminary shortlisting of potential consortia can be carried out and provide details of the shortlisting process. The initial assessment of consortia should be evaluated against standards required for technical capability and financial capability and management standing. Information should also be obtained detailing the skills and previous experience of consortia. The information requested is required to rank the potential consortia and to select a shortlist of consortia who qualify for consideration in the next stage of the procurement. It is suggested that the number of shortlisted consortia be between three and four. While competition plays an important role in achieving best Value for Money, consortia should not be exposed to unnecessary expense.
28.
29.
Request for Tender 30. Shortlisted consortia are then asked to submit detailed tenders through a Request for Tender process. The information requested should be comprehensive enough to enable Value for Money comparisons to be made between the tenders and will usually include:
details of how the specified output (design, construction and facilities maintenance services) will be delivered; details of the tenderers acceptance of the terms and conditions of the proposed Project Deed (contract); industry involvement and development proposals; details of how finance will be organised;
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Defence Procurement Policy Manual 4.4 Public Private Partnerships
an account of the tenderers willingness to accept the risks allocated to the private sector by the Commonwealth; a declaration from the tenderers financiers that they accept the tenderers proposal in relation to risk allocation; performance indicators and reporting arrangements; and an acceptance by the tenderers of the payment mechanisms in the proposed contract.
31. 32.
A Tender Evaluation Plan should also be developed at this stage. Details of the non risk-adjusted Public Sector Comparator are to be provided in the Request for Tender documentation. This provides industry with confidence that they have a clear understanding of the requirement. However, the Request for Tender documentation should not provide the detailed costing information for the project.
Evaluation of Tenders 33. 34. The evaluation should be carried out in accordance with the principles and criteria set out in the Tender Evaluation Plan and Request for Tender documents. Tenders should be sufficiently comparable with the risk-adjusted Public Sector Comparator that the project may proceed to contract negotiations with a high level of confidence that a suitable contract will be signed.
Negotiation with Tenderers 35. Negotiation of the commercial terms and technical aspects required for the project should be conducted with the shortlisted tenderers prior to any preferred tenderer being announced. This approach allows Defence to take advantage of competition between remaining tenderers. The negotiation process will allow tenderers to ensure that their proposal has been accurately understood and reconcile any outstanding concerns they have before selection of the preferred tenderer.
Selection of the Preferred Tenderer and Final Negotiations 36. The tender that represents best Value for Money in comparison to the Public Sector Comparator should be selected as the preferred tender. This will facilitate finalisation of negotiations between the parties to the proposed contract. There may be technical and commercial issues to be negotiated after the preferred tenderer is announced. However, the number of parties involved in a PPP arrangement can add complexity to the process.
Financier Due Diligence and Approval 37. When agreement is reached between Defence and the tenderer on the draft terms and conditions of the contract the tenderer will generally have to secure final arrangements with its financier. The financier will seek satisfaction that money lent to facilitate the project is secure. This will involve the financier seeking to fully understand all of the risks involved in the project and satisfaction with how the risks have been addressed in the contract. The financier will also require confidence that the payment mechanism detailed in the contract will provide the consortia with sufficient funds to repay the loan.
Contract Signature 38. Contract signature will not occur until after Commercial and Financial closure. Commercial closure occurs after negotiations between Defence and the consortia reach an agreed set of terms and conditions. Financial closure occurs after the financier completes due diligence assessments and agrees on their terms with the consortia.
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Defence Procurement Policy Manual 4.4 Public Private Partnerships Contract Management and Performance Reporting 39. Due to the long-term nature of PPPs, a high standard of contract administration and management will be required to ensure that the benefits of taking a PPP approach are sustained and the respective roles and responsibilities of each party are fulfilled. Whilst the contract may require the contractor to self-monitor its performance, ongoing performance monitoring is still required to ensure the output specified in the contract is received and that appropriate corrective action is taken if the contract requirements are not fulfilled. The relationship between Defence and the consortium is to be maintained over a long contract term and the contract should specify the foundations of the relationship. It should include:

40.
sufficient and appropriate contract performance indicators; a performance monitoring and reporting system which records the level of service delivered but is not overly complex or costly to run; an appropriately structured performance management regime, which does not provide a disincentive to continuous improvement; and independent reviews of the operation of the contract to ensure Value for Money is being achieved.
Refinancing Post Construction Phase 41. Consortia may seek to refinance their projects to improve the expected returns to their shareholders. Refinancing may include:

extending the period over which the bank loan would be repaid; reducing the lending margin of the loan; arranging a fixed rate of interest to cover the full period of the loan; or early repayment of the subordinated debt invested by the shareholders.
42.
Refinancing of a project may occur as a result of:

successful completion of the construction phase; or the establishment of a successful track record in providing the service.
43.
PPP arrangements are usually financially complex and Defence will need to consider the implications of refinancing on a project-by-project basis. The possibility of refinancing occurring should be considered when planning the procurement. Aspects of refinancing that need to be examined include:
the effect on the project achieving Value for Money, including changes which may affect the level of risk allocation/exposure of the parties; the effect on the stability of the contractual relationship between all the parties involved; contract provisions that require consent from Defence before refinancing can occur; contract provisions that allow Defence to share in some of the financial gains; and the requirement for experienced legal and financial advisers to assist projects in understanding the full implications of refinancing.
Advice on Public Private Partnership Arrangements 44. The PPP Branch, Defence Support Group, is the leading authority for the provision of procurement advice on the suitability of project proposals for delivery under PPP arrangements. All proposals being considered for delivery under a PPP are to be considered by PPP Branch at the earliest possible opportunity.
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Defence Procurement Policy Manual 4.4 Public Private Partnerships 45. The Defence CFO Group is the leading authority for the provision of budgetary advice relating to PPPs. Defence CFO must provide budgetary clearance for projects being considered or agreed as candidates for procurement under PPP arrangements at each of the following points in the project lifecycle:
Initial Assessment of the Project for suitability as a PPP (prior to exercising of FMA Act Regulation 10 and Proposal Approver delegations); Business Case Development; and Tender Evaluation.
46. 47.
Defence CFO Group must be involved in the evaluation of tenders for PPP projects to evaluate the budgetary risks of the tender responses. Information concerning the National PPP Policy and Guidelines can be obtained from Infrastructure Australia. Information regarding Public Works Committee and business case development can be obtained from DOFD.
Key References
Public Works Committee Act 1969 (Cth) The National Public Private Partnership Policy and Guidelines, available at www.infrastructureaustralia.gov.au Department of Finance and Deregulation Financial Management Guidance No. 17 - Public Private Partnerships: Business Case Development Department of Finance and Deregulation Finance Circular No. 2009/02 - The National Public Private Partnerships (PPP) Policy Framework and National PPP Guidelines Defence Capability Development Handbook
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Defence Procurement Policy Manual 4.5 Evolutionary Acquisition
4.5
Introduction
1.
Evolutionary Acquisition
This chapter provides policy and guidance on the application of evolutionary acquisition within Defence and includes:

a definition of evolutionary acquisition; guidance on when to use evolutionary acquisition; guidance on when not to use evolutionary acquisition; guidance on conducting evolutionary acquisition; and guidance on the contracting and procurement considerations that must be addressed in an evolutionary acquisition context. 1
Evolutionary Acquisition Defined 2. Evolutionary acquisition involves the initial acquisition and fielding of a well-defined core system that provides a subset of the required functionality, with this core then being enhanced by a series of increments that incorporate additional functionality. Each of the increments may be significant procurements in their own right, each requiring an acquisition strategy of their own. As such, evolutionary acquisition is an acquisition model which provides the foundation for one or more acquisition strategies. 2 Evolutionary acquisition can be viewed as an overarching risk-mitigation strategy, which is selected when the risks associated with the traditional once-through model are unacceptable and an approach is required that treats multiple risks simultaneously (as illustrated in the following figure). As with many risk treatments, the use of evolutionary acquisition will introduce new risks that will also need to be managed. The selection of evolutionary acquisition, therefore, involves an analysis of the associated benefits, costs and risks to determine if this acquisition model offers greater utility in comparison with other models. Evolutionary acquisition should not be confused with the developmental strategy that may be adopted by the contractor. Evolutionary development can be undertaken under a once-through acquisition model, while waterfall development can be undertaken for each increment under an evolutionary acquisition model. Within the definition of evolutionary acquisition, there are two main approaches which are differentiated by whether or not the end-state requirements for the ultimate system can be specified at the outset of the project. These two approaches are discussed below.
3.
4.
5.
This chapter has been completely revised and updated in response to Recommendation 2 of the Management and Audit Branch (MAB) Audit of Project SEA 1297 Phase 2B/3 Mine Warfare Command Support Systems. 2Evolutionary acquisition may be used for the both acquisition projects or for major sustainment activities. This chapter is framed primarily in terms of acquisition but the principles explained are the same. In all cases, specialist advice will be essential
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Region of useful and useable capability
A once-through approach may get you there in the cheapest way, but it may not be the place you wanted to get to
e fw l (i a ide
e ld cou
ver
t in wi kno
anc adv
e)
A spiral EA program doesnt guarantee success but increases the likelihood of nearing the ultimate goal
The Spiral Approach to Evolutionary Acquisition 6. The spiral approach to evolutionary acquisition (EASpiral) is used where the end-state requirements are not known in detail at the outset of the project. Under this approach, an acquisition strategy is implemented to acquire the required system in such a way that the requirements are able to be progressively refined and applied to future increments. The spiral approach to evolutionary acquisition or is the more complicated of the two main approaches. The use of the spiral approach to evolutionary acquisition is intended to overcome problems encountered in the conventional acquisition of modern equipment and systems using a oncethrough acquisition model (i.e. each step is only done once) where significant development is involved. Typically, systems of this nature are growing in complexity and facing higher rates of technology change. The life of many technologies is now comparable to the time it takes to acquire modern systems. Because of this, systems are not only likely to become prematurely obsolete, but they are also unlikely to satisfy contemporary user expectations. Increasing complexity and rapid technology change can make it difficult to define the operational requirements in detail at the start of a project. Instead, the operational requirements will tend to evolve progressively with increasing user understanding of the system, its operation, and the technologies involved.
7.
The Incremental Approach to Evolutionary Acquisition 8. The incremental approach to evolutionary acquisition (EAIncr.) is used where the end-state requirements are able to be fully defined at the outset of the project. Components of the required system are procured in increments for non-requirement-related reasons (e.g. due to schedule or budget constraints). The use of the incremental approach to evolutionary acquisition is intended to overcome problems with providing systems and equipment to the end-user, where schedule or budget constraints (or both) mean that only a subset of the desired functionality can be delivered at any one time. Staged upgrades to a platform over its life of type (e.g. to address changes to threats or obsolescence problems) provide a typical example of the incremental approach to evolutionary acquisition. Evolutionary acquisition projects generally will be heavily reliant on feedback from users in earlier phases to determine the direction of subsequent phases. In spiral evolutionary Page 4.52
9.
10.
Defence Procurement Policy Manual 4.5 Evolutionary Acquisition acquisition projects particularly, the exact functionality and price of early increments may be agreed upfront, but later increments will typically not be agreed until prior to the start of each increment. When to use Evolutionary Acquisition 11. Defence policy is that for projects that exhibit particular characteristics (discussed below), evolutionary acquisition should be considered as an overall contracting approach for that project or projects. The purpose of this policy is to ensure that evolutionary acquisition is applied to projects where it is suitable and justified and that evolutionary acquisition is not applied to projects where it is not suitable or appropriate.
Timing of the Decision to use Evolutionary Acquisition 12. The decision to employ an evolutionary acquisition model must be made early in the life of the project or group of projects to which it applies. Normally, this requires the issue to be addressed at the committee and/or capability definition stage. Those responsible for the procurement should ensure that the question is addressed as early as possible. If the question has not been addressed by the time the project is approaching First Pass Approval, it may be too late to properly apply an evolutionary acquisition approach. Significant risk surrounds the incorrect application of an evolutionary acquisition approach. For example, if a project is using a traditional once through approach where the technological rate of change is rapid, it is likely that the procured goods will be obsolete by the time the procurement has been completed. However, it is important that the procurement is of sufficient size, complexity and importance to justify the additional cost and effort involved in supporting an evolutionary acquisition approach, particularly in light of the rigours of the 2 pass system of government approval. Given these risks and potential benefits, consideration should be given to using evolutionary acquisition for projects where:
13.
14.
the operational requirement dictates that an early fielding of useable functionality is required, with this functionality then able to be progressively enhanced to achieve the full system requirement (e.g. for schedule reasons or forecast technology changes); the available funding only allows the fielding of functionality in increments (i.e. for cost reasons); the end-state requirements are not known in detail for all or part of the system, but are sufficiently well understood to develop a useful base requirement or core functionality for initial acquisition (e.g. due to the requirements being expected to change frequently over the life of the project or external interfaces being immature); elements of the technology are uncertain (e.g. due to the technology rapidly changing or being immature); the system is too large to acquire all at once (e.g. too complex, too expensive, or the enduser is unable to wait for the total system to be developed); the system naturally breaks into increments, each of which may be a separate phase, and each increment could be fielded as a build; or the user community is large and unlikely to be able to assimilate synchronous change (e.g. which could occur when there is a large number of distributed user sites).
15.
Based on these considerations, it should be expected that particular types of systems should be prime candidates for using evolutionary acquisition. These systems, in either the acquisition or sustainment context, may be:

software intensive, and highly interactive, with diverse users; fully or partially unprecedented;
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part of larger systems or systems-of-systems (e.g. Network Centric Warfare (NCW) systems); systems in which aspects of functionality are assessed as high risk; and systems where the solution is likely to be based on rapidly changing commercial off-theshelf technology (e.g. electronics-based systems).
16.
The evolutionary acquisition model should also be considered for parts of systems where the identified attributes are present. For example, the combat data system element of a platformoriented project may be a prime candidate for the use of an evolutionary acquisition model, even if the construction of the platform itself is not.
Risks and Costs Associated with Using Evolutionary Acquisition 17. Evolutionary acquisition is complex and can involve a range of costs, which include (in comparison with an equivalent once-through acquisition model):
increased requirements for management resources across all project disciplines (e.g. due to multiple iterations of approvals, requirements definition, soliciting offers, contract management, and verification and validation), in particular governance requirements and the demands of the two pass Government approvals process; higher levels of expertise, particularly management expertise (e.g. due to the intensive and dynamic nature of evolutionary acquisition projects); extended tenure for project teams (both acquirer and developer) to maintain continuity across multiple increments, particularly with respect to key persons; increased requirements for planning and coordination because of the number of concurrent activities and the greater interaction with stakeholders; increased requirements for configuration management because of overlapping increments and the associated need to simultaneously manage multiple functional and product baselines; and increased support requirements because multiple increments may have to be fielded that have different functional and product baselines.
When not to use Evolutionary Acquisition 18. Evolutionary acquisition also involves a range of risks, particularly in relation to:

requirements definition; requirements partitioning across increments; the need to have a sound system architecture that accommodates the incremental approach; the application of the evolutionary acquisition model itself and the potential for lack of understanding of the model by the acquirer, developer, operator, supporting organisations, and testing agencies; transition to support (e.g. because of issues with interfacing with legacy systems or the lack of a clear point where management responsibility can be transitioned due to the incremental update process); verification and validation, particularly for early increments, where the verification and validation requirements are often either unclear or overdone; and Governance issues associated with the requirement for management of what amounts to several subordinate contracts being conducted in parallel.
19.
Gives these costs and risks, the selection of an evolutionary acquisition model must be based on a rigorous assessment of the benefits, costs and risks, and should be avoided in the following circumstances: Page 4.54
The acquirer is using the approach to try to improve poor requirements Governance requirements have not been properly addressed or resourced
The requirements are completely definable and likely to remain stable (and other constraints do not warrant its consideration)
There is a leading edge technology chase (as opposed to a planned approach to technology insertion)
Evolutionary Acquisition should be avoided if:
The acquirer or the contractor is likely to be underresourced
The stakeholders are not committed to the evolutionary acquisition process The users wont be readily available
A simpler acquisition model can produce the required project outcomes within acceptable levels of risk.
Conducting Evolutionary Acquisition Introduction 20. Under an evolutionary acquisition model, each increment is deliberately planned as a defined step in the evolution of the system, which may be either:
an increment of functionality for the system, which is militarily useful, logistically supportable, technically mature, and able to be fielded for operational use; or an increment of development for the system, which is undertaken to mitigate risk (e.g. through providing opportunities for review, testing, operational evaluation, etc), but which is not necessarily fielded for operational use and may not be able to be fielded for operational use (e.g. prototypes and system models).
21.
The basic evolutionary acquisition model creates a cycle of activities that must be conducted at least twice before realising the final system, as illustrated in the following diagram:
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System Definition System Design Increment A System Development System Implementation Verification & Validation Acceptance Define/scope next Increment Review and Decision
Increment X
Increment B
Increment C
22.
Each increment of the project may involve a complete cycle of the activities detailed above or only some of the activities detailed above. Once this process has been conduced to define the requirement that will be procured for that phase, a standard once through procurement method may be able to be used to procure the item.
Design and Development 23. A detailed set of requirements for the initial minimal system must be clearly defined at the outset, with further requirements progressively refined during the project. The allocation of requirements to increments, the set of increments, and the sequence of these increments must be endorsed by an appropriate engineering authority at the point in the lifecycle when these requirements are defined and before they are used in any solicitation activities. The viability of an acquisition strategy based on the evolutionary acquisition model is determined primarily by the architecture of the system because the longevity of the system and its ability to readily incorporate future increments is highly dependent upon the system architecture. The system architecture needs to be flexible, scalable, extensible and maintainable in order to support the functionality delivered with each release, including functionality for which no detailed requirement has yet been defined. It is essential that the user be involved in the development process at the outset. This allows for a continuous review of the requirements and feedback on the performance of each release in an operational environment. The system architecture must be continually assessed as each increment progresses through its design-and-development stage to ensure that the architecture can continue to meet project and capability needs.
24.
25.
The Role of the Prime Systems Integrator 26. Under an evolutionary acquisition model, the prime system integrator role is critical to project success because of the need to continually refine requirements, define and manage the system architecture, integrate new increments into the evolving system, and manage system performance. The prime system integrator is the design authority for the entire Materiel System (i.e. both Mission System and Support System). The prime system integrator role may be undertaken by any of the following entities (with corollary effects on the contracting approach):

the prime contractor for the system; the acquiring organisation (e.g. the DMO); or a separate prime system integrator contractor. Page 4.56
Defence Procurement Policy Manual 4.5 Evolutionary Acquisition 27. Of these three approaches, the preferred approach for Defence projects is the prime contractor as prime systems integrator, consistent with normal Defence practice of holding a single prime contractor responsible for overall delivery of the system. The prime system integrator role being undertaken by the acquirer is not recommended because it is often not resourced or equipped to undertake this role and, generally, does not have the necessary systems, processes, expertise or experience. The separate prime contractor and system integrator model should also be used with caution as it will normally lead to the Commonwealth standing between the Systems Integrator and the prime contractor(s). In all cases, specialist advice should be sought.
Issues to Consider when Conducting Evolutionary Acquisition 28. Key requirements associated with using an evolutionary acquisition model are outlined in the following diagram:
Emphasis on riskbased requirements partitioning and rigorously defined system architectures is essential.
Smaller, faster increments may need to be undertaken at first to guarantee commitment
More work needs to be undertaken at the commencement of a project
Authorities may need to cope with less complete information for decisions
Requirements when using an evolutionary acquisition model
Both acquirers and users are more involved than with other contracting strategies
Higher level project decisions affect more stakeholders more often
Each increment should, wherever practicable, provide functionality that is both useful to the user and supportable.
Transition needs to be carefully planned upfront, particularly where legacy systems and/or multiple fielded builds are involved.
29.
The use of an evolutionary acquisition contracting approach will create many issues not normally encountered when using a traditional contracting methodology, which will have implications across all project disciplines. For this reason, projects considering the use of an evolutionary acquisition contracting strategy should consult with a wide range of specialists for guidance and assistance on whether such an approach would be appropriate for their requirement.
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Defence Procurement Policy Manual 4.5 Evolutionary Acquisition Evolutionary Acquisition Contracting Approaches 30. There are a number of different methods by which evolutionary acquisition can be effected contractually. However, it is important to note that standard ASDEFCON suite of tendering and contracting templates are not suitable for use in evolutionary acquisition without significant modification and there is currently no standard template available. As the use of an evolutionary acquisition model has implications across all project disciplines, further guidance on evolutionary acquisition contracting approaches and the development of evolutionary acquisition contracts must be obtained by contacting:

your relevant Group or Divisional contracting specialists listed at the front of this manual; technical specialists, particularly in relation to requirements development, requirements partitioning, system architectures, integrated logistic support, configuration management, and verification and validation; and project management specialists, particularly in relation to planning for evolutionary acquisition and risk management.
Further general information will also be available on the Quality Environmental Management System (QEMS). Common Provisions Across all Contracting Approaches 31. Under all contracting approaches, there are a number of key issues that must always be addressed. Special attention must be given to ensure that the contractor continues to perform satisfactorily and, if acting as the prime system integrator, is able to be held responsible for providing an integrated and coherent solution to the requirement. This is particularly important where the project has several contracts running in parallel, including some that may be performed by a subcontractor or third party. Performance guarantees, liquidated damages, termination provisions and other specialised contractual issues must also be dealt with for the particular needs of the procurement. Special provision should also be made for transfer of work, and Intellectual Property, from the contractor on termination to a new supplier of the Commonwealths choosing. Specialist legal advice will be essential to achieve these results. In giving effect to an evolutionary acquisition model, it is also critical that a contractual mechanism is included allowing for consecutive iterations of the same product to be delivered with enhanced functionality in subsequent iterations. This may be addressed by the use of an options clause within the contract for successive iterations or via an order structure contract arrangement (described below). Note, however, that an options clause can only be used for the simplest cases of evolutionary acquisition. Evolutionary acquisition also places a greater project management, governance and engineering burden on Defence and requires a closer relationship between the contractor, the project office and the user than under a traditional contract. These issues must be dealt with appropriately within the contractual arrangements that are used, which is an onerous requirement in itself.
32.
33.
34.
Order Structure Contract 35. An order structure contract arrangement is very similar to a standard standing offer and is illustrated in the following diagram:
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Head Agreement
Order Contract Order Contract Order Contract
Order Contract
Order Contract Time

36. Under an order structure contract arrangement, the head agreement (which could be either a deed or a contract):

provides for the placement and administration of successive orders; sets out the contractors responsibilities with regard to design and integration, including the requirement to ensure that all supplies delivered under standing offer contribute towards the overall objectives of the project; specifies the initial functionality required and the manner in which it can be incorporated into successive releases; and may provide a price which the overall contract is not to exceed.
37.
The work for each release is done under orders placed in accordance with the head agreement. As new functionality or additional requirements are identified, an order is placed for its incorporation into the evolving requirement. This is one of the key distinctions between the order structure contract and a standing offer. Under an order structure contract, subsequent orders must integrate with current and past orders as opposed to simply purchasing additional quantities of goods or services under a standing offer. The contractor, when acting as the prime system integrator, is responsible for coordinating the work done under orders into each successive release. This responsibility includes updating the specifications as they evolve to include new functionality. Not all orders under the head agreement need to have the same intent. For example, the head agreement could include separate orders for:

38.
development of an increment of the system; undertaking a study to reduce risk, such as obsolescence; or supporting elements of the delivered / fielded system.
39.
As each order is in itself a new contract, the terms and conditions applicable to each order may be modified to take into account specific requirements, notwithstanding the need for these orders to be consistent and integrated with the head agreement. Additional work may be added as required and development activities conducted at the same time as more defined work is carried out. Orders may be placed on a time and materials or firm/variable price basis and Page 4.59
Defence Procurement Policy Manual 4.5 Evolutionary Acquisition provisions such as specific warranties and liquidated damages may be turned on or off under an order, depending upon the nature of the work involved. Nevertheless, no order structure contract arrangement is to be established using a time and materials approach, except where otherwise agreed by the Division Head after having followed the normal procurement advisory processes. 40. Under an order structure contract arrangement, Defence is only liable for the work done under the head agreement and any subsequent orders placed. Defence should ensure it has rights to terminate the head agreement and/or any order or to not place any additional orders where it is clear no adequate solution can be reached. This allows a mechanism for Defence to add additional work where the contractor has performed well and a solution is possible, or to dispense with the contractor where performance has been poor.
Chapter Summary
Evolutionary acquisition involves the acquisition and early fielding of a well-defined initial system with a limited capability, followed by a series of enhancements that incorporate planned additional functionality and that may include improvements based on feedback from users. Defence policy is that evolutionary acquisition should be considered for projects that exhibit certain key characteristics to ensure that the right contracting approach is used. There are two main approaches to evolutionary acquisition; spiral, for when the end-state requirements are not known in detail at the outset of the project; and incremental, where the end state requirements can be fully defined at the outset of the project. Correctly identifying and managing the increments within an evolutionary acquisition project is critical to success. Evolutionary acquisition should not be used if a simpler acquisition approach can produce the required project outcomes with acceptable levels of risk. The evolutionary acquisition model should also be considered for parts of a system where the applicable attributes are present. A rigorous risk assessment must be conducted upfront to ensure that the selection of an evolutionary acquisition model is properly informed of the risks being mitigated and any new risks being introduced. The prime systems integrator ensures that the different components of the program become part of a connected whole. This role is critical to the success of a project using an evolutionary acquisition model. Projects using an evolutionary acquisition model will need to implement effective stakeholder management strategies because of the increased requirements for stakeholder engagement. Different contractual mechanisms can be employed to give effect to the evolutionary acquisition model, including the use of options and an order structure contract arrangement. ASDEFCON templates are not suitable for evolutionary acquisition and no template currently exists. Specialist legal advice will always be needed to give effect to an appropriate contractual arrangement. Specialist advice across all project disciplines needs to be sought when considering the use of, and conducting, evolutionary acquisition.
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Defence Procurement Policy Manual 4.6 Electronic Procurement
4.6
Introduction
1. 2.
Electronic Procurement
This chapter applies to all electronic procurement undertaken by Defence and Defence Material Organisation (DMO). This chapter outlines current Defence policy on the use of electronic procurement (eprocurement) including e-mail, digital signatures, AusTender, integrated e-procurement, and the use of the Defence Purchasing Card on the Internet.
Mandatory Policy
Use of e-mail in Defence procurement must meet the requirements of Defence Instructions (General) ADMIN 10-06 Use of Defence Telephone and Computer Resources, the Protective Security Manual (PSM), Information Security Manual (ISM) and Defence Security Manual (DSM). Where external electronic business transactions are being considered, Procurement officers must consult with the Directorate of e-Business Integration in the Chief Information Officer Group (CIOG). When conducting electronic business, Procurement officers must have appropriate security services implemented using a Gatekeeper 1 accredited digital certificate approved by the Defence Public Key Infrastructure (PKI) Policy Board or where appropriate, a Defence based digital signature and confidentiality service. The use of digital signatures in e-Procurement must occur in accordance with the
Electronic Transactions Act 1999 (Cth).

Procurement officers must comply with all AusTender publishing and reporting obligations as set out in the Commonwealth Procurement Guidelines (CPGs) and explained in the DPPM chapters 5.5 and 5.8. Where the DPC is used to purchase a specialist item via the Internet, Procurement officers must document their risk planning, including details of the risk management strategy adopted and any tax implications.
Background 3. Electronic business is the performance of any business process, conducted via electronic means, or the provision of web-based or electronically provided information, without benefit of supporting paper with handwritten signatures, that retains the same status of signed, paper based business as regards its authenticity, integrity and accountability. E-procurement is a subset of electronic business. For the purposes of the Commonwealth Procurement Guidelines (CPGs), electronic, in relation to procurement, means any information provided on AusTender, and includes documentation provided to a supplier or potential supplier by email, facsimile or otherwise transmitted to the recipient by another electronic means.
4.
Gatekeeper is the Australian Governments strategy for the use of Public Key Infrastructure (PKI) which provides a framework to manage digital signature public key technology, asymmetric key pairs and certificates so as to develop a measure of trust and certainty for electronic activity.
Page 4.61
Defence Procurement Policy Manual 4.6 Electronic Procurement 5. All communications between Defence and a potential supplier, tenderer, supplier or contractor that is conducted via e-mail, facsimile or other electronic means is considered to be encompassed under e-procurement. This includes correspondence from the tender stage through to contract management and where appropriate, disposals.
Use of E-mail in Defence Procurement 6. Use of e-mail in Defence procurement must meet the requirements of Defence Instructions (General) ADMIN 10-06 Use of Defence Telephone and Computer Resources. Any e-mail that is used to transact Defence business that includes an action or decision is a Commonwealth record and should be treated accordingly. Use of e-mail must also meet the requirements of the Protective Security Manual (PSM), Information Security Manual (ISM) and Defence Security Manual (DSM) with regard to the classification of the information in the e-mail and the possible public communications networks that e-mail may be exposed to. Where external electronic business transactions are being considered, Procurement officers must consult with the Directorate of e-Business Integration in CIOG. When conducting electronic business, Procurement officers must have appropriate security services implemented using a Gatekeeper 2 accredited digital certificate approved by the Defence Public Key Infrastructure (PKI) Policy Board or where appropriate, a Defence based digital signature and confidentiality service. Further information is contained in Defence Information Management Policy Instruction 8/2000 Defence Information EnvironmentSecurity Services required for Defence Electronic Business. When the originator and addressee agree to send information by e-mail, they should also agree on a common profile for correspondence, its associated status and authority. Issues to be considered include:
7.
8.
9.
the status of an e-mailed copy of a signed letter, where a signed paper copy will also be sent by mail. This includes whether the addressee may act on the e-mail copy, the level of authority to direct or request action, and when the information is deemed to have been received; identification of staff within each organisation authorised to correspond by e-mail and their authority; the type of information each authorised person can send; and security issues associated with the use of e-mail.
10.
Procurement officers should ensure that business principles are developed regarding the use of email in relation to their contract. This will give confidence to both parties that:
messages will be managed when the addressee is away from the workplace or has left their place of work; and other business relationships and means of communications between the two parties are adequate to identify missing electronic communications.
E-mail Post Rules 11. E-mail post rules should be specifically agreed to between the originator and the addressee. It is Defences preference that e-mails are received when the message appears in the inbox of the addressees e-mail system. For further information about when the law deems email communications to have been received refer to the material on the postal acceptance rule in chapter 2.1. In addition, the originator and addressee should recognise in their agreement:
12.
2
Gatekeeper is the Australian Governments strategy for the use of Public Key Infrastructure (PKI) which provides a framework to manage digital signature public key technology, asymmetric key pairs and certificates so as to develop a measure of trust and certainty for electronic activity.
Page 4.62
Defence Procurement Policy Manual 4.6 Electronic Procurement
that the Defence firewall will filter out incoming messages above 1.5MB and certain file types including graphics, sound, video, and executable files; and that the originator of the e-mail, not the addressee, will receive notification that a message has been stopped at the Defence firewall.
13.
The parties should adopt appropriate strategies to deal with these issues e.g. by providing the other party with a phone number which can be called to make arrangements to re-send e-mails or send correspondence by an alternative means.
Digital Signatures 14. The use of digital signatures in e-Procurement must occur in accordance with the Electronic Transactions Act 1999 (the Act). The Act provides that a transaction is not invalid merely because it took place electronically. The Defence PKI is Gatekeeper certified and operated in order to provide Defence with additional integrity, security and non-repudiation in the Defence Information Environment. The Defence PKI provides the means of evaluating the reliability of digital signatures and is the method for tracing the digital signature back to the person who originally provided it. Delegations can be exercised/signed in an electronic format when utilising digital certificates issued from the Defence PKI if, prior to using the digital signature, all parties involved with the transaction have agreed to their use. Procurement areas need to determine if the use of digital signatures is appropriate given their business needs and whether to utilise the technology or not within their processes and documentation.
15.
16.
17.
Use of E-mail as Evidence of a Transaction 18. The Defence e-mail system records the original e-mail, including its destination, time sent, time received or that the information has remained complete and unaltered, but does not automatically record the email to an approved Records Management System, for example the Defence Records Management System (DRMS). All advice, transmission of information, tender documentation and contracts that Defence may need to have accepted by a court as evidence should therefore be sent under signature in hard copy. This is because, under the Evidence Act 1995 (Cth), a printout of an e-mail may not be accepted by a court as evidence if it is not supported by additional evidence, including evidence not currently available from the Defence e-mail system.
19.
E-mails and the Archives Act 20. 21. The Archives Act 1983 (Cth) governs all Commonwealth documents, including electronic documents. Further guidance can be obtained from Defence Archives. Any e-mail that is used to transact Defence business is a Commonwealth record. This will include all information that is sent or received during a tender process or in relation to a Defence contract. Commonwealth records are required to be retained in record keeping systems for as long as the Commonwealth and the community require them. The current Defence network does not store e-mail messages for the purposes of the Archives Act 1983 (Cth). E-mail messages that are Commonwealth records should be stored on an electronic record keeping system or printed out and retained on a registry file. The DRMS has the capability to store electronic documents in an electronic format that meets the requirements of the Archives Act 1983.
22.
23.
Page 4.63
Defence Procurement Policy Manual 4.6 Electronic Procurement Electronic Advertising, Tendering and Reporting 24. Agencies subject to the Financial Management and Accountability Act 1997 must advertise all open tendering approaches to the market (ATM) on AusTender (www.tenders.gov.au) in accordance with the requirements set out in the CPGs, paragraph 7.17 and 8.12.There is no financial threshold for advertising ATM, the decision to undertake an open or select ATM is the determining factor. Where practicable, request documentation for an open or select approach to the market must be distributed through AusTender in accordance with the CPGs, paragraph 8.44. For further information on advertising, tendering and reporting using AusTender, ROMAN and MILIS see chapters 5.5 and 5.8. For further information on ATM, including how to gain AusTender access to upload request documents, how to publish an ATM, who is responsible for publishing ATM and the different levels of AusTender refer to the AusTender Procurement Publishing Obligations webpage on the Directorate of Procurement Policy website.
25. 26. 27.
Integrated E-Procurement Trading Partner Agreements 28. Electronic business with other Commonwealth agencies or external business partners will require the establishment of special contractual arrangements called Trading Partner Agreements. A Trading Partner Agreement expresses the purpose, manner, operational considerations and contingency arrangements applicable to electronic interactions that are being used to perform the contracted business being undertaken e.g. a Trading Partner Agreement would specify the agreed transaction profiles that allow the exchange of orders, shipping notices and electronic invoice documents. A Trading Partner Agreement also identifies the common business rules, electronic trading terms and conditions, electronic catalogue standards and the e-procurement document definitions.
29.
30.
Security Services for Contract Management 31. Defence Information Management Policy Instruction 8/2000 Defence Information Environment Security Services required for Defence Electronic Business (6 September 2000) states that all Defence electronic business transactions which have significant security, privacy, commercial and regulatory consequences are required to use appropriate authentication, integrity, non-repudiation and, where necessary, confidentiality security services. This includes electronic information, web-based information and electronic commerce transactions which are either issued or provided by Defence, or received and relied upon by Defence.
Use of the Defence/DMO Purchasing Card on the Internet 32. Before using the Defence/DMO Purchasing Card (DPC) to purchase a specialist item via the Internet, procurement officers should undertake market research to ensure that there are no alternative products available and that no alternative ordering and payment method is offered by the supplier. Where the DPC is used to purchase a specialist item via the Internet, Procurement officers must document their risk planning, including details of the risk management strategy adopted and any tax implications. For further information on using the DPC on the internet, including purchases of non-specialist items, see the Simple Procurement Chapter.
33.
34.
Page 4.64
Defence Procurement Policy Manual 4.6 Electronic Procurement Further Information 35. Further information on e-procurement can be obtained by contacting the Chief Information Officer Group, Director eBusiness Integration on (02) 6128 7620.
Key References
Electronic Transactions Act 1999 (Cth) Commonwealth Procurement Guidelines Department of Finance and Deregulation Financial Management Guidance 15 - Guidance on Procurement Publishing Obligations Commonwealth Electronic Procurement Strategy 2000: http://www.agimo.gov.au/archive/publications_noie/2000/04/eproc_strategy.html Protective Security Manual Information Security Manual 2006 e-Government Strategy, Responsive Government: A New Service Agenda available at: http://www.finance.gov.au/publications/2006-e-government-strategy/index.html Commonwealth Electronic Procurement Strategy 2000 Strategic Guide to e Procurement available at http://www.finance.gov.au/agimo/index.html Defence Security Manual Commonwealth Electronic Procurement Strategy 2000 Defence Instruction General ADMIN 10-06- Use of Defence telephone and computer resources Defence Information Management Policy Instruction 8/2000 - Defence Information Environment - Security Services required for Defence Electronic Business Defence Information Management Policy Instruction 5/2001 - Defence Information Environment Provision of Defence E-mail and Internet Services Defence Online Action Plan: http://intranet.defence.gov.au/ciogweb/sites/DEBI/docs/Defence_OAP_Version_1.pdf Government Online Strategy and other electronic procurement policy documentation available at http://www.austrac.gov.au/index.html 2009 Defence Information and Communications Technology Strategy 2009 available at: http://intranet.defence.gov.au/ciogweb/sites/aboutus/comweb.asp?page=50386&Title=Defence %20ICT%20Strategy
Page 4.65
4.7
Not Used
This chapter was deleted as part of the DPPM 1 July 2010 update.
Page 4.71
Defence Procurement Policy Manual 4.8 Standing Offers
4.8
Introduction
1. 2.
Standing Offers
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). Standing offers are established to facilitate repetitive acquisition of goods and services by avoiding the need to continually approach the market. This chapter outlines:

the process for establishing a standing offer; and the process for placing orders under a standing offer.
3.
The Commonwealth Procurement Guidelines (CPGs) refer to a panel rather than standing offer. The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
Mandatory Policy
All new standing offers must be manually reported on AusTender in the Standing Offer Notices Section. For covered procurements, the standing offer deed must contain minimum requirements, including an indicative price or set price or rate as appropriate for the goods or services to be procured in the period of the standing offer. Procurement officers must ensure that orders placed under a standing offer valued at $10,000 or more are published on AusTender. Care must be taken to ensure the procurement method reported on AusTender for the order is the method that was used to establish the Standing Offer. Procurement officers must ensure that orders placed under a standing offer valued at $100,000 or more are entered into the Interim Defence Contracts Register (IDCR). A standing offer must not be established in relation to purchases for the purpose of avoiding competition, to protect domestic suppliers, or in a manner that is discriminatory. DMO Procurement officers must use the DMO Support Services (DMOSS) panel where the required specialist skills are available through that panel. DMO Procurement officers must seek approval from General Manager Commercial prior to establishing a standing offer for specialist skills not available through the DMOSS panel. In order to conduct future competitive procurements within an existing standing offer, the request documentation released to the open market to establish this standing offer must have clearly specified that this may occur. Procurement officers must comply with any local business rules governing the use of the standing offer. Procurement officers must refer to, and comply with, the Department of Finance and Deregulation Good Procurement Practice (GPP) 04 Establishing and Using Panels.
Page 4.81
Defence Procurement Policy Manual 4.8 Standing Offers
Background 4. A standing offer is a continuing offer by a supplier or suppliers to provide specified goods and services for a predetermined length of time, usually at a predetermined price and in accordance with pre-agreed terms and conditions. Standing offers normally take the form of a deed and no contract is made until an order is placed, at which point a contract is formed only in relation to that particular order. Establishing a standing offer is a complex procurement. Orders placed under a standing offer are generally considered a simple procurement when the only variables are the quantity and delivery point.
Establishing Standing Offers When to Establish a Standing Offer 5. Standing offers can provide a convenient, flexible, streamlined and efficient process for acquiring the goods or services covered by the standing offer. Consideration should be given to establishing a standing offer where:
the requirement arises frequently, over an extended period and generally conforms with commercial standards; an appropriate standing offer does not exist; the range of products, skills and expertise is of a related nature; the extent of the requirement cannot be determined in advance and may be needed at short notice; and lower prices and better value for money may be achieved by combining the requirements of more than one ordering area.
6.
In most cases it will not be appropriate to establish a standing offer where:

special, non standard or non commercial goods or services are involved; or there is a clear requirement for a fixed quantity of goods or services within a set period.
7.
DMO Procurement officers must use the DMOSS panel where the required specialist skills are available through that panel. Where the required specialist skill is not available through the DMOSS panel, DMO Procurement officers must seek approval from General Manager Commercial prior to establishing a standing offer for those specialist skills.
Establishing a Standing Offer 8. A standing offer can be established by an open or select tender process that meets the requirements of the Mandatory Procurement Procedures (MPPs) set out in Division 2 of the CPGs. For further information regarding these procurement methods see chapter 3.1. Where the chosen process is select tender from a multi-use list, the original notice inviting suppliers to participate in the multi-use list should include a clause that reserves a discretion to establish a standing offer from a multi-use list. Chapter 4.3 contains further information on multiuse lists. Although the final number of suppliers participating in the standing offer will not be determined until after evaluation has been completed, consideration should be given to the optimal number of suppliers for the standing offer. In setting up the panel, Procurement officers should consider the availability of resources, administrative effort, and cost involved in establishing and managing the panel. It is recommended that guidance is given to potential tenderers in the tender documentation as to the anticipated panel size, where practicable. The structure of a standing offer Request for Tender usually contains conditions of tender, draft conditions of Deed and a scope of services. It also typically includes a pricing schedule/labour Page 4.82
9.
10.
11.
Defence Procurement Policy Manual 4.8 Standing Offers rates table, template official order (i.e. the contract) and, where the standing offer is for a period of more than two years, a price variation/adjustment formula. Further guidance on the content and structure of a standing offer Request for Tender can be obtained in GPP 04 Establishing and Using Panels. 12. The ASDEFCON suite of templates, contains several templates suitable for use when establishing standing offers. ASDEFCON (Standing Offer for Goods and Maintenance Services) (SOGMS) should be used when establishing a standing offer where goods are to be acquired and/or maintenance services are to be provided. It can be used for either, or both, of these purposes. This template is closely based on the AC565 and SP020 forms used for Simple procurement. ASDEFCON (SOGMS) should be used at the low end of complexity in relation to both acquisition and support where the risks to technical integrity (ie, safety, fitness for service and environmental compliance) are minimal. Refer to the ASDEFCON (SOGMS) handbook for further information on the use of the template. ASDEFCON (Standing Offer for Goods) should be used as a basis for standing offers with a supplier or a panel of suppliers for low value, low risk procurements of goods up to an aggregate value of $5 million. While the template is designed to be modified with respect to the length of the standing offer period, it has been drafted on the basis that each standing offer would generally be in place for three years, with an option for two additional 12-month extensions. This template is not suitable for use when procuring services or software. The ASDEFCON (Standing Offer for Goods) handbook contains additional requirements for standing offers with an aggregate value greater than $5 million. ASDEFCON (Standing Offer for Goods) should not be used to acquire spare parts for equipment required as part of a project that has established its own arrangements for the acquisition of spare parts. Refer to the Chief Information Officer Group (CIOG) website for information on how to procure IT services. ASDEFCON (Standing Offer for Services) should be used when establishing a panel for the engagement of consultants (suppliers) to provide services to Defence, where there is an ongoing requirement to procure standard commercial services on an as required basis up to an aggregate value of $5 million. While the template is designed to be modified with respect to the length of the standing offer period, it has been drafted on the basis that each standing offer would generally be in place for three years, with an option for two additional 12-month extensions. This template is also not suitable for use when procuring IT services. The value of a standing offer procurement is the estimated total value of the goods or services that may be procured under the standing offer over the life of the standing offer. This is relevant for purposes of determining whether the proposed standing offer will be a covered procurement i.e. exceeds the financial threshold of $80,000 for application of the mandatory procurement procedures set out in the CPGs. In accordance with the MPPs, a standing offer deed for any covered procurement must contain minimum requirements, including an indicative price or set price or rate as appropriate for the goods or services to be procured in the period of the standing offer. In some circumstances it is acceptable for a standing offer procurement process to result in a single supplier. This can occur where there are benefits in a single supplier providing the goods or services or where only one supplier submitted a bid assessed as meeting the tender requirements. Where this occurs, care should be taken to ensure that the terms of the standing offer are appropriate and does not give the supplier an unfair advantage in the marketplace. When establishing a standing offer Procurement officers should refer to chapter 1.4 for delegation requirements. All new standing offers must be manually reported on AusTender in the Standing Offer Notices Section (see chapter 5.8). A standing offer must not be established in relation to purchases for the purpose of avoiding competition, to protect domestic suppliers, or in a manner that is discriminatory.
13.
14.
15.
16.
17.
18.
19. 20. 21.
Page 4.83
Defence Procurement Policy Manual 4.8 Standing Offers Standing Offer Period 22. There is no standard term or period for standing offers. The period or term of a standing offer arrangement is at the discretion of the procurement area based on a value for money assessment. Many standing offers have a period of three years and may include options for defined extensions up to a total of five years (i.e. initial term of three years plus options for two additional 12-month extensions). Extension options can provide flexibility in the operation of the standing offer, and could be used where prices or technology may change significantly over shorter periods of time. Procurement officers should monitor expiry dates of their standing offers so that sufficient time is allowed for the necessary action to either extend or replace the expiring standing offer. A standing offer should only be extended where options to extend exist within the standing offer deed.
23.
Piggybacking / Clustering 24. Defence may piggyback on the existing contractual arrangements of other agencies where this option is stated in both the tender documentation at the start of the procurement process and the standing offer deed. Care must be taken to ensure that value for money is still achieved and that the goods or services being procured are the same as provided for within the standing offer deed. Where several agencies have the same procurement needs, costs and duplication can be reduced by agencies forming a cluster arrangement. Clusters are formed where several agencies go to the market with a single procurement request. Usually, one of the agencies forming the cluster will become the lead agency that undertakes the administrative tasks, such as approaching the market and finalising the resultant standing offer deed. The agencies intending to form the cluster must be specified in the tender documentation at the start of the procurement process and must be mentioned in the terms and conditions of the resultant standing offer deed. As an alternative, each agency may set up a separate standing offer deed from the same approach to market. Clustering arrangements are different from the coordinated procurement arrangements outlined in chapter 4.3.
25.
26.
Compliance Requirements for Standing Offers Established Pre 1 January 2005 27. 28. Different rules apply to standing offers that were signed prior to 1 January 2005. The following guidance relates to standing offers entered into prior to that date. The period of operation of existing pre 1 January 2005 standing offers must not be extended for the purpose of avoiding the application of the revised CPGs. The following conditions are placed on the extension of existing standing offer panels:
for standing offers that pertain to covered procurements an extension is only permitted where, as at 1 January 2005, the deed or contract of standing offer contains a valid option to extend. Where the deed or contract is silent on the matter no extension is permitted with the consequence that a new standing offer process must be commenced; and standing offers for non-covered procurements may be extended (with the agreement of the parties) notwithstanding the absence of an express clause in the deed or contract of standing offer to that effect. However, all standing offers must retain clear procedures or conditions for the termination or closure of the standing offer. Additionally, any proposed extension must constitute value for money.
29.
GST transition rules may apply where existing pre 1 January 2005 contracts have not been reviewed to incorporate GST clauses. In these circumstances expert advice from the Defence Tax Management Office should be sought.
Page 4.84
Defence Procurement Policy Manual 4.8 Standing Offers Placing Orders under Standing Offers 30. The Standing Offer Notice Section of AusTender contains a current list of available standing offers. Where a standing offer exists within Defence or DMO that has been assessed as meeting the procurement requirement, it is best practice to use the standing offer in the first instance unless there are valid reasons for not doing so. Where a similar standing offer exists elsewhere in Government, this also may be used if the terms and conditions are suitable and facilitate Defence use of the arrangement. If an existing standing offer arrangement is not suitable and an alternative procurement method needs to be employed, then Procurement officers should record the reasons for their decision within their procurement submission. DMO Procurement officers must use the DMO Support Services (DMOSS) Panel where the required specialist skills are available through that panel. Once a standing offer is established, the purchase of goods or services from a supplier under that arrangement does not attract the operation of the MPPs. That is, Defence can procure goods or services utilising the standing offer without seeking competitive quotes from the panel, unless otherwise provided for by the terms of the standing offer. Such procurements do not constitute a single supplier direct source procurement for AusTender reporting purposes unless the standing offer was established in such a manner (see chapter 3.1). However, any purchase made using the standing offer is still governed by other elements of the procurement policy framework (e.g. requirements to achieve value for money and to have appropriate authority for the expenditure of public money.) A standing offer cannot be used to order goods or services that were not specified in the request documentation, even if the supplier may be able to provide the goods or services. Standing offers are usually established through a single procurement process and can be used to source goods or services within the scope of that arrangement that are classified as covered procurements where:

31. 32.
33. 34.
a panel is established in accordance with the CPGs and will provide value for money; and there is a deed of standing offer signed with each panel member which clearly specifies: the types of goods or services which may be purchased under the standing offer; a set of indicative prices or rates as appropriate for the goods or services; how purchases under the standing offer will occur; and where relevant, mechanisms for competitive approaches under the standing offer.
35.
The rates set within some standing offers are indicative or maximum rates and do not in themselves necessarily provide value for money for the services being provided. Procurement officers should apply some scrutiny to establish that the rates are consistent with market rates for the level of services being procured. This is particularly important when drafting delegate submissions and value for money considerations.
Delegations to be Exercised 36. 37. When placing an order against an already established standing offer, Procurement officers should refer to the delegation requirements outlined in chapter 1.4. Orders placed under a standing offer must be published on AusTender where they are valued at $10,000 or more. Care must be taken to ensure the procurement method reported on AusTender for the order is the method that was used to establish the Standing Offer.(see chapters 3.1 and 5.8). Orders placed under a standing offer valued at $100,000 or more must be entered into the Defence Interim Contracts Register (IDCR) (see chapter 5.8) .
Competitive approaches within a Standing Offer 38. It is an option to establish a competitive approach within a panel where such an approach would provide value for money. The standing offer deed may specify the circumstances when a competitive approach within the panel must be undertaken. Page 4.85
Defence Procurement Policy Manual 4.8 Standing Offers 39. In such cases, the request documentation issued for the initial approach to the open market to establish the panel must have clearly specified that the panel being established may also be utilised for competitive procurement before placing an order with a panel member.
Signing a Standing Offer as a Deed 40. A deed is most often used to establish the legal framework of a standing offer panel. The deed is typically an enforceable agreement between Defence and potential suppliers to make a standing offer or a continuous offer to supply goods or services on certain pre-defined terms and conditions. Unless otherwise stated in the standing offer deed, Defence is not bound to place any orders under the standing offer or provide consideration for the benefit of the standing offer. The lack of consideration is the main difference between a contract and a deed. However, once the standing offer is agreed and signed, Defence and the supplier are bound to comply with the terms and conditions set out in the deed.
Local Business Rules 41. Areas responsible for establishing and managing standing offers often have additional rules governing the use of the standing offer. These rules may place more onerous requirements on the use of the standing offer than are outlined in this chapter. Procurement officers must comply with any business rules governing the use of that particular standing offer.
Further Advice on Standing Offers 42. When establishing and using standing offers, Procurement officers must refer to and comply with the Department of Finance and Deregulation Good Procurement Practice (GPP) 04 Establishing and Using Panels. When arranging a standing offer with a panel of suppliers, care should be taken to maintain consistency in the terms of the standing offer panel arrangements. Any variations of the terms and conditions between suppliers will make management of the standing offer and value for money decisions more difficult.
43.
Key References
Commonwealth Procurement Guidelines Department of Finance and Deregulation (DOFD) Good Procurement Practice 04 Establishing and Using Panels Financial Management Guidance Publication No.13 - Guidance on the Mandatory Procurement Procedures ASDEFCON (Standing Offer for Goods) and ASDEFCON (Standing Offer for Goods) Handbook ASDEFCON (Standing Offer for Services) and ASDEFCON (Standing Offer for Services) Handbook ASDEFCON (Standing Offer for Goods and Maintenance Services) and ASDEFCON (Standing Offer for Goods and Maintenance Services) Handbook
Page 4.86
Defence Procurement Policy Manual 4.9 Staged Procurement
4.9
Introduction
1.
Staged Procurement
This chapter outlines the use of staged procurement in the Defence procurement context. The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
Overview 2. Staged procurement involves the use of a staged or structured acquisition strategy to break the procurement process into more manageable parts and refine the market testing process. Staged procurement may involve the use of one or more of the following activities:

a Request for Information; an Invitation to Register Interest; a Request for Proposal; a Project Definition Study; or a prototype development stage,
prior to seeking formal offers from potential suppliers, for the fulfilment of a requirement. 3. A staged procurement acquisition strategy is used mostly for high value Complex and Strategic procurements. The individual activities of a staged procurement need not be viewed as progressive steps, each of which is to be undertaken. The activities each have a specific purpose and are to be used in a manner appropriate to the procurement activity being conducted. Staged procurement will increase the time required to complete the procurement activity as each stage will require additional time for:

4.
the development of request documentation; the respondents to acquire information and develop responses; and Defence evaluation of the responses received.
Using a Staged Procurement Strategy 5. Staged procurement activities may be appropriate in the following circumstances:

The requirement is unknown or cannot be adequately defined; The requirement is only broadly known and the solution may need considerable analysis, evaluation; The complexity of the requirement, or its potential for imposing large costs during tendering, makes it desirable to shortlist the most competitive tenderers; The requirement may be capable of multiple solutions; The requirement is of a developmental nature to meet a particular need; It is necessary to qualify goods or services to defined standards; It is necessary to qualify tenderers for security reasons; and It is necessary to ensure adequate standards of service capability.
6.
Procurement approval is required for each separate staged procurement activity. The Procurement Approver should endorse the evaluation recommendations after each activity. Page 4.91
Defence Procurement Policy Manual 4.9 Staged Procurement Approval to move to the next phase may be combined in the evaluation recommendation. Separate Procurement approval should be obtained prior to seeking formal offers from potential suppliers by Request for Tender. 7. Each activity in a staged procurement has a clearly defined purpose and needs to be adequately planned. Before proposing each procurement activity officers should:

be aware of timing constraints which need to be factored into planning; be aware of resource constraints which influence the length of stages and outcomes of a procurement; determine the outcome required from each stage; avoid unnecessary stages which add cost for both Defence and industry; and ensure that tenderers are aware of what is required in their responses and the evaluation criteria that will be applied to each stage.
8.
Staged procurement incurs costs to both Defence and tenderers and should be used where the benefit of such a process outweighs the increased costs. Staged procurements do not set aside and should not be used to avoid obligations to encourage competition and avoid discrimination.
Request for Information 9. Requests for Information are predominantly used in relation to Defence capability and technological development. A Request for Information is used to assess if the market is capable of satisfying a requirement or to determine the size of the market capable of satisfying a requirement. While the requirement may not be fully specified at this stage, a broad description of the requirement or capability needs to be advised to enable potential suppliers to provide the information required for future decisions on the procurement activity. Responses to a Request for Information will not include any detailed pricing, although estimated overall costings may be requested. Where a costing is requested respondents will not be required to provide tender prices in accordance with those costings. The use of a Request for Information needs to be carefully considered because of the cost it imposes on respondents. Requests for Information should not be used when more appropriate staged procurement activities, such as Request for Proposal or Invitation to Register Interest, would be more appropriate. Potential suppliers may be advised of a Request for Information either by public advertisement or directly by letter, where there are a known limited number of potential suppliers. Respondents to a Request for Information should be acknowledged and also advised of the decision as to whether any further procurement activity will occur. The failure of a potential supplier to respond to a Request for Information is not to be used as a justification for restricting their access to future procurement activity in respect of the requirement. A Request for Information is not used to shortlist suppliers.
10.
11.
12.
Invitation to Register Interest 13. An Invitation to Register Interest is used to seek expressions of interest from potential suppliers to fulfil a known Defence requirement, following public advertisement. The cost to potential suppliers in responding to an Invitation to Register Interest is relatively low compared with that of preparing a detailed tender. The requirement may not be fully defined but a general description needs to be included to allow potential suppliers to assess their ability to fulfil the requirement. The objectives of an Invitation to Register Interest include:
14.
an assessment of the interest of potential local and overseas suppliers to supply goods and/or services to meet the advertised requirement; Page 4.92
Defence Procurement Policy Manual 4.9 Staged Procurement
the provision of sufficient time to potential suppliers to enable them to explore the formation of teaming and licensing arrangements in order to meet the requirement; saving potential suppliers not capable of meeting the requirement from the unnecessary expense of providing a detailed tender response; providing sufficient time to potential suppliers to undergo any security requirements before the release of a classified Request for Proposal or Request for Tender (see chapter 3.9); and identifying potential suppliers not capable of fulfilling the requirement because of their technical, managerial, legal and/or financial capacity.
15.
An Invitation to Register Interest should not:

be used to seek proposals or offers; be used to seek indicative pricing; require unpaid research and development; or require the creation of any intellectual property by a respondent.
16.
Where a decision is made to release an Invitation to Register Interest, the decision should be approved and included in the endorsed procurement planning documents for the project and an evaluation plan should be developed (see chapter 5.4). At the completion of the evaluation, the recommendation is to be approved by the Procurement delegate and any suppliers who have not been shortlisted should be advised of the reasons for their exclusion. Where funding for the requirement has not been approved, the purchasing area should seek approval from the relevant delegate prior to release of the Invitation to Register Interest. It should be noted in the invitation documentation that the requirement is currently unfunded. The Invitation to Register Interest is to be publicly advertised and details must be made available on the AusTender website (see chapter 5.4). At the conclusion of this activity, further correspondence can be restricted to suppliers capable of fulfilling the requirement, and no further public advertisement need occur until after contract signature.
17.
18. 19.
ASDEFCON (Invitation to Register) 20. The approved Invitation to Register Interest template within Defence is ASDEFCON (Invitation to Register) which will be useful for most Invitation to Register Interest requirements. To minimise the costs of tendering, ASDEFCON (Invitation to Register) seeks only the information necessary to define the market or shortlist respondents. ASDEFCON (Invitation to Register) includes the following components:

21.
preliminary pages, including a general information section, cover page and foreword; covering letter; conditions of registration, including Annexes; and Statement of Requirement.
22.
For more information on how and when to use ASDEFCON (Invitation to Register) please refer to the General Information for Users section in the preliminaries section of the template or contact the Office of Special Counsel.
Evaluation criteria 23. Where the Invitation to Register Interest is to be used to shortlist potential suppliers, evaluation criteria needs to be developed as part of the Invitation to Register Interest Evaluation Plan and
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Defence Procurement Policy Manual 4.9 Staged Procurement included in the request documentation. An Invitation to Register Interest may include the following evaluation criteria:

the tenderers technical, managerial and financial capability to fulfil the requirement; the tenderers past performance in projects of a similar type and scope to the requirement described in the Invitation to Register Interest; and the tenderers demonstrated ability to comply with, or obtain, the security requirements detailed in the Invitation to Register Interest.
HANDY HINT Defence Security Authority regional offices have responsibility of granting of personnel, consultant and facility accreditations and should be contacted before eliminating any tenderer on the grounds of not being able to meet security requirements. Teaming of potential suppliers 24. Defence has a preference to contract only with one tenderer for each requirement. This policy ensures Defence deals with a single legal entity. If two or more tenderers team together and their tender is successful, only one of the members of the successful team will normally contract with Defence. The other(s) will become subcontractors to the contractor. Teaming arrangements may be facilitated by requesting tenderers to confirm if they intend to:

25.
perform the role of contractor; or supply elements of the requirement as subcontractors to the contractor .
26.
Where a list of contractors and subcontractors to an Invitation to Register Interest will be prepared and given to potential suppliers to facilitate the development of teaming arrangements, the request documentation should clearly state this intent. Further advice on the content of an Invitation to Register Interest can be obtained by contacting the relevant Help Desk found at the front of this manual. Teaming arrangements are discussed in detail at chapter 4.1.
27. 28.
Requests for Proposal (RFP) 29. A Request for Proposal is used to encourage potential suppliers to propose solutions, whether innovative or not, to achieve a desired outcome or resolve a specific problem. A Request for Proposal seeks information from potential suppliers about their capabilities or capacities to ascertain what solutions exist to meet problems or needs. It may be used to shortlist companies for subsequent tendering action, provided the Request for Proposal makes clear that this will be the case, and the evaluation criteria to be used for this purpose. If the evaluation criteria are not included in a Request for Proposal, that relates to a covered procurement, then short listing cannot occur. Where a decision is made to release a Request for Proposal, the decision should be approved and included in the endorsed procurement planning documents for the project and a Request for Proposal Evaluation Plan should be developed (see chapter 5.4). At the completion of the evaluation, the recommendation is to be approved by the Procurement delegate and any tenderers who have not been shortlisted should be advised of the reasons for their exclusion.
Circumstances in which a Request for Proposal may be used 30. A Request for Proposal should not be used where the costs of tendering for Defence and tenderers will be increased and no benefits justifying that increased expense will be realised. If the Request for Proposal will be used for short listing, the request documentation must clearly state this intent. A Request for Proposal may be used where the project is unable to determine a preferred solution to an identified requirement. A Request for Proposal should encourage tenderers to Page 4.94
31.
Defence Procurement Policy Manual 4.9 Staged Procurement propose innovative solutions to meet the requirement and by doing so enable the Commonwealth to assess the range of options available prior to release of a Request for Tender. 32. The objectives of a Request for Proposal can include:
further defining a solution to an identified requirement, including cost estimates and project schedule; solicitation of industry for possible innovative solutions to meet the capability requirement; assessment of the feasibility and relative merits of a number of proposed solutions to meet the capability requirement; and development of a shortlist of suppliers capable of providing the preferred solution.
33.
Where funding for the requirement has not been approved, the purchasing area should seek approval from the relevant delegate prior to release of the Request for Proposal. It should be noted in the request documentation that the requirement is currently unfunded. The Request for Proposal must be advertised on the AusTender website (see chapter 5.4). A Request for Proposal should not be used to:

34. 35.
seek offers open to acceptance by the Commonwealth; seek tender quality pricing; or seek schedules, specifications or plans, including Australian industry involvement plans.
ASDEFCON (Request for Proposal) 36. The approved Request for Proposal template within Defence is ASDEFCON (Request for Proposal) which will be useful for most Request for Proposal requirements. This template aims to minimise the costs to tenderers of preparing submissions by seeking only the information required to develop a Request for Tender and shortlist respondents, where appropriate. ASDEFCON (Request for Proposal) includes the following components:

37.
preliminary pages, including a general information section, cover page and foreword; covering letter; conditions of proposal, including Annexes; and Statement of Requirement.
38.
For more information on how and when to use ASDEFCON (Request for Proposal) please refer to the General Information for Users section in the preliminaries section of the template or contact the Office of Special Counsel.
Activities following the Release of an Invitation to Register or Request for Proposal 39. Following the release of the documentation for an Invitation to Register Interest or Request for Proposal:

industry briefings may be held (see chapter 5.4 ); amendments may be issued (see chapter 5.4); responses must be submitted (see chapter 5.5); responses received will be evaluated and a shortlist developed where appropriate (see chapter 5.6); tenderers must be notified of the outcome; and where shortlisting has occurred, tenderers must be offered a debriefing.
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Defence Procurement Policy Manual 4.9 Staged Procurement Project Definition Studies 40. A Project Definition Study is normally undertaken following shortlisting from a Request for Proposal. A Project Definition Study involves shortlisted suppliers undertaking research and development activities to further refine their proposals prior to release of a Request for Tender. A Project Definition Study may be either funded or unfunded. Where a Project Definition Study is to be funded a contract will need to be created between the Commonwealth and each participant. As the draft Statement of Work for the Request for Tender will be based on the outcome of the Project Definition Study, care needs to be exercised when drafting the contract conditions for the Project Definition Study. It is recommended that specialist contracting advice be sought from the contracting specialists listed at the front of this Manual. Careful consideration must be given to whether the Project Definition Study stage will be funded or unfunded. For maximum benefit to be obtained from the Project Definition Study, funding is recommended. A funded Project Definition Study requires the same approvals as any other contract. Participants in a Project Definition Study, whether funded or unfunded, should be advised of:

41.
42.
43.
the objectives of the Project Definition Study; the deliverables, including the format, required at the completion of the Project Definition Study and the delivery time of those deliverables; the intellectual property requirements; and where short listing will occur, the evaluation criteria which will be used to shortlist tenderers and select the successful tenderer.
HANDY HINT All Defence contracts should, where possible, include all items of rectification and enhancement, identified in initial stages and trials, prior to contract signature. This will assist in the mitigation of risk and reduce the need for contract amendments. 44. Further advice on the use of a Project Definition Study can be obtained by contacting the relevant Help Desk found at the front of this manual.
Prototype/Pre-Production Development Stage 45. A prototype or pre-production development stage may be conducted as part of the tender evaluation process or as an initial stage of a contract. A pre-production stage is used to confirm the build standard of the desired equipment and the tenderers capacity to develop the prototype into a product suitable for final acceptance into service. A prototype development stage is usually used where the requirement is known but the appropriateness of the specification or the technical capacity of the tenderer(s) needs to be confirmed. A pre-production stage is used to confirm the build standard of the equipment prior to full production commencing. A prototype or pre-production development stage may involve only the preferred tenderer or may be used to shortlist, prior to a final source selection decision being made. Careful consideration must be given to whether the prototype development stage will be funded or unfunded. In order to obtain maximum benefit from the prototype development stage, funding is recommended. Where this activity will be funded the appropriate financial delegations and funds availability approvals are required. Where a prototype development is to be funded or included as a first stage of the contract, care needs to taken when drafting the contract conditions, as the results of the prototype development stage will impact on the final contract deliverable.
46.
47.
48.
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Defence Procurement Policy Manual 4.9 Staged Procurement 49. Where a decision is made to undertake a prototype development stage as part of the procurement process, the decision should be approved and included in the endorsed Equipment Acquisition Strategy or other planning documents for the project. Where a prototype development stage is conducted as part of the tender process, whether funded or unfunded, tenderers should be advised of:

50.
the objectives of the prototype development stage; the deliverable requirements; the payment arrangements, where applicable; and the criteria which will be used to shortlist tenderers and select the successful tenderer, where applicable.
51.
Further advice on the use of a prototype development stage can be obtained by contacting the relevant Help Desk found at the front of this manual.
Chapter Summary
Staged procurement may involve the use of one or more of a Request for Information, an Invitation to Register Interest, a Request for Proposal, a Project Definition Study or a prototype/pre-production phase. Requests for Information are used to undertake market research prior to release of further tender documentation. Requests for Information may not be used to shortlist respondents. An Invitation to Register Interest is a document in which Defence outlines, through a public advertisement, its intention to acquire goods and/or services and invites potential suppliers to indicate their interest in meeting the requirement. Invitations to Register Interest may be used to shortlist respondents. Request for Proposals are used where there is insufficient information on potential solutions to the requirement available in the marketplace to enable the issuing of a Request for Tender. A Request for Proposal should encourage tenderers to propose innovative solutions to meet the requirement and by doing so will enable Defence to assess the range of options available prior to release of an Request for Tender. Request for Proposals may be used to shortlist respondents. A Project Definition Study is normally undertaken following short listing from a Request for Proposal. A Project Definition Study involves shortlisted respondents undertaking research and development activities to further refine their proposals prior to release of a Request for Tender. A Project Definition Study may be funded or unfunded. Prototype or pre-production development stages are used to confirm the final build standard and the tenderers capacity to translate the prototype into a contract deliverable suitable for final acceptance into service.
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Defence Procurement Policy Manual 4.10 Services Contracts and Agency Relationships
4.10
Introduction
1. 2.
Services Contracts and Agency Relationships
This chapter applies to all service contracts undertaken by Defence and the Defence Materiel Organisation (DMO). This chapter addresses some of the special issues that arise under a contract for the provision of services including:

identification of an employer/employee relationship; contracting with a natural person; statutory obligations including superannuation, taxation and workers compensation; agency relationships; the granting of purchasing authority; the granting of financial delegations; and travel arrangements for contracted personnel.
Mandatory Policy
Defence staff and contractors must comply with the following policy documents:

the Financial Management and Accountability Act 1997 (Cth) (FMA Act) the Financial Management and Accountability Regulations 1997 (Cth) (FMARs), Commonwealth Procurement Guidelines (CPGs) Finance Circular No 2011/01 - Commitments to spend public money (FMA Regulations 7 to 12) Defence Chief Executives Instruction (CEI) 2.1 - Procurement DMO CEI 2.1 Procurement DMO CEI 2.5 Official Travel (which covers contractor travel) Defence Information Management Policy Instruction 1/2004 Telephone and Related Goods and Services Defence Information Management Policy Instruction 5/2001 Defence Information Environment Provision of Defence E-mail and Internet Services Defence Instruction (General) ADMIN 10-6 Use of Defence Telephone and Computer Resources
DMO staff engaging External Service Providers (ESPs) must comply with DMI (FIN) 01-0025 - Engagement of External Service Providers DMO staff engaging External Service Providers (ESPs) must comply with DMI (Proc) 13-0001 - Mandatory Procurement Policy Requirements for all DMO Acquisitions (including Sustainment Procurement) to Contract Signature. A Procurement officer must not indicate or act in any way to confirm that the relationship is one of employer-employee where the terms of the contract state otherwise. The Contract Approval submission must advise the appropriate delegate if the contract is likely to result in an employee/employer relationship. Page 4.101
The office of the Inspector General must be contacted where it is suspected that there has been a misappropriation or improper use of public money. Where an agency relationship is to be created the standard Defence negation of employment and agency clause must be amended to include agency provisions in the contract. Where Defence facilities and equipment are provided, contractors and their personnel must be advised of any applicable Commonwealth and Defence policies pertaining to their use. Where knowledge transfer has been identified as a requirement of a Services contract, this requirement must be described in the Statement of Work (SOW).
Background 3. Defence enters into many contracts for the provision of services, including:

consultancy or professional services; administrative services; maintenance services for Defence equipment; medical services garrison support services (building maintenance, cleaning etc); and legal and other specialist services.
Specialist Standing Offer panels 4. There are a number of existing professional services standing offer panels. Where a standing offer panel exists for a particular requirement, Defence officials should make use of that standing offer for their procurement need wherever practicable. Guidance on provision of services through existing standing offer panel arrangements should be obtained from the area responsible for managing the panel. Paragraph 5 provides contact information for the following professional services standing offer panels:

Defence Legal panels; DMO Legal panel; DMO Support Services panel (DMOSS); Defence Financial Services panel; Defence Infrastructure panel; Defence Environment and Heritage panel; and Defence Unexploded Ordnance (UXO) panel.
A full list of the Defence and DMO Standing Offer Panels are available on AusTender. 5. The Defence Legal panels can be accessed for the provision of legal services, according to the procedure in DEFGRAM 147/2007 Engagement of External Legal Service Providers and the guidance in the Accessing Legal Services Manual. The DMO Legal Panel can be accessed for the provision of legal services, according to the procedure contained in the current DPPI on Requesting Professional Services from the Office of Special Counsel DMO.
6.
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Defence Procurement Policy Manual 4.10 Services Contracts and Agency Relationships 7. 8. The DMO Support Services Panel (DMOSS) can be accessed for project, business and technical support services through the DMOSS Business Management System. Details on the Defence Financial Services are available from http://intranet.defence.gov.au/find/standing_offer_panels/financial_services_SOP/index.htmlThe Defence Infrastructure Panel, Defence Environment and Heritage Panel and Defence UXO Panel can be accessed from the Infrastructure Management intranet site at via the Panel link.
Templates 9. The following four ASDEFCON tendering and contracting templates (ASDEFCON suite) have been developed for use in the procurement of consultancy or professional services related primarily to materiel acquisition and sustainment projects:

ASDEFCON (Shortform Services); ASDEFCON (Services); ASDEFCON (Standing Offer for Services); and ASDEFCON (Support).
10.
The ASDEFCON suite contains clauses which require contractors to comply with relevant legislation and government policies. For further information on these ASDEFCON templates refer to chapter 2.3. For further information on the Defence tendering and contracting templates for infrastructure development, building maintenance and garrison support services refer chapter 2.3 or the Infrastructure Management intranet web site at http://defweb.cbr.defence.gov.au/im/.
11.
Employer/Employee Relationship 12. The law of employment makes a distinction between a contract of service and a contract for services. The former creates an employer and employee relationship (e.g an individual APS or ADF member and the Commonwealth) whereas the latter is characterised by the law as a contract between the principal (e.g the Commonwealth) and an independent contractor. It is Defence policy not to enter into a contract that will create an employee/employer relationship between Defence and any individual engaged under that contract, except for temporary employment contracts (for more information refer to paragraph 21). This is because a contract of employment will impose additional burdens on Defence including implied terms, liability of the employer, the application of legislation, benefits and entitlements, dispute resolution including conciliation and arbitration systems, workers compensation, occupational health and safety, leave entitlements, the application of unfair dismissal laws, income and other taxes, and superannuation. Chapter 3.14 contains further information on how superannuation, taxation, and workers compensation legislation applies to Defence contracts. The Contract approval submission must advise the appropriate delegate if the contract is likely to result in an employee/employer relationship. A court can rule that an employer/employee relationship exists even if the contract states that it is between an independent contractor and the Commonwealth. While the courts will consider a number of factors (indicators) in deciding whether a person (the worker) is an employee or a contractor, central to the decision will be the totality of the relationship between the parties. The High Court in Stevens v Brodribb Sawmilling Co Pty Ltd (1986) 160 CLR 16 held that the extent to which one party was subject to the direction and control of the other party in the manner in which they did their work under the contract was a significant factor in determining the parties relationship. However, there were a number of other relevant factors which included:
13.
14.
15.
the mode of remuneration of the worker (for example, by results which suggest the worker is an independent contractor, or on an hourly basis which suggests the worker is an employee); Page 4.103
who provides and maintains necessary equipment (if it is the worker, this suggests he or she is an independent contractor); the obligation to work (whether, for example, the worker has the right to dictate hours of work and whether the worker may refuse tasks if so, this suggests the worker is an independent contractor); provision of leave and other entitlements (these are consistent with an employment relationship); place of work (if at the workers own premises or office, this suggests the worker is an independent contractor); ability of the worker to delegate the work (suggests an independent contractor), or whether the employer has a right to insist that the worker perform the work (suggests an employee); whether income tax is deducted by the employer (however, this factor has changed significantly as the tax laws have changed); and whether the employer has a right to the exclusive services of the worker (if so, this suggests the worker is an employee).
16.
More recently, the High Court in Hollis v Vabu Pty Ltd (2001) 181 ALR 263 reviewed the authorities which had considered the distinction between an employee and an independent contractor. The majority of judges confirmed that the distinction between an employee and an independent contractor is rooted fundamentally in the difference between a person who services his employer in his, the employers business, and a person who carries on a trade or business of his own. The issue is to be determined by a balanced evaluation of all the incidents of the relationship between the parties. While the degree and nature of the control exercised over the worker is, and remains after Vabu, a significant factor, it is not the only relevant factor. The majority held that it is the totality of the relationship between the parties which must be considered. The High Court quoted with approval the factors noted above from Brodribb Sawmilling Co as matters to be taken into account. The terms of the contract are an important factor in establishing the intention of the parties. Only where this intention is not supported by the subsequent conduct of the parties will the courts examine in further detail. In such circumstances, a court will not feel bound to accept the status of the parties as specified in the contract if this does not reflect the reality of the relationship between the parties. A clause providing that the contractor is not an employee of Defence will not prevent a court finding that the person was an employee, if other factors in the relationship between the parties point clearly to an employee-employer relationship. Where Procurement officers are in any doubt as to the potential status of a preferred tenderer, specialist advice should be sought from the Office of Special Counsel in DMO or Defence Legal. A Procurement officer must not indicate that the relationship is one of employer-employee where the terms of the contract state otherwise.
17.
18.
Contracting with a Natural Person 19. 20. A natural person is an individual, rather than a company or partnership, who contracts to provide goods or services to Defence. Entering into a contract with a natural person increases the risk of that person being deemed to be an employee of Defence. This has flow-on implications for superannuation, taxation and workers compensation as discussed in paragraphs 12 and 13 above. As a consequence, wherever possible, it is strongly recommended that contracts not be entered into with natural persons. If there is a requirement to enter into a contract with a natural person the preferred contracting option is through a temporary employment contract. These contracts apply the conditions of employment detailed in the Defence Employees Certified Agreement. Advice on temporary employment contracts can be obtained by contacting Recruitment Services, Personnel Services Branch, Defence Support Group on (02) 6127 3022. Page 4.104
21.
Defence Procurement Policy Manual 4.10 Services Contracts and Agency Relationships Creation of an Agency Relationship with Contractors 22. In a contract, an Agency Relationship is created where the contractor is authorised to act, as an agent, for and on behalf of the principal (the Commonwealth). Where the agent undertakes an action within the authority provided for under the contract the Commonwealth is obliged to meet the commitment entered into on its behalf by the authorised agent. An agent is an officer, either an appointed external agent or employee, empowered with the authority to represent and make decisions on behalf of an organisation. An agent can enter into contractual relationships with third parties, with its contractor, its employees or subcontractors. This is due to the fact that where an agency relationship is created decisions made by the agent will be binding on Defence, even though Defences control over the activity will be significantly reduced. Therefore the creation of agency relationships should be avoided where possible. Notwithstanding this policy there may be certain circumstances, particularly in contracts for the provision of services, where it may be appropriate to create a defined agency relationship with a contractor, its employees or subcontractors. For example, agency relationships may need to be established where:

23.
contracted personnel are granted purchasing authority for Defence; contracted personnel are authorised to exercise financial delegation/s for procurement on behalf of Defence; or contracted personnel are required to spend, manage or control public money.
24.
In addition to these examples there are Project Manager/Contract Administrator (PMCA) engagements under the Defence Infrastructure Panel. Under these engagements the PMCA acts as an agent to manage the project on the Commonwealths behalf.
Legislative Framework 25. The legislative framework in which Commonwealth purchasing authority and financial delegations are exercised is the Financial Management and Accountability Act 1997 (Cth) (FMA Act), the Financial Management and Accountability Regulations 1997 (Cth) (FMAR), and the Finance Ministers Orders (FMO). This legislative framework regulates, among other things, the spending of public money and imposes obligations on officials who deal with public money and who approve proposals to spend public money. An official under the FMA Act is any person dealing with public monies on behalf of the Commonwealth, including persons involved at any stage of the procurement process. Under the FMA Act and the FMAR, a contractor or a contractors employee will be regarded as an official in Defence or the DMO if they are performing a financial task for their respective Agency. A financial task is defined in the FMARs as a task or procedure, other than authorised under Section 12 of the FMA Act, relating to the commitment or spending of public money, or the management and control of public money. It is very important to note that only natural persons can be officials. This means that where a contractor is a corporation, it will be individual officers or employees of the contractor who will be performing financial tasks on behalf of Defence or the DMO. Officials who fail to comply with any FMA legislation can be subject to criminal penalties, including imprisonment. For this reason it is very important that contractors inform their officers and employees that by performing financial tasks in relation to public money, they become officials under the FMA Act.
26.
27.
Granting Purchasing Authority to a Contractor 28. Contracted personnel should only be given purchasing authority in limited circumstances, where providing that authority is an efficient, effective, economical and ethical use of Commonwealth resources, such as:
where outsourced functions performed by a contractor involve the procurement of goods and/or services for Defence or the DMO; or
Page 4.105
where a professional service provider is performing a task for Defence or the DMO which requires the procurement of goods and/or services for Defence or the DMO.
29.
Purchasing Authority consists of all those duties and responsibilities that relate to procurement, other than the exercise of financial delegations. These duties and responsibilities may include releasing request documentation, negotiation with tenderers, payments to contractors (following the exercising of financial delegations) and contract management. The extent to which the contractor or its employees can represent the Commonwealth and enter into legal relationships on behalf of the Commonwealth will depend on the terms and conditions of the contract between the contractor and the Commonwealth.
30.
Granting of Financial Delegations to a Contractor 31. The provision of financial delegations to contractors (where the contractor is a natural person) or a contractors employees should be minimised consistent with efficient, effective, economical and ethical use of resources, as the Commonwealth retains minimal control over the procurement, while remaining fully accountable for the expenditure of the public monies involved. There may be circumstances in which it is appropriate for a contractor or its employees to exercise financial delegations on behalf of Defence or the DMO. Examples of such circumstances may be where:
the contract involves management by the contractor of a particular aspect of Defences inventory management; the inventory value or range is high; items in the inventory are difficult to obtain, such as long lead items or are exclusively military in nature; or items have specific field use.
32.
Within DMO there is to be no granting of financial delegations to contractors without approval from a DMO SES Band 2/O-8 (2 Star) Officer or above. Further guidance on granting of financial delegations can be found in chapter 1.4.
Receipt and Spending of Public Money by Outsiders 33. For guidance on the receipt and spending of public money by outsiders see chapter 1.4.
Clauses for Inclusion in Contracts 34. Where an agency relationship is to be created, the standard Defence negation of employment and agency clause must be amended to include agency provisions in the contract. Advice on the clauses necessary to provide purchasing authority and financial delegations to contractors should be obtained from the ASDEFCON section (refer to the current DPPI on Requesting Professional Services from the Office of Special Counsel DMO). Specialist contracting advice should be sought prior to entering into an agency relationship.
Travelling Arrangements for Contracted Personnel 35. Where contracted personnel are required to travel in order to perform a contract, Defence contracts can contain clauses that agree to reimburse the contractor for travel, accommodation and living costs incurred up to the standard Defence non-SES travel Allowance rates which have been adjusted to include GST. The Allowance rates are reviewed on a regular basis to take account of the price fluctuations over time. Standard contractual clauses which entitle a contractor to claim travel costs are contained in ASDEFCON (Services) and ASDEFCON (Standing Offer for Services). Where the Allowance rates are provided to contractors, Defence is required, under the agreement with the Department of Education, Employment and Workplace Relations, to include the following restriction on disclosure in the contract: Page 4.106
36.
Defence Procurement Policy Manual 4.10 Services Contracts and Agency Relationships Travelling Allowance Rates provided to the Contractor under the Contract have been supplied to the Department of Defence under license by the Department of Education, Employment and Workplace Relations for Defence purposes only. The Contractor shall not make public or disclose the Travelling Allowance Rates to other agencies, organisations or individuals without the prior written consent of the Department of Defence. This clause shall survive the expiration or termination of the Contract and shall apply regardless of whether the Travelling Allowance Rates are or become public knowledge. 37. All claims for reimbursement of travel, accommodation and living costs are to be submitted on a valid tax invoice, showing the GST exclusive price, with GST then being charged on the total amount. The total GST inclusive claim for such reimbursement shall not exceed that of the total allowable Defence non-SES travel Allowance rates (for further information on GST see chapter 3.7). Defence will then be able to claim back the amount of GST paid as an input tax credit from the Australian Tax Office. Procurement officers are to ensure that contracted personnel, or other contractor employees, are not paid any travel reimbursements directly. Reimbursements may only be paid to the contracted legal entity (i.e. company). This will ensure that Defence cannot be seen as misrepresenting the income of individual contracted personnel. Specific advice on taxation matters, including GST and contractor travel, can be obtained from the Defence Taxation Management Office on 1800 806 053. For Procurement officers within the Defence Materiel Organisation, further guidance on contractor travel policy is contained in DMO CEI 2.5 Official Travel.
38.
39. 40.
Other Issues 41. Other issues that arise in the services environment include:
applicability of directions under the Public Service Act 1999 (Cth) (PS Act) and Defence Force Discipline Act 1982 (Cth) (DFDA Act); compliance with Privacy (refer to chapter 3.14), Confidentiality, Security and Intellectual Property requirements; providing contracted personnel with access to Commonwealth facilities and equipment; the provision of Defence business cards to contracted personnel; Defence reporting requirements for consultancies and contracts for professional services; and knowledge transfer.
Applicability of Directions Under the Public Service Act and Defence Force Discipline Act 42. 43. Defence contractors are not automatically subject to lawful and reasonable directions under the Australian Public Service Code of Conduct or lawful general orders under the DFDA Act. If there is a requirement for a contractor to adhere to instructions under the PS Act or DFDA Act (if not already provided for in those Acts), then there is a need to include appropriate provisions in the contract. Specialist advice on appropriate clauses should be sought from the DMO Office of Special Counsel.
Providing Contractors with access to Commonwealth Facilities 44. Many Defence contracts, particularly contracts for the provision of services, allow contractors, their employees or subcontractors to access Commonwealth facilities in order to perform the contract. Where access to Commonwealth premises will be allowed under a contract, contractual provisions should be included that clearly detail the scope of the access rights and any obligations that are placed on the Commonwealth or the contractor in relation to that access. Issues that should be addressed include: Page 4.107

the facilities to which the contractor, its employees or subcontractor will have access; the period over which the access will be granted; any approvals that must be obtained prior to access being granted; the timeframes in which the approvals must be obtained; any safety or security requirements; the names and/or categories of personnel who may be granted access; removal of equipment for repair or other purpose; and contractors escorting any person on Defence property.
45. 46.
Standard access clauses are contained in ASDEFCON (Services) and ASDEFCON (Support). Guidance on security issues associated with the provision of access is contained in chapter 3.9. Where Defence facilities and equipment are provided, contractors and their contracted personnel must be advised of any applicable Commonwealth and Defence policies pertaining to their use. Policies that may apply include:
Defence Instruction (General) ADMIN 10-6 Use of Defence Telephone and Computer Resources; Defence Information Management Policy Instruction 1/2004 Telephone and related goods and services; and Defence Information Management Policy Instruction 5/2001 Defence Information Environment provision of Defence email and internet Services.
Use of Defence Communications 47. Where contracted staff avail themselves of departmental communication tools, such as telephone, facsimile and email, the contractors must clearly identify themselves as contractor to Defence, to reduce the possibility of being confused as either a civilian or military employee.
Provision of Defence Business Cards to Contractors 48. A Defence contractor, its employees or subcontractors should not be permitted to obtain or use a Defence business card. This policy applies even where the contractor, an employee of the contractor or a subcontractor is performing tasks as an integral part of a Defence project team or is acting as an agent of Defence. Where a Defence contractor, an employee of the contractor or a subcontractor is performing tasks as an integral part of a Defence project team, the title of the position being performed may be included on their company provided business card where:

49.
the name of the contracting company is clearly identified on the business card; and authorisation is provided by a Defence officer at the Senior Executive Service level.
Defence Reporting Requirements 50. Commonwealth reporting requirements require Procurement officers to identify whether contracts are for the procurement of consultancy services. In addition, monthly reporting requirements require Procurement officers to distinguish between Consultants, Professional Service Providers and other Contracted Services. For further information on this issue and other aspects of reporting refer to chapter 5.8.
Avoiding Conflicts of Interest 51. Due to the nature of contracts for the provision of services, care needs to be taken to avoid conflicts of interests arising during, or as a result of, the performance of a contract. Guidance on avoiding conflicts of interest is provided in chapter 3.13. Page 4.108
Defence Procurement Policy Manual 4.10 Services Contracts and Agency Relationships Knowledge Transfer 52. Knowledge transfer refers to the transfer of knowledge, information and expertise from an External Service Provider (ESP) to Defence. Where knowledge transfer has been identified as a requirement of a Services contract, this requirement must be described in the Statement of Work (SOW).
Key References
Financial Management and Accountability Act 1997 (Cth) Financial Management and Accountability Regulations 1997 (Cth) Commonwealth Procurement Guidelines Department of Finance and Deregulation - Finance Circular No 2011/01 - Commitment to spend public money (FMA Regulations 7 to 13) Defence CEI 2.1 Procurement DMO CEI 2.1 Procurement DMO CEI 2.5 - Official Travel DMO CEI 3.1 Receiving Public Money Defence Instruction (General) ADMIN 10-6 Use of Defence Telephone and Computer Resources DMI (FIN) 01-0-025 - Engagement of External Service Providers. DMI (PROC) 13-0-001 - Mandatory Procurement Policy Requirements for all DMO Acquisitions (including Sustainment Procurements) to Contract Signature
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4.11
Not Used
The contents of this chapter have been included where appropriate in chapter 4.10 Services Contracts.
Page 4.111
Defence Procurement Policy Manual 4.12 Defence Unsolicited Proposals
4.12
Introduction
1. 2.
Defence Unsolicited Proposals
This chapter applies to all unsolicited promotional products offers (UPPO) and unsolicited innovative proposals (UIP) received by Defence and the Defence Materiel Organisation (DMO). Further information on UPPOs and UIPs can be obtained from either the DMO Industry Division website or the Defence internet site
Mandatory Policy
To be considered under the Unsolicited Innovative Proposal (UIP) Scheme, a proposal must:

use the UIP template; present an innovative solution that has the potential to enhance Defence capability, business processes or utilisation of resources or assets; not be covered by existing procurement or research activities being undertaken by Defence; not consist of subject-matter that has been developed or otherwise brought into existence during the course of employment with the Commonwealth or under an existing contract with the Commonwealth unless the contract expressly grants the UIP proposers the right to deal with the subject matter in this way; be signed by the proposer or, if the proposer is a company, a person with appropriate authority to represent the company; be supported by sufficient information to permit a proof of concept evaluation and an evaluation of all aspects in the proposal; and be accompanied by a signed undertaking in the format of the Defence Unsolicited Innovative Proposals Undertaking.
All UIPs that have been submitted through alternative channels within Defence must be redirected to the Capability and Technology Demonstrator (CTD) Program Office.
Background 3. Defence receives a large number of unsolicited proposals from industry and individuals each year. These proposals range from promotional offers of basic goods and services including Commercial-off-the-Shelf (COTS) products, through to innovative proposals offering capability, business processes or resource utilisation enhancements.
Benefits to Defence and Industry 4. The contribution from industry towards the development of leading-edge Defence technologies and a sustainable Defence industry base has been recognised as a vital component in our national security. The UPPO and UIP schemes provide industry and potential suppliers with an avenue to submit unsolicited proposals to Defence for assessment. These schemes provide Defence with enhanced opportunities to achieve value for money outcomes through better exploitation of industry capability and know how. Page 4.121
5.
Defence Procurement Policy Manual 4.12 Defence Unsolicited Proposals Definition of UPPO and UIP 6. 7. 8. Unsolicited proposals received by Defence will be processed as either a UPPO or a UIP. A UPPO is a submission made by industry, or an individual, to promote one or more of their products or services to Defence. UIP are proposals that put forward an innovative solution that has the potential for Defence capability, business processes or resource utilisation enhancements. They offer an innovation to Defence and are not standard commercially available products or services.
Submitting Unsolicited Promotional Products Offers (UPPO) 9. All UPPOs should be formally submitted by post to the DMO Business Access Office Network (DMO BAO Network) at the following address: Administrative Officer DMO Business Access Office Network Defence Plaza Level 25 270 Pitt Street SYDNEY NSW 2000 10. Each UPPO submission requires either a detailed covering letter or completion of the UPPO Information template. The UPPO Information template can be downloaded from Defence internet site. The UPPO submission should contain a summary of the company including: details of the companys history and capabilities; any major clients (including any Defence work the company has undertaken); and identification of potential Defence end-users by describing how the company envisions their item/s would be used in a diverse organisation such as Defence. The UPPO submission should also contain relevant promotional information (brochures, pamphlets, and reports), samples or pictures of the capability and detailed written information on the products applications. UPPO proposers may call 1800 621 783 (toll free) to speak to their local Business Access Office (BAO) for advice and guidance on the submission process.
11.
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Processing Unsolicited Promotional Products Offers (UPPO) 13. UPPO submissions received by the DMO BAO Network will be processed according to the demand for the product or service within Defence. If there is a standing arrangement for a product or service similar to the one submitted in the UPPO, a letter to this affect will be forwarded to the UPPO proposer to inform them that Defence does not have a current requirement for their capability. If the UPPO is very general and no one point of contact can be located for the proposal, a letter to this affect will be forwarded to the UPPO proposer to inform them that there is no point of contact within the Defence Organisation for their capability. If a need for the product or service specified in the UPPO submission is identified, the DMO BAO Network will identify the appropriate area(s) within Defence to forward the UPPO submission. The UPPO proposer will receive a letter to inform them that their submission has been forwarded. Areas in Defence that receive UPPO submissions from the DMO BAO Network should contact the UPPO proposer in a timely manner to discuss the submission, regardless of their interest in the product. The receiving area should contact the DMO BAO Network by email or post within one calendar month of receiving the UPPO, to report on the action taken with the submission. If the DMO BAO Network does not receive feedback it will follow up to prompt action.
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Defence Procurement Policy Manual 4.12 Defence Unsolicited Proposals 16. In submitting products and services to Defence under the UPPO Scheme, companies need to recognise that the UPPO Scheme only ensures that Defence will consider, not necessarily purchase, the offered products or services.
Submitting Unsolicited Innovative Proposals (UIP) 17. 18. UIP proposers should read The Defence Unsolicited Innovative Proposals Scheme - Guidelines for Proposers (the Guidelines) in conjunction with the Defence Unsolicited Proposals Policy. Part A of the Guidelines provides detailed advice to UIP proposers in relation to the preparation and submission of UIPs to Defence. Part B of the Guidelines describes the Code of Practice that will be applied by Defence for the handling of the submission during the evaluation of UIPs. To be considered under the UIP Scheme, a proposal must:

19.
use the UIP template; present an innovative solution that has the potential to enhance Defence capability, business processes or utilisation of resources or assets; not be covered by existing procurement or research activities being undertaken by Defence; not consist of subject-matter that has been developed or otherwise brought into existence: during the course of a proposers employment with the Commonwealth; or under an existing contract with the Commonwealth unless that contract expressly grants the proposer rights to deal with the subject-matter in this way; signed by the proposer or, if the proposer is a company, a person with appropriate authority to represent the company; supported by sufficient information to permit a proof of concept evaluation and an evaluation of all aspects in the proposal; and accompanied by a signed undertaking in the format of the Defence UIP Undertaking.
20.
The UIP Scheme operates within the Capability and Technology Demonstrator (CTD) Program Office of the Defence Science and Technology Organisation (DSTO). Proposals should be directed to: Manager UIPs Capability and Technology Demonstrator Program Office Defence Science & Technology Organisation Department of Defence F2-1-099 24 Fairbairn Ave FAIRBAIRN ACT 2600
21. 22.
All UIPs that have been submitted through alternative channels within Defence must be redirected to the CTD Program Office. UIP proposers should submit one signed original, two paper copies and one electronic copy of the proposal. Proposers may submit additional material, a revised edition, or withdraw a UIP proposal by sending a request to the Manager UIPs. The request should clearly identify the original proposal by title, date of submission and the reference number assigned in the letter of acknowledgment sent out by the Manager UIPs. Since the submission of proposals under the UIP Scheme is voluntary, UIP proposers are responsible for any costs incurred in the preparation and submission of proposals. UIP
23.
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Defence Procurement Policy Manual 4.12 Defence Unsolicited Proposals proposers are also responsible for any subsequent costs incurred when submitting additional information that may be requested to clarify issues during the evaluation process. Evaluating an Unsolicited Innovative Proposal (UIP) 24. Defence personnel with appropriate skills and expertise will evaluate proposals against the relevant criteria under a three-stage process: Preliminary, Intermediate and Final Evaluation.
Preliminary Evaluation Stage 25. A preliminary evaluation will be conducted by the Manager UIP, in consultation with other relevant Defence personnel, to verify that the proposal meets the requirements for consideration under the UIP Scheme. The proposer will be advised of the outcome of the Preliminary Evaluation Stage as soon as reasonably practicable. Where a proposal is declined, the proposer will be advised in writing of the reasons for that assessment. Proposals may be forwarded to another appropriate scheme or program within Defence, such as the UPPO Scheme. Proposals that are declined can be amended and resubmitted.
26.
Intermediate Evaluation Stage 27. An intermediate evaluation will be conducted to determine whether the proposal is sufficiently innovative to justify further consideration under the Final Evaluation Stage. Where a Proposal is declined, the proposer will be advised of the reasons for that assessment.
Final Evaluation Stage 28. 29. The final evaluation will be conducted by Defence personnel with the expertise to assess if the proposal is of sufficient merit to be included in future Defence capability planning. If a proposal is successful under the UIP Scheme, responsibility for progressing it will be transferred to a relevant area within Defence. Once transferred the proposal enters Defence capability planning and must compete against other proposed solutions to receive portfolio approval and funding. Proposers should note that the success of a proposal under the UIP Scheme does not represent a commitment by Defence to enter into contract or a single supplier direct source procurement process. Where a proposal is declined, the proposer will be advised of the reasons for that assessment. If requested, Defence will provide a debrief to the proposer where a proposal is found to be unsuccessful after the Final Evaluation Stage. The maximum evaluation time from receiving a proposal to notifying the proposer of the outcome is six months.
30.
Reasons for Declining an Unsolicited Innovative Proposal (UIP) 31. A UIP may be declined at any stage of the evaluation process for reasons, including but not limited to, the following:
if the proposal includes broad concepts or ideas with insufficient detail to allow proper evaluation; if the proposal is only an inquiry regarding Defences interest into research areas; if the proposal is pre-proposal exploration; if the proposal is only an inquiry regarding general technical issues; if the proposal is only research descriptions or suggestions; if the proposal is for known Defence requirements that are currently being acquired or approved under Defence capability planning; if the proposal is for commercially available items that can be obtained by the general public; Page 4.124
Defence Procurement Policy Manual 4.12 Defence Unsolicited Proposals
if the proposal is advertising material primarily designed to inform Defence of a proposers present or potential products and services; if the proposal contains concepts, suggestions or ideas presented to Defence by a proposer who is not prepared to pursue a future contractual arrangement with Defence; if the proposal is for inventions or discoveries that have been formally registered and the owner is not willing to provide a licence to Defence; if the proposal seeks grants or awards from Defence for independent development by the proposer whether inside or outside the scope of future Defence capability planning; if the proposal is provided as an alternative tender, i.e. an imaginative, novel or alternative solution offered in response to recent, current or imminent advertised invitations to tender; if there is no Defence need for the equipment or service; if the proposal is a related procurement or research activity with Defence that is already in progress; if the proposal is not competitive or affordable against solutions in future Defence capability planning; if the proposal is not new, because the suggestions or ideas are already in the public domain or are already known to Defence; and if there is insufficient information to properly assess the proposal after reasonable steps have been taken to obtain clarification from the proposer.
Protection of Confidential Information and Intellectual Property 32. All information provided in an unsolicited proposal will be treated as confidential unless the information:

is already in the public domain; is already known to Defence and is not restricted in use; or is required to be disclosed by law, or statutory or portfolio duties, including disclosure to Parliament and its committees.
33.
Defence should liaise with the proposer prior to disclosing any confidential information in a proposal to a party outside of Defence. In order to ensure information within a proposal is appropriately protected, proposers are encouraged to clearly mark all confidential elements of their proposals. Dependent on the nature of the information contained in a proposal, Defence may accord a national security classification to the proposal. Proposals that are assigned a national security classification will be handled in accordance with relevant Defence security policies.
34.
Procurement of an Unsolicited Proposal 35. Where a decision is made, following the evaluation process, to procure the goods and/or services proposed by an unsolicited proposal, consideration must be given to the most appropriate method of procurement to be adopted in accordance with the requirements of the Commonwealth Procurement Guidelines (CPGs) and the policy contained in the DPPM. For further guidance on the requirements for single supplier direct source procurement, refer to chapter 3.1. The Procurement Approver delegate is responsible for ensuring that the selected method of procurement accords with existing Commonwealth and Defence policy (see chapter 1.4 for further information).
36.
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Defence Procurement Policy Manual 4.12 Defence Unsolicited Proposals Audit Requirements 37. Those areas in Defence which have been allocated responsibility for a proposal must maintain a central record of all UPPOs and UIPs received. Additionally, Defence will publish an annual report on the DMO website listing the numbers of UIPs received and how they have been dealt with.
Unsolicited Proposals Help Desk 38. For all enquiries relating to unsolicited proposals, please contact the Business Access Office toll free on 1800 621 783.
Key References
Commonwealth Procurement Guidelines Defence Unsolicited Innovative Proposal Scheme: DMO Industry Division website
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4.13
Not Used
This chapter was deleted in Version 6.0 Update 6.3 as the Commercial Support Program is no longer used for competitive testing of the in-house delivery of non-core services by industry.
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4.14
Not Used
This chapter was deleted as part of the DPPM 1 July 2010 update.
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Defence Procurement Policy Manual 4.15 The Capability & Technology Demonstrator Program
4.15
Introduction
1. 2.
The Capability & Technology Demonstrator Program
This chapter applies to all procurements undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter 1 provides a high level overview of the Capability and Technology Demonstrator (CTD) policy and life cycle. More detailed information is available internally on the Capability Development Group (CDG) CTD home page and the Internet webpage The CTD Program is managed by the Defence Science and Technology Organisation (DSTO) CTD Program Office (CTDPO) that is organisationally located in DSTO Projects and Requirements Division. The CTD program should not be confused with an Unsolicited Innovative Proposal. For further information regarding Unsolicited Innovative Proposals see chapter 4.12.
3.
Mandatory Policy
Procurement officers must seek advice from Capability Systems Division when considering the use of and conducting a CTD.
4. A CTD is a project that demonstrates how technology might enhance Defence capability in a previously unexplored manner. The focus of the Capability and Technology Demonstrator Program is on technology-driven capability. The aim of the Capability and Technology Demonstrator Program is to provide opportunities to demonstrate the capability potential of technology in priority Defence capability areas. The CTD Program is not scoped or funded to transition technologies into ADF service. Technology acquisition subsequent to a CTD project should be the subject of a separate procurement or sustainment process. There is scope for a CTD Extension project under the separate CTD Extension Program (CTDEP) managed by DMO Industry Division.
CTD Program Background 5. The CTD Program was established in 1997 as a result of the Defence Efficiency Review. The Programs objective statement is: The CTD Program assists in the improvement or support of priority Defence capability by providing Australian Industry with an opportunity to demonstrate their technology, thereby informing Defence of the potential performance and technical risk associated with its implementation. 6. The core CTD Program activities are:

demonstration of the potential of technology to enhance Defence capability; identification and mitigation of the technical risk involved in acquiring the demonstrated technology; stimulation of Australian industry innovation and capability in key areas; and facilitate the transition of successful CTD Program outcomes into the Capability Development process.
This chapter was written in response to Recommendation 2 of the Inspector General Management Audit Branch (MAB) Audit of the Capability and Technology Demonstrator and Unsolicited Gateway Programs
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Defence Procurement Policy Manual 4.15 The Capability & Technology Demonstrator Program 7. The CTD Program is not a grants program; rather it is a collaborative activity conducted under contract between Defence and industry to deliver a demonstration of the capability potential of new technology. The programs emphasis is on technology in Australian industry that is going to provide capability advantages for Defence and allow Australian industry to position itself to provide in-service capabilities and through-life-support. Experience has reinforced the need for industry to understand both Defences capability process and the CTD Program. To initiate a successful CTD proposal, a company should have an appreciation of Defences capability priorities, best gained through early discussions with the CTD Program Office and CDG staff. Broad guidance on Defences capability priorities is incorporated in the advertisement for the opening of each CTD round and is also available through such publications as the public version of the Defence Capability Plan. Industry briefings also remain an important part of the CTD Program and continue to be conducted across Australia by the CTD Program Office. The advice of Capability Systems Division within the CDG must be sought when considering the use of and conducting a CTD.
8.
9.
CTD Project Governance Structure 10. A number of individuals, groups and organisations play a role in the governance of each CTD. Figure 1. The CTD Governance Structure illustrates the relationship between each entity.
Figure 1: The CTD Governance Structure 11. The Defence Capability Committee (DCC) may seek clarification of, or amendment to, individual CTD projects or the wider CTD Program. At the DCC, DSTO is represented by Deputy CDS (Policy and Programs). The DCC responsibilities relevant to the CTD Program include determining the CTD Program budget each year and endorsing the ranked list of Detailed Proposals it receives from the CTD Review Group (CTDRG). The endorsed list is forwarded to the Minister for Defence for approval. The CTD Review Group (CTDRG) membership comprises representation from DSTO, Capability Development Group (CDG), Defence Materiel Organisation (DMO), and Strategy. Group members from DSTO are Chief Projects and Requirements Division (chair), Director CTD Program Office (secretariat), DG Science Policy Division and DSTO Research Leaders. Group members from CDG are the four Branch heads from Capability Systems and AS Investment
12.
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Defence Procurement Policy Manual 4.15 The Capability & Technology Demonstrator Program Analysis. DMO is represented by DG Industry Strategy (DGIS). Strategy is represented by DG Military Strategy. 13. 14. The CTDRG is responsible for ranking Detailed Proposals after their evaluation and also a biannual review of active projects. The Project Management Steering Group (PMSG) membership comprises representation from CDG, DMO and DSTO. CDG is represented by the relevant CTDs sponsor. DMO is represented by the relevant Domain Branch head. DSTO membership comprises Director CTDPO and the relevant Research Leader. The PMSG is responsible for reviewing and approving CTD Statements of Work and project management by exception (for example, reviewing project viability when project tolerances are exceeded, considering Contract Change Proposals, etc). The CTD Program Office (CTDPO) manages the CTD Program, including monitoring the expenditure and progress of each CTD project. The CTDPO is the primary point of contact for proposing organisations seeking information on the CTD Program and providing administrative and project management support for the CTD Program. Defence Project Managers (DPMs) are employed to manage the activities of CTD project teams and manage the contract and milestone deliveries. The CTDPO will provide regular reports to the members of the CTDRG on the status of the CTD Program and to the PMSG on each CTD. The CTDPO will also provide secretariat services to support the CTDRG. The Industry Point of Contact (Industry POC) is the primary contact representing the lead proposer. This person is responsible for the preparation and submission of Initial and Detailed Proposals, contract signature representing industry, CTD project milestones and deliverables, and the CTD demonstration. CTD proposals may involve one or several participants, including industry, academia and DSTO. There is usually a lead industry proposer who submits the CTD Initial Proposal to the CTDPO. The DSTO Research Leader is responsible for preparing and providing technical analysis and advice related to the relevant CTD project. Research Leaders liaise with CTDPO and retained Defence Project Managers (DPMs). The DSTO Business Development Manager (BDM) is the Business and Commercialisation Offices primary contact for the relevant CTD project. BDMs are responsible for contract preparation prior to gaining signatures from Defence and industry representatives. The lead proposer may sub-contract work packages to other industry bodies (Industry Subcontractor); however, the lead proposer remains responsible to Defence for the delivery of all work packages, CTD project milestones and deliverables, and the ultimate CTD demonstration.
15.
16.
17.
18.
19.
20.
21.
CTD Program Lifecycle 22. The CTD Program operates on an annual rounds basis. The CTDPO calls for the submission of new CTD proposals by Australian industry through public advertising each year. Interested industry representatives may then submit an Initial Proposal prior to the advertised closing date. Important events in the submission and approval processes and related indicative dates are shown in Figure 2. Lifecycle of the CTD Approval Process. More information on the annual CTD cycle can be found at:http://www.dsto.defence.gov.au/attachments/CTD_brochure_08.pdf The lifecycle of a CTD Program can be broken up into three main phases: Pre-Approval, Approval and Implementation. Each Round of the CTD Program commences with the Pre-Approval Phase (shown in the highlighted section of Figure 3. Pre-Approval Phase). The Pre-Approval phase comprises the Pre-Round processes conducted in order for Defence to select a new round of CTD projects for Page 4.153
23. 24.
Defence Procurement Policy Manual 4.15 The Capability & Technology Demonstrator Program recommendation to Government. The objective is to produce a list of ranked Detailed Proposals for funding to be submitted to the Minister for Defence for Approval. 25. The Pre-Round processes comprise those activities necessary to inform the advertising of a new Round of the CTD Program. The guidance is prepared by CDG Capability Systems Division to facilitate the alignment of CTD projects with Defence capability requirements. Advertising material should be prepared for publication on the CTD Program Web site and in AusTender. It is optional to advertise in the Australian newspaper.
Figure 2: Pre-Approval Phase 26. The Initial Proposal processes comprise those activities necessary to receive, process and short list Initial Proposals for sponsorship. Once the call for submission of Initial Proposals is published, proposers access the DSTO Collaboration web page for guidance on preparation of the Initial Proposal (including the Initial Proposal template). When Initial Proposals are received via electronic submission they are registered and acknowledged. After the closing date for submission has passed, quality and in-scope audits are conducted on each Initial Proposal. Those Initial Proposals considered suitable are circulated to potential sponsors for consideration. Sponsor areas evaluate the Initial Proposals with consideration of capability development priorities and transition prospects. The Initial Proposals are ranked and an indication given regarding those for which sponsorship is offered. This feedback is provided to the CTDPO and a short-list of Initial Proposals compiled. Sponsors also provide to the CTDPO a rationale for non-sponsorship of Initial Proposals, to be used in providing guidance to unsuccessful proposers. Successful proposers are provided an information pack including a Request for Detailed Proposal (RDP). Unsuccessful proposers are provided brief advice as to the reason for failing to be considered further and are offered more detailed debriefing upon request. Such requests are logged and debriefing material for all unsuccessful proposers prepared and approved prior to issue. The Detailed Proposal processes comprise those activities necessary to receive, process and short list Detailed Proposals for endorsement by DCC. When Detailed Proposals are received via electronic submission they are registered and acknowledged. After the closing date for submission has passed, the Detailed Proposals are circulated to the relevant CDG sponsors, DMO Industry Division, DSTO Research Divisions, and within the CTDPO, for scoring against evaluation criteria. The scores for each Detailed Proposal are provided to the CTDPO, and collated. The collated results are provided to the CTDRG to be formally ranked, and this ranking is in turn provided to the DCC for their consideration and endorsement to the Minister for Defence. Unsuccessful proposers are provided brief advice as to the reason for failing to be considered further, and are offered more detailed debriefing upon request. Such requests are logged and debriefing material for all unsuccessful proposers prepared and approved prior to issue.
27.
28.
29. 30.
31.
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Defence Procurement Policy Manual 4.15 The Capability & Technology Demonstrator Program 32. The Approval Phase (Figure 4. Approval Phase) commences once DCC has met and endorsed a list of Detailed Proposals, the processes in this phase provide the endorsed selection to the Minister for Defence. The Minister reviews and approves the successful Detailed Proposals. The CTDPO is advised of the final cut of proposals approved for contract negotiations, notifies the successful proposers and facilitates the organisation of a suitable announcement event. Following Ministerial endorsement of successful proposals, the CTDPO retained DPMs develop Project Management Plans (PMP), incorporating Contract Negotiation Directives, for each project in conjunction with the CDG sponsor and DSTO technical leads. These PMPs detail what the CTD project is expected to deliver, how it is to be managed, an overview of the work to be undertaken, and identifies the key decision and review points and the Performance Measures. Defence enters into contract negotiations with the successful proposers, represented by CTDPO, and with advice from the BCO, DSTO technical lead and the CDG sponsor. The CTD contract is derived from the ASDEFCON Suite of Tendering and Contracting Templates, tailored to the unique nature of CTD projects.
33.
34.
Figure 3: Approval Phase 35. In the Implementation Phase (Figure 5. Implementation Phase) all approved CTD projects are coordinated by the CTDPO DPMs. The DPMs ensure the project deliverables are delivered according to the approved schedule, all milestones are met and payments are made as per the contract. Project status is reported for each CTD on a weekly basis to the CTDPO. When a contracted party does not adhere to contract requirements, or a change to the contract is requested, the DPM organises project review meetings with the appropriate body (e.g. PMSG) to determine appropriate remedial action. At the conclusion of a CTD project the technology is demonstrated to stakeholders. Throughout the life of each CTD project, the CDG project sponsors will develop business cases recommending actions towards implementation. Transition into ADF service is a desirable outcome of the technology development process, however, the measure of success for each CTD project is not transition into service, but whether they have successfully met the objective of the CTD Program. More detail regarding the transition of CTD technologies into service can be found on their CTD intranet page.
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Defence Procurement Policy Manual 4.15 The Capability & Technology Demonstrator Program
Figure 4: Implementation Phase
Key References
The Capability Development Group CTD home page Defence Capability Development Handbook
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Defence Procurement Policy Manual 5.0 The Capability Lifecycle
5.0
Introduction
1. 2.
The Capability Lifecycle
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter provides a brief overview of the capability life cycle applicable to the procurement of Major Capital Equipment.
Mandatory Policy
Procurement officers must refer to and comply with the Defence Capability Development Handbook (DCDH). DMO Procurement officers must develop a formal acquisition strategy for all Capital Equipment projects. Procurement officers must ensure that the requirements of Defence Materiel Instruction (Acquisition and Sustainment) 14-0-004 (DMI (A&S) 14-0-004) - Assurance on First and Second Pass Proposals are satisfied by the relevant officers.
Background 3. The principal authority for policy and practice in Capability Development is the Defence Capability Development Handbook (DCDH). The DCDH provides comprehensive capability development guidance on the Needs and Requirements Phases of the Capability Lifecycle. The DMO Acquisition and Sustainment Manual also provides some guidance on the Acquisition, In-Service and Disposal phases of the lifecycle and the relationship between Defence and DMO throughout the process. The DPPM provides policy guidance on the way in which procurement and disposal is to be carried out.
Definitions and Phases 4. Major Capital Equipment is defined in the DCDH as:
Equipment projects of $20 million or more, or of less than $20 million but with individual items of $1 million or more, or equipment projects of less than $20 million but with significant strategic significance. Capability is defined in the DCDH as:
5.
The power to achieve a desired operational effect in a nominated environment, within a specified time, and to sustain that effect for a designated period. Capability is generated by fundamental inputs to capability (FIC) comprising: organisation, personnel, collective training, major systems, supplies, facilities and training areas, support, command and management.
6.
The Capability Lifecycle is split into five key phases:
Needs In this phase, a statement of user needs that addresses identified capability gaps is developed. Capability gaps are derived from consideration of strategic guidance, threat assessments, current and future operational concepts, future technology, the current and emerging force structure, and current or potential threats. Government endorses the need to address the identified gaps as a capability project, and approves it and an indicative Page 5.01
Defence Procurement Policy Manual 5.0 The Capability Lifecycle budget provision in the Defence Capability Plan (DCP);
Requirements During this phase, projects included in the DCP are progressively transformed from a broad consideration of possible capability options into well-defined and costed solutions through a two-pass approval process. Each capability of the project is transformed progressively into a costed, defined capability solution with a schedule for acquisition leading to operational release. Net whole-of-life workforce numbers and budgetary provisions to acquire, operate and support the capability solution are developed. The project will move out of this phase and into the Acquisition phase once Government has given Second Pass Approval; Acquisition During this phase, the approved capability solution is acquired or established and entered into service by the acquisition authority. The Capability Manager has primary responsibility for this phase, assisted by the acquisition manager (normally CEO DMO). The project will move out of this phase and into the In-Service phase when the capability is transitioned from the DMO to the end user; In-Service During this phase, the Capability Managers (CM) operate, support and manage the capability solutions; and the initial Fundamental Inputs to Capability (FIC) that make up the capability system are operated, supported and modified as necessary. The In-Service Phase is covered in the DMO Acquisition and Sustainment Manual and various Service documents. Requirements for the In-Service Phase are described in the Support Concept and later in the Integrated Logistics Support Plan; and Disposal During this phase, major systems and other materiel elements of the capability system are withdrawn from service (in what is usually a process rather than an event) and disposed of or redeployed, depending on the nature of the individual FIC. The Disposal Phase is covered in the DMO Acquisition and Sustainment Manual and various Service Documents. Requirements for the In-Service Phase are described in the Support Concept and later in the Integrated Logistics Support Plan. Responsibility for this phase is shared between the CMs and CEO DMO.
First and Second Pass 7. During the Requirements Phase, capability proposals go through two Government decision points:
First Pass approval the process that gives Government the opportunity to narrow the alternatives being examined by Defence to meet an agreed capability gap. First Pass approval allocates funds from the Capital Investment Program to enable the options endorsed by Government to be investigated in further detail, with an emphasis on cost and risk analysis; and Second Pass approval the final milestone in the Requirements Phase, at which point Government endorses a specific capability solution and approves funding for the Acquisition Phase. The project cannot proceed to the Acquisition Phase until this approval is obtained from Government.
8.
Acquisition Strategies are high level (strategic) documents in an acquisition project that are included in the Capability Proposal First Pass (CPFP) and the Capability Proposal Second Pass (CPSP) packages. These are progressed through the various Defence committees and government to obtain project approval. Acquisition strategies are fundamental in the acquisition of Major Capital Equipment within Defence. The strategies have broad reaching effects on a capability throughout the requirements, acquisition, in-service support and disposal life cycle phases, including the transition between new and extant capabilities. DMO Procurement officers must develop and document a formal acquisition strategy for all Capital Equipment projects. Further guidance on how to develop an acquisition strategy is contained in Defence Materiel Handbook (Acquisition) (DMH (ACQ)) 2/2006 V3.0 - DMO Acquisition Strategy Development Handbook.
9.
10.
Page 5.02
Defence Procurement Policy Manual 5.0 The Capability Lifecycle 11. Project staff will develop a range of documents and go through several internal checkpoints before making submissions to the Defence Committees (committees designed to assist in forming a corporate view on capability development proposals) and then Cabinet. The DCDH provides details on the specific documents that are required and the expected level of maturity of each document at each stage in the capability cycle. The Capability Development Group (CDG) intranet site provides product checklists and templates for the necessary documents. CEO DMO, as a primary stakeholder in the Requirements Phase, is required to endorse relevant documentation before a project can proceed to the Defence Committees. In addition to the documents identified in the DCDH, Defence Materiel Instruction Acquisition and Sustainment 14-0-004 (DMI (A&S) 14-0-004) - Assurance on First and Second Pass Proposals, provides templates and guidance on the submissions and pre-approval Checklists that must be completed before being passed to DMO CEO for approval. Procurement officers must ensure that the requirements of DMI (A&S) 14-0-004 are satisfied by the relevant officers.
12.
Key References
Defence Capability Development Handbook DMO Acquisition and Sustainment Manual 2007 Defence Materiel Instruction Acquisition and Sustainment (DMI (A&S)) 14-0-004 - Assurance on First and Second Pass Proposals (accessible on QEMS) Defence Materiel Instruction Acquisition (DMI (ACQ)) 1/2005 - DMO Support to CDG During the Needs and Requirements Phase of the Capability Life Cycle (accessible on QEMS) Defence Materiel Instruction Acquisition (DMI (ACQ)) 2/2005 - Due Diligence Activities for Major Capital Equipment Projects (accessible on QEMS) Defence Materiel Handbook Acquisition (DMH (ACQ)) 2/2006 V3.0 DMO Acquisition Strategy Development Handbook
Page 5.03
Defence Procurement Policy Manual 5.1 Planning Complex & Strategic Procurements
5.1
Introduction
1. 2.
Planning Complex & Strategic Procurements
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter examines the role of planning in Complex and Strategic procurements and addresses the preparation of a procurement plan. This chapter also addresses the need to keep records of the procurement process and the importance of document management and control.
Mandatory Policy
DMO Procurement officers must develop a formal acquisition strategy for all Capital Equipment projects. DMO Procurement officers must comply with Defence Materiel Instruction (Procurement) (DMI)(PROC) 13-0-001 - Mandatory Procurement Policy Requirements for all Defence
Materiel Organisation Acquisitions (Including Sustainment Procurements) to Contract Signature when planning Complex and Strategic procurements.
All appropriate records that are created and received in conducting a procurement activity, whether paper based or electronic, must be kept in accordance with Defence record keeping policy and procedures.
Overview 3. Procurement is the entire process by which resources are obtained for a specific project. Careful planning is essential to achieve a good procurement outcome that will withstand public scrutiny. A fully integrated approach should be utilised when managing the procurement cycle, through a series of interlocking plans from the agency strategic level down to individual purchasing areas.
4.
Planning for Procurement 5. The initial step in any procurement process is requirement identification and development, followed by requirement management. The level of rigour applied to this process is commensurate to the procurement category that is being undertaken. For Complex and Strategic procurement, requirements engineering (including identification) is the technical and management discipline that addresses the development and on going management of requirements, and is applicable throughout all phases of the capability systems life-cycle. Requirements development is concerned with producing and analysing requirements. Requirements management is concerned with managing those requirements. Further detail on Requirements Engineering for Complex and Strategic level procurement are detailed in the Defence Materiel Instruction (Engineering) (DMI(ENG)) 12-01-01 Requirements Engineering and the legacy ASDEFCON Handbooks. Procurement officers should also refer to the Infrastructure Management homepage for information regarding requirements development and analysis for Infrastructure projects. After a requirement has been identified, a Procurement Plan should be developed detailing how that requirement will be satisfied. It should be reviewed regularly and updated as required. The main components of a Procurement Plan are set out below. Page 5.11
6.
7.
Defence Procurement Policy Manual 5.1 Planning Complex & Strategic Procurements 8. A Procurement Plan is called many different names within Defence, depending upon the area. For example, the DMO may call a Procurement Plan either a Project Management and Acquisition Plan or an Acquisition Strategy. Acquisition strategies are fundamental in the acquisition of Capital Equipment within Defence. The strategies have broad reaching affects on a capability throughout the requirements, acquisition, in-service support and disposal life cycle phases, including the transition between new and extant capabilities. DMO procurement officers must develop and document a formal acquisition strategy for all Capital Equipment projects. Further guidance on how to develop an acquisition strategy is contained in Defence Materiel Handbook (Acquisition) (DMH (ACQ)) 2/2006 V3.0 DMO Acquisition Strategy Development Handbook. DMO Procurement officers must comply with Defence Materiel Instruction (Procurement) (DMI)(PROC)-13-0-001 - Mandatory Procurement Policy Requirements for all Defence Materiel Organisation Acquisitions (Including Sustainment Procurements) to Contract Signature when planning Complex and Strategic procurements. For Complex and Strategic procurements there may be a variety of potential solutions to meet functional needs. These may include purchasing items outright, privately financing or leasing equipment, engaging specialist outside suppliers to train Defence personnel or update processes, or re-allocating existing in-house resources. Each stage of the procurement process should be addressed and the level of detail provided against each stage will depend on the procurement and the issues involved, particularly at the strategic level. Liaising with stakeholders will assist with estimating and meeting timelines and may also identify new stakeholders who might not otherwise be consulted. A flowchart of a typical Complex procurement process is included at the front of this Manual. The stages may be used as a guide when putting together a Procurement Plan.
9.
10.
11.
12.
13.
Procurement Plan Components 14. The following sub-plans may form part of a procurement plan:
a Risk Management Plan: (see chapter 3.2) this plan forms part of the overall procurement plan and, dependent upon the complexity and nature of the procurement, may be a separate attachment to the overall plan; a Financial Plan: this plan identifies where and when financial resources will be expended during the procurement process. This will include any travel which Defence will conduct during the tender and contract periods and any reimbursable travel by supplier personnel; a Calendar of Events: this plan identifies the planned completion dates of significant events during the procurement process. Dates which may be included would be delegate approvals, completion of draft Statement of Work, release of tender documentation, tender closing date, completion of evaluation, completion of negotiations, contract signature, acceptance dates of milestone achievements by selected supplier, and contract finalisation date; a Personnel Resource Plan: this is a list of personnel who will be involved in the procurement. This plan would identify the Defence contract manager, any internal and external expertise such as financial, legal, technical or contractual and persons involved during tender evaluation; and a Tender Evaluation Plan: the development and approval of Tender Evaluation Plans is set out in chapter 5.4.
15.
The Procurement Plan (or subplans) should also address:
the total resources required to complete the procurement task, including the stages leading up to contract signature, through to the finalisation of the contract and disposal of any assets procured or developed;
Page 5.12
Defence Procurement Policy Manual 5.1 Planning Complex & Strategic Procurements
any requirement for travel expenses either during the tender period to provide briefings to potential suppliers or to assess their facilities when assessing offers, or during the contract period for contract management or acceptance purposes; a summary table identifying key dates of when specific events are due to occur, as a minimum these dates should include when the draft Statement of Work will be completed, date when offers were sent to industry, any industry brief (if required), the tender closing date, tender evaluation period, negotiation period and when the contract is due to be completed; a list of key personnel and their responsibilities; through life support considerations, including any integrated logistics support for the procurement of goods and/or services including any transitional arrangements to new contractors; a list of specialists whose expertise will or may be required (e.g. contracting staff, technical or engineering experts, legal and financial experts); and details of any support or facilities that will, or may, be supplied by Defence.
Review of the Procurement Plan 16. Procurement plans are dynamic documents and need regular review as situations and circumstances change during the life of a procurement. Certain aspects of the procurement plan should, as a minimum, be reviewed when specific milestones have been achieved:
the Risk Assessment/Management Plan should be reviewed after obtaining each of the Financial Delegation Approvals. This plan should also be reviewed (as a minimum) after receipt of tenders, after the evaluation of tenders, after the completion of contract negotiations and after the achievement of each contract milestone. This plan should also be reviewed whenever any difficulties are experienced during the life of the procurement process; after obtaining Procurement approval, the calendar of events for achieving contract completion should be reviewed. If delays have occurred, the calendar of events should not be condensed without sufficient consultation with recognised stakeholders. Tender response, tender evaluation and negotiation periods in particular should not be reduced; the Financial Plan should be reviewed after the assessment of tender responses and again after completion of contract negotiations. This plan should also be reviewed each financial year as a minimum during the contract period, if the contract extends over more than one financial year; and Personnel Resources Plan: during the life of a procurement the number of personnel and the expertise required of those personnel will vary dependent upon what stage the procurement is at. The personnel plan should be reviewed after contract negotiations to include or remove any personnel identified during those negotiations. The personnel plan may also require review after other regular subplan reviews such as the Risk Assessment plan.
Record Keeping Maintaining an Audit Trail 1 17. All appropriate records that are created and received in conducting a procurement activity, whether paper based or electronic, must be kept in accordance with Defence record keeping policy 2 and procedures. The appropriate mix and level of documentation depends on the nature and risk profile of the procurement being undertaken. In all cases procurement officers should ensure there is sufficient documentation to provide an understanding of the reasons for the
Paragraphs 15 and 16 address Recommendation 1 of the ANAO Audit of the Management of the Acquisition of the Australian Light Armoured Vehicle (ASLAV) Capability. See also Ch 5.4 and 6.1 2 Further information on Defence record keeping policy can be found in Defence CEI 1.6 - Retention and Disposal of Accounts and Records and DMO CEIs 1.7 - Records Management, and POLMAN 3 Defence Policy on Record Keeping
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Defence Procurement Policy Manual 5.1 Planning Complex & Strategic Procurements procurement, the process that was followed and all relevant decisions, including approvals and authorisations, and the basis of those decisions. 3 18. A systematic approach to record keeping at the beginning of a procurement process and throughout the procurement will assist Defence to:

provide evidence of the business conducted and decisions made; manage legal and other risks; and meet its accountability obligations.
19.
As such, keeping records should be seen as an integral part of, rather than incidental to, a procurement activity.
Key Reference
Defence Chief Executives Instruction 1.7- Retention and Disposal of Accounts and Records DMO Chief Executives Instruction 1.7 Records Management POLMAN 3- Defence Policy on Record Keeping Defence Capability Development Handbook Defence Materiel Instruction (Procurement) (DMI)(PROC)-13-0-001 - Mandatory Procurement Policy Requirements for all Defence Materiel Organisation Acquisitions (Including Sustainment Procurements) to Contract Signature Defence Materiel Instruction (Engineering) (DMI)(ENG)) 12-01-01 - Requirements Engineering Defence Materiel Handbook (Acquisition) (DMH (ACQ)) 2/2006 V3.0 DMO Acquisition Strategy Development Handbook
Paragraph 7.9 of the CPGs.
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5.2
Not Used
The contents of this chapter have been included where appropriate in chapter 5.1 Planning Complex and Strategic Procurements.
Page 5.21
Defence Procurement Policy Manual 5.3 Selecting a Procurement Process
5.3
Introduction
1. 2.
Selecting a Procurement Process
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter provides a general overview of the factors that should be considered when deciding which method of procurement and contracting methodologies should be used. Further information on procurement methods is contained in chapter 3.1. A reference to Procurement Approval should be construed as a reference to Procurement Method Approval in the DMO.
Mandatory Policy
Procurement officers must ensure that the Procurement Approval is exercised prior to releasing request documentation. Whichever procurement method is chosen, the Procurement approval requirements outlined in chapter 1.4 must be complied with. In accordance with DMI(FIN)-01-0-025, when contracting for External Service Providers, DMO Procurement officers must use the DMOSS Panel where the specialist skills are available through that panel. Where the Government mandates the use of a coordinated procurement or whole of government arrangement for a particular property or service, Procurement officers must use the contract established under the relevant arrangement unless an exemption is provided.
Choosing a Procurement Method 3. Procurement officers must ensure that the Procurement Approval is exercised prior to releasing request documentation. The types of procurement methods available are open tender process, select tender process or direct source tender process. Further detail on selecting the appropriate procurement method is set out in chapter 3.1. Whichever procurement method is chosen, the Procurement approval requirements outlined in chapter 1.4 must be complied with. Following the selection of the appropriate procurement method, Procurement officers should determine the most appropriate contracting methodology for the procurement being undertaken. The contracting methodology incorporates the process to be used to solicit responses from the market and determines the documentation to be used. To make an informed decision, the Procurement Approver approves both the procurement method and the contracting methodology. Submissions to the delegate should include a contracting methodology recommendation and a justification for this recommendation. The delegate should be presented with all of the facts necessary to be able to be satisfied that the procurement method and contracting methodology selected represent best value for money.
4. 5.
6.
Contracting Methodologies 7. Contracting methodologies adopted by Defence in respect of different procurements include:
Request for Tender (RFT) or a staged procurement process, that includes a draft contract; Page 5.31
purchases from standing offers, panels, arrangements using cooperative agency procurements; and purchases through government-to-government arrangements, including foreign military sales.
8.
Issues to be considered when selecting the most appropriate contracting methodology and contract type include:

the broad characteristics of the requirement; the complexity of the requirement; the assessed level of risk of the procurement; the asset/service mix of the requirement; the level of knowledge of the requirement, already contained within Defence; the certainty of the requirement; and the state of development of the required technology.
9.
Having chosen a contracting methodology, consideration needs to be given to the type of contract adopted. Choices can be made from:

conventional contracts that adopt a fixed price, variable or incentive payment regime; contracts incorporating a wholly or partly cost plus payment regime; incentive or performance based contracts, including target cost pain share/gain share contracts; alliance contracts; Public Private Partnerships (see chapter 4.4); and Evolutionary Acquisition approaches (see chapter 4.5).
Request for Tender Process 10. This process is suitable for all methods of procurement, irrespective of the complexity or risk profile. The Simple Procurement chapter contains guidance on request documentation for Simple procurements. Chapter 5.4 contains detailed guidance on the process and structure of a typical RFT for Complex or Strategic procurements. Chapter 2.3 contains guidance on the standard Defence contracting templates available for use when conducting RFT process.
Staged Procurement 11. Staged procurement is used mostly for high value Complex or Strategic procurement. It involves the use of a staged or structured acquisition strategy to break the procurement process into more manageable parts and may include the issue of Request for Information, Invitations to Register Interest or Requests for Proposal, prior to the release of a Request for Tender to shortlisted respondents.
Is a Staged Procurement Process Appropriate? 12. Staged procurement may be appropriate where:
the requirement is unknown, cannot be adequately defined and may be capable of multiple solutions; the requirement is only broadly known to buyers and potential suppliers and the objective and proposed solution may need considerable analysis, evaluation, clarification and development; the requirement is of a developmental nature to meet a particular need and involves a pilot study; Page 5.32
the complexity of the requirement, or its potential for imposing large costs in the preparation of tender responses and their evaluation, make it necessary or desirable to shortlist the most competitive tenderers and then improve their understanding of the project; it is necessary to qualify potential suppliers for security reasons or to ensure adequate standards of service capability; or it is necessary to qualify goods or services to defined standards.
13.
Guidance on staged procurement, including the use of Requests for Information, Invitations to Register Interest and Requests for Proposal, is contained in chapter 4.9.
Standing Offers 14. Standing offers are established to facilitate repetitive acquisition of goods and services over a specific period on set terms and conditions. Where a standing offer exists that meets the procurement requirement, it is best practice to use the standing offer in the first instance unless there are valid reasons for not doing so. This will help reduce the cost of tendering. Use of the standing offer must be consistent with the overarching principle of value for money. Standing offers may be set up with one or many (panel) suppliers. They contain agreed terms and conditions under which orders are placed and goods and services are provided. Procurement officers should become familiar with the terms and conditions of the standing offer that they are utilising before approaching the supplier/s listed in the standing offer. Procurement officers should refer to chapter 1.4 for the approval requirements for orders placed under standing offers. The process for establishing standing offers is the same as for arranging any other Complex procurement. Guidance on establishing and placing orders under standing offers is contained in chapter 4.8. In accordance with DMI(FIN)-01-0-025, when contracting for External Service Providers, DMO Procurement officers must use the DMOSS Panel where the specialist skills are available through that panel.
15.
16.
17.
Coordinated Procurements 18. Where the Government mandates the use of a coordinated procurement or whole-ofgovernment arrangement for a particular property or service, Defence must use the contract established the relevant arrangement unless an exemption is provided. Chapters 3.10 and 4.3 detail the circumstances in which a coordinated procurement arrangement should be used.
Foreign Military Sales 19. There are circumstances where purchases of goods and services from the United States of America (US) cannot be conducted on a commercial basis by dealing directly with US suppliers. These items are purchased from the US Government under its security assistance program through the US Foreign Military Sales (FMS) program. When choosing an appropriate procurement method for acquisition or through-life support projects, Procurement officers should use the FMS Program when this represents the best value for money to Defence. Further information on the FMS Program is detailed in chapter 4.2.
20.
Key References
Commonwealth Procurement Guidelines Department of Finance and Deregulation - Financial Management Guidance 13 - Guidance on the Mandatory Procurement Procedures
Page 5.33
Defence Procurement Policy Manual 5.3 Selecting a Procurement Process Defence Material Instruction (FIN)-01-0-025 Engaging External Service Providers, ASDEFCON(Support) Aerospace Systems Division Performance Based Contracting Handbook: Guiding principles and performance framework, version 2.0. Next Generation Performance-Based Support Contracts Achieving the Outcomes that Defence Requires
Page 5.34
Defence Procurement Policy Manual 5.4 Request Documentation
5.4
Introduction
1. 2.
Request Documentation
This chapter applies to all procurement undertaken in Defence and Defence Materiel Organisation (DMO). This chapter examines the use of request documentation in Defence and DMO procurements. Request documentation refers to documentation provided to potential suppliers to enable them to understand and assess the requirements of the procuring entity and to prepare responses to an approach to the market (ATM). For the purposes of this chapter, the term tenderer should be interpreted as meaning any potential supplier responding to request documentation issued by Defence or DMO, and is not limited to a potential supplier responding to a Request for Tender. Similarly, a reference to a tender should be interpreted as meaning any type of request documentation. The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
3.
Mandatory Policy
A contract must not be entered into until an offer has been received and approved by Defence through the relevant financial delegate approvals. Formal written request documentation must be used for all Complex and Strategic procurements. Request documentation must include all of the information necessary to permit potential suppliers to prepare and lodge tender responses. Procurement officers must ensure that request documentation for an open or select approach to the market is distributed through AusTender, where practicable. Procurement officers must ensure that request documentation that is made available for download through the AusTender internet site includes the Department of Finance and Deregulation approved AusTender clauses within the conditions of tender. All potential suppliers must be provided with the same information in the request documentation during the tendering process including any subsequent amendments to request documentation. Information relating to any potential supplier or tenderer is commercially sensitive and must not be divulged to other potential supplier or tenderers at any stage of the tendering process. Mandatory conditions for participation in a covered procurement must be limited to those that will ensure that a tenderer has the legal, commercial, technical and financial abilities to fulfil the requirements of the procurement, and must not require previous experience with the Australian Government. Where a tenderer fails to meet a condition for participation in a covered procurement, the tenderer must be excluded from the procurement process and their tender not given any further consideration. Where essential requirements are specified in request documentation for a covered procurement, a tender not meeting those requirements must be excluded from further Page 5.41
Defence Procurement Policy Manual 5.4 Request Documentation consideration (unless the non-compliance is due to an unintentional error of form). Where minimum content and/or format requirements are specified in request documentation for a covered procurement, a tender not meeting those minimum requirements must be excluded from further consideration, unless the Procurement officer considers that there has been an unintentional error of form. The evaluation criteria advised to Industry in request documentation must not be altered during the evaluation process without a formal request documentation amendment process. The evaluation criteria advertised in the tender documentation must be used to evaluate the tenders and must be related to the tender response requirements. Tender Evaluation Plans must be prepared for:

any Complex or Strategic procurement; all militarily significant procurements as part of a major or minor project; purchases of A$5 million and above, except purchases under the Information and Communication Technology Multi Use List (ICT MUL) and existing Defence standing offers where evaluation of competitive offers is not required; and establishing standing offers where total purchases are expected to exceed A$5 million over the period of the standing offer, or where individual contracts against the standing offer are expected to be of substantial value.
The Tender Evaluation Plan for each procurement must be completed and approved (by the Procurement Approver) before the opening of tenders following the tender closing time. The evaluation criteria identified in the Tender Evaluation Plan must be the same as the evaluation criteria contained in the request documentation. The Tender Evaluation Plan must not be released to potential suppliers or tenderers. All communications with potential suppliers or tenderers must be channelled through a single point of contact nominated in the request documentation. Potential suppliers must be provided with the opportunity to identify themselves as a small business prior to entering into a written contract. Any approach to market which includes a draft contract must indicate that if the successful tenderer is a small business, the contract will include clauses that entitle the contractor to claim interest on late payment.
Background 4. The nature and complexity of a requirement will impact on the selection of the procurement method. This will in turn impact on the complexity of the request process and the type of request documentation developed and released. Offers are usually sought by Defence through issuing a Request for Tender (RFT). RFTs are primarily used to obtain offers for clearly defined and specific requirements. An RFT may be derived from an evaluation of earlier responses to an Invitation to Register Interest or Request for Proposal (chapter 4.9). An RFT may be issued to the public at large under an open tender process or restricted to one or more suppliers or potential suppliers under a select or direct source tender process. An RFT restricted to an individual potential supplier previously referred to as a sole source procurement is a direct source procurement under the Commonwealth Procurement Guidelines (CPGs). For further information see chapter 3.1. Page 5.42
5.
Defence Procurement Policy Manual 5.4 Request Documentation Request Documentation for Simple Procurement 6. For further advice on request documentation for Simple Procurement, including how to request offers, please refer to the Simple Procurement chapter of this manual.
Request Documentation for Complex and Strategic Procurement 7. Formal written request documentation must be used for all Complex and Strategic procurements. Standard tendering templates, for example the ASDEFCON suite of tendering and contracting templates, should be used where appropriate (see chapter 2.3).
Content of Request Documentation 8. The information contained in request documentation depends on the procurement method selected and the nature and complexity of the requirement. Information provided should:

be unambiguous; be able to be readily understood by Industry; not unreasonably restrict the potential sources of supply; conform with relevant Commonwealth and Defence policies; be integrated so that there is a clear linkage between the specification, the evaluation criteria, the conditions of tender, the draft conditions of contract and the draft Statement of Work; use existing, approved standard templates and clauses where appropriate; and be consistent with earlier documentation if a staged procurement strategy is being used.
9.
Tender documentation should include sufficient background information for potential suppliers to prepare a valid offer and lodge a tender. Procurement officers should ensure that the information given is accurate and consistent. Documentation can also be minimised through the use of a staged procurement process, such as requesting certain key pieces of information through the use of an Invitation to Register Interest or Request for Proposal process. After such a process has been conducted, a restricted (select) tender can then be conducted where more detailed information is sought from a shortlist of bidders. For more information on staged procurement, refer to chapter 4.9. For Strategic and high value Complex procurements, where numerous tenders are expected, there are various ways to reduce the amount of request documentation required, such as an Offer Definition process or Project Definition Study (forms of staged procurement). Refer to chapter 5.6 and chapter 4.9 for further information on these processes. Standard RFT templates in Complex and Strategic procurement generally include the following:

10.
11.
12.
a covering letter or other form of Request for Tender introduction; the conditions of tender; and the draft conditions of contract; including the draft Statement of Work.
Covering Letter or Other Form of Request for Tender Introduction 13. The covering letter or other form of RFT introduction usually invites tenderers to submit a tender in response to the RFT and provides potential suppliers with the following information:

a description of the requirement; background and project phase information; proposed project schedule; and an outline of the structure of the RFT. Page 5.43
Defence Procurement Policy Manual 5.4 Request Documentation A draft covering letter addressing these requirements is included in all ASDEFCON templates. Conditions of Tender 14. The conditions of tender set out the rules that apply to the tender process, including procedural and administrative requirements. The specific requirements included in the conditions of tender may vary depending on the nature of the procurement. When conducting a tender process, it is important to conduct the tender in accordance with the representations in the conditions of tender. Failure to do so by Defence may give a tenderer grounds for complaint against the Commonwealth. In addition to the procedural and administrative rules applying to the tender process, the conditions of tender usually contain annexes that detail the tender response requirements.
15.
16.
Draft Conditions of Contract 17. The draft conditions of contract upon which Defence intends to contract with the successful tenderer should be part of any Request for Tender or other tender documentation. The conditions of contract outline the obligations that each party to the contract agrees to fulfil. As with the conditions of tender, the specific obligations included in the draft conditions of contract will vary depending on the nature of the procurement. Issues commonly dealt with in the draft conditions of contract are:

definitions and Relevant Dates; options; contract Design Standards; limitations and Restrictions; warranties; delivery; and other relevant terms as agreed upon by the parties.
18.
Procurement officers must ensure that any approach to the market which includes a draft contract indicates that if the successful tenderer is a small business, the contract will include clauses that entitle the contractor to claim interest on payments which have not been made by the Department within 30 days of the receipt of a correctly rendered invoice. In addition, Procurement officers must provide potential suppliers with the opportunity to identify themselves as a small business prior to entering into a written contract with them. All of the relevant standard ASDEFCON templates include appropriately worded clauses to cover these requirements. For further information on Late Payment refer to chapter 6.4.
Draft Statement of Work 19. A draft Statement of Work (SOW) is usually issued as part of the RFT or other request documentation. The draft SOW contains a formal description of the requirement and performs the same function as what was previously called the Statement of Requirement. As a general rule, work related provisions are located in the draft SOW while legal provisions are located in the draft conditions of contract.
Request Documentation for Covered Procurements 20. The CPGs impose additional rules in relation to request documentation that relates to a covered procurement. Request documentation for a covered procurement must be comprehensive enough to enable potential suppliers to prepare and submit responsive tenders and include a complete description of:
Page 5.44
the procurement, including the nature, scope and, where known, the quantity of the goods or services to be procured and any requirements to be fulfilled, including any technical specifications, conformity certification, plans, drawings, or instructional materials; any conditions for participation, including any financial guarantees, information, and documents that potential suppliers are required to submit; any essential requirements; any minimum content and format requirements; all evaluation criteria to be considered in assessing tenders; and any other terms or conditions relevant to the evaluation of tenders.
Conditions for Participation 21. Conditions for participation are minimum conditions that tenderers must meet in order to participate in a procurement process or for tenders to be considered. Conditions for participation must be limited to those that will ensure that a tenderer has the legal, commercial, technical and financial abilities to fulfil the requirements of the procurement. Conditions for participation may require relevant prior experience where it is essential to meet the requirements of the procurement but must not specify, as a requirement, that tenderers have previous experience with Defence, the Australian Government or in a particular location. In assessing whether a tenderer satisfies the conditions for participation, a Procurement officer must:
22.
23.
evaluate financial, commercial, and technical abilities on the basis of the tenderers business activities, wherever they have occurred; and base a determination solely on the conditions for participation that the procurement area has specified in the request documentation.
24.
A tenderer may be excluded on grounds such as bankruptcy, insolvency, false declarations, or significant deficiencies in performance of any substantive requirement or obligation under a prior contract. Where a tenderer fails to meet a condition for participation, the tenderer must be excluded from the procurement process and their tender not given any further consideration. As such, Procurement officers should carefully consider the suitability of conditions for participation prior to including them in request documentation.
25.
Essential Requirements 26. Request documentation for a covered procurement may specify that particular requirements in the Statement of Work or accompanying technical specifications are essential. If so, then a tender that is assessed as not meeting an essential requirement, it must be excluded from further consideration.
Technical Specifications 27. Further guidance on the development of specifications, including the requirements for covered procurements, is contained in chapter 5.2.
Minimum Content and Format Requirements 28. Minimum content and format requirements for tenders are requirements specified in request documentation that a submission must meet in order to be eligible for further consideration in the procurement process. These requirements could include submission of information such as a tenderers statutory declaration, or pricing information set out in a particular format or spreadsheet, or the usual requirement that a tender is written in English.
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Defence Procurement Policy Manual 5.4 Request Documentation 29. Where minimum content and format requirements are specified in request documentation for a covered procurement, a tender not meeting those minimum requirements at the time of the opening of tenders must be excluded from further consideration (unless the non-compliance is due to an unintentional error of form). As such, Procurement officers should carefully consider the suitability of any content or format requirements prior to including them in request documentation. It is therefore recommended that Procurement officers use minimum content and format requirements sparingly to minimise the risk that respondents who might otherwise be competitive are required to be excluded from the procurement process because of a failure to comply with a content or format requirement.
Unintentional Errors of Form 30. Where it is considered that the tenderer has made an unintentional error of form in the submission, particularly in relation to a minimum form and content requirement, there is discretion to allow the submission to be corrected. Where this occurs, reasons for allowing the correction should be documented. Where tenderers are provided with the opportunity to correct unintentional errors of form, the same opportunity must be provided to all participating tenderers (ie to the extent that other tenderers also have made an unintentional error of form). Some examples of unintentional errors of form may be:
31.
corrections of inconsistencies in the submission where the area of error is clear and not critical to comparative evaluation; the accidental omission of declarations; and an attachment referred to in the body of a tender but omitted from the tender.
Distribution of Request Documentation 32. Where practicable, request documentation for an open or select approach to the market must be distributed through AusTender in accordance with the CPGs paragraph 8.44. Where distribution through AusTender is not practicable then it is best practice to use another form of electronic distribution to promptly provide the request documentation upon request from potential tenderers, this also applies when a direct source tendering process is adopted. If the request documentation will be made available for download through the AusTender internet site at: https://www.tenders.gov.au then the conditions of tender must include the Department of Finance and Deregulation approved AusTender clauses. These AusTender clauses are set out as a special condition in the Request for Quotation Form AC565 and as optional clauses for procurements based on the following templates:

33.
ASDEFCON (Complex Materiel) volume 1; ASDEFCON (Services); ASDEFCON (Standing Offer for Goods); ASDEFCON (Standing Offer for Goods and Maintenance Services); and ASDEFCON (Standing Offer for Services).
34.
For further information on AusTender clauses refer to the AusTender terms of use at: https://www.tenders.gov.au.
Request Documentation for Single Supplier Direct Source Procurements (Sole Source) 35. Where it is determined that a direct source procurement process is appropriate and justified, the Procurement officer should prepare standard request documentation as though the requirement were going to open tender.
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Defence Procurement Policy Manual 5.4 Request Documentation Simple Procurement 36. For simple single supplier direct source procurements, the Request for Quotation AC565 form should be used in accordance with the instructions contained in that document, issued and assessed in the normal manner. Any subsequent contract would normally be formed using the standard Purchase Order and Contract SP020 form (see chapter 2.3). Form AC565 may be used when undertaking simple firm price procurements with a low risk to the Commonwealth and short timeframe for delivery. Form AC565 should not be used for Complex or Strategic procurements. For further guidance on whether the use of Form AC565 is appropriate, refer to the Request for Quotation (Form AC565) Handbook.
37.
Complex and Strategic Procurements 38. The request documentation should be developed using the applicable template, ie. ASDEFCON (Complex Materiel), ASDEFCON (Strategic Materiel) etc. The requirement should be properly defined in the form of a draft Statement of Work when conducting single supplier direct source procurement as without this if there is only one contractor Defence will be dealing with (effectively) a monopoly seller and an undefined requirement. To enter into a contract on this basis is a high risk activity for Defence that should be avoided. When the request documentation is complete, it should be provided to the potential supplier or suppliers. The potential supplier(s) should be invited to submit a response to the request. Although the minimum timeframes for an approach to market specified in the CPGs do not apply to direct sourcing, an appropriate length of time should be allowed for document preparation, submission of a tender and tender evaluation. This method of providing the completed request documentation to the supplier for response is most appropriate where the requirement is well defined and only minor changes to that requirement are expected in negotiations. In situations where the requirement is not well defined and there is only one potential supplier, as may be the case for higher-risk Complex and Strategic Procurements, it may be beneficial to work with the potential supplier to develop the contract documents (including Statement of Work and price and delivery schedules). Where this is the case, the Collaborative Development Agreement template may be useful. Regardless of the method chosen, a contract should only be entered into where Defence is satisfied that the proposed procurement represents value for money. This approach should not be adopted if Defence is seeking to conduct a direct source procurement involving more than one potential supplier as this runs the risk that when it comes to evaluation, Defence will not be comparing like offers.
39.
40.
Direct Sourcing and Potential Risk of Process Contracts 41. The nature of direct sourcing, and in particular, single supplier direct sourcing, has the potential risk to create an implied process contract between the Commonwealth and the supplier(s). Procurement officers should mitigate this risk by abstaining from making promises about the expected outcome during the procurement process and should ensure that request documentation contains a clause explicitly stating that the procurement process does not give rise to any obligation to contract or result in a process contract. An example clause is contained in ASDEFCON (Strategic Materiel) Conditions of Tender at clause 1.2.2.
Evaluation Criteria 42. 43. Evaluation criteria are used to assist in making an objective procurement source decision and to ensure that Defence complies with the requirement to obtain Value for Money (see chapter 1.2). The evaluation criteria advertised in the tender documentation must be used to evaluate the tenders and must be related to the tender response requirements.
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Defence Procurement Policy Manual 5.4 Request Documentation Standard Evaluation Criteria for Simple Procurements 44. Evaluation for Simple procurement should not be a complicated process and Procurement officers should be able to make a value for money judgement on the basis of the following criteria:

price offered; quality; fitness for purpose; compliance with delivery needs; and compliance with the conditions of contract.
45.
Price indicators used in Simple procurement include:

commercial norms such as market and catalogue prices; benchmarks such as other competitive bids; historical prices; pricing data for similar items; and independent cost assessments.
46.
Further guidance on evaluation criteria for Simple Procurements is contained in the Simple Procurement chapter of this Manual.
Standard Evaluation Criteria for Complex and Strategic Procurement 47. Generally, as the value, risk and complexity of a procurement increases, the greater the number and complexity of evaluation criteria required to take into account factors which are not as significant for low value, simple purchases. Great care needs to be taken in the choice of evaluation criteria as results can be affected if poor choices are made. Different evaluation criteria will be required depending upon the procurement methodology adopted. To assist in the selection of the best tender, evaluation criteria should be measurable, clear and transparent. The evaluation criteria advised to Industry in request documentation must not be altered during the evaluation process. Refer to the ASDEFCON suite of contracting templates for examples of typical evaluation criteria for Complex and Strategic procurements. Where evaluation criteria advised to Industry in request documentation are altered prior to evaluation, all modifications must be notified:
48.
49.
to all potential suppliers and tenderers, if known, and in all other cases, in the same manner as the original request documentation; and in adequate time to allow potential suppliers and tenderers to modify and re-lodge their initial submissions.
50.
Further guidance on standard evaluation criteria is also contained in Annex 5B.
Weighting of Evaluation Criteria 51. In less complex procurements, evaluation criteria in request documentation, and in the Tender Evaluation Plan, should not be weighted or put in any order of priority. The weighting of criteria can lead to an evaluation result which is based on a mathematical formula where a qualitative assessment would have been more appropriate. Any decision to weight criteria should involve a careful analysis of the key requirements of the procurement and how the weighting may affect the evaluation outcome. Any weightings applied to the requirements contained in the draft Statement of Work or specification should be disclosed in the request documentation. If the decision has been made to weight evaluation criteria, Procurement officers should consider providing details to potential suppliers where Page 5.48
52.
Defence Procurement Policy Manual 5.4 Request Documentation practicable, as to the relative importance of the criteria by using words such as essential, important and desirable to convey this meaning. This will assist tenderers to appropriately focus their responses. This will also make the process more transparent and potentially limit misunderstandings that may result in complaints and is consistent with Department of Finance and Deregulation guidance on the Mandatory Procurement Procedures. 1 53. Procurement officers should be cognisant that the use of essential criteria or requirements may result in mandatory exclusion where a tenderer is unable to meet that criterion or requirement.
Tender Evaluation Plans 54. Tender Evaluation Plans must be prepared for:

any Complex or Strategic procurement; all militarily significant procurements as part of a major or minor project; purchases of A$5 million and above, with the exceptions of purchases under the Information and Communication Technology Multi Use List (ICT MUL) and existing Defence standing offers where evaluation of competitive offers is not required; and establishing standing offers where total purchases are expected to exceed A$5 million over the period of the standing offer, or individual contracts against the standing offer are expected to be of substantial value.
55. 56.
Simple Procurements do not usually require formal written evaluation plans, although the general principles of evaluation should still be applied and written evaluation criteria used. The Tender Evaluation Plan for each procurement must be completed and approved before the opening of tenders following the tender closing time. It is best practice for the Tender Evaluation Plan to be completed and approved prior to the release of request documentation. The Tender Evaluation Plan should not be altered after the release of the request documentation, unless the request documentation has been formally amended. The Tender Evaluation Plan is the planning and control document for the management and conduct of the tender evaluation and must not be released to potential suppliers or tenderers. To ensure the integrity of the evaluation process, the Tender Evaluation Plan should:
57. 58.
specify the identical evaluation criteria which have been included in the request documentation; be developed in parallel with the request documentation so that the requirement can be adequately evaluated and the guidelines for evaluation are consistent with the evaluation criteria specified in the request documentation; and not be changed during the tendering process except where amendments are required as a result of changes made to the request documentation.
59.
A typical Tender Evaluation Plan will have the following structure:

Aim. Details the objectives of the tender evaluation; Requirement description and deliverables. Briefly describes the requirement and any unique features of the procurement to be considered during evaluation; How ethics and fair dealing are to be maintained. Administrative arrangements for handling of tender documentation and communication with potential suppliers and tenderers to ensure the integrity of the tender process; Evaluation criteria. Lists the evaluation criteria which must be consistent with the evaluation criteria identified in the request documentation. (Annex 5B details commonly used evaluation criteria);
Financial Management Guidance No. 13 Guidance on the Mandatory Procurement Procedures, January 2005, para 6.2.3.
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Tender evaluation organisation. Members of the Tender Evaluation Board or Tender Evaluation Working Groups should be identified by appointment and their major responsibilities. Where consultants are used, arrangements for preserving the integrity of the process are to be used, for example, the execution of Deeds of Confidentiality; Approvals. Appointments concurring/approving the Tender Evaluation Plan, shortlisting, if appropriate, and source selection recommendation are to be identified; Schedule. Key evaluation activities and responsibilities for their achievement against milestone dates are to be listed; Evaluation methodology. The evaluation methodology (see chapter 5.6) to be used in screening, shortlisting and evaluating tenders is to be identified. Criteria for visits to tenderers premises, any demonstrations and the procedures for tender clarification should also be stated; Reporting requirements. If progress reports are required, the means should be detailed; Consultation. Requirements for consultation with functional and advisory areas should be detailed; Industry debriefing. Arrangements for debriefing industry after source selection and contract signature should be detailed; and Site visits and Demonstrations. If visits to tenderers premises are anticipated, the justification for, and code of behaviour expected during, such visits should be addressed.
60.
The Tender Evaluation Plan may include an evaluation breakdown structure that further dissects each evaluation criterion for the purposes of tender evaluation, and this breakdown may be exposed in the request documentation, see ASDEFCON (Strategic Materiel) Conditions of Tender as an example. Further guidance on the recommended content of a Tender Evaluation Plan is available on the DMO Quality and Environmental Management System (QEMS). A template Tender Evaluation Plan suitable to be tailored for use in low to medium risk Complex procurement is included as part of the Process Template library found on the Commercial Policy and Practice Branch intranet site. It is not suitable for use for Strategic procurement. For Strategic procurement, refer to the Materiel Acquisition and Sustainment Framework (MASF) Tender Evaluation Instruction of 2004.
61.
Legal Process and Probity Plans 62. A Legal Process and Probity Plan (Probity Plan) outlines the probity requirements and processes for a particular procurement process. Procurement officers should consider developing a probity plan commensurate with the risk of the proposed procurement in the following circumstances:

for high value procurements; where it is likely that the proposed procurement may encounter ethical problems; or if the proposed procurement is subject to a high degree of public scrutiny.
63. 64.
If a Probity Plan is required, it should be developed and approved before commencement of the tender evaluation. A typical Probity Plan may include the following guidance:
Ethics and probity principles and requirements, including the agreed procedures for the treatment of probity issues and concerns arising during, or from, the procurement process; Obligations of key individuals; Information and document management procedures; Conflict of interest procedures; Confidentiality requirements; and Page 5.410
Procedures for dealing with potential suppliers, tenderers and interested parties.
65.
Probity Plans should be customised to suit the procurement, taking into account the size, complexity and risks, and should be regularly reviewed and used throughout a procurement process. Specialist contracting advice should be sought to assist in the development of Probity Plans. A Legal Process and Probity Plan process template can be found on the Commercial Policy and Practice Branch website.
66.
Advertising Business Opportunities 67. The Commonwealth Procurement Guidelines require that Government procurement be visible and accessible and that there be opportunity to do business with the Commonwealth. Visibility of Government business is promoted through the AusTender website at https://www.tenders.gov.au/. Refer to chapter 5.5 for further information on advertising business opportunities.
Record Keeping Maintaining an Audit Trail 2 68. The following key documents would normally have been developed by the time that a tender opportunity has been advertised and/or request documentation is released:

Proposal and Procurement Approval submissions; Operational Concept Document (OCD); Functional Performance Specification (FPS); Test Concept Document (TCD); business case; project risk assessment; project plan; probity plan; request documentation, including draft contractual terms; and tender evaluation plan, including tender evaluation criteria.
69.
Not every procurement will require the development of all the documents listed in paragraph 55, this will depend on the complexity of the procurement. All the documents created should be kept in accordance with Defence record keeping policy. 3
Industry Briefings 70. 71. For Complex and Strategic Procurements it may be beneficial to hold briefings to better inform industry of the requirement of a tender. Industry briefings should be conducted for the purpose of providing clarifying information only and should not be used to provide potential suppliers with information additional to that contained in the request documentation. It should be made clear to potential suppliers that they cannot rely on a statement made at an industry briefing as amending or adding to the request documentation unless the amendment or addition is confirmed by Defence in writing. Tenderers should not be excluded from the tender process on the basis of a failure to attend an industry briefing held by Defence.
72.
Paragraph 55 and 56 address Recommendation 1 of the ANAO Audit of the Management of the Acquisition of the Australian Light Armoured Vehicle (ASLAV) Capability. See also Chapters 5.1 and 6.1. 3 Further information on Defence record keeping policy can be found in Defence CEI 1.6 on Retention and Disposal of Accounts and Records and DMO CEI 1.7 on Records Management and Defence Instruction (General), Admin 27-2, POLMAN 3 Records Management Policy Manual, and DIMPI 5/2001. Further DMO policy is contained in DMI(EXEC) 4/2006.
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Defence Procurement Policy Manual 5.4 Request Documentation Communication with Potential Suppliers and Tenderers 73. It is important to ensure that potential suppliers and tenderers are dealt with fairly and in a nondiscriminatory manner when providing information leading to, or following, an approach to the market. All communications with potential suppliers and tenderers must be channelled through a Defence or DMO point of contact nominated in the request documentation. In most standard Defence contracting templates this nominated contact is referred to as the Contact Officer. A record should be kept of all formal and informal communications, both written and oral, with potential suppliers and tenderers. Prior to providing written advice to a potential supplier and tenderer, it is advisable to seek advice from one of the contracting specialists listed at the front of this Manual to ensure that the advice being provided is consistent with the content of the request documentation and Commonwealth and Defence policy. Procurement officers should promptly reply to any reasonable request for relevant information by a potential supplier participating in a procurement and need to take particular care when responding to enquiries from potential suppliers to avoid practices that would lead to a potential supplier, or group of potential suppliers, gaining an unfair advantage in a competitive procurement process. Information provided to one potential supplier should be provided to all potential suppliers without revealing the source of the request for information. Meetings with potential suppliers or tenderers should be limited during the tendering process. Where it is necessary to meet with a potential supplier or tenderer, the meeting should be attended by at least two departmental officers with a detailed understanding of the content of the relevant request documentation. The discussions should be documented and ethical standards should be maintained (see chapter 3.13).
74.
75.
76.
Amendments to Request Documentation 77. All potential suppliers and tenderers must be provided with the same information including any subsequent amendments to request documentation. Amendments introducing significant changes to the requirement or the terms of making the offer may require extension to the closing time. Where the tender closing time is altered, all potential suppliers must be notified of the amended closing time. Procurement officers must also ensure that the amended closing time does not provide any benefit to a particular potential supplier. Where the scope of the requirement will be significantly revised or fundamentally varied by the proposed amendment, it may be appropriate to reissue the request for tender.
78.
Re-Tendering 79. On some occasions it may be appropriate to re-tender, including where:

the request fails to produce any offers; the tenders received fail to meet the essential features of the specified requirements (nonconforming tenders); there is significant variation to the requirement; the prices of all tenders received are considered excessive; the level of effective competition is reduced through breach of confidentiality; some impropriety has occurred; or the tender or tenders do not represent value for money.
80.
Tenderers selected for re-tender might not always be those shortlisted from the original tender process. Tenderers previously set aside from the original tender process may be selected for retender in order to achieve value for money.
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Defence Procurement Policy Manual 5.4 Request Documentation 81. If re-issue of request documentation is contemplated, specialist procurement and or legal advice should be sought.
Cancelling a Procurement 82. In some cases it will be necessary to formally cancel a procurement activity, either to facilitate re-tendering or to terminate the approach to the market. This should be done in writing and in accordance with any representations that have been made in the request documentation. Particular care should be taken when cancelling a covered procurement activity as this can only be done where it is not in the public interest to award a contract. 4 For further guidance on cancelling a procurement refer to Financial Management Guidance No.13 Guidance on the Mandatory Procurement Procedures, January 2005, para 9.3. When cancelling a covered procurement it is strongly recommended that Defence officials seek specialist procurement advice, either from their Divisional or Group procurement specialist or from DMO Legal or Defence Legal.
Reimbursement of Re-Tendering Costs 83. Normally the costs of tendering for Defence business are to be met by tenderers as part of the normal operating costs of industry. Defence has a well-defined and structured procurement process. This should ensure that the requirement and other aspects of the tender are clearly defined prior to tender issue. Consequently there should be very few instances where retendering is necessary. When re-tendering is required, Defence will consider on a case by case basis, whether to meet justifiable, reasonable and fair costs incurred by those tenderers invited to re-tender. Where a purchasing area makes a decision to cancel a requirement (rather than to re-tender), tendering costs will not normally be reimbursed. This is because Defence considers the possibility of cancellation of the requirement to be a normal business risk. Funding for the reimbursement of tendering costs will generally be sourced from the purchasing area responsible for the re-tendering activity. Procurement officers should ensure that any commitment to reimburse tendering costs is capped (although provision may be made for a small contingency) before any work commences. Each case should be considered on its merits and meet the following criteria:
84.
85.
the costs are justifiable in that the claimed activity or cost can be substantiated by records of costs incurred acceptable for accounting purposes; the costs are reasonable in that the activity or cost reflects the processes necessary or normal to meet the requirement; the costs are fair in that the cost attributed to an activity and staff involved is normal for the processes undertaken to meet the requirement; and the tenderer has mitigated costs where possible at the earliest possible opportunity.
86.
Before reworking begins Defence should ensure that there is agreement with the tenderers as to:

what costs or activities are allowable with respect to reimbursement; what level of effort and time scale is expected; and whether consultants and overseas staff will be involved.
87.
Quotes should be obtained in writing which include an indication of the costs associated with retendering.
Commonwealth Procurement Guidelines, para 8.70.
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Key References
Commonwealth Procurement Guidelines Financial Management Guidance No.13 Guidance on the Mandatory Procurement Procedures, January 2005 Financial Management Guidance No 15 Guidance on Procurement Publishing Obligation. Commercial Policy and Practice Branch website - Process Template Library Finance Circular No 2008/10 Procurement 30 Day Payment Policy for Small Business AusTender website - https://www.tenders.gov.au
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Defence Procurement Policy Manual 5.5 Tender Advertising, Submission and Receipt
5.5
Introduction
1. 2.
Tender Advertising, Submission and Receipt
This chapter applies to all procurements conducted in Defence and the Defence Materiel Organisation (DMO). This chapter provides the policy associated with the advertising, submission, opening and recording of tenders, and late tenders. This policy is referenced in standard Defence contracting templates to ensure that potential suppliers are aware of the applicable requirements. For the purposes of this chapter, the term tenderer should be interpreted as meaning any potential supplier responding to request documentation issued by Defence and the DMO, and is not limited to a potential supplier responding to a Request for Tender. The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
3.
Mandatory Policy
All Procurement officers must comply with the Commonwealth Procurement Guidelines (CPGs), including all mandatory requirements identified in this chapter. Mandatory requirements in this chapter are denoted by the term must. All open approaches to the market (ATM) must be published on AusTender at www.tenders.gov.au. Procurement officers must ensure that request documentation for an open or select approach to the market is distributed through AusTender, where practicable. All non-campaign advertising must be placed through Adcorp Australia Pty Ltd. All potential suppliers participating in a procurement must be required to lodge submissions in accordance with a common deadline. Where the deadline is extended for any reason, or where negotiations are terminated and potential suppliers and tenderers are permitted to lodge new submissions, the new time limit must be applied equally to all potential suppliers and tenderers. Late tenders must be accepted only in accordance with paragraphs 40 41 of this chapter.
Defence Policy 4. The tender process follows the core procurement principle of value for money set out in the CPGs, and the three supporting principles of: efficient, effective and ethical use of resources; accountability and transparency; and compliance with Government policies that interact with procurement. Tenders should be treated according to their security classification, and at a minimum of commercial in confidence, with information restricted to those officers with need to know. See chapter 3.11 for further information. All tenders should be kept secure and sealed until the designated opening time. Procedures should be in place for receiving, storing, opening, registering, handling and filing tenders following the processes outlined in this chapter.
5.
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Defence Procurement Policy Manual 5.5 Tender Advertising, Submission and Receipt Minimum Time Limits for Covered Procurements 6. 7. Defence should provide sufficient time for potential suppliers to prepare and lodge well developed tenders. For covered procurements 1 , where a notice advising of an open approach to the market or the issue of an invitation to potential suppliers to participate in a select tender process has been issued electronically, the time limit for potential suppliers to lodge a response must be at least 25 calendar days from the date and time of publication of the notice. 2 Approved direct source procurements do not need to meet the minimum time limit requirements. Where the notice of approach to the market has not been issued electronically, the 25 calendar day response period must be extended to 30 calendar days. 3 The time limit may be reduced from 25 calendar days to not less than 10 calendar days where:
8. 9.
details of the procurement have been published in an Annual Procurement Plan on AusTender, at least 30 calendar days and not more than 12 months in advance, and these details include a description of the procurement, the estimated timing of the approach to the market, and the procedure for obtaining the request documentation; the procurement is for commercial property or services. That is, property or services of a type that are offered for sale to, and routinely purchased by, non-government buyers for non-government purposes, including any modifications common in the commercial marketplace and any minor modifications not common in the commercial marketplace; the procurement is a second or subsequent approach to the market for procurement of a recurring nature; or the genuine urgency of the requirement renders the normal time limit impracticable.
10.
Covered procurements undertaken through direct sourcing (see chapter 3.1) need not comply with these time limits 4 however, sufficient time must still be allowed for the potential supplier to respond with a well developed proposal. Where conditions for participation require potential suppliers to undertake a registration or prequalification procedure, the time limit for responding to the registration or pre-qualification requirement must be included in the request documentation. Conditions of this nature must be published in sufficient time to enable all interested potential suppliers to complete the registration and qualification procedures within the time limit for the procurement.
11.
Tender Closing Date, Time and Place 12. All potential suppliers participating in a procurement must be required to lodge tenders in accordance with a common deadline. 5 The tender closing date, time and lodgement place should be clearly nominated in request documentation, the Approach to Market (ATM) and any print media advertisement. A tender closing time of 12:00 noon local time is suggested. This time has been selected as it enables Defence personnel sufficient time, following the close of tenders, to open, record and process tenders, including the identification of late tenders, prior to the close of business. Given the different time zones across Australia the words Close of Business should not be used, as this phrasing may cause confusion. Due to the potential for misunderstanding regarding tender closing time, splitting tender closing times for different aspects of the same tender should be avoided. Tenders should not be advertised as closing on a weekend or a public holiday. Tenders should not close a week before, or a week after, the standard Defence Christmas stand-down period. Any tender released during this Christmas stand-down period must not have this period count
13.
1 2
Refer to chapter 1.2 for more information on covered procurements CPGs Paragraph 8.58 3 CPGs Paragraph 8.59 4 CPGs Paragraph 8.32 5 CPGs Paragrapn 8.56
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Defence Procurement Policy Manual 5.5 Tender Advertising, Submission and Receipt as part of the minimum time limits for a tender to be open to the market outlined in paragraphs 6 - 11. 14. The relevant tender room point of contact (POC) should be consulted prior to the inclusion of a tender closing date and time in an ATM to ensure the availability of the tender room, otherwise tender receipting may be delayed. Procurement officers should:

confirm the availability of a suitable tender room; consider the impact that the tender closing time will have on Defence personnel involved with the receipt and opening of tenders; and consider the impact that the tender closing time will have on Defence ability to determine whether tenders received were submitted prior to the tender closing time.
15.
A list of tender room POC is available from the Tendering and Advertising webpage available from the Commercial Policy and Practice website
Procedures for Advertising Tenders Publication of Approaches to the Market (ATM) on AusTender 16. 17. An approach to the market is when Defence or DMO issues a notice inviting potential suppliers to participate in a procurement. The CPGs require that agencies must publish all open ATM on AusTender. As Defence and the DMO are separate agencies for the purposes of the Financial Management and Accountability Act 1997 (Cth) they must separately publish their open ATM on AusTender 6 (www.tenders.gov.au). There is no monetary threshold on the reporting of ATM. An open ATM is an opportunity for any potential supplier that can meet the conditions for participation to compete. Open ATM include:

18.
requests for expressions of interest; requests for tender; and requests for application for inclusion on a multi-use list.
19.
Form AE 109 - AusTender Approach to the Market Data Entry has been developed to ensure the quality and accuracy of data relating to ATMs which are published on AusTender. Form AE 109 is available on the Defence Web Forms System. Defence and DMO must, to the extent practicable, make request documentation available for download from AusTender for open ATM as well as approaches that are not open (such as select tenders). For further information on ATM, including how to gain AusTender access to upload request documents, how to publish an ATM and who is responsible for publishing ATM refer to the AusTender Procurement Publishing Obligations link on the Commercial Policy and Practice website.
20.
21.
Print Media Advertising 22. In addition to AusTender, Defence may decide to advertise in newspapers or other print media, however what appears in the print media advertisement must be identical to what is published on AusTender, including the tender closing date and time. Where the print media advertisement clearly directs potential suppliers to AusTender (www.tenders.gov.au) and the advertisement on AusTender clearly states the conditions for participation and timeframe for delivery, the conditions for participation and timeframe for delivery are deemed to be included in the print media advertisement.
CPGs Paragraph 7.17
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Defence Procurement Policy Manual 5.5 Tender Advertising, Submission and Receipt 23. Defence must place all non-campaign advertising through Adcorp Australia Pty Ltd (Adcorp). Tender advertising falls within the Department of Finance and Deregulation definition of noncampaign advertising. It is the Procurement officers responsibility to organise the print media advertisement either directly with Adcorp or through a tender room POC. To organise an advertisement directly through Adcorp, email cas@adcorp.com.au . A list of tender room POC and advertising deadlines for major newspapers is available from the Tendering and Advertising link on the Commercial Policy and Practice website
Tender Room Requirements 24. Many of the procedures outlined in this section represent best practice and may not be applicable to every tender process. Whilst all mandatory policy must be complied with, discretion should be applied in the application of the other policy, specifically the formal tender room process. There are a number of tender rooms located throughout Defence. A list of tender room addresses and POC is available from the Tendering and Advertising webpage available from the Commercial Policy and Practice website. Tender room management is the responsibility of the tender room POC. Defence and DMO personnel should refer to the Defence Tender Rooms Better Practice Guide on the Commercial Policy and Practice website. Procurement officers should also acquaint themselves with any tender room practices specific to their region.
25.
Tender Lodgement Procedures 26. The procedures and processes that must be followed by potential suppliers when submitting tenders to Defence should be contained in the request documentation.
Delivery Method 27. Tenders can only be accepted in the manner prescribed in the request documentation. Request documentation may specify that tenders may be lodged in a number of formats, e.g. by mail/courier service, by hand, and/or, facsimile that has been endorsed by the Defence Security Authority (DSA). Receipt of tenders by email may be appropriate in very limited circumstances, such as simple procurements and use of Standing Offer panels, where this method of receipt is agreed by the Procurement Approver.
Mail/Courier Service 28. Tenders should be receipted in accordance with the requirements of the Defence Security Manual (DSM), Part 2. For SAFEBASE ALPHA and BRAVO conditions, tenders should be lodged at the address specified in the ATM. A receipt will be issued upon request to the person delivering the tender. If the SAFEBASE level rises above BRAVO, advice should be sought from your Regional Security Office. Where delivery is by post, arrangements should be made with the relevant registry in order to ensure that the tenders are left unopened and are date and time stamped by the registry. Tenders should be clearly identified as tenders with tender number, etc on the outside of the envelope or package. For specific information on mail/courier services for Canberra and other cities refer to the Defence Tender Rooms Better Practice Guide on the Procurement and Contracting Intranet site.
Facsimile 29. If the request documentation does not specify that tenders can be delivered by fax then tenderers cannot fax their tenders. There are a number of risks associated with the receipting of tenders by fax such as transmission problems that result in the receipt of only part of the tender and problems with the quality of faxed copies. For these reasons, the delivery of tenders by fax is not the preferred delivery method and should only be used for simple and less complex procurements.
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Defence Procurement Policy Manual 5.5 Tender Advertising, Submission and Receipt 30. Where a tender is permitted to be faxed, it is the responsibility of the Procurement officer, not the tender room POC, to look for any discrepancy between the original (facsimiled) and hard copy.
Electronic Tender Box 31. There are no Defence approved electronic tender box products. Accordingly, electronic tender box solutions should not be employed for Defence tendering.
Security Conditions (SAFEBASE BRAVO and below) 32. Procedures for security conditions other than SAFEBASE ALPHA and SAFEBASE BRAVO should be prepared on a case by case basis. The DSM provides general guidance on SAFEBASE protective security measures. Requests for advice and/or guidance should be directed to the DSA on (02) 6266 2633.
Tender Collection and Opening Procedures Tender Collection 33. The tender room POC will control access to the tender room. All tenders received should be treated as commercial in confidence (or higher classification where appropriate) and retained under secure conditions. A secure condition includes the (locked) tender room.
Tender Opening Procedures 34. Procedures to open all tenders must guarantee fairness and impartiality, and must ensure tenders are treated in confidence 7 . Tenders should not be opened until after the closing date and time has been reached. 8 Procurement officers should note that the time taken to complete a tender opening process is dependant on the number and size of the tenders received. Most Major Capital Equipment tenders require two days for the tender opening process to be completed, although the process can take up to four days for very large tenders. Defence personnel should refer to the tender opening procedures contained within the Defence Tender Room Better Practice Guide.
35.
36.
Extension of Closing Date and/or Time 37. Occasionally, potential suppliers request an extension of the closing date and/or time. As a general rule extensions should not be needed or given. In exceptional circumstances, an extension may be granted provided that there is sufficient time before the original closing date and/or time for all potential suppliers to be advised of the revised closing date and/or time. Where the deadline is extended for any reason, or where negotiations are terminated and potential suppliers and tenderers are permitted to lodge new submissions, the new time limit must be applied equally to all potential suppliers and tenderers. It is for this reason that it is important to have a formal record of all potential suppliers who received the request documentation. Tenderers who have already complied with the original closing date may otherwise claim to have been disadvantaged if they subsequently discover that the closing date has been extended.
38.
39.
Late Tenders 40. Defence policy requires that request documentation stipulate the exact closing date and time for the submission of tenders. There may be occasions where, for a variety of reasons, a tender is
7 8
CPGs Paragraph 8.67 FMG 13 Section 8.1
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Defence Procurement Policy Manual 5.5 Tender Advertising, Submission and Receipt received after the nominated closing date and time. In such cases, any tenders received after the closing date and time must be considered late and dealt with in accordance with the late tender policy. 41. The late tender policy should be included or referenced in all request documentation where competitive tenders are sought. All ASDEFCON templates reference the late tender policy.
Late Tenders policy 42. Commonwealth policy on the handling of late tenders is contained in the CPGs (paragraphs 8.63 8.66) and in Financial Management Guidance 13 (FMG 13) Guidance on the Mandatory Procurement Procedures January 2005 (paragraph 8.1). Subject to paragraph 44, in Defence and DMO, a late tender must not be accepted for any procurement, except where:

43.
the tender is late due solely to Defence or DMO mishandling; or the Procurement Approver has determined that the purchase is exempt from the requirements of the Mandatory Procurement Procedures in the CPGs because: the property or services are being procured by, or on behalf of, the Defence Intelligence Organisation, the Defence Signals Directorate, or the Defence Imagery and Geospatial Organisation; or the procurement is a Defence/DMO exempt procurement..
44.
If the procurement has been determined as exempt from the MPPs in accordance with paragraph 43, admission of the tender to evaluation must be approved by

Special Counsel to DMO CEO, for DMO procurements; or the applicable Group Head (with advice from Defence Legal) for Defence procurements.
45.
Mishandling by a courier or mail service provider engaged by a tenderer to deliver a tender does not constitute mishandling by Defence. It is the responsibility of tenderers to ensure that their tender is dispatched in sufficient time for it to be received by Defence by the closing date and time. The decision on whether Defence accepts the late tender should be made before the tender is opened.
46.
Late Tender process 47. Where a late tender has been received, the Tender Supervising Officer should:

advise the tender contact officer that a later tender has been received; determine whether the tender is late due to mishandling by Defence or DMO; advise the tender contact officer whether mishandling by Defence or DMO has occurred; and ensure that the tender remains unopened.
48. 49.
Where mishandling by Defence or DMO has occurred, the late tender should be registered by the Tender Supervising Officer in the same manner as the other tenders. Where mishandling has not occurred, and the procurement is exempt from the MPPs as outlined in paragraph 42 - 43, the tender contact officer should refer the matter to the Tender Evaluation Chair to determine whether to exclude the late tender from further consideration. Factors that should be taken into account when making this decision include:
whether the tenderer had an opportunity to obtain any form of unfair advantage from the late submission; and
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Defence Procurement Policy Manual 5.5 Tender Advertising, Submission and Receipt
the time that has elapsed between the tender closing date and time and the time and date of the late submission.
50.
If the Tender Evaluation Chair determines that the late tender should be included, the Chairperson must seek the agreement of SCCEO (for DMO) or the applicable Group Head (with advice from Defence Legal) (for Defence) to admit the late tender to evaluation. Where agreement is provided, the tender contact officer should advise the Tender Supervising Officer by email that the late tender is to be accepted, and make arrangements for the tender to be registered in the same manner as the other tenders. The reasons for either accepting or rejecting the late tender should be recorded in the Source Evaluation Report (SER). When approving the SER, the Contract Approver cannot override this decision. If the decision is made to reject any late tender, the tender should be collected by the tender contact officer from the receipting officer and returned to the tenderer unopened and clearly marked as a late tender. The tenderer must be notified of the exclusion of its tender due to late submission. Where the outside of the late tender has no indication of which tender process it is responding to, or there is no return address, the tender may be opened. Where this occurs, the tenderer should be advised that the tender has been opened for this reason only.
51.
52.
53.
Further Advice 54. Advice on the policy aspects of advertising, receiving, opening and recording of tenders may be obtained by contacting the relevant Help Desk found at the front of this manual.
Key References
Commonwealth Procurement Guidelines Department of Finance and Deregulation Financial Management Guidance (FMG) No 15 Guidance on Procurement Publishing Obligations July 2007 at http://www.finance.gov.au/ctc/ Department of Finance and Deregulation Financial Management Guidance (FMG) 13 Guidance on the Mandatory Procurement Procedures January 2005 Defence Security Manual Tendering and Advertising webpage accessed through the Commercial Policy and Practice website AusTender Procurement Publishing Obligations webpage accessed through the Commercial Policy and Practice website Webform AE 109 AusTender Approach to Market Data Entry.
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Defence Procurement Policy Manual 5.6 Evaluation of Tenders
5.6
Introduction
1. 2.
Evaluation of Tenders
This chapter applies to all evaluation activities for Complex and Strategic procurements undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter may also apply when evaluating larger or more complex Contract Change Proposals. Evaluation of tenders in Simple Procurement is addressed in the Simple Procurement Chapter. For general information on evaluation of Contract Change Proposals, refer to chapter 6.7. For Defence and the DMO to deliver on their commitments to Government they must evaluate tenders ethically and in a way that ensures the best value for money outcome. The tender evaluation and source selection process is therefore an important activity and one that must be conducted in the appropriate manner. The objective of this process is the selection of an offer that best meets the Governments requirements as defined in the request documentation such as the Request for Tender (RFT). For the purposes of this chapter, the term tenderer should be interpreted as meaning any potential supplier responding to request documentation issued by Defence or DMO, and is not limited to a potential supplier actually responding to a RFT. Similarly, a reference to a RFT should be interpreted as meaning any type of request/solicitation documentation. The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
3.
4.
Mandatory Policy
Officials conducting tender evaluations must comply with the Commonwealth Procurement Guidelines (CPGs) including the principle of value for money. All tenders must be evaluated in accordance with the evaluation criteria and methodology contained in the request documentation and the Tender Evaluation Plan (TEP). TEP must be completed and approved before the opening of tenders following the tender closing time. For covered procurements, tender evaluation activities must be compliant with the Mandatory Procurement Procedures in Division 2 of the CPGs. Where minimum content and/or format requirements are specified in request documentation for a covered procurement, a tender not meeting those minimum requirements must be excluded from further consideration, unless the Procurement officer considers that there has been an unintentional error of form. Where a tenderer fails to meet a condition for participation in a covered procurement, the tenderer must be excluded from the procurement process and their tender not given any further consideration. Where essential requirements are specified in request documentation for a covered procurement, a tender not meeting those requirements must be excluded from further consideration. The evaluation criteria advised to Industry in request documentation must not be altered during the evaluation process without a formal request documentation amendment Page 5.61
Defence Procurement Policy Manual 5.6 Evaluation of Tenders process. The evaluation criteria advertised in the request documentation must be used to evaluate the tenders and must be related to the tender response requirements. The evaluation criteria identified in the Tender Evaluation Plan must be identical to the evaluation criteria contained in the request documentation. DMO has specific procedures contained within Defence Materiel Instruction (Procurement) (DMI (PROC) 13-0-001) - Mandatory Procurement Policy Requirements for all DMO Acquisitions (including Sustainment Procurements) to Contract Signature that must be complied with when evaluating tender documentation.
5. The nature and complexity of a tender evaluation should be determined in accordance with the complexity and risk profile of the procurement and detailed in a Tender Evaluation Plan (TEP) (see chapter 5.4). Subsequent evaluation activities must be undertaken in accordance with the TEP. Officials conducting tender evaluations must be familiar with, and must comply with, the CPGs. The operational guidance provided in this chapter is considered to be best practice across Defence. However, it is noted that Defence Groups and separate divisions may have processes, terminology and local businesses rules that differ from those described in this chapter. For example, Infrastructure Division should refer to the guidance at www.defence.gov.au/im for additional guidance on the evaluation process and executive review and approval procedures.
6. 7.
Checklist of Activities Occurring Prior to Evaluation 8. Prior to conducting an evaluation the following activities should have occurred:

Proposal Approval obtained; FMAR 10 Approval obtained (if required); Procurement Approval obtained (Procurement Method Approver for the DMO); TEP approved by Procurement Approver; Request for Tender (RFT) documentation approved by Procurement Approver; RFT advertised on AusTender, released, and open for sufficient period of time (see chapter 5.5); and All tenders received were correctly receipted and late tenders dealt with in accordance with Defence late tender policy (see chapter 5.5).
9.
If any of the above activities have not occurred, specialist contracting advice should be obtained from the relevant DMO or Group contracting area.
Resources Required for Evaluation 10. Team members conducting evaluations should have the technical/subject matter skills to assess the substance of the tendered solutions. The availability of appropriate resources should be determined and identified in the TEP prior to releasing a RFT. Resources that need to be considered are:

availability of subject matter experts; facilities for conducting evaluation; and a booking for the tender room to receipt tenders (if required in your region).
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Defence Procurement Policy Manual 5.6 Evaluation of Tenders 11. Specialist advisors such as Financial Investigation Services (FIS), contracting officers, and technical experts should be given advance warning for workforce planning purposes, as tender evaluation may require intensive or exclusive allocation of personnel during the evaluation period. In the DMO, Procurement officers involved in single supplier direct source procurements must comply with the FIS consultation process outlined in DMI (PROC) 13-0-001. For particularly high risk or commercially sensitive evaluations, consideration should be given to the appointment of an independent legal process or probity advisor. A probity plan commensurate with the risk of the proposed procurement may be required (see chapter 5.4). Tender responses should be treated as commercial-in-confidence and should be secured accordingly. Where possible, it is recommended that secure lockable premises are booked and reserved exclusively for tender evaluation purposes. Dedicated facilities assist in maintaining the confidentiality of documents received and minimise the likelihood that tenders will be discussed in an open work environment shared by staff members who are not involved in the tender evaluation. Removing members of the evaluation team from their usual work environment also promotes greater emphasis on the task and facilitates the efficient conduct of tender evaluation activities.
12.
13.
Evaluation Objectives and Principles Evaluation Principles 14. Evaluation principles such as value for money, probity, confidentiality, ethics and fair dealing, and accountability should all be addressed in the planning stages, and the TEP should contain references to current policy requirements (see chapter 5.4).
Compliance with Request for Tender and Tender Evaluation Plan 15. Standard request documentation sets out the conditions under which a tender process will be conducted and the evaluation criteria to be applied (see chapter 5.4). When using the ASDEFCON templates, the evaluation criteria are found in the Conditions of Tender. All tenders must be evaluated in accordance with the evaluation criteria and methodology advised in the tender documentation. Tender evaluations must comply with the TEP, and the TEP must be completed and approved before the opening of tenders following the tender closing time. It is best practice to have the TEP completed and approved prior to RFT release. The evaluation criteria stated in the tender documentation must be identical to the evaluation criteria included in the Tender Evaluation Plan. The TEP should have been written so that it does not conflict with the request documentation. Where there is a conflict between the TEP, or any proposed evaluation activities, and the request documentation released to industry, officials must seek contracting or legal advice for the following reasons:
16.
17.
A change to the evaluation criteria or methodology after RFT release has the potential to jeopardise the tender process. The standard terms of ASDEFCON require that tenderers are allowed a chance to respond to any additional evaluation criteria; and The TEP should not be altered (except for minor administrative updates) after the release of the request documentation, unless the request documentation has been formally amended.
Value for Money 18. The CPGs provide that value for money is the core principle underpinning Australian Government Procurement and the application of this principle requires a comparative analysis of all relevant costs and benefits of each proposal throughout the whole procurement cycle (whole-of-life costing).
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Defence Procurement Policy Manual 5.6 Evaluation of Tenders 19. Value for money is not limited to a consideration of capability versus price, or cheapest price wins. Value for money requires consideration of Government policy, specifically values such as open competition, efficiency, ethics and accountability. The CPGs outline these policies in further detail. Officials conducting procurement should be aware that the overall goal of the procurement process is to provide a value for money recommendation to the delegate. For further information on value for money refer to chapter 1.2. A value for money assessment requires that the level of risk associated with each tender, or performance under each evaluation criteria, is evaluated. For further information on risk assessment refer to paragraph 69 and chapter 3.2. Further guidance on value for money is contained in chapter 1.2 and Annex 1A.
20.
Assessable Information 21. Tenders comprise everything provided by a tenderer in response to a RFT, including the executive summary, tender response requirements and supplementary information. All tender documentation should include a clause which specifically allows the Commonwealth to:

consider additional information related to any evaluation criteria; use material tendered in response to one evaluation criterion in the evaluation of other criteria; and use material tendered by the tenderer in other RFT processes conducted by the Commonwealth for purposes consistent with the Commonwealths procurement objectives (subject to the Commonwealths IP and commercial in confidence obligations).
22. 23.
The ASDEFCON suite of tendering and contracting templates contains clauses that reflect the requirements detailed in paragraph 21. The use of the DMO Company Scorecard (see chapter 3.8) and reports from credit rating agencies such as Dunn and Bradstreet (usually sought via FIS) are two examples of where additional information will typically be used to evaluate criteria relating to a tenderers ability to supply. When assessing additional information in any tender evaluation, officials should consider each of the following issues:

24.
is the information relevant to one or more of the evaluation criteria?; is the information provided from a reliable source and sufficiently specific to the tender itself?; would the use of the additional information cause any probity concerns?; are there any conditions found in the request documentation which would prevent the use of the additional information?; and are there conditions under which the additional information was supplied that would prevent the use of the additional information?
Assessment of the Tenderer 25. The evaluation criteria used in the RFT should include criteria which address both the products or services offered by the tenderer, and the ability of the tenderer to supply the required products and services. When assessing the tenderer against the evaluation criteria, it will generally be necessary to:
26.
determine the capability of the tenderer to meet the specified requirement, including technical competence, available capacity, relevant experience, availability of key personnel, financial stability and management competence; identify potential risks to the achievement of the primary procurement objectives;
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acquire satisfactory evidence of overall performance and reliability of the tenderer in undertaking similar projects in either the private or public sector; evaluate the relative strengths and weaknesses of different tenderers; and identify and assess for individual tenderers, the key issues and priorities which must be addressed in negotiating the contract.
27.
If the complexity or nature of the procurement requires it, a member of the FIS should be requested to assess the financial viability of each tenderer (see chapter 3.3) by lodging a webforms AD553 Professional Services Request form.
Maintaining an Audit Trail 28. Records of all stages of the procurement, including the evaluation process, must be collected and retained in accordance with departmental archiving requirements and the Archive Act 1983 (Cth) to ensure that an adequate audit trail is retained and accountability requirements are met. Records of the evaluation process should include significant developments and all reasons for decisions made. Any evaluation may be challenged or audited through internal and external bodies and well maintained records will assist with clarifying and/or defending any challenge to the process.
Communication with Tenderers 29. During evaluation it is essential to maintain probity, ethics and accountability. The clarification process applies in circumstances where Defence requires further information from tenderers in order to properly evaluate their tenders. Therefore, any communication between Defence and a tenderer between release of the tender and award of a contract should only be for clarification of the issues that would assist in the evaluation process. Clarification should be sought and received in writing. All communications between Defence and tenderers should go through one point of contact within Defence nominated in the request documentation. This will assist Defence in maintaining probity, ethics, fairness and accountability of the evaluation process. Maintaining the integrity of the process by not allowing clarification to be used as an opportunity for tenderers or Defence to revise, modify the scope of, or change a tender (including the tendered price) is essential. For example, tenderers may seek to submit material after the tender closing time to correct mistakes in their tenders. This could be material to replace incorrect information in their tender or material that has been accidentally omitted from their tender. Such material should be considered a late tender and should not be accepted to ensure that all tenderers are treated equally. The only exception to this is where Defence provides all participating tenderers with the same opportunity to correct unintentional errors of form. Refer to chapter 5.4 for further guidance on unintentional errors of form. For further information on late tenders refer to chapter 5.5.
30.
Site Visits to Tenderers Premises and Product Demonstrations 31. The RFT and the TEP may allow for tenderers premises to be visited as part of the evaluation process. This will usually only be necessary for higher value Complex and Strategic Procurements. The purpose of the site visit should be for clarification purposes, to confirm information provided within the tender or to otherwise inform the tender evaluation. The underlying principles of probity, ethics and fair dealing must be maintained. All discussions with tenderers should be fully documented and at least two Commonwealth officials with an in-depth understanding of the RFT must be present. The RFT and the TEP may also allow for, or request, a tenderer to demonstrate the product being offered as part of the evaluation process. The product demonstration will usually occur at the tenderers premises or an agreed location. The requirements for probity, ethics and fair dealing required when attended tenderers premises should also be complied with when attending a product demonstration.
32.
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Defence Procurement Policy Manual 5.6 Evaluation of Tenders Evaluation Process 33. Tender evaluation, guided by the TEP, is generally a sequential process and will usually contain the following activities:

conduct screening; develop shortlist; conduct evaluation; develop and seek approval of Preliminary Source Evaluation Report (SER) and Negotiation Directive (if necessary); conduct negotiations (if necessary); and develop and seek approval of the SER by the Contract approval delegate and any additional signatory required under the TEP.
Conduct of a More Complex Evaluation 34. A typical evaluation for higher risk Complex or Strategic procurement may involve all or some of the following stages.
Initial Screening Stage 35. The aim of the initial screening is to exclude tenders from further consideration where they are incomplete or do not meet minimum content and format requirements, conditions of participation, or essential requirements specified in the request documentation. For covered procurements, failure to satisfy a condition for participation must result in a tender being declined at the initial screening stage. The conditions for participation and essential requirements must be clear and unambiguous and therefore there should not be any confusion as to whether a tenderer has met them. Further information on conditions for participation can be found in chapter 5.4. In assessing whether a tenderer satisfies the conditions for participation, a Procurement officer must base a determination solely on the conditions for participation that the purchasing area has specified in the request documentation. A tenderer may be excluded on grounds such as bankruptcy, insolvency, false declarations, or significant deficiencies in performance of any substantive requirement or obligation under a prior contract. The screening process must be conducted in accordance with the TEP. Where it is proposed that one or more tenders will be declined as a result of the screening stage, a screening report should be developed and approved by the Contract Approver. A decision to decline a tender at any point in the evaluation process must be justified and defensible and should be documented in the screening report. Tenderers should be advised as soon as possible that their tenders have been declined.
36.
37.
38.
39.
Shortlisting Stage 40. After an initial screening, tenders may be shortlisted. The shortlisting stage is used to decline tenders which are clearly non-competitive and have no reasonable prospect of exhibiting the best value for money compared to other tenders. The shortlisting process should be conducted in accordance with the TEP. The degree of analysis applied to shortlisting must be of sufficient rigour to ensure that excluded tenderers, under more detailed evaluation, stand no reasonable chance of providing the best value for money and being selected for negotiation. Where tenders will be declined as a result of the shortlisting stage, a shortlisting report should be developed and approved by the Contract Approval delegate. Page 5.66
41.
42.
Defence Procurement Policy Manual 5.6 Evaluation of Tenders Comparative Evaluation Stage 43. The comparative evaluation stage should be conducted in accordance with the TEP. The comparative evaluation stage involves the comparative assessment of shortlisted tenders. Comparative assessment involves the ranking of tenderers in relative order of merit against each evaluation criteria (but ranking against subcategories may also be required), and the overall relative merit of tenders against all criteria, including risk. This provides the basis for determining value for money and for recommending the preferred tenderer (if any) to the delegate. If it becomes evident during the comparative evaluation stage that a tender is clearly not competitive, a decision may be made to set aside the tender from further evaluation. The SER should justify any decision to set aside a tender. Setting aside does not require separate approval, as these tenders are not formally declined. In setting aside tenders, Procurement officers need to be confident that:

44.
45.
remaining tenders may prove more suitable and provide better value for money; and there are no serious impediments to the achievement of an executable contract with one of the remaining tenderers.
46.
Where tenders are set aside, tenderers would not necessarily be advised that their offers have been declined. This may be done when further evaluation of offers has confirmed that offers remaining are viable.
Evaluation Methodologies 47. Evaluation methodologies are the mechanisms used to determine the value for money nature of an offer in accordance with the evaluation criteria. Commonwealth policy should inform any selection of a preferred methodology with an emphasis on fairness and appropriateness to the capability that is being evaluated. It is impracticable to use a single methodology for all procurements due to the unique nature of each requirement and the many differences in the range of goods and services purchased by Defence. The choice of methodology should be set out in the TEP and all members of the evaluation team should be fully briefed on and confident of applying the selected methodology. Some procurement areas prefer a highly quantitative, systematic value tree approach or the use of proprietary software evaluation packages. Quantitative methods may be used for any or all of the evaluation criteria; however these should be in the context of a broader qualitative approach. The tender request documentation may have weighted the evaluation criteria. For further information refer to paragraphs 60 to 66 below. It is best practice to seek specialist contracting advice to validate methodologies and to assist in choosing the appropriate methodology for higher risk Complex and Strategic procurements. Whichever methodology is chosen, it is important to remember that it is a tool to assist in evaluation only, since the final decision must be made on the basis of value for money. The experience, training and professional judgement of the officials conducting evaluation remains integral to the evaluation process.
48.
49. 50. 51.
Qualitative Assessments 52. A qualitative evaluation is a written descriptive and analytical assessment that addresses the relative merits of tenders in order to make a value for money judgment. This form of evaluation is a suitable methodology for all Simple, Complex and Strategic procurements and should form the basis of all source recommendations.
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Defence Procurement Policy Manual 5.6 Evaluation of Tenders Comparative Assessment and Ranking Method 53. Comparative assessment involves ranking tenders in their relative order of merit against the requirements of the request documentation and evaluating each criterion and the risks associated with each criterion, to arrive at a recommendation of the overall merit of the tender against all requirements. The TEP should define the ratings to be used during the comparative assessment to assist in differentiating between tenders. In particular, specific guidance should be provided on the interpretations that are to apply in rating the tenders and on any other aspects to be considered in the determination of value for money. Ratings that are commonly used include:
54.
exceeds: the tendered solution exceeds the requirement specified in the request documentation in a manner which offers significant additional benefits to Defence; compliant: the tendered solution meets the requirement specified in the request documentation or, where it exceeds the requirement, there is no significant additional benefits to Defence; and deficient: the tendered solution does not meet the requirement specified in the request documentation.
55.
Deficiencies are often further classified as:
critical: a deficiency that cannot be readily remedied and which is of such significance that it may seriously prevent the principal project objectives from being achieved or does not comply with Defence or DMO Mandatory Policy; significant: a deficiency that has the potential to prevent an element of the principal project objectives from being achieved; and minor: a deficiency that has no substantial implications for the project objectives and, subject to discussion with the tenderer, may be acceptable without remedial action.
56.
Following the assignment of ratings and risk assessments to each evaluation criteria, tenderers should be ranked in relation to each evaluation criterion (see Table 1: Comparative information table) and a supportive qualitative assessment developed for inclusion in the SER.
Criteria 1. 2. 3. 4. Overall Ranking* First Second Second First Second Tenderer A Second Third Third Second Third Tenderer B Third First First Third First Tenderer C
*Note: This table is an example, and provides a summary of recommendations only. To understand why Tenderer C is ranked above Tenderer A, it would be necessary to refer to the supportive qualitative assessment. In this example the qualitative assessment would have to address the importance given to criteria 2 and 3. Quantitative Assessments 57. Quantitative assessments involve the assignment of numerical values to the level of compliance and/or associated risk with the requirements set out in the RFT. Especially for technical analysis, it can be very effective to assign relevant numerical values to requirements of the SOW or specification. The TEP should set out the numerical values that apply to the different levels of compliance and risk. The numerical values are then aggregated to produce a final numerical value for each tender. Page 5.68
58.
Defence Procurement Policy Manual 5.6 Evaluation of Tenders 59. Advantages of using quantitative assessment include:

degrees of difference between tenders are easy to demonstrate; rigour is added to arguments for source selection; subjectivity in the evaluation may be reduced; and ranking of tenderers is easier.
60.
A quantitative assessment must be used in conjunction with the qualitative comparative assessment and ranking method described above. A supportive qualitative assessment should be developed for inclusion in the SER and a qualitative assessment must be used to provide a high level summary describing each tenderers performance against the evaluation criteria.
Use of Weightings in Tender Evaluations 61. 62. The tender request documentation may have weighted the evaluation criteria. For further guidance on the weighting of evaluation criteria refer to chapter 5.4. A weighted quantitative evaluation methodology may be used to determine the relative merits of each tender against an individual criterion, or within individual Tender Evaluation Working Groups (TEWG) or with regard to a particular subject matter, e.g. technical compliance or integrated logistics support. Weighting methods used in evaluations must take into account any prioritisation of requirements that has been used for individual elements of the SOW or specification. For example, elements of the SOW or specification may be identified in the RFT documentation as either:

63.
Essential; Important; or Desirable.
64.
All care must be taken to ensure that terms used in the request documentation to indicate requirements prioritisation are removed when preparing the draft contract (after the evaluation period and prior to negotiation). In general, weightings should not be used to attribute levels of importance to various and disparate components of the tender, for example assigning a numerical value against contractual compliance, integrated logistics support or price. Weightings should not be used in TEWGs to determine the overall assessment for that TEWG. It is recognised, however, that each case will need to be examined on its merits, taking into account the particular circumstances and the standard practices of the relevant procurement area. Weightings may be applied across several TEWGs or evaluation components where the evaluation methodology being used is well established and the source selection is not based solely on a quantitative assessment. Where a commercially available e-procurement evaluation tool is used which incorporates a weighted quantitative evaluation methodology, the findings of the evaluation must be supported by a qualitative assessment that addresses the relative merits of each tender.
65.
66.
67.
Normalising 68. Where tenderers have submitted their offers inconsistently it may be necessary to normalise the competing offers so that there is a common basis for comparison. Normalising may be required for reasons including the following:

firm and variable prices are offered; offers submitted have different price components or indices in the price variation provisions; Page 5.69

different delivery arrangements are offered; offers are submitted with different maintenance/training etc requirements incorporated; differing warranty periods are offered; differing settlement discount arrangements are offered; or different payment arrangements are offered.
69.
Specialist contracting advice should be sought before attempting to normalise offers. Chapter 3.3 provides further guidance on normalising the financial aspects of offers.
Assessing Risk 70. Risk should be factored into the value for money assessment of tenders. Procurement officers need to make an assessment of the level of risk associated with a tenderers offer. This is done by assessing the risks associated with the tenderers ability to perform and deliver against the offer (e.g. are the tenderers financial and human resources adequate) rather than just the risk of the tenderer not meeting the request documentation requirements (e.g. the tenderer not furnishing all the requested documents). The compliance assessment will identify any difference between the request documentation and the offer. The risk assessment should take into account not only the risk associated with the tenderer but also the risk associated with key players in the tenderers team, including subcontractors. The risk assessment should involve:
71.
identification of risks that could impact on the tenderers ability to deliver what it has offered; an estimation of the likelihood of each identified risk occurring; an estimation of the consequence of the occurrence of each risk on the overall project outcome; and the combination of the likelihood and consequence to determine the level of risk both individually and across the entire tenderers risk profile.
72.
Further guidance on assessing risk is contained in chapter 3.2.
Determining Value for Money 73. The value for money assessment must take a holistic view of the tenderer and its offer against the evaluation criteria. The value for money assessment should include:
compliance and risk assessments for all tenderers against the conditions of participation and evaluation criteria, including relative ranking of tenderers against each criterion; an explanation of the key areas for discrimination between the tenderers; a presentation of tendered prices and an explanation of cost risk attributable to each tenderer; any implications relating to through life support; an overall assessment of the risks associated with each tender and an indication of the risk management strategies that are considered necessary; an explanation of the actions that would be necessary to enter into a contract i.e. negotiation required in relation to contractual non-compliance, in the form of a draft Negotiation Directive; and a ranking of shortlisted tenderers.
74.
Further guidance on assessing value for money is contained in chapter 1.2 and Annex 1A.
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Defence Procurement Policy Manual 5.6 Evaluation of Tenders Evaluation of Whole of Life Costs 75. Evaluation of whole of life costs, sometimes referred to as life cycle costs, is a critical aspect of any evaluation. Whole of life costs are the total of the direct/indirect, recurring/non-recurring, fixed/variable costs arising from a decision to purchase, and are incurred in respect of the purchased item over its life cycle from proposal to disposal.
Use of Whole of Life Costing 76. For any Defence procurement, price is seldom the only relevant cost of a purchase. A minimum consideration for all procurement is a prediction of useful life. This is relevant even for the Simple Procurement of consumable items. It is, however, not worthwhile to undertake a detailed whole of life cost evaluation for short-life and low-cost items when the comparison is with other equally simple options. In making a value for money judgement, a comparison of the relevant benefits and costs on a whole of life basis should be undertaken. This requires that whole of life costing principles be used in the evaluation of offers. In many cases, this will be a simple process as the total costs and benefits of ownership will be readily apparent. A formal evaluation should be undertaken when comparing options with noticeably different initial prices, life expectancy, ongoing costs and disposal costs/residual values. In these circumstances professional advice should be sought from financial advisers. For further information refer to chapter 3.3.
77.
Costs to be Considered in Whole of Life Costing 78. Costs to be included in whole of life costing calculations should include only factors that can be assigned a monetary value for evaluation purposes. If a financial value cannot be given to a factor with certainty or confidence, then that factor must be evaluated separately. Costs that cannot be quantified with certainty, although they will have financial consequences, will include factors such as ease of purchase, delivery time, tenderer and equipment reliability, equipment down time and availability of spares. Trade-in offers should also be considered in the whole of life analysis. There is no simple formula for whole of life costing. Assessing whole of life costs will require some professional judgements about options and future events. The incorporation of the whole of life costed items, factors with uncertain costings and factors with no costings will comprise the value for money equation. The implementation of the whole of life costing process will result in significant benefits in the form of awareness of and planning for future opportunities and risks, and increase the probability of a successful procurement. Advice on financial evaluation methods can be obtained by contacting the Financial Investigation Service by lodging a webforms AD553 Professional Services Request form.
79.
80.
81.
Cartels and Tenderer Collusion 82. Regardless of the evaluation methodology adopted in connection with a procurement exercise, Procurement officers need to be aware of the possibility of tenderer collusion.
What is a Cartel? 83. A cartel exists when businesses, instead of competing, agree to act together in a way that defeats competition. This is designed to drive up the profits of cartel members while maintaining the illusion of competition.
Collusion and the Law 84. Anti-competitive conduct is prohibited under Australian law. There are four types of conduct that are defined as cartel behaviour. It is common for cartels to employ more than one strategy at any given time. These are: Page 5.611

bid rigging; price fixing; market sharing; and output restrictions.
85.
Collusion between tenderers can take a number of forms in the procurement process. All are unethical and most are illegal. Examples include attempts by tenderers at market sharing or collusive tendering. The most common form of tenderer collusion involves leaking or sharing one partys tender information (usually about price) with another tendering party. The result is usually that the Commonwealth fails to achieve value for money. Conduct between tenderers that is designed to share the work may be contrary to Competition and Consumer legislation. Covering quotes where one party deliberately submits an uncompetitive quote to make another partys quote look competitive - may also be contrary to Consumer Protection legislation.
Reporting and Inquiries 86. Where tenderer collusion is suspected, Procurement officers should contact their relevant contracting specialist or the Office of the Special Counsel More information on cartels can be found in the Australian Competition and Consumer Commission (ACCC) publication Cartels: deterrence and detection - a guide for government procurement officers available on the ACCC website at: www.accc.gov.au.
Offer Definition 87. Offer Definition (OD) can be defined as a stage within the tender evaluation process in which shortlisted tenderers further define specific aspects of their tenders before Defence completes its source selection activity and selects the preferred tenderer. OD generally involves the shortlisted tenderers refining a number of key plans and may, in certain circumstances, include the conduct of risk reduction workshops. Defence uses OD to assist it in making a source selection decision. OD aims to reduce risk by optimising the level of detail that is agreed between the Commonwealth and the shortlisted tenderer(s) prior to contract signature. In some circumstances, OD activities allow Defence to reduce uncertainty and provide greater clarity on the level of detail that tenderers are required to provide in response to the RFT which may assist in reducing the cost of tendering. However in most circumstances OD is likely to increase the cost of tendering for those shortlisted to participate in the OD activity. Where Defence plans to undertake OD activities, appropriate clauses should be included within the RFT documentation. Appropriate clauses are included within ASDEFCON (Strategic Materiel). Where the Commonwealth requires that OD is undertaken after the release of an RFT, legal and probity advice should be sought. Refer to chapter 3.13 for further information. An OD contract (or deed) between the Commonwealth and shortlisted tenderers maybe required prior to entering into OD activities. This deed should have legal sign-off to ensure that it does not jeopardize the process set out in the RFT.
88.
89.
90.
91.
When Should it be Used? 92. OD should be used in two scenarios:
where Defence intends to adopt a minimal RFT approach in which tenderers are asked to provide limited amounts of information and Defence develops a shortlist on the basis of that information (see chapter 5.4); or where a full RFT has been released and Defence wishes to ensure that all critical plans are agreed prior to contract signature.
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Defence Procurement Policy Manual 5.6 Evaluation of Tenders 93. Use of OD activities enables Defence to better assess the extent to which shortlisted tenderers are able to meet Defence requirements for the particular acquisition. Based upon this information, Defence should be able to finalise its evaluation and selection of the preferred tenderer or tenderers prior to entering into negotiations. OD has the added advantage of allowing plans finalised during OD activities to be included within any resultant contract without the need for further negotiation. Use of the OD approach may also assist Defence to achieve a common understanding with the shortlisted tenderer that may in turn considerably shorten any contract negotiation phase. Where the shortlisting process has led to development of a ranked order of merit and it is assessed that the outcomes of the OD activities will not change this order, then OD activities should not normally be undertaken. In these circumstances, Defence should move directly to contract negotiations unless contract negotiations are unlikely to be successful without OD. OD should only be used where there is a legitimate requirement for further clarification and risk reduction and should not be used merely to maintain competitive tension between tenderers.
94.
95.
Selection of the Offer Definition Process 96. The types of OD activities that can be conducted during an OD stage will depend upon the process that is selected and the activities notified to tenderers as possible OD activities in the RFT. ASDEFCON (Strategic Materiel) contains several OD clause options.
Offer Definition Activities 97. Typical activities that may be undertaken in the OD stage include:
the review and agreement of key contract plans, e.g. the Intellectual Property Plan and the System Safety Program; facilitation of risk-reduction activities; and other activities that will assist Defence to rank the shortlisted tenderer.
Probity Issues for the Offer Definition Process 98. Probity advice may be required when conducting OD activities. Careful consideration should be given to the selected OD activities to ensure that they result in a fair tender process, i.e. do not unfairly disadvantage or advantage a tenderer. In most circumstances, Defence will only be able to request shortlisted tenderers to participate in OD activities that have been identified in the RFT or draft OD contract (or deed). Specific probity issues that may need to be addressed include:
99.
the evaluation and OD process should be carefully designed to ensure that a tenderer who was not shortlisted to participate in the OD activities cannot subsequently argue that it could have provided a better value for money tender than the other shortlisted tenderer; the OD process should be conducted in a manner that ensures an unsuccessful shortlisted tenderer cannot argue that Defence unfairly assisted a tenderer during the OD activities while not providing the same assistance to the other shortlisted tenderer/s; Defence will need to clearly advise the shortlisted tenderers about how OD activities are to be undertaken (e.g. information requirements, deliverables, duration, etc), and Defences role in the OD phase (e.g. whether this is simply to provide information and to answer questions, or whether it is intended that Defence will actively participate in the development of the documentation by the tenderers). In the latter case, there would be an increased risk of allegations that Defence provided greater assistance to one shortlisted tenderer over another; and the OD activities should be carefully selected and not altered during the OD stage. Where additional activities are required, Defence should write to each of the shortlisted tenderers to seek their approval to include the additional OD activities and ensure that the inclusion of these activities does not impact upon the ability of a non-shortlisted tender to represent Page 5.613
Defence Procurement Policy Manual 5.6 Evaluation of Tenders better value for money. Revision of Tendered Pricing During the Offer Definition Stage 100. Tenderers may revise their tendered pricing based on the outcomes of the OD activities, however for competitive tenders:
OD should not be used by tenderers to change the fundamental basis on which their pricing has been calculated; and revised pricing should not be considered where the revision is considered to change the underlying basis of the tendered price or where such consideration would contravene Defences obligations to treat all tenderers fairly.
Source Selection Recommendation 101. A source selection recommendation should be made to the Contract Approver identified in the TEP. The source selection recommendation to enter into negotiations requires an evaluation of tenders and a submission of findings. DMO has specific procedures contained within DMI (PROC) 13-0-001 that must be followed when developing a SER. Source Evaluation Report 102. For high value Complex and Strategic Procurements a more structured evaluation report referred to as the SER must be used to make the source selection recommendation. A typical SER could take the form of:
Part 1: Executive Summary. The executive summary provides an overview of the evaluation, findings reached and recommendations. Part 2: Body of Report. The body of the report should contain: an introduction; reference to the approved TEP; details of the evaluation process and methodology used; results of the comparative assessment of the tenders against each other, drawing on information contained in the individual evaluation reports contained in Part 3; and value for money considerations, ranking of offers and recommendations etc. Part 3: Enclosures (individual tender evaluations). Enclosures contain the documentation from the detailed evaluation, the individual evaluation of each tender against the evaluation criteria and the original of all request documentation. The associated papers consist of original copies of request documentation and the evaluation plan. This documentation supports the audit trail. Part 4: Associated Papers. By the end of the evaluation process for high value Complex and Strategic Procurements, there should be: clarified and ranked tenders; a value for money target; identified areas for negotiation; identified necessary contract terms; developed strategies for managing contract negotiations; and a comprehensive record of the evaluation.
103. Recommendations in the SER may include that:

a particular tender be accepted; negotiations commence with one or more tenderer/s; or none of the tenders be accepted.
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Defence Procurement Policy Manual 5.6 Evaluation of Tenders Early Notification of Tender Outcome 104. For Complex and Strategic acquisitions Defence may provide early notification to tenderers who have been declined for failing to meet a mandatory requirement so that they can channel their efforts and resources toward other business opportunities. For less Complex acquisitions, where the selection is made in a single evaluation process, the unsuccessful tenderers offers should be declined within 48 hours after the award of the contract. For further guidance on Defence policy on the public announcement of preferred tenderers refer to chapter 5.7A. 105. In a staged evaluation suggested decline/acceptance letters are included in the Process Template section of the Commercial Policy and Practice website:
Unsuccessful tenderers: offers are declined immediately after the initial shortlist has been approved by the appropriate authority; Shortlisted tenderers: at the same time as notifying unsuccessful tenderers, shortlisted tenderers (i.e. those tenderers included in the shortlist) should be notified; Non-preferred tenderers: following source selection by the appropriate authority, non preferred tenderers should be notified; Preferred tenderer: the preferred tenderer or tenderers are notified and invited to enter into contract negotiations; and Unsuccessful shortlisted tenderers: when a contract has been awarded, the remaining shortlisted but unsuccessful tenderers should be notified within 48 hours.
Preparing for Negotiations 106. The evaluation process should identify key issues and priorities which must be addressed during negotiations with individual tenderers. These issues may be used to:

prepare for negotiation; determine the negotiation process to be adopted, e.g. the estimated time required for negotiations and/or whether sequential or parallel negotiations will be used etc; determine the technical skills required in the negotiation team; and develop the negotiation directive.
107. Guidance on negotiation is contained in chapter 5.7A. Tenderer Substitution 108. In many Complex Procurements, an extended period of time may pass between the issue of request documentation and the award of a contract. A companys ownership can change over that time. To accommodate the possibility of such a change in company ownership, the conditions of tender may make provision for the substitution of one company (already involved in a tender process) by another legal entity (the new or prospective owner of the tendering company). This situation poses many risks to Defence and accordingly a thorough analysis should be undertaken of the new companys management, relevant experience and financial capacity to undertake the contractual requirements adequately before approval for substitution is given.
Key References
Competition and Consumer Act 2010 (Cth) Commonwealth Procurement Guidelines For DMO, DMI (PROC) 13-0-001 - Mandatory Procurement Policy Requirements for all DMO Acquisitions (including Sustainment Procurements) to Contract Signature
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Defence Procurement Policy Manual 5.7A Negotiation and Contract Formation
5.7A Negotiation and Contract Formation

Introduction
1. 2. This chapter applies to all procurement undertaken in Defence and the DMO. This chapter discusses:

preparation for negotiations including the development of a contract negotiation directive; contract negotiations with a preferred tenderer(s) post tender evaluation; conducting parallel negotiations; development of a contracting negotiation report; contract formation; cancellation of a procurement; and debriefing of tenderers.
3.
The Division 2 (Mandatory Procurement Procedures) of the CPGs (MPPs) requirements that apply to covered procurements do not apply to Defence/DMO Exempt Procurements.
Mandatory Policy
For Strategic and higher value or high risk Complex procurements there must be a Contract Negotiation Directive in place before entering into negotiations with one or more tenderers. Procurement officers in the DMO must comply with Defence Materiel Instruction (Procurement) (DMI (PROC)) 13-0-001 Mandatory Procurement Policy Requirements for all DMO Acquisitions (including Sustainment Procurement) to Contract Signature when preparing for, undertaking and completing contract negotiations. If negotiations result in a major change to a tenderers offer (including its technical solution, pricing and/or commercial terms of its bid), Procurement officers must consider whether the amended offer continues to represent best value for money and/or whether other lower ranked tenderers should be given an opportunity to revise their tenders in light of changes. In these circumstances, if in any doubt, specialist contracting or legal/probity advice must be sought. For a covered procurement, unless a determination is made that it is not in the public interest to award a contract, a contract must be awarded to the tenderer that the tender evaluation has determined:

satisfies the conditions for participation in the procurement process; is fully capable of undertaking the contract; and whose tender is determined to provide the best value for money in accordance with the published evaluation criteria.
Procurement officers must not cancel a procurement, or terminate or modify an awarded contract so as to obviate the requirements of the mandatory procurement procedures of the Commonwealth Procurement Guidelines (CPGs). For all procurements, Procurement officers must promptly inform unsuccessful tenderers once a source selection decision has been made.
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Procurement officers must, on request, provide unsuccessful tenderers with a debrief, providing sufficient reasons for why its tender was unsuccessful. Reasons given must be accurate, appropriately detailed and traceable to the tender evaluation outcomes. The format and method of debrief is determined by the tenderer. Where an expression of interest or an application for inclusion on a multi-use list is rejected, the potential supplier must be promptly informed of the rejection of this offer/application. Where requested to do so, the potential supplier must be provided with a written explanation of the reasons for the decision. The minimum approvals that must be obtained before entering into (i.e. signing) a contract are, Proposal approval, Procurement approval and Contract approval. Where Contract Approval relates to the acquisition or support of Australian Defence Force (ADF) Materiel, delegates must ensure compliance with the relevant Australian Defence Force (ADF) technical regulatory requirements
Negotiation 4. Negotiation has the potential to improve the procurement outcome by reducing uncertainties, risks and costs. Normally the focus of negotiations is post-tender with one or more tenderers. During post-tender contract negotiations, Defence seeks to improve tenders through a structured, documented and ethical process consistent with sound probity practice and principle. Request documentation, including the draft conditions of contract, that has been properly prepared will ensure that negotiations can commence on a sound foundation, with negotiation focused on final contract details. Where tenderers have participated in a competitive tender process, a competitive situation should be retained throughout negotiations where practicable and consistent with probity requirements.
5.
When to Negotiate 6. The decision to negotiate might be influenced by:

the prospect of an improved value for money outcome; reasonable objections by potential suppliers to Defence conditions or requirements or alternative proposals which have the potential to reduce costs and/or improve service to the benefit of Defence; offered prices that are not considered to be fair and reasonable in the circumstances; unusual or complex requirements or circumstances; the existence of substantial risks for either party that warrant clarification; non-compliance with standard Defence conditions of contract; or the expected benefits of the negotiation, including the cost of negotiation itself.
Areas for Negotiation 7. Areas of negotiation will vary depending on the specific requirements of Defence and the shortlisted tenderer(s). These include:

the terms and conditions of any potential contract; the price of the supplies; and any technical requirements or conditions made by Defence.
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Defence Procurement Policy Manual 5.7A Negotiation and Contract Formation 8. Often price will be the focus for negotiation, especially where the market for the particular good or service is not competitive. Circumstances where price negotiation may be appropriate include:

the offered prices seem unreasonable or greater than those anticipated; the contract is to provide for cost plus or incentive pricing; the quantity and/or timing of delivery may justify a request for a discount; there has been no competitive invitation and an opportunity exists for unreasonable or excessive profit taking; or where there has been a substitution of requested contract items (as in the introduction of new technology).
9.
Where price is the focus for negotiation, it is particularly important that there is a clear and agreed plan prior to going into negotiations of what constitutes a value for money offer and the parameters of the negotiations. This planning is important so that all Procurement officers involved in negotiations are clear on at what point changes sought by the preferred tenderer(s) have a cumulative impact which results in the offer(s) being either too different from its original tender or no longer represents best value for money when compared to the other tenders. In either of these situations probity considerations may require Defence to re-tender the requirement at considerable risk to the project schedule.
Negotiation Team Skills 10. The members of the negotiation team need to be selected carefully in order to combine the right blend of negotiation experience and contractual, financial, legal and/or technical skills. It is not enough for members of the negotiation team to rely solely upon written guidance. As the value and complexity of the draft contract increases so to will the need for skilled negotiators. Once a team is selected, the role of each team member should be carefully defined. One person in the negotiation team should be designated as the team leader. Within Defence it is common practice for different individuals to be involved in leading negotiations of different parts of the contract. A common separation is between the commercial team (with responsibility for negotiating the commercial aspects of the contract, such as the conditions of contract and pricing attachments) and the technical team (with responsibility for the technical aspects of the contract, including the statement of work). Where this separation occurs a member of the commercial team should normally be present for all technical discussions to ensure consistency between the statement of work and the conditions of contract. For example, negotiations of the specifications can affect the fitness for purpose warranty given by the contractor in the Conditions of Contract. Generally, the terms of the warranty provide that the supplies must be fit for the purpose detailed in the contract. If the purpose of the supplies is inadequately described in the technical documentation or it is not clear what the purpose is this can render the protection that would otherwise be afforded by the warranty meaningless. The negotiation outcome for Defence may be enhanced by including a person in the negotiation team who participated in the formulation of the draft Statement of Work. This person should understand exactly what is required by Defence. To ensure continuity between the contract negotiation and contract management phases the designated contract manager should observe the negotiations. For major negotiations, the negotiation team should consider whether specialist negotiation training should be undertaken by the team before commencing negotiations. Specialist negotiation training can be obtained through the DMO Support Services Panel.
11. 12.
13.
14. 15.
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Defence Procurement Policy Manual 5.7A Negotiation and Contract Formation Contract Negotiation Directive 16. Preparation is essential for successful negotiations. All members of the Defence negotiation team should meet prior to any formal negotiations and agree through a Contract Negotiation Directive on appropriate strategies to be employed to present a unified position to the preferred tenderer. For higher value Complex and Strategic Procurements there must be a Contract Negotiation Directive in place before entering into negotiations. A typical contract negotiation directive should include:

17.
a definition of the requirement for which the procurement is being undertaken; the issues for negotiation; clearly defined roles and responsibilities of each negotiation team member; the authority of the negotiation team; the aims, objectives and constraints of the negotiation; an understanding of the policy objectives which are to be maintained during the negotiation; an understanding of the likely objectives and approaches of the tenderer with whom the negotiation takes place; definition and commitment of the resources available including financial and technical advice; clearly defined optimum, acceptable, fall-back and walk-away positions; and checks to ensure that both negotiating parties have the necessary legal authority to act within the scope of their stated or perceived instructions.
18. 19.
It is important to note that, regardless of what authority is established in the negotiation directive, the negotiation team does not have authority to deviate from Commonwealth policies. Whilst the authorities and responsibilities of the Defence negotiation team will be clearly documented, it is important to check the authority of the other party. It should never be assumed that the other party has sufficient authority to agree to anything even when they appear to have such authority. A Contract Negotiation Directive process template has been developed specifically for Complex procurement and is available on the Commercial Policy and Practice website. Procurement officers should tailor the template Contract Negotiation Directive to suit the particular procurement. Procurement officers should consider whether more extensive and detailed information is required for Strategic procurement.
20.
Record Keeping and the Audit Trail 21. A contract must be supported by a clear audit trail for the purposes of maintaining accountability (see chapter 1.2) and in case of future legal disputes. Documentation must be kept to show that the negotiation was justified and that it was conducted in a fair and effective manner. Any agreed or proposed amendments to the draft contract should be summarised or captured at the end of each day. If this is not done, the parties may leave the negotiations with a different interpretation of the final agreement. Records should clearly show:

22.
the aim of the negotiations; the justification and approval for negotiation; the plans followed; a record of negotiations; traceability of the negotiated position back to the evaluation outcomes detailed in the Page 5.74
Defence Procurement Policy Manual 5.7A Negotiation and Contract Formation Source Evaluation Report;

management approval for the award of the contract; and an evaluation of the effectiveness of negotiations.
23.
A successful method of record keeping during negotiations is the maintenance of an electronic copy of the draft contract. Changes in track changes are made in full view of the other party through a projector. Both parties retain an electronic copy after completion of negotiations each day, but with the Defence team retaining the control copy of the draft contract at all stages during the negotiation process.
DMO Specific Requirements 24. DMO officers must comply with DMI (PROC) 13-0-001 - Mandatory Procurement Policy Requirements for all DMO Acquisitions (including Sustainment Procurement) to Contract Signature when preparing for and undertaking contract negotiations. This includes the requirement to develop a Contract Negotiation Directive prior to the commencement of negotiations and a Contract Negotiation Report at the conclusion of negotiations.
Negotiation Ethics 25. Negotiators and Procurement officers must be ethical, fair and even handed when conducting negotiations. The negotiation team should be especially careful regarding conflicts of interest, including offers of gifts and hospitality (see chapter 3.13). In particular, negotiations should not be conducted in ways that put particular tenderers at an unfair disadvantage, which distort open competition or breed distrust in the negotiation process.
Legal Implications 26. The negotiation team should not give tenderers the impression that they are certain to get a contract. Such an impression undermines the Commonwealths negotiating effectiveness and may give rise to a claim of damages based on estoppel or misrepresentation if the relevant tenderer ultimately does not get the contract. It should also be made clear that negotiations are subject to contract until a formal decision is made to commit the Commonwealth by the Contract Approver. Equally important, before accepting the offer, the essential terms and conditions must have been agreed. In contract law, acceptance of a tenderers offer need not be specific and in writing. Acceptance may be implied through the actions (conduct) or verbal statements of the Defence negotiators in which case a binding contract may have been formed and Defence may not be able to further negotiate or withdraw from the negotiations. At no time should Defence negotiators form a contract through their conduct or verbal statements. If negotiations result in a major change to the tenderers offer (including its technical solution, pricing and/or commercial terms of its bid), Procurement officers must consider whether the amended offer continues to represent best value for money and/or whether other lower ranked tenderers should be given the opportunity to revise their tenders in light of changes. This will depend on the terms of the request documentation and issues of procedural fairness but generally, if the change results in a significant increase or decrease in the scope of the requirement or price of the solution, it may be necessary to seek revised tenders. In these circumstances, if there is any doubt, specialist contracting or legal/probity advice must be sought. There are a number of requirements for there to be a legally binding contract including agreement between the parties about the terms and conditions of the contract (see chapter 2.1). Once an offer is made and accepted it cannot be amended through subsequent negotiations between Defence and the tenderer. Instead, any amendments to the original offer constitute a rejection of the original offer and the formation of a new offer (counter offer). The result of rejecting the original offer is that it ceases to be available in its original form. The Defence negotiation team cannot decide in hindsight to accept the original offer as it no longer exists, unless it has been re-offered. For this reason, if the tenderer makes an offer that is acceptable Page 5.75
27.
28.
29.
Defence Procurement Policy Manual 5.7A Negotiation and Contract Formation to Defence and is within the authority provided in the TEP, the negotiation team should be in a position to accept that offer in principle as it stands before seeking formal Contract Approval. 30. Where a major or novel issue is being negotiated, or if there is any doubt about the legal implications of a negotiation at any stage, the contracting specialists listed at the front of this Manual should be consulted.
Negotiations with Multiple Tenderers 31. Undertaking negotiations with two or more tenderers in parallel (simultaneously) should not be confused with conducting negotiations sequentially, where more than one tenderer is shortlisted and negotiations occur with the first ranked tenderer, or iterative/multiple negotiations are held, in sequence, with a number of tenderers. Although parallel negotiations may be considered as an option that would enhance the bargaining position of the Commonwealth in cases of extremely competitive tenders, any decision to proceed with parallel negotiations should be carefully considered by the project manager and provided for in the request documentation. Defence should consider parallel negotiations only where two or more tenderers meet the requirements of the proposed contract and on the basis of the offers no tender can be assessed as clearly representing best value for money. Parallel negotiations should not be used purely as a negotiating ploy, for example, to keep one tenderer in the process as a stalking horse so as to encourage another tenderer to reduce its tendered price. Undertaking parallel negotiations could improve those areas of a tender response that are less than satisfactory to Defence. This potential, however, needs to be considered in light of the significant amount of effort and resources, on the part of the preferred tenderers and Defence, that are required to carry out negotiations in parallel. Where there is a possibility that Defence may pursue negotiations with multiple tenderers, the request documentation should notify potential suppliers that this may occur. This is usually done by the inclusion of an express statement in the conditions of tender which reserves Defences right to negotiate with one or more tenderers. Where tenderers have not been previously notified that Defence may conduct negotiations with multiple tenderers, advice should be sought from the contracting specialists listed in the front of this Manual prior to proceeding with the negotiations. When conducting negotiations with multiple tenderers it is vital that appropriate standards of probity and confidentiality are maintained. The Defence negotiating team must ensure that each tenderer is treated fairly and equitably and that if additional information is provided to one tenderer, it is provided to all negotiating tenderers where the information is also of relevance for those tenderers (i.e. the information is not tenderer-specific). Particular care should be taken to maintain the confidential nature of each tenderers information, whether contained in the tender or revealed during the negotiation process. Negotiations with multiple tenderers can be designed to include a requirement for tenderers to participate in risk reduction workshops during which data items are developed or finalised for inclusion in the contract. Risk reduction activities conducted during negotiations with multiple tenderers may address both tenderer dependent and tenderer independent risks. The use of negotiations with multiple tenderers following an offer definition stage (see chapter 5.6) can assist to reduce contractual risk and allows critical contract plans and programs to be agreed prior to contract signature.
32.
33.
34.
35.
36.
Awarding of Contracts for Covered Procurements 37. Unless a determination is made that it is not in the public interest 1 to award a contract in relation to a covered procurement, the procuring entity must award a contract to the tenderer that the tender evaluation has determined:
For further information on the when awarding a contract is not in the public interest please refer to Section 9.3 of Financial Management Guidance No.13 - Guidance on the Mandatory Procurement Procedures January 2005
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satisfies the conditions for participation in the procurement process; is fully capable of undertaking the contract; and whose tender is determined to provide the best value for money in accordance with the evaluation criteria specified in the approach to the market and request documentation.
38.
Termination of a procurement process is a serious step with potential legal and management risks that should be considered and addressed before any decision is made. 2 It is not permissible to cancel a procurement, or terminate or modify an awarded contract so as to obviate the requirements of the mandatory procurement procedures.
Contract Formation 39. For low value purchases there often will not be a formal contract document that is signed by both parties. A purchase order issued by Defence can represent acceptance by Defence of the tendered offer and is legally binding on both parties. For Complex and Strategic purchases the original offer is likely to significantly differ from the final offer or negotiated outcome. For this reason, the final contract document should be signed by both the contractor and Defence in order to reflect the final agreement reached between both parties. Prior to contract signature, the project manager should confirm that the preferred tenderers representative nominated to sign the contract is duly authorised by the company to do so. Advice as to legal requirements for execution of a contract can be obtained from the contracting specialists listed at the front of this Manual.
40.
Obtaining Contract Approval 41. Any significant departures from Defences standard contracting terms and conditions or standard Statement of Work (where applicable) should also be recorded and presented to the Contract Approver prior to contract signature. In addition the final contract must be legally enforceable and, as far as possible, meet the objectives of the original requirement. Where Contract Approval relates to Australian Defence Force (ADF) Materiel, delegates must ensure compliance with Australian Defence Force (ADF) technical regulatory requirements. As a minimum, the Contract Approver delegate must be satisfied that the Technical Regulatory Authority (TRA) or their delegate has certified that the specified Contract requirements comply with the required ADF Materiel specifications, standards and other requirements (the Certification Basis). Before entering into a contract, Proposal, Procurement and Contract approval must have been obtained. The exercise of the Contract approval is the third step prior to establishing a legal liability requiring a future payment of public money by Defence. Further guidance on Contract approval is contained in chapter 1.4.
42.
43.
Contract Signature and Contract Signatory 44. It is best practice for the delegate exercising the Contract Approver delegation to sign the contract as the Contract Signatory. There may be situations in which the delegate who has exercised the Contract Approver delegation is unable to sign the contract and it is then acceptable for another Commonwealth employee, who has a Contract Signatory delegation, to sign the contract. In other situations, it may be more appropriate, from a public relations standpoint, for a more senior person to sign the contract. This is acceptable provided that the person holds a Contract Signatory delegation. Further guidance on Contract Signatory approval in contained in chapter 1.4. Where a formal contract document is executed, a Purchase Order must still be raised in ROMAN or MILIS to establish visibility of commitment to price, quantity and delivery date. The
45.
See Section 9.3 of Financial Management Guidance No.13 - Guidance on the Mandatory Procurement Procedures January 2005.
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Defence Procurement Policy Manual 5.7A Negotiation and Contract Formation terms and conditions of the contract document will apply rather than the standard Purchase Order terms and conditions. 46. In terms of MILIS, all procurement activity is classified as Simple and will be performed as a result of a Request for Quote process, a purchase against a Standing Offer or a Blanket Order. In the first two instances the resulting purchase order should equal one contract. In terms of the Blanket Order, that document should equal the contract with each Purchase Order raised against it reflecting an additional line debiting the funds reserved in the blanket order.
Contract Number Allocation 47. Systematic allocation of contract numbers ensures that duplication of contract numbers does not occur. It is recommended that a central area within each division involved in the development and implementation of capital equipment contracts keeps a register of allocated contract numbers.
Public Announcement of Preferred Tenderer or Contract Award 48. Defence policy is that no public announcement should be made regarding the selection of a preferred tenderer or tenderers until the following criteria have been met:

the successful completion of contract negotiations; the obtaining of all necessary Approvals; the obtaining of contract signature; and the notification of all unsuccessful tenderers.
49.
Not announcing the preferred tenderer will help to preserve Defences negotiation position and maintain competitive tension in the negotiations phase of the tender process. This approach is also consistent with Government policy to encourage competition and will normally lead to better value for money outcomes for Defence, including the avoidance of protracted contract negotiations. If a decision is made (e.g. by the Minister) to announce the preferred tenderer before negotiations have been finalised, care should be taken to ensure that in the announcement it is made clear that the award of the contract is subject to the negotiation of satisfactory terms and conditions.
50.
Debriefing Tenderers 51. Tender documentation should include advice to tenderers that they may seek a debriefing. It is recommended that request documentation:
indicate the point in the procurement cycle when the tender debriefing will be available, i.e. after contract signature; specify in general terms the issues and information that the tender debriefing may be expected to cover; indicate a contact point from which tenderers may seek a tender debriefing, such as the Contact Officer for RFT inquiries; and provide any information that may assist tenderers to seek a tender debriefing, should they desire one.
Notification of Decisions Prior to Contract Award 52. For both covered procurements and non-covered procurements, Procurement officers must promptly inform unsuccessful tenderers once a source selection decision has been made. This notification does not include a formal debrief at this stage.
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Defence Procurement Policy Manual 5.7A Negotiation and Contract Formation 53. Where an expression of interest or an application for inclusion on a multi-use list is rejected, the potential supplier must be promptly informed. Where requested to do so, the potential supplier must be provided with a written explanation of the reasons for the decision.
Debriefing Tenderers after Contract Award 54. 55. Debriefing of tenderers should normally occur after contract signature. Specialist contracting advice should be sought if it is proposed to conduct a debriefing before contract signature. Debriefing tenderers in a frank and fair manner is important for the development of long term relationships with suppliers and for maintaining tenderer confidence in the conduct and outcomes of Defence tender processes. Procurement officers conducting procurements (whether covered or non-covered) must, on request, provide an unsuccessful tenderer with reasons why its tender was unsuccessful. The format and method of debrief is determined by the tenderer, for example if a tenderer requests a written explanation then Procurement officers must provide the tenderer with written reasons supporting the outcome of the evaluation. The extent of the debrief should reflect the complexity and value of the procurement. For Simple procurements, standard form debriefs may be used. For Complex and Strategic procurements, it will generally be necessary for Procurement officers to detail in writing the shortcomings (and any strengths) of the tender and/or offer a face to face meeting with the tenderer. Reasons offered by Defence in any debrief for why the tenderer was unsuccessful should be comprehensive, accurate and traceable to the outcome of the tender evaluation. A further advantage of properly conducting debriefings is that they can assist unsuccessful tenderers to further improve their products and services, thus improving their competitiveness and thereby enhancing future value for money for Defence. Information gained from a debriefing should assist tenderers to continue to enhance their performance rather than be content with their current level of capability/performance.
56.
57.
58.
Information that can be Provided in a Debrief 59. 60. Verbal debriefs should be conducted in a sensitive and professional manner. Debriefs should be conducted on the basis of a prepared statement. In debriefing unsuccessful tenderers the evaluation criteria in the request documentation should be followed and indication made where the tender was deficient or not preferred. Specific comparisons with other individual tenders should not usually be made- however, general overall statements of comparison, without specific reference to any other tender may be made. In particular, the debrief should address:

why their tender was successful or unsuccessful; areas of strength or weakness or non-compliance with the specification or draft Statement of Work in their tender; and what they can do to improve future tenders.
61.
When debriefing unsuccessful tenderers, reasons given must be accurate, appropriately detailed and traceable to the tender evaluation outcomes. A debrief should (as appropriate) cover both the strengths and weaknesses of the relevant tender. The format and method of debrief is determined by the tenderer. Tenderers cannot be given any information that is commercial-in-confidence (see chapter 3.13). For example, Defence may reveal to unsuccessful tenderers the name of the successful tenderer and the total price of the winning tender, but not the cost breakdown. No details of the successful tenderers pricing, including individual prices tendered for line items, are to be revealed. To do so may reveal tenderers cost structures, pricing policies, manufacturing efficiencies and areas of competitive advantage.
62.
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Key References
Commonwealth Procurement Guidelines Department of Finance and Deregulation, Financial Management Guidance No.13 - Guidance on the Mandatory Procurement Procedures January 2005 Department of Finance and Deregulation, Good Procurement Practice - Providing Feedback and Handling Complaints, December 2007 DMI (PROC) 13-0-001 Mandatory Procurement Policy Requirements for all DMO Acquisitions (including Sustainment Procurement) to Contract Signature
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Defence Procurement Policy Manual 5.7B Procurement Complaints Handling
5.7B Procurement Complaints Handling

Introduction
1. 2. This chapter applies to all procurement undertaken in Defence and the DMO. This chapter details the process for handling complaints relating to the conduct of Defence procurement and should be applied to complaints arising in the period between the request documentation being issued and the date of contract signature, regardless of when the actual complaint is made. This chapter does not cover:
3.
disputes between Defence and the contractor after contract signature (which should be managed in accordance with the terms of the contract and the dispute resolution process outlined in chapter 6.8); complaints that are managed by the Complaint Resolution Directorate in accordance with the Chief of the Defence Force/Secretary of Defence Joint Directive 1/2006; or complaints that are lodged by members of the ADF.
Mandatory Policy
Procurement officers must ensure that:

all complaints are dealt with in writing; the complainant and any other parties are given sufficient time, and no less than 10 working days, to respond to developments; they provide all relevant documents that may be required by law as part of an external review process; and a tenderer that lodges a complaint is not discriminated against in any future procurement process.
Procurement officers must comply with the requirements of the relevant Chief Executive Instructions regarding the management of claims against the Commonwealth. DMO officers must comply with DMO Chief Executives Instruction 8.2 Management of Claims By or Against the Commonwealth and Defence officers must comply with the requirements of Defence Chief Executives Instruction 8.1 Managing Claims against the Commonwealth. Procurement officers must obtain advice from contracting specialists when investigating any complaint due to the potential commercial and legal implications flowing from the review process and involve subject matter experts as necessary. For Defence, all requests for independent internal review must be directed to Defence Legal. For DMO, all requests for independent internal review must be directed to Special Counsel CEO DMO.
Background 4. Under the Commonwealth Procurement Guidelines (CPGs), agencies must develop fair, equitable and non-discriminatory complaint handling procedures. The CPGs provide that these procedures should take account of the following matters: Page 5.71
Defence Procurement Policy Manual 5.7B Procurement Complaints Handling

the process should be systematic and well understood by the parties involved; senior management and officials independent of the process should be involved as appropriate; complaints should be dealt with in writing; each party must have sufficient time to respond to developments (no less than 10 working days, unless urgent); if a matter has been referred to an external body (such as the Commonwealth Ombudsman) for review, Procurement officers must provide all relevant documents to that body as required by law; and agencies must ensure that the initiation of a complaint process does not prejudice a potential suppliers participation in future procurement processes.
5.
The existence of a complaint does not necessarily preclude Defence from continuing the procurement process that is the subject of the complaint.
Internal Procedures for Handling Procurement Complaints 6. 7. Complaints should be handled at the operational level, with issues that cannot be resolved being elevated to higher level management as necessary. Complainants must be given no less than 10 working days to respond to any communication from Defence unless the matter is urgent. Procurement officers should respond to all complaints and related correspondence in a reasonable time. Generally this will mean that Defence should aim to respond as soon as practicable, but in any event within 20 working days, of receiving verbal or written complaints.
Verbal Complaints 8. Where a verbal complaint is received Procurement officers should respond to the complaint in writing so that there is a clear and accurate record demonstrating how the complaint was dealt with and the Defence or DMO response. If the initial response does not satisfy a complainant, they should be requested to lodge a written complaint. The policy for dealing with written complaints will then apply.
Written Complaints 9. When a Procurement officer receives a written complaint an investigating officer should be assigned to handle the complaint. The investigating officer should be the Chairperson of the Tender Evaluation Board or from the business unit managing the procurement process and should be senior to the Procurement officer managing that process. The investigating officer is responsible for:
acknowledging the complaint within the time specified in paragraph 7, noting that the acknowledgement should indicate the expected timeframe for a formal response and advise that the Defence policy for handling procurement complaints is outlined in the DPPM available by following the Contracting link from the DMO internet site; ensuring that all correspondence regarding the complaint is recorded and filed appropriately; investigating the complaint and preparing a report; and notifying the complainant in writing of the outcome.
10.
The response to the complaint must be in writing. The written response should outline the issues, what action Defence has taken to examine the issues, and the findings in relation to the complaint. The complainant should be advised that if not satisfied with the findings of the investigation they have the option of seeking an independent internal review.
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Defence Procurement Policy Manual 5.7B Procurement Complaints Handling Specialist Advice 11. An external probity expert may be engaged to provide independent oversight of the procurement process for Strategic or Complex procurement. Where a legal process or probity advisor has been appointed to the project and complaints or problems arise during the tender process, Procurement officers should consult with the advisor as to how these matters should be addressed and for advice on any proposed correspondence with the tenderer regarding the complaint. The legal process or probity plan for the procurement may require complaints regarding the procurement process to be handled by the independent legal process or probity advisor rather than internally within Defence. Where this is the case, the request documentation should advise tenderers that the published Defence Complaints Handling Process does not apply and the process detailed in the probity plan should be followed. The complaints handling process outlined in the probity plan should be provided to tenderers. Procurement officers must obtain advice from a relevant legal adviser when investigating any complaint due to the potential commercial and legal implications flowing from the review process and involve subject matter experts as necessary. For example, the Inspector General should be contacted where the complaint raises issues such as conflict of interest, fraud, ethical violations or inappropriate disclosure of information.
12.
13.
Independent Internal Review 14. Where a complainant lodges a request for further consideration of the complaint, an independent internal review should be conducted. The review will then be allocated to a procurement, contract, legal, financial investigation or technical officers, as appropriate. For Complex and Strategic procurements, the review may be conducted by a team. For Defence, all requests for independent internal review must be directed to the applicable Group Head (with advice from Defence Legal). For DMO, all requests for independent internal review must be directed to the Special Counsel CEO DMO. To ensure that the internal review is credible and independent, the internal review officer should:
15.
not have been involved with the tender evaluation, contract award or administration of the relevant contract; be independent of direction from anyone who was involved in the process; and possess experience in procurement.
16.
The internal review officer should promptly contact the complainant in writing to advise that they have been appointed to conduct the internal review and request any further information that is required from the complainant. The internal review officer should have access to all files and records relating to the tender process, including written records of all communications with the complainant. If these records are insufficient, the internal review officer may interview those involved in the tender process to obtain the information required. The internal review officer should promptly notify the complainant in writing of the findings of the internal review. The notification should include:

17.
18.
the name and position of the internal review officer; the findings of the internal review officer on important facts; the evidence on which those findings are based; the reasons for the decision; and an indication that the complainant is entitled to raise the matter with the Commonwealth Ombudsman, who may investigate procurement complaints.
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Defence Procurement Policy Manual 5.7B Procurement Complaints Handling External Grievance Mechanisms Available to Tenderers 19. Where a tenderer is dissatisfied with a decision or process, there are various external means of recourse open to them including:

lodging a complaint with the Commonwealth Ombudsman; and seeking review through the civil legal system.
20.
Procurement officers should not allow baseless, frivolous or vexatious complaints to influence a tender outcome or be used to gain an improper commercial advantage by fishing for commercial-in-confidence information.
Ombudsman 21. The Ombudsman is required to investigate complaints about the administrative actions of Commonwealth agencies. Generally, the Ombudsman will not investigate complaints unless they have first been raised with the agency concerned. The Ombudsman can suggest or recommend a particular course of action but cannot override a decision made by Defence. The Ombudsman will report its findings to the complainant, the agency (including recommending that a decision be overturned) and may report to Parliament if necessary. The Ombudsman may also decide that the investigation of a complaint is not warranted. Reasons for this may include that:
22.
the complainant has been aware of the action complained about for more than twelve months prior to making the complaint; the Ombudsman considers that: the complaint is frivolous, vexatious or not made in good faith; the complainant does not have a sufficient interest in the subject matter of the complaint; or investigation of the complaint is not warranted in the circumstances. the complainant has not tried to resolve the matter directly with Defence or DMO in which case the Ombudsman may defer investigation until the complaint has been raised with either Defence or the DMO; the complainants representations to Defence or the DMO are still being considered; the complainant exercises the right to have the matter reviewed by a court or tribunal; the complainant has not exercised the right to have the matter reviewed by a court or tribunal and the Ombudsman considers it is or would have been reasonable for the complainant to exercise that right; and the complaint has not been referred to and is better handled by another body of review, the most relevant to Defence and DMO being the Office of the Privacy Commissioner, the Public Service Commissioner and the Law Enforcement Integrity Commissioner.
23. 24.
A complete list of the circumstances in which the Ombudsman has the discretion to not investigate a complaint is contained in section 6 of the Ombudsman Act 1976 (Cth). Complaints referred to the Ombudsman are forwarded to Defence through the Complaint Resolution Directorate within the Fairness and Resolution Branch, People Strategies and Policy Group, which is responsible for managing and responding to the Ombudsman. If staff from the Ombudsmans office make direct contact with procurement staff their inquiry should be redirected, in the first instance, to the Complaint Resolution Directorate. Further information on investigation by the Ombudsman can be found in DI(G) PERS 34-3 Inquiries and Investigations by the Commonwealth Ombudsman and the Defence Ombudsman.
25.
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Defence Procurement Policy Manual 5.7B Procurement Complaints Handling Civil Legal System 26. The civil legal system is the primary external mechanism for dealing with complaints. Where legal action is taken against Defence or the DMO in respect of a procurement process, support must be obtained from contracting specialists in the first instance. They will, in consultation with the legal and procurement areas, determine what other support may be required. For procurement processes conducted outside of the DMO, Defence Legal will need to be consulted in accordance with Defence Chief Executives Instruction 8.1 Managing Claims against the Commonwealth. Within the DMO, DMO should be consulted in accordance with DMO Chief Executives Instruction 8.2 - Management of Claims By or Against the Commonwealth.
Key References
Ombudsman Act 1976 (Cth) Commonwealth Procurement Guidelines Defence Instruction (General) DI(G) PERS 34-3 Inquiries and investigations by the Commonwealth Ombudsman and the Defence Force Ombudsman Defence Chief Executives Instruction 8.1 Managing Claims against the Commonwealth DMO Chief Executives Instruction 8.2 - Management of Claims By or Against the Commonwealth Department of Finance and Deregulation Good Procurement Practice Guide Providing Feedback and Handling Complaints December 2007
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Defence Procurement Policy Manual 5.8 Reporting Requirements
5.8
Introduction
Reporting Requirements
1. This chapter applies to all procurements undertaken in Defence and Defence Materiel Organisation (DMO). For information on notifications of Open Approaches to the Market (ATM) refer to chapter 5.5. 2. This chapter covers:

Annual Procurement Plans (APP); AusTender, for procurements valued at $10,000 or above (GST inclusive); Interim Defence Contract Register, for procurements valued at $100,000 or above (GST inclusive); Consultant, Professional Service Provider (PSP), and contractor reporting; and Other reporting requirements.
3. Please note that Defence and DMO report separately as the DMO is a prescribed agency. 4. Unless otherwise specified, a reference to a contract in this chapter includes a contract or order raised under a standing offer. A reference to a standing offer includes a reference to a standing offer arrangement or standing offer panel.
Mandatory Policy
Defence officials must meet the reporting requirements contained within the Commonwealth Procurement Guidelines (CPGs) and the Department of Finance and Deregulation (DOFD) Financial Management Guidance No 15 - Guidance on Procurement Publishing Obligations (FMG 15). The Contract Approver must ensure that the approved contract, agency agreement, standing offer, or amendment to these arrangements valued at $10,000 (GST inclusive) or above, is accurately reported on AusTender within 6 weeks of the Contract Signatory delegation being exercised. Procurement officers must ensure that all contracts valued over $10,000 created under a standing offer are reported in ROMAN, via the ROMAN Gazettal screen, referencing the correct Standing Offer Number Identification (SON-ID). MILIS users must report contracts and contract amendments manually on AusTender All new Standing Offer arrangements must be manually reported on AusTender in the Standing Offer Notices Section. The procurement method reported for a contract created under a standing offer must be the same as the original procurement method that was reported on AusTender when the standing offer was created. Where a contract amendment increases the value of the contract to $10,000 or greater (GST inclusive), then the contract must be reported on AusTender. Procurement officers must comply with the AusTender Procurement Publishing Obligations Business Rules when undertaking procurement. Contracts that are not reported on AusTender due to meeting the Not in the public Page 5.81
Defence Procurement Policy Manual 5.8 Reporting Requirements interest requirements specified in FMG 15 must be reported in either the Defence or DMO Annual report. A blocking code must not be entered into ROMAN or CMS unless the code is specified and approved by the Contract Approver in the signed Form AE 108. The Contract Approver must ensure that the approved contract, agency agreement, standing offer, or amendment to these arrangements valued at $100,000 (GST inclusive) or above, is accurately reported on the IDCR within 6 weeks of the Contract Signatory delegation being exercised. DMO officers must comply with the specific procedures and reporting requirements contained within Defence Materiel Instruction (Finance) (DMI (FIN)) 01-0-025 Engagement of External Service Providers when engaging Consultants, Contractors and PSPs. A consultancy contract with a value of more than $100,000 (GST inclusive) must be reported in AusTender, the IDCR and the Defence and DMO Annual Reports. Contracts that have been exempted from being reported on AusTender under the FOI Act subsection 33(1) must not be entered into the IDCR.
AusTender 5. AusTender is the Australian Governments web-based procurement information system. DOFD maintains the AusTender system and promulgates policy regarding AusTender procurement publishing obligations on behalf of the Australian Government. This policy is primarily located in the CPGs (paragraphs 7.15-7.20 and 7.24-7.25) and FMG 15. 6. AusTender has a public site (www.tenders.gov.au) where business and the general public can view and download reports on Australian Government procurement. To support the transparency of Australian Government procurement outcomes, DOFD publishes on its website a summary of contracts reported by Agencies on AusTender during the previous financial year. DOFD also requests Agencies confirm the accuracy of their AusTender data. It is therefore vital that Defence and DMO accurately report in accordance with their AusTender reporting obligations. What is to be reported on AusTender 7. The CPGs and FMG 15 require that Defence and DMO separately report the following on AusTender :

Annual Procurement Plans (APP) (FMG 15 section 3); Approaches to the Market (For further information refer to chapter 5.5 and FMG 15 section 4); all new standing offer arrangements (FMG 15 section 5); all contracts for the procurement of property or services, including contracts raised against a standing offer and amendments to contracts with a value of $10,000 or more (GST inclusive) (FMG 15 section 5); and contract changes valued at $10,000 or more (GST inclusive) or contract amendments that increase the value of a contract to $10,000 or more (GST inclusive).
How to Report on AusTender 8. New webforms have been released to ensure data quality when reporting either Approaches to the Market and contracts on AusTender:
Form AE 108-1- AusTender Reporting ROMAN/CMS;
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Form AE 108-2- AusTender Reporting MILIS Purchase; and Form AE 109 AusTender Approach to Market Data Entry.
9. Further information on the use of these webforms and the interrelationship between the forms and ROMAN, CMS, MILIS and AusTender is contained in paragraphs 17 to 21 below. Further information on the use of Form AE 109 is contained in chapter 5.5 Annual Procurement Plans 10. In order to notify potential suppliers of future procurement opportunities Australian Government Policy requires agencies, including both Defence and DMO, to publish an APP on AusTender by 1 July each year, and to update it regularly to ensure it remains current. Details of the requirement, and what should be contained in the APP, are contained in FMG 15. 11. DMO undertakes this task on behalf of itself and the Defence Support Group (DSG) undertakes this task on behalf of Defence. Information regarding potential procurement opportunities with a value of $1 million or above is requested in May and November each year to facilitate completion of these tasks. Reporting of Standing Offers on AusTender 12. All new standing offers must be manually reported on AusTender in the Standing Offer Notice (SON) Section. This requires the user to have AusTender CN/SON access. As part of this reporting process AusTender issues a unique Standing Offer Notice ID (SON- ID). The Contract Approver is responsible for ensuring that a new standing offer is reported on AusTender. 13. Where a new standing offer is established, a separate Outline Agreement must be created in ROMAN for each supplier on the standing offer panel. Where both Defence and DMO can access the standing offer, two Outline Agreements must be created for each supplier for separate Defence and DMO use. Further information on Outline Agreements can be obtained from the following Defence Chief Finance Officer Group website link: http://intranet.defence.gov.au/find/skilling/elearning_docs.html 14. AusTender is the single location for accessing details of current Defence and DMO standing offers. Reporting of Contracts raised under Standing Offers on AusTender 15. Each contract created under a standing offer that is valued at $10,000 or above, must be reported referencing the appropriate SON-ID, which was issued by AusTender at the time that the standing offer arrangement was first reported. 16. The procurement method reported for a contract created under a standing offer must be the same as the original procurement method that was reported on AusTender when the standing offer was created. For example, the DMOSS Panel (SON-ID SON 48590) was originally established and is periodically refreshed using an open approach to the market. The procurement method recorded on AusTender for the DMOSS Panel is open tender. The procurement method reported for all contracts raised under the DMOSS Panel will be open tender.
Reporting of Contracts on AusTender 17. In Defence and DMO the completion of the correct fields in ROMAN and the Card Management System (CMS) will result in the contract and contract amendment information being automatically uploaded and reported to AusTender. Completion of webform AE 108 -1 -AusTender Reporting ROMAN/CMS will ensure the quality of data is input into ROMAN or the CMS. AusTender records this information as Contract Notices (CN). Procurement officers should note that automatic upload of information is undertaken on a periodic basis and information will not appear immediately on AusTender.
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Defence Procurement Policy Manual 5.8 Reporting Requirements 18. For procurement undertaken and contracts processed using MILIS, completion of webform AE 108 -2 AusTender Reporting MILIS Purchase will ensure data quality. This data must then be manually loaded onto AusTender. This requires the user to have AusTender CN/SON access. Unlike ROMAN and CMS, procurement reporting data does not automatically upload from MILIS to AusTender. 19. The AE108 forms contain the necessary fields to comply with the AusTender reporting requirements. Therefore, contracts should be reported in ROMAN (and directly in AusTender for MILIS users) based on the data contained in the AE108 forms. If the contract has been created under a standing offer, the Standing Offer Number (SON-ID) allocated by AusTender and the Outline Agreement number created for the supplier should be identified in the AE108 form. 20. If two or more purchase orders are raised relating to the same contract, then an Outline Agreement is required to be created in ROMAN. The SA405 form can be used to create an Outline Agreement. 21. The reporting function on ROMAN is called gazettal. Any questions relating to the gazettal function on ROMAN should be directed to the ROMAN help desk on free call 1800 636 603. Reporting of Contract Amendments on AusTender 22. In accordance with FMG 15, Defence and DMO are required to report amendments to any contracts that the meet the contract reporting criteria. This criteria is contained in FMG 15, paragraph 9 and includes options, extensions or renewals. 23. In the case of amendments to contracts which have previously been reported on AusTender, if the value of the amendment is equal to or greater than $10,000 (GST inclusive), the contract amendment must also be reported on AusTender. Subject to paragraph 24, only the value of the amendment should be reported, not the new contract value 24. Where a contract amendment increases the value of a previously unreported contract to $10,000 or greater, the contract must be reported on AusTender. For example, a contract with an initial value of $8,000 would not be reported, however if an amendment or a series of amendments occur that increases the total value of the contract to $10,000 or more, this contract would then have to be reported. The amended contract should be reported at the time that the amendment takes the total value of the contract to $10,000 or more. The contract value to be reported will be the total value of the contract. 25. There is no requirement to report price variations resulting from:

exchange rate fluctuations; or increases in the cost of labour and materials, where those increases are provided for in the terms of a contract with pre-approved indexes.
Price variations which do not fall within the approved terms and conditions will constitute an amendment and should be reported where the additional expenditure is equal to or greater than $10,000. Contract Value on AusTender 26. For AusTender reporting purposes, the contract value is the total value of the contract, including GST where applicable (FMG 15 paragraph 5.15). The contract value does not take into account any options, extensions, renewals, or other mechanisms that may be exercised at a future date to increase the value of the contract. 27. For Foreign Military Sales acquisitions, the total value of the Foreign Military Sales case must be reported. Individual requisitions against that case need not be reported.
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Defence Procurement Policy Manual 5.8 Reporting Requirements Who is Responsible for Reporting on AusTender 28. The Contract Approver must ensure that the approved contract, agency agreement, standing offer, or amendment to these arrangements valued at $10,000 (GST inclusive) or above, is accurately reported on AusTender within 6 weeks of the Contract Signatory delegation being exercised. The process for reporting contracts is detailed in paragraphs 8 - 27 above. 29. Where the Contract Approver assigns the reporting function to another officer, the Contract Approver retains responsibility for ensuring that the reporting requirements are met within the required timeframe and that all necessary information to accurately report is provided. 30. Responsibility for the reporting of Foreign Military Sales cases, and activities conducted through the Defence Material Branch Washington (DEFMAT) or Counsellor Defence Materiel-London (CONDMAT) offices, rests with the Contract Approver. 31. All new standing offer arrangements, contracts, and amendments to contracts must be reported within six weeks of entering into the agreement. Website and Business Rules 32. The AusTender Procurement Publishing Obligations intranet site has been developed to assist Defence and DMO Procurement officers to comply with their AusTender reporting obligations. The information contained on this website, if followed correctly, should ensure that the data reported on AusTender is:

input completely and correctly; input within the appropriate timeframe; and appropriately authorised.
33. The intranet site includes AusTender Procurement Publishing Obligations Business Rules to ensure standardisation and quality control across Defence and DMO. Procurement officers must comply with the AusTender Procurement Publishing Obligations Business Rules when undertaking procurement. What is Not to be Reported on AusTender 34. The following arrangements must not be reported in AusTender as per FMG 15:

grants (whether in the form of a contract or conditional gift); payments of monthly or other accounts payable (invoices) which are payable under a contract which has previously been reported; payments or fund transfers, not in return for the provision of goods or services, e.g. between agencies, or within agencies (and are therefore not a procurement); contracts for the sale or disposal of public property or assets (such as a contract arising from the sale of Commonwealth land by tender); tax payments made to the Australian Taxation Office, including fringe benefit tax, that are not part of a payment made in exchange for property or services; contracts for investments or divestment as described in the CPGs; statutory appointments, appointments made by a Minister using the executive powers (for example, the appointment of a person to an advisory board) or payments to employees, e.g. travelling allowances or other allowances to Commonwealth public servants; petty cash reimbursements for officers who have paid for supplies from their own funds (except where the cost of those supplies is $10,000 or more); refunds to customers for a prior payment made for a product or service; payments to credit card providers against amounts due;
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creation of multi-use lists, as these do not constitute a procurement in their own right but may be utilised for a subsequent procurement process; and supplies procured outside Australia to be used completely outside of Australia.
35. The reporting function on the ROMAN system is called gazettal. To ensure that the arrangements listed in paragraph 34 are not reported in AusTender the following gazettal blocking reason codes are used in ROMAN:
Blocking Code PR
ROMAN and CMS Description Invoice/Purchase Order/Payment against Contract previously reported Payments to Employees
Arrangements listed in FMG 15 Invoices (including monthly accounts), purchase orders or other payments wich are payable under a contract which has previously been reported. Statutory appointments, appointments made by the Minister using the executive power (for example, the appointment of a person to an advisory board), or payments to employees. Agencies are not required to report on AusTender contracts resulting from property or services procured and used overseas, though they may choose to do so. Grant (whether in the form of a contract or conditional gift). payments or transfers of funds which are not in return for property or services (and are therefore not a procurement). Contracts for the sale or disposal or public property or assets (such as a contract arising from the sale of Commonwealth land by tender). Tax payments made to the Australian Taxation Office, including fringe benefits tax, that are not part of a payment made in exchange for property or services. Contracts for investment or divestment as described in the CPGs. Refunds to customers for a prior payment made for property or services Payments to credit card providers against amounts due. exemption from reporting a contract on AusTender. Refer to paragraphs 38-40 for further information.
EM
OS
Property/Services both procured and used overseas Grants whether a contract or conditional gift Agency Agreements Funding Transfer only Sale or disposal of public property or assets Payments to the ATO including FBT Investment or divestment Refunds for a prior payment Payments to Credit Card Providers of amounts due Not in the public interest
GR RP
SA
TX
IN RF CC NP
36. A blocking code must not be entered into ROMAN or CMS unless the code is specified and approved by the Contract Approver in the signed Form AE 108. Exemption under Freedom of Information Act 1982 from Reporting on AusTender 37. An agency Chief Executive may direct in writing that certain procurement contract details are not to be reported on AusTender as they are exempt from disclosure under the Freedom of Information Act 1982 (Cth) (FOI Act) and the Chief Executive considers that the information is genuinely sensitive and harm is likely to be caused by its disclosure. This power has been delegated by both the Secretary and CEO DMO. The delegation of exempt notification of contract details is outlined in Financial Delegations Manual - FINMAN 2 Schedule F2-6 (for Defence) and DMO CEI 2.1 Annex F (for DMO). Appendix A to FMG 15 contains a list of items addressed in FOI legislation. All requests for exemption of a procurement activity from inclusion on AusTender are to receive approval from the delegate prior to the taking of any action which would prevent that procurement activity from being published on AusTender. Approved by GM Com 1 July 2011 Page 5.86
Defence Procurement Policy Manual 5.8 Reporting Requirements 38. Defence and DMO are required, under the Public Service Act 1999 (Cth) section 63, to report such exempt procurement activities in their respective Annual Reports. Requirements for Departmental Annual Reports states that agencies must report the fact that the contract has been exempted and the value of the contract (to the extent that doing so does not in itself disclose the exempt matters). 39. Procurement officers seeking to exempt a DMO contract from being reported on AusTender should submit a request in accordance with the current DPPI on Requesting Professional Services from the Office of Special Counsel Defence Materiel Organisation. Interim Defence Contracts Register 40. An Interim Defence Contracts Register (IDCR) has been developed to capture the information required by Senate Order 192. The Defence and DMO response to Senate Order 192 is published on the Defence internet site and is accessible to business and the general public. It is therefore vital that Defence and DMO accurately report all of the necessary information in the IDCR. For further information on Senate Order 192 consult Financial Management Guidance No 8 Listing of Contract Details on the Internet (Meeting the Senate Order on Departmental and Agency Contracts) January 2004 (FMG 8). Who is Responsible for Reporting on the IDCR 41. The Contract Approver must ensure that the approved contract, agency agreement or amendment to these arrangements valued at $100,000 (GST inclusive) or above, is accurately reported on the IDCR within 6 weeks of the Contract Signatory delegation being exercised. 42. Where the Contract Approver assigns the reporting function to another officer, the Contract Approver retains responsibility for ensuring that the reporting requirements are met within the required timeframe and that all necessary information to accurately report is provided. 43. The Contract Approver should ensure that any data input into the IDCR does not raise any security or privacy issues for example, entering individuals names should not be included as part of recorded contract details.. What is to be Reported on the IDCR 44. Consistent with Senate Order 192, contracts that meet the criteria outlined in FMG 8 should be reported in the IDCR. Further guidance on the types of contracts that may or may not be reportable can be found on the IDCR Intranet site http://defrla06/DCR/DCR.nsf/$DBReference/Guidance?OpenDocument#para1. Data on applicable contracts should be entered into the IDCR following contract signature and in parallel with entry of data into ROMAN and MILIS. The information entered into the IDCR should be the same as that entered into ROMAN and MILIS. Where one Defence Group carries out a procurement activity on behalf of another Defence Group, the Contract Approver must determine the responsibility for IDCR data entry.
45.
46.
What is not to be Reported on the IDCR 47. Contracts that have been exempted from being reported on AusTender under the FOI Act subsection 33(1) must not be entered into the IDCR. For further details, see paragraphs 35 and 38 of this Chapter. Accessing the IDCR 48. The IDCR can be accessed through the Defence Intranet site at http://defrla06/DCR/DCR.nsf/Home!OpenPage Procurement officers who require data entry rights for the IDCR should use the contact support link on the IDCR webpage.
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Defence Procurement Policy Manual 5.8 Reporting Requirements Recording of Confidentiality on the IDCR 49. The IDCR requires answers to the following questions relating to confidentiality:
Does the contract contain any confidentiality provisions that protect information in the contract?; and Does the contract contain any confidentiality provisions that protect information arising from the carrying out of the contract?
50. Where a commercial-in-confidence or other confidentiality provision is included in the contract (e.g. ASDEFCON (Strategic Materiel) clause 10.4):
the Yes option should be selected for the first question. This will generate a pop up screen containing the four questions that comprise the confidentiality test. This confidentiality test is the same test as outlined in Financial Management Guidance No 3 (FMG 3) Guidance on Confidentiality in Procurement July 2007; the reference and title of the relevant contract provision should be inserted, e.g. clause 10.4 Commercial in Confidence Information; the first confidentiality reason should be selected from the list, i.e. commercially sensitive information, disclosure of which is not in the relevant partys best interest; and the contractor and Commonwealth should be listed as the relevant parties to whom the information is confidential.
51. Where the contractor, Defence or a third party has requested that a provision of the contract be kept confidential:

the Yes option should be selected for the second question; and the following information should be included and based upon the information contained in the confidentiality attachment of the contract: the references and titles of the relevant contract provisions, e.g. clause 8.5 Limitation of Liability, Annex F to Attachment B - Schedule of Rates; the appropriate confidentiality reason(s); and the party to whom the provision is confidential, e.g. the contractor, the Commonwealth and/or a relevant third party.
52. Where an order is placed under a standing offer, these questions should be answered following review of both the provisions of the order and the provisions of the standing offer under which the order was created. Update of IDCR information 53. The information included in the IDCR will be current at the time of contract signature and should then be updated throughout the life of the contract. The IDCR should be updated when the value of the contract changes, the location of the copy of the contract changes or the confidentiality details change. The value of the contract entered in the IDCR should be changed whenever the change exceeds $10,000 for contracts already entered or where the contract change raises the value above the $100,000 threshold for contracts not yet entered, even if the original contract was signed prior to 1 January 2003. Consultant, Professional Service Provider and Contractor Reporting 54. Defence must report on AusTender, in the IDCR, and the Defence and DMO Annual Reports if a contract is a consultancy contract. As there are areas of overlap between the AusTender, IDCR, and the Annual Reports, it is necessary to maintain consistency, completeness, and accuracy of consultancy contracts reported in all three. For example:
a consultancy contract with a value of more than $100,000 (GST inclusive) must be reported in all three systems ; and
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a consultancy contract with a value of more than $10,000 (GST inclusive) must be reported on AusTender (this may be done via ROMAN) and should also be reported in the Defence and DMO Annual Report.
55. Annual Report information is collected on a monthly basis and reported to the Statutory Reporting and Accountability Section within Ministerial Support and Defence Governance. 56. For the purposes of determining whether a contractor is regarded as a consultant, contractor, or PSP the following definitions should be applied. These definitions are based on those contained within the Defence publication Guidelines for the Recording and Reporting of Consultants and Professional Service Providers and DMO DMI (FIN) 01-0-025 - Engagement of External Service Providers.
Consultants are external professionals contracted to deliver an intellectual output to assist with management decision making of the agency. For example, research or investigation into a particular problem and the provision of a set of recommendations. PSP are individuals with specialist skills contracted to fill a line position. Contractors are organisations or individuals contracted to deliver goods and/or services.
57. DMO has specific procedures contained within DMI (FIN) 01-0-025 - Engagement of External Service Providers that must be complied with when engaging a Consultant, Contractor or PSP. 58. PSPs may be engaged on either short term or long term contracts. Care should be taken when engaging PSPs that at the completion of their contract, Defence is able to provide the services formerly provided by the PSP, if those services will still be required. This can be achieved in a number of ways, including the inclusion of a clause in the contract to transfer skills to Defence employees. Further information on PSPs and Services Contracts can be found in chapter 4.10. Other Reporting Requirements 59. In addition to the above requirements, Defence is also required by the Environment Protection and Biodiversity Conservation Act 1999 (Cth) to provide on an annual basis, information about Defence actions relating to ecological sustainable development which affects the environment. For further guidance, refer to the Defence Environment Manual. 60. Under the National Environment Protection Measures (Implementation) Act 1998 (Cth), where Defence carries on activities to which the National Environmental Protection Measures (NEPMs) apply, Defence is required to report annually on the implementation of those NEPMs. For further guidance, refer to the Defence Environment Manual. 61. Individual Group Heads may determine additional requirements that need to be reported within their Groups. These requirements will only apply within the Group identified and are in addition to any other portfolio reporting responsibilities.
Key References
Freedom of Information Act 1982 (Cth) Commonwealth Procurement Guidelines DOFD Financial Management Guidance No 8 - Guidance on the Listing of Contract Details on the Internet (Meeting the Senate Order on Departmental and Agency Contracts) January 2004 DOFD Financial Management Guidance No 15 - Guidance on Procurement Publishing Obligations July 2007 Requirements for Departmental Annual Reports DMO DMI (FIN) 01-0-025 - Engagement of External Service Providers Defence Chief Finance Officer Find website
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Defence Procurement Policy Manual 5.8 Reporting Requirements AusTender Procurement Publishing Obligations webpage available from Procurement and Contracting website Webform AE 108-1- AusTender Reporting ROMAN/CMS; Webform AE 108-2- AusTender Reporting MILIS Purchase; and Webform AE 109 AusTender Approach to Market Data Entry.
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Defence Procurement Policy Manual 5.9 In-Service Support
5.9
Introduction
1.
In-Service Support
This chapter provides a high level overview of Integrated Logistic Support processes and discusses issues related to the procurement of in-service support.
In-Service Support Considerations 2. The Commonwealth Procurement Guidelines requires procurement decisions to be made on the basis of a value for money judgement (see chapter 1.2). Value for money requires consideration of the relevant costs and benefits over the life of the goods or services. A well-informed source selection decision for any procurement cannot therefore be made without an understanding of the in-service support considerations relevant to the purchase. Failure to consider in-service support issues early in the procurement process may leave the way open for significant additional costs to be incurred and other associated problems to be encountered later. Consequently, in-service support requirements should be identified as part of the planning process, in combination with defining the requirement.
3.
Integrated Logistic Support 4. The effective operation and availability of military systems depends largely on the ability to effectively and efficiently support equipment in service. As a result, detailed policy and procedure has been put in place for acquisition of materiel systems. The process adopted to ensure that in-service support issues are given adequate consideration during a procurement activity is called Integrated Logistic Support. Integrated Logistic Support is a whole-of-life management discipline to address the supportability of equipment and/or systems purchased. Integrated Logistic Support includes consideration of the design characteristics of the prime equipment (Mission System) as well as the design of the in-service support arrangements (Support System). Integrated Logistic Support addresses the supportability characteristics of both the Mission System and Support System over the whole life-cycle of the capability. During the procurement process, Integrated Logistic Support is not intended to operate separately from the other aspects of a procurement. It should be integrated with all of the other functions that together produce an effective Materiel System. The Integrated Logistic Support policy lists a number of requirements to help achieve this integration. Detailed guidance on the policy and practices of Integrated Logistic Support are contained in:

5.
6. 7.
8.
Defence Instruction (General) LOG 03-6 Defence Policy on Integrated Logistic Support; ADO Integrated Logistic Support Manual; and ADO Logistic Support Analysis Manual.
Integrated Logistic Support Elements 9. Integrated Logistic Support elements are factors that have been identified as being necessary to provide for the effective support of Materiel Systems. The Defence Integrated Logistic Support elements include:

engineering support; maintenance support; supply support; Page 5.91

technical data; personnel; training and training support; facilities; packaging, handling, storage and transportation; support and test equipment; and computer support.
Support System 10. ASDEFCON philosophy recognises that in the Support System these elements of Integrated Logistic Support are a mixture of products (such as facilities, support and test equipment and technical data) and process domains (such as engineering support, maintenance support, etc). The Support System rolls the Integrated Logistic Support elements up into the following five Support System Constituent Capabilities:

Operating Support; Engineering Support; Maintenance Support; Supply Support; and Training Support.
Logistic Support Analysis 11. Logistic Support Analysis involves the application of analytical techniques in order to produce data on the relationship between logistics support and system design requirements, as well as to define the range and quantity of support resources. Logistic Support Analysis provides the processes that underpin the discipline of Integrated Logistic Support and plays a major role in informing the selection of the materiel solution to provide a given capability.
Support Concepts 12. During the Integrated Logistic Support process for the procurement of new materiel systems, support concepts are required to be developed, either as part of the development of the Operational Concept Document or, if an Operational Concept Document is not programmed, as part of a Use Study Report. The support concepts should define, in broad terms, the type and extent of logistic support to be established in support of the planned operational use of the system.
Functional and Performance Specification 13. In high level Complex and Strategic Procurements, in-service support requirements may be defined as part of the functional and performance specifications. The contractor may be required to analyse the functional and performance specifications in order to produce a support system specification. The support system specification provides the requirements baseline against which the support system is designed and developed, and the support resources are determined.
Procurement of In-Service Support 14. When planning an acquisition, the procurement of the in-service support services must be discussed in the procurement plan for the acquisition. There are three ways in which in-service support services can be purchased. The in-service support services may:
be sourced through existing arrangements in place within Defence;
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form part of the contract for acquisition of the supplies, or be negotiated as a separate contract.
15.
Where the in-service support services are less complex, and can be sourced from the same contractor, they may form part of the contract for the acquisition of the supplies. Where this is the case, it may be appropriate to seek information about tenderer in-service support capabilities and costs in the same documentation released to solicit offers to provide the supplies. This could be achieved by including a description of the in-service support requirements in the draft Statement of Work relating to the acquisition of the supplies. For Complex and Strategic procurement, it will usually be preferable to purchase the supplies (including support resources) and the in-service support relating to these supplies through separate contracts even when only one contractor is involved. The ASDEFCON (Support) template may be used when a separate contract is required. The ASDEFCON (Support) template is a standard form Request For Tender for use in the procurement of support and maintenance activities relating to the provision of in-service support to a capability. It can be released as a stand-alone request for the provision of in-service support for existing capability or it may be released with a contract for the acquisition of a new capability. In either case, ASDEFCON (Support) will form the basis of a contract, separate from the acquisition contract, for the support of the acquired capability. Separation of the purchase of the supplies and the in-service support into different contracts will help reduce the risk that parties may misinterpret which contractual provisions apply to the supplies and which apply to the in-service support. Separate contracts will also make it easier for each party to understand their respective contractual obligations. Where the supplies and the in-service support are being purchased from the one contractor, it is preferable for both the contract relating to the supplies and the in-service support contract to be negotiated and signed at the same time. If only the contract relating to the supplies is signed, Defence may be placed in a disadvantageous bargaining position when it comes to negotiating the in-service support contract especially if the in-service support cannot be purchased from a different potential supplier.
16.
17.
18.
19.
Chapter Summary
The in-service support requirements of a procurement should be identified and planned for early in the procurement process to avoid additional costs and other problems being encountered at a later date. A detailed, formal assessment of in-service support requirements will probably not be required where short-life, low cost items are being procured. Integrated Logistic Support is a whole-of-life management discipline for addressing the supportability considerations for both the Mission System and the Support System. Depending on the nature of the in-service support requirements, in-service support services may be able to be procured in conjunction with the acquisition of the supplies to which they relate or via existing arrangements in place within Defence. For more Complex and Strategic procurement, it will usually be preferable to purchase the supplies and the in-service support services through separate contracts even when only one contractor is involved. The ASDEFCON (Support) template may be used to form the basis of a contract for the purchase of in-service support services.
Further Reading
Commonwealth Procurement Guidelines Page 5.93
Defence Instruction (General) LOG 03-6 Defence Policy on Integrated Logistic Support ADO Integrated Logistic Support Manual ADO Logistic Support Analysis Manual Capability Systems Life Cycle Management Manual 2002 ASDEFCON (Support) Capability Definition Documents Guide
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Defence Procurement Policy Manual 5.10 Disposal of Defence Assets
5.10
Introduction
1. 2.
Disposal of Defence Assets
This chapter applies to all disposal activities undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter provides an overview of the policy relating to the disposal of Defence assets. Comprehensive guidance and instructions for the disposal of Defence assets are contained in Defence Instruction (General) Logistics 4-3-008 Disposal of Defence Assets (DI(G) LOG 4-3008) and the Electronic Supply Chain Manual (ESCM). Officials are advised to refer to DI(G) LOG 4-3-008, the ESCM and all related Instructions and referenced documents to ensure full compliance with Commonwealth and international requirements and to seek legal advice should they be unsure of their obligations in respect of the disposal of assets, particularly weapons.
Mandatory Policy
Procurement officers undertaking activities relating to the disposal of Defence or DMO assets must comply with the relevant Agencies Chief Executives Instructions: Defence Chief Executive Instruction (CEI) 6.1 Asset Management (Non-Financial Assets) (for Defence controlled assets), DMO CEI 6.4 Disposal of Public Property (for DMO controlled assets) and DI(G) LOG 4-3-008 - Disposal of Defence Assets. Disposal Plans must be developed during the acquisition phase of materiel and maintained throughout the relevant systems life cycle in conjunction with an Integrated Logistic Support Plan (ILSP).
Background 3. Disposal is an integral part of the lifecycle management of materiel. Major acquisition of new platforms, systems and equipment by Defence are supported by Integrated Logistic Support Plans (ILSP). The ILSP detail the acquisition, in-service support, obsolescence and disposal phases of materiel. As a companion document to an ILSP, Disposal Plans must be developed during the acquisition phase of materiel and maintained throughout the relevant systems life cycle. The processes declaring materiel to be obsolete, (an obsolescence determination), is conducted during the in-service support phase initiates a disposal action. The Chief Executives of both Defence and the DMO are required by the Financial Management and Accountability Act 1997 (the FMA Act) to manage Commonwealth resources in an efficient, effective and ethical manner. The management of disposals falls within those responsibilities. Defence CEI 6.1 Asset Management (Non-Financial Assets), DMO CEI 6.4 Disposal of Public Property (for DMO controlled assets), and DI(G) LOG 4-3-008 contain policy directives and instructions for the disposal of Defence assets.
4.
Disposal Policy Documents 5. DI(G) LOG 4-3-008 and its referenced documents, including the Electronic Supply Chain Manual and DI(G) LOG 4-3-018 - Defence Policy on Obsolescence Management, contain comprehensive policy guidance and detailed instructions for the disposal of Defence Assets and associated responsibilities for such disposal. These instructions apply to the disposal of all categories of Defence assets, with the exception of materiel such as infrastructure, explosive ordnance and security controlled assets, identified as requiring separate policy guidance and procedures to ensure they are managed and disposed of appropriately.
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Defence Procurement Policy Manual 5.10 Disposal of Defence Assets 6. DI(G) LOG 4-3-008 establishes six Policy Directives governing the disposal of Defence assets:
disposals planning and management must be conducted as part of the lifecycle management process; all disposal activities are to be managed and conducted openly, fairly and equitably, and in a manner that will withstand government, public and international scrutiny; officials managing disposals are to optimise outcomes for Defence when implementing any disposal strategy; when disposing of or gifting public property it is mandatory to comply with the FMA Act, Defence CEI 6.2 Gifting and Receiving Gifts of Public Property (for Defence), DMO CEI 6.2 Gifting Public Property (for DMO), Defence and DMO policy on asset management and financial management delegation schedules and international treaty obligations; weapons are not to be gifted, sold or transferred without the appropriate approval; and all weapons not gifted, sold or transferred to other organisations are to be disposed of, or destroyed, in a manner appropriate to the type of weapon.
7.
The acquisition or disposal of any interest (including ownership or leases) in real property by Commonwealth agencies is governed by the Land Acquisition Act 1989 (Cth) (Land Act) and a range of Commonwealth policy. When seeking to optimise the outcomes of a disposal action for the Commonwealth, Procurement officers must take into account the following policy objectives:

8.
to meet all contracted, legislative, government and international requirements; to ensure that disposal actions will withstand Government, public and international scrutiny; to be even-handed, open and honest; and to consider the cultural, historical or environmental significance of the obsolete or surplus Defence asset and any benefit there may be in providing it to an appropriate military, historical or community organisation.
9.
Surplus Assets include Defence owned items that are:

no longer needed to support Defence; excess to requirements; unsuited for use because of obsolescence or inefficiency; obsolete; beyond economic repair; or have an expired shelf life.
Disposal Methodology 10. DI(G) LOG 4-3-008 Annex A Figure 1 contains a comprehensive flow chart of the steps required when disposing of Defence assets. There are eight principal steps:
identify assets for disposal and decide which category the assets belong to (capability platforms or surplus assets); consider what restrictions might apply to disposal of the assets (e.g. fuels, weapons, explosives, etc, which require special handling, and other considerations such as Occupational Health & Safety, environmental issues, heritage value etc); determine the required level of disposal (major, routine or unit); determine the method of disposal (e.g. tender, gift, scrap, destruction, transfer, etc); seek delegate approval for the method of disposal; transact the disposal; Page 5.102
Defence Procurement Policy Manual 5.10 Disposal of Defence Assets

update accounting records on completion of disposal; and if applicable, disperse proceeds.
11.
Within Defence there are three levels of disposal:
Major. Those items which are expected to recover more than $1 million in revenue upon their disposal, or are capability platforms, weapon systems or Items of Significant Public Interest which require specialist disposal action and planning; Routine. Where disposal is required as part of routine inventory management processes and assets are identified as surplus, suffering from obsolescence, obsolete or beyond economic repair; and Unit. Unit level disposal includes activities as directed by an ADF Logistics Manager or the ad hoc return of assets classified as uneconomical to repair or having no further use.
12.
Detailed information on each of these levels of disposal and how they are to be handled is included in the Electronic Supply Chain Manual volume 4, section 7.
Further Information 13. The Defence Disposals Agency is part of the Finance Division of the DMO but supports all Defence customers and provides:

a Defence centre of expertise in the disposals function; a Defence help desk for disposals Ph: (02) 9393 2914; email disposals@defence.gov.au; facilitation of disposals of Major Items as required; monitoring of disposals actions within the Australian Defence Organisation against prescribed disposal policy objectives; advice on proposed amendments to disposal policy and procedures to CJLOG as appropriate; and assistance with obtaining ministerial and other higher level approvals as required.
Key References
Defence Chief Executives Instruction 6.1 - Asset Management (Non-Financial Assets) DMO Chief Executives Instruction 6.1 Asset Management Defence Chief Executives Instruction 6.2 - Gifting and Receiving Gifts of Public Property. DMO Chief Executives Instruction 6.2 - Gifting Public Property Defence Instruction (General) LOG 4-3-008 - Disposal of Defence Assets Electronic Supply Chain Manual: Volume 4, Section 7 DMM (FIN) 01-0-003 - DMO Accounting Policy Manual, Chapter 7 Derecognition of NonFinancial Assets (Write-Off, Transfer and Disposal)
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Defence Procurement Policy Manual 6.1 Contract Management Role
6.1
Introduction
1.
Contract Management Role
This chapter provides guidance on the contract management role and the preparation of a contract management plan.
Overview 2. A contract is an agreement made between two or more parties, which details the legal rights and obligations that are enforceable by law. If any of the parties fail to honour their obligations or enforce their rights under the contract, there is a potential for legal issues and liabilities to arise. Obtaining the desired contractual outcome is more than a matter of agreeing to a contract. A successful contractual outcome involves:
3.
appropriate planning for the procurement (see chapter 5.1), contract management (see section 6) and through life support (see chapter 5.9); development and signature of a suitable contract (see section 5); establishment of clear roles and responsibilities for the contract management phase; and implementation of sound contract and relationship management practices.
4.
When negotiating a purchase, Procurement officers should ensure that the resultant contract sets out the goods and services to be delivered, the standards to be met, the price to be paid and the remedies in the event that the standards are not met. Use of one of the standard Defence tendering and contracting templates listed in chapter 2.3 and advice from experts such as legal, procurement and financial advisers will assist Procurement officers to develop a sound contract.
Contract Management in the Defence Environment 5. Contract management activities will be undertaken by numerous Defence personnel within the Systems Program Office or purchasing area, including:

project manager; contract administrator; quality manager; Australian industry involvement manager; finance officer; contracts adviser; technical experts; and business or commercial manager.
6.
Defence uses a number of different contract types (see chapter 2.2) and contracting methodologies (see chapter 5.3) in its dealings with Industry. Procurement officers must be familiar with the features of the contract model in use and the particular factors affecting a contractors position in the Defence environment, in order to put in place and manage the most effective contract management strategies. Ultimate responsibility for contract management rests with the Defence position identified in the contract as being responsible for managing the contract on behalf of Defence (often referred to as the Commonwealth Representative or Project/Contract Authority). The Commonwealth Page 6.11
7.
Defence Procurement Policy Manual 6.1 Contract Management Role Representative is responsible for monitoring the contractors performance, exercising Defences rights under the contract and ensuring Defences obligations are met. For a list of contract management principles see Annex 6A and for a list of contract management tips, tricks and pitfalls see Annex 6B. Contract Documentation 8. In order to effectively manage a contract it is necessary to have an up-to-date version of the contract that incorporates all variations. This provides the basis for making payments and the ongoing management of the contract. The up-to-date contract should be kept in accordance with Defence record keeping policy and procedures. For audit purposes, the Commonwealth Representative or person managing the contract should always have ready access to both the original version of the contract and an up to date version of the contract, including all amendments. These may be requested at any time by ANAO or other audit bodies. Senior management within the business unit responsible for the contract are responsible for ensuring that these documents are maintained and available within their organisations
9.
Roles and Responsibilities 10. The role of each party to the contract is to understand and meet their obligations in accordance with the contract. The role of the Commonwealth Representative is to ensure that the contractor delivers value for money through satisfactory performance of the contract. The role of the person nominated to manage the contract on behalf of the contractor (often referred to as the Contractors Representative) is to ensure that Defence meets its obligations under the contract and the contractor successfully performs the contract. It is essential that both the Commonwealth Representative and the Contractors Representative understand the limits of their authority, as detailed within the contract and any associated contract management plans, and act within those limits. This includes understanding the remedies, dispute resolution mechanisms and performance tools applicable to the contract. The Commonwealth Representative must take care to ensure that Defences rights under the contract are not inadvertently waived (see chapter 6.6) and that the contract is not informally amended and Defence is not committed to new liabilities (see chapter 6.7). This may be achieved by understanding and adhering to the formal contract amendment process detailed in the contract. It is the responsibility of the Commonwealth Representative to ensure that all parties to the contract and Defence staff involved in the management of the contract observe and apply this process and that they understand the consequences of failure to adhere to the formal change management process. Most standard Defence contracts including the ASDEFCON suite of tendering and contracting templates contain provisions which assign responsibility for administration of the contract on behalf of Defence to the person occupying a particular Defence position (often referred to as the Commonwealth Representative or Project/Contract Authority):
11.
12.
13.
assign responsibility for management of the contract on behalf of the contractor to a nominated person (often referred to as the Contractors Representative); place an obligation on the contractor to comply with the reasonable directions of the Commonwealth Representative; clarify that the Commonwealth Representative has no authority to waive any provision of the contract or release the contractor from any of its obligations under the contract. This must be done through the formal contract amendment process or approval of deviations in materials process (where applicable); and detail how communications under the contract are to be passed between the parties.
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Defence Procurement Policy Manual 6.1 Contract Management Role 14. Example provisions are contained at clauses 2.1-2.3 of the draft conditions of contract in ASDEFCON (Strategic Materiel). The ASDEFCON suite can be accessed through the Commercial Policy and Practice website.
Appointment of the Commonwealth Representative 15. The Commonwealth Representative will usually be either a Defence APS employee or an ADF member. A professional service provider or contractor may be contracted to perform the role of Commonwealth Representative subject to any limitations included in the contract. Prior to the appointment of a professional service provider or contractor to perform the role of Commonwealth Representative, careful consideration should be given to any conflicts of interest that the selected person may have in relation to the contract. There may be commercial sensitivities associated with the appointment of a professional service provider or contractor that may impact on the effective management of the contract. The circumstances of their engagement should be explained to the contractor and their role and responsibilities fully agreed with the contractor, prior to making such an appointment.
16.
Delegation of the Commonwealth Representatives Functions 17. Although the Commonwealth Representative has ultimate responsibility for the management of the contract on behalf of Defence, it may be appropriate in some circumstances to delegate their functions or authority to another party to carry out activities pursuant to the contract. The contractor must be advised in writing of the personnel who have been delegated or authorised to carry out functions on behalf of Defence and the scope of their delegation or authorisation. HANDY HINT An example clause for use when functions of the Commonwealth Representative may be delegated is contained at clause 2.1.3 of the draft conditions of contract in ASDEFCON (Strategic Materiel). Role of the Commonwealth Representative 18. To successfully discharge their responsibilities, the Commonwealth Representative must:
be familiar with and understand the terms and conditions of the contract to be administered; oversee the planning and implementation arrangements provided in the contract; manage the contract in accordance with its terms and conditions i.e. ensure that the outcomes required under the contract are met within the confines of the contract; provide information and equipment to the contractor as and when required by the contract and ensure its return if the contract so requires; ensure that claims for payment are processed in accordance with the requirements of the contract; ensure that adequate written records of all dealings with the contractor and administration of the contract are kept as an audit trail. This means file notes of telephone conversations, minutes of meetings, copies of correspondence including e-mail and documented invoice processing; seek expert procurement, legal and financial advice before dispute if there are any concerns, or whenever contractual issues are in dispute to ensure correct application of the contract; deal with problems in a reasonable manner as soon as they arise; elevate problems that cannot be resolved quickly, both internally within Defence and within the contractors management structure. This may involve, in the first instance, informing senior management of problems that have not been resolved at the working level; establish and maintain a good relationship with the contractor; Page 6.13

know the market and know what constitutes standard business practice in that market; act professionally in dealing with contractors and their staff; and negotiate, document and manage required contract amendments in accordance with the contract amendments procedures detailed in the contract.
HANDY HINT Day-to-day contract management is generally shared between the Commonwealth Representative and the contractor. The contractor is responsible for management of the contract to ensure delivery of the required goods and services. The Commonwealth Representative is responsible for managing the contractors performance and ensuring Commonwealth obligations are met. Contract Management Plan 19. A contract management plan containing all the key information about how a contract should be managed is an essential tool in the management of contracts. The Commonwealth Representative should regularly refer to the contract management plan and ensure that the plan is amended if the circumstances change. Like all plans, it should be a living document that is amended to reflect the changing circumstances during the life of the contract. The contract management plan should be developed by Defence during the procurement or project-planning phase and will be further refined with the successful tenderer during contract formation activities. The initiation of the contract management plan during the contract planning phase ensures that due consideration is given to how the contract will be managed from the outset, not just following the award of the contract.
20.
Contract Management Plan Format 21. There is no mandatory or prescribed format for a contract management plan. However, the following are suggested topics that should be addressed when formulating a contract management plan:
the capability being procured including a brief summary of the reason for the contract, objectives, options considered etc; description of the work to be performed; contract details, including contract number, duration etc; contract milestones (performance or delivery, submission of progress reports, invoices and submission of plans and other key milestones etc); key contractors and personnel (including the contact name, phone/fax, address, A.B.N, and the involvement and responsibilities of the contractor, subcontractors, Commonwealth Representative, major stakeholders etc in the contract); location of and file numbers of all relevant files for the contract and contractor e.g. CAPO number; communication strategies for the Commonwealth Representative, contractor, subcontractor, stakeholders etc; performance monitoring and management requirements, including insurances, financial and performance guarantees, finances and budgets, risk management, contract amendment procedures, reporting requirements etc; dispute resolution mechanisms; application of liquidated damages and other remedies; tasks delegated including any limits on authority; contract completion (completion/renewal, review and evaluation, audit procedures, lessons learned etc);
Page 6.14

delivery and price schedules; and. reference to other key documents.
22.
The above list is not exhaustive and anything that either party to the contract considers of particular interest or importance in managing the contract should be included in the contract management plan. HANDY HINT A formal contract management plan is not usually required for Simple Procurement activities i.e.: goods and services that are easily purchased and of low relative value. For significant purchases, a contract management plan assists in managing the risks of the purchase and provides an audit trail of documentation to support and justify important contract management decisions made during the life of the contract.
Establishing Contract Management Systems 23. Performance monitoring reviews the contractors performance and also ensures that Defence technical and other support personnel are not authorising the contractor to perform unintended changes to the contract that may result from either a specific action or a failure to act. To facilitate effective performance monitoring a contract management system should be established for most Complex and Strategic Procurements to:

identify the obligations that require action by a party (i.e. active clauses); identify which party has to perform the action; identify the key obligations chronologically; identify how each obligation is to be met; and understand the inter-relationship between obligations e.g. milestones and payments.
Relationship Management 24. Traditional guidelines for relationship management provide for the measurement of performance by monitoring timeliness of delivery and functionality of the goods delivered. Under these guidelines, when a problem arises, the remedy may be termination of the contract, damages or both. This approach is premised on the idea that the goods are easily replaced by goods from another contractor. Although the above approach may still be appropriate for some Defence contracts, in many cases the complexity of the acquisition may be such that damages are not an adequate remedy especially when there is no readily available source for replacement of the goods or services required. Even if replacement is possible, such a remedy may be viewed as an option of last resort because of the time necessary to change contractors and the implications for other associated projects. Relationship management is about acting openly and honestly with the contractor to ensure that the contracted good or service required is delivered on schedule and within budget. It means establishing trust with the other party so that if monitoring indicates a slippage of the project the problems can be discussed and resolved in a reasonable manner. In order to build trust and good relationships, the Commonwealth should also ensure that it meets its requirements under the contract. Effective relationship management is about developing a relationship with the contractor, communicating well, making decisions in a timely and consistent manner, acting reasonably and being proactive and responsible in resolving issues. Effective contract management will entail establishing and maintaining a relationship with the contractor after the contract has been awarded. The amount of time that will elapse before the completion of the contract will assist in determining how formal this relationship will need to be. For simple contracts the relationship may only involve informal telephone conversations to determine that delivery of goods is on
25.
26.
27.
Page 6.15
Defence Procurement Policy Manual 6.1 Contract Management Role schedule. For more complex requirements, particularly if the contract is expected to run over a significant period the relationship may involve:
formal meetings, with minutes taken and distributed to the relevant parties by either the contractor or Defence; regular written communications between both parties e.g. letters, faxes, emails; and/or update or progress reports, including earned value management reports.
28. 29.
All documentation and records of telephone conversations should be placed on file for future reference and/or audit purposes. Having a good working relationship with the contractor will assist in the early identification of delays or other problems and a good working relationship will mean that these issues can be addressed (and possibly solved) early and on an informal basis without having the issue evolve to an extent that formal dispute resolution processes need to be considered. A good relationship with the contractor does not imply any relaxation of normal commercial practices nor does it imply that contractual rights are to be waived or lessened.
Industry Responsibilities 30. Industry is an equal party to the contract with Defence and it is expected that they act in a professional and courteous manner in all interactions with Defence staff. Guidance on expected standards of conduct can be accessed in the Defence publication Defence and Industry An Ethical Relationship which can be accessed in the Publications area of the Industry Resources section of the Defence Materiel Organisation website.
Communication 31. Communication is a vital ingredient to successful contract management. A Commonwealth Representative at any level or discipline within the contract management team will be expected to have the following management attributes:

good interpersonal skills ability to motivate the people in the contract management team; good negotiation skills; ability to communicate requirements; ability to stay focused on contentious issues; and ability to set up teams and to coordinate the skills of the contract stakeholders.
32.
The Commonwealth Representative should:

communicate regularly with the contractor; deal with problems as soon as they become apparent; regularly review tasks, and undertake to resolve an issue quickly to lesson any disruption to the contract and minimise the costs for both parties; hold regular meetings as outlined in the contract at an appropriate time and location as agreed by both parties with the appropriate personnel in attendance; document minutes of meetings highlighting outcomes and copy them to all parties involved in the contract, particularly ensuring there is understanding on action items; and document any issues arising from meetings and resolve them as soon as possible.
33.
For higher value Complex and Strategic Procurements, communication will often be undertaken formally at contract review meetings e.g. project management meetings and other reviews required under the contract. However, the Commonwealth Representative should be able to communicate and discuss issues with the contractor outside these formal meetings. Where the
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Defence Procurement Policy Manual 6.1 Contract Management Role issues discussed relate to contract change proposals, schedule, payments or disputes, these should be formally documented in accordance with the procedures set out in the contract.
Chapter Summary
The Commonwealth Representative should ensure that there is a common understanding with the contractor as to the terms of the contract. This will enable proper administration of the contract and minimise the contractual risks. Effective contract management is about developing a relationship with the contractor, communicating well, making decisions in a timely and consistent manner, acting reasonably and being proactive and responsible in resolving issues. Procurement officers must be familiar with the features of the contract model in use and the particular factors affecting a contractors position in the Defence environment, in order to put in place the most effective contract management strategies. A contract management plan that contains all the key information about how a contract should be managed is an essential tool in the management of contracts.
Further Reading
ASDEFCON (Strategic Materiel) Australian National Audit Office Better Practice Guide, Contract Management, February 2001 Defence and Industry An Ethical Relationship Defence Materiel Instruction (Procurement) DMI(PROC) 130001 - Mandatory Procurement Policy Requirements for all Defence Materiel Organisation Acquisitions (Including Sustainment Procurements) to Contract Signature (DMO Procurement officers must comply) Defence Materiel Instruction (Procurement) DMI(PROC)) 130002 - Mandatory Procurement Policy Requirements for Contract Changes (DMO Procurement officers must comply)
Page 6.17
Defence Procurement Policy Manual 6.2 Performance Management
6.2
Introduction
1.
Performance Management
This chapter provides policy and guidance on the performance management of contracts.
Performance Management 2. Performance management involves those contract administration activities which enable Defence to determine and thereby ensure that supplies (or services) acquired under contracts conform to prescribed quality, quantity and expected delivery schedule. Monitoring of contractor performance supports many objectives, including:

identification of potential non-compliance and other performance issues; isolation of specific performance problems; discovery of actual or anticipated default; identification of delays; and justification for the payment of performance bonuses.
3.
Monitoring of performance is a dual responsibility for both Defence and the contractor and pertains to the performance of both parties to the contract. The performance criteria should be reflected in the contract management plan or formally within the contract. Performance management and monitoring can be used as a contract management tool to ensure early identification and prevention of Defence technical and support personnel from inadvertently authorising the contractor to perform outside the scope of the contract. Performance management can also be a useful risk mitigation agent by assisting Defence to identify circumstances contrary to expected contract performance, and where a failure to act on the part of Defence may have the effect of waiving rights under the contract (see chapter 6.6). Primary responsibility for managing and monitoring the performance of the contractor rests with the position nominated in the contract as responsible for managing the contract on Defences behalf (often referred to as the Commonwealth Representative or Project/Contract Authority).
4.
Communication 5. Communication is also a vital ingredient in successful performance management. It is good practice for all Defence officials involved with the contractor or their representatives to report and record any meaningful communications they have, and to report any circumstances that may potentially or materially affect the contract performance. A meaningful communication would include any information that might potentially affect price, performance, schedule or any other contract requirements.
Required Data 6. Sufficient data needs to be obtained to verify the contractors performance. Sources of data include:
contract monitoring systems including earned valued management systems (see chapter 3.4); review of the performance measurement baseline via an integrated baseline review (see chapter 3.4); progress and other monitoring reports, site visits and observations of work; personnel, including end users and Defence personnel involved in contract management activities; Page 6.21

maintaining effective communication with the contractor via e-mail; and contract review meetings.
Inspection/Monitoring 7. There are numerous techniques and procedures for determining whether satisfactory delivery or contract completion will take place. They include:

reliance on the contractors inspection system; a full inspection of deliverables by a qualified quality assurance representative and receipt inspection storeman; a sample inspection by a qualified quality assurance representative or other independent test facility or organisation; inspection by exception. Receipt of any non-conformance report by any party involved with the deliverables; monitoring production or delivery schedules using IPPSR, ProMan, MS Project or other software scheduling tools; and monitoring schedules using other agreed tools devised by Defence or contractor personnel to measure contract performance.
8.
The following tools are included in Complex and Strategic contracts for the procurement of goods and services, or the in-service support of procured equipment, to assist with performance management:

key performance indicators; risk management reviews in accordance with the schedule of risk items contained in the contract management plan or risk management plan; integrated baseline review; quality assurance requirements and rights of review; earned value management for all contracts valued at $20m or greater (or less if significant risk); contract performance reviews; the right to collect contractor performance data (often under the Company ScoreCard system); and the right of Commonwealth personnel to access the contractors premises, records and accounts related to work under the contract.
Key Performance Indicators 9. To facilitate performance monitoring, there should be key performance indicators against which the contractors performance will be measured. In many Complex and Strategic Procurements, key performance indicators will be set out in the contract. Possible categories of key performance indicators include, but are not limited to:

10.
cost/price - where the contract includes payments on a cost reimbursement basis; schedule; quality; contract relationship including relationship between Defence, the contractor, subcontractors and third parties; innovation under the contract; Australian Industry Involvement; Page 6.22

intellectual property; and government procurement policies including policy on occupational health and safety, the environment, employment of Aboriginal and Torres Strait Islanders, equity and diversity and security.
11.
Key performance indicators should be objective, measurable and clearly stated. Where contract payments will be tied to performance against agreed key performance indicators, they must be carefully selected to ensure that:

there is sufficient incentive for the contractor to meet the key performance indicators; payments made against key performance indicators represent value for money to Defence, particularly where incentive payments are involved; and appropriate weightings are applied to the key performance indicators for each identified assessment period.
HANDY HINT The weighting given to each key performance indicator may very depending upon the work being conducted in the assessment period and the importance of the key performance indicator at the relevant stage of the contract. Management of Risk 12. Managing risk is an essential part of management of contracts and fundamental to achieving effective procurement of goods and services. It is a good idea for risks and proposed risk mitigation strategies to be incorporated in a risk management plan. One of the Commonwealth Representatives key responsibilities is to monitor and review risk regularly in order to identify potential problems at an early stage so they can be resolved as early as possible. The management of risk is a continuing process, requiring re-evaluation throughout the various stages of the procurement process including throughout the contract management phase. Guidance on the following risk management topics is contained in chapter 3.2:

13.
14.
Commonwealth risk management policy; the risk management process including risk identification, analysis and assessment; techniques for managing risk; and contractual mechanisms that assist with risk management.
15.
Risk analysis assesses opportunities and allows confidence in accepting a risk when it is worth taking. In deciding whether to accept and manage a risk, consideration should be given to:

possible gains to be made; the loss that would be the consequence of taking the action or not taking the action; and who is best able to manage risk.
HANDY HINT Further guidance on risk management can be obtained from the Risk Management Directorate website at http://devdao.cbr.defence.gov.au/esad/mmps/rm/rmmain.htm.
Contractual Risk Management Tools 16. Contractual options available to assist Defence in protecting itself against risk include indemnities and insurance (see chapter 3.15), liquidated damages (see chapter 6.5) and financial and performance guarantees (see below).
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Defence Procurement Policy Manual 6.2 Performance Management 17. All contracts for Complex and Strategic Procurements should detail the insurance policies that must be taken out by the contractor, the date by which each policy must be obtained and the period for which each policy must be maintained. It is essential that regular checks be undertaken of the currency of each insurance policy. A copy of the Certificate of Currency applicable to each insurance policy should be obtained and reviewed on the date the policy is required to be taken out by the contractor and on each anniversary of that date for the life of the contract.
Financial and Performance Guarantees 18. Contracts for higher value Complex and Strategic Procurements may place an obligation on the contractor to obtain financial and performance guarantees (often also referred to as securities). These may be in the form of:
guarantees from a financial institution which enable Defence to draw down all or part of the secured money if particular events occur; or a deed of substitution and indemnity from a guarantor which allows Defence to request substitution of the guarantor as the contractor if particular events occur.
19.
The most common guarantees sought by Defence include:
a deed of substitution and indemnity from the contractors parent company or other entity which is exercisable by Defence where it has a right to terminate the contract for default (see chapter 6.5); a mobilisation payment security to secure the repayment of any mobilisation payment paid by Defence to the contractor (see chapter 6.4); and a financial security to secure the due and proper performance of the contract by the contractor.
20. 21.
Standard financial and performance guarantees are included in the ASDEFCON suite of tendering and contracting templates. Where guarantees will be required under a contract, careful consideration should be given to:

the guarantor(s) proposed by the preferred tenderer; the proposed amount of the financial and/or performance guarantee; and the form of the financial guarantee, performance guarantee and/or deed of substitution and indemnity.
Requirements for Guarantees 22. The required form for any financial or performance guarantees required under a contract will usually be contained in an attachment to the contract. Financial and performance guarantees should:
state the amount of money that is being secured and the event or events that will lead to the release of the security; generally not include a date for the expiry of the security. Where an expiry date is included, it should refer to an event or an amount of time in relation to an event to allow for any change in the contract schedule i.e. receipt of notice requesting cancellation from Defence or payment of the whole security; be unconditional and not impose restrictions on Defences ability to access the guarantee; and not include a clause requiring Defence to notify the contractor before exercising its rights under the security.
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Defence Procurement Policy Manual 6.2 Performance Management Requirements for Guarantors 23. Guarantors will usually be a bank or financial institution. Issues that should be considered when assessing the proposed guarantor include:

the financial viability of the bank or financial institution; the accessibility of the secured funds; and the enforceability of the guarantee in the applicable jurisdiction.
24.
Defence has a preference for an Australian bank or financial institution, however, a foreign Authorised Deposit Taking Institution authorised to carry on the business of banking in Australia may be accepted. The Australian Prudential Regulation Authority website provides a list of all approved Authorised Deposit Taking Institutions. Guarantors under a deed of substitution and indemnity are usually the parent company of the contractor but may be another legal entity. It is essential that the proposed guarantor under a deed of substitution and indemnity is financially viable and has the technical and managerial capacity to perform the contract if it is substituted for the contractor.
25.
Exercising Rights in Relation to Guarantees 26. The circumstances in which Defence can exercise its rights under a financial guarantee or deed of substitution and indemnity must be included in the contract. Policy and guidance on exercising rights under financial guarantees and deeds of substitution and indemnity is contained in chapter 6.5.
Management of Guarantees 27. It is essential that the Commonwealth Representative ensures the contractor obtains any required financial guarantees by the date specified in the contract and that the guarantees are lodged with the Receiver of Public Moneys (or their regional representative) as listed below: Treasury and Tax Management Branch Treasury and Banking Section R1-2-A100 Russell Offices Canberra ACT 2600 28. A copy of each financial guarantee should also be retained with the master contract.
Quality Assurance 29. Quality Assurance mechanisms are employed by Defence to mitigate risk in the procurement of goods and services and to ensure that contractors meet their contractual obligations in relation to quality. The principal objective of the Defence Quality Assurance policy is to ensure that quality is planned for, then designed and built into the supplies. Quality Assurance requirements need to be monitored throughout the contract management phase to ensure compliance. They should also be verified prior to final acceptance of the supplies. Quality Assurance is in place to ensure that supplies are fit for the stated purpose and pose no hazard to personnel, public safety or the environment in accordance with Service Technical Regulations. This is achieved by:
30.
31.
ensuring all quality requirements leading to the acceptance of supplies have been achieved; ensuring adherence to the Statement of Work and contract specifications;
Page 6.25

managing any risks associated with the goods or services; ensuring that there is clear evidence that contractor management process controls are in place, including subcontractor control; and ensuring confidence in the contractor's quality management and quality control performance.
32.
Depending upon the complexity of the procurement and the type of supplies being procured the following Quality Assurance mechanisms may be included in the contract:
a quality system certified to the AS/NZS ISO 9000 series of standards. Refer to the Standards Australia website for further details; quality plans; product inspection and testing; customer audit and surveillance activities; contractor guarantees; and normal commercial practices such as warranties.
33.
It is essential to ensure that the contractor meets the Quality Assurance requirements detailed in the contract and that suitably qualified Defence staff are used to conduct any quality inspections, testing and audits. Further guidance on Quality Assurance policies and processes, particularly in regard to measurement, is contained in chapter 3.5.
34.
Managing Subcontractor Performance 35. The contractor retains responsibility for ensuring appropriate subcontractor performance. Contracts for Complex and Strategic Procurements must include a clause that:
makes it clear that by subcontracting work under the contract the contractor is not relieved of its liabilities or obligations under the contract; requires the contractor to ensure compliance of all subcontractors with mandatory Government policies such as the policy in relation to equal opportunity for women in the workplace (see chapter 3.10); and prohibits the contractor from subcontracting the whole of the work under the contract.
36.
By prohibiting the contractor from subcontracting the whole of the work under the contract, the contractor is prevented from merely acting as a receiver of money from Defence on behalf of the various subcontractors. It also ensures that the involvement of the contractor in the procurement adds value and that Defence will be able to hold one legal entity solely responsible if things go wrong. In addition, some contracts for Complex and Strategic Procurements may include a clause which prevents the contractor from subcontracting work to contractors without obtaining the Commonwealth Representatives written approval of the proposed subcontractor. A written approval will usually be required where:

37.
the value of the work being subcontracted is significant and exceeds a specified amount; the work to be performed under the subcontract relates to a significant aspect of the contract; or the subcontractor will be bringing intellectual property to the proposed subcontract or creating intellectual property under the proposed subcontract that is necessary to enable Defence to use and support the supplies.
38.
Approved subcontractors will usually be listed in an attachment to the contract. The contractor will usually be able to seek approval of additional subcontractors during the contract Page 6.26
Defence Procurement Policy Manual 6.2 Performance Management management phase by submitting a contract change proposal in accordance with the contract amendment procedures detailed in the contract. Careful consideration should be given to approvals provided during the contract management phase, particularly where a subcontractor is being proposed to replace an existing subcontractor nominated in the contract. Flowdown of Contract Provisions to Subcontractors 39. Although the contractor has ultimate responsibility for the performance of its subcontractors, in some circumstances Defence may want certain contractual requirements to be placed on subcontractors which allow Defence visibility of subcontractor performance or which enforce Commonwealth policies. Common contractual provisions that Defence may require the contractor to flowdown to its subcontractors include:
the right of Commonwealth officers to access subcontractor premises, records and accounts relating to work under the contract; insurance requirements; the security requirements of the contract; the right to terminate subcontracts for convenience; policy requirements; the quality requirements of the contract; and the intellectual property requirements of the contract including the requirement for subcontractors to execute a deed with Defence (see below).
Subcontractor Deeds 40. Defence contracts will often include a provision that requires the contractor to arrange for a subcontractor to enter into a deed with Defence. This may occur where the subcontractor will be bringing intellectual property to the proposed subcontract or creating intellectual property under the proposed subcontract that is required by Defence in order for it to use and support the supplies. The deed should detail the ownership and licensing rights of Defence in relation to Foreground and Background intellectual property associated with the subcontract. The ownership and licensing rights included in the deed must align with those detailed in the contract. ASDEFCON (Complex Materiel) Volume 2, ASDEFCON (Strategic Materiel) and ASDEFCON (Support) include standard subcontractor intellectual property deeds.
Contract Performance Reviews 41. Contract performance reviews provide Defence with insight into the progress of the contract and act as key points at which risks should be assessed and progressively reduced. In relation to Complex and Strategic contracts, reviews should be conducted at intervals not exceeding six months or as otherwise agreed and may be appended to a normal progress meeting if agreed by both parties. Contract performance reviews will involve both appraisal by Defence of the contractor team's performance and appraisal by the contractor of the Defence teams performance. Appraisals will consider factors such as the quality of the evolving products and ongoing services as well as the evaluation of final products and services. Where earned value management is included in the contract, there will be a need to review the performance measurement baseline, by conducting an integrated baseline review. The review examines the acceptability of the contractors plan and reviews the methods and metrics used to measure performance or progress. The focus is on reviewing the technical merits and resourcing of the plan and assessing the risks associated with the baseline (see chapter 3.4).
42.
43.
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Defence Procurement Policy Manual 6.2 Performance Management HANDY HINT Contract performance reviews are over and above normal progress meetings and contract reviews. The intent is to examine contract activities in a holistic sense to identify areas for improvement. These reviews may be conducted by senior managers from both customer and contractor organisations. Company Scorecard System 44. The Company ScoreCard is a supplier performance measurement tool issued by the Defence Materiel Organisation, which illustrates a suppliers performance as either the prime contractor or a significant subcontractor for specific contracts over a six-month reporting period. For each reporting period, project or contract managers are responsible for populating the Company ScoreCard database with contractor performance assessments. The information provided must be cleared by the System Program Office Director and the relevant DirectorGeneral. The assessments included in a Company ScoreCard are then endorsed by the relevant Division Head. Further information on the Company ScoreCard program is available in chapter 3.8 and from the Company ScoreCard weblink in the Industry Division area of the Defence Materiel Organisation website.
45.
46.
Access to Contractor Premises and Records 47. Standard Defence contracts for Complex and Strategic Procurements oblige the contractor to permit the Commonwealth Representative or a person authorised by the Commonwealth Representative to access its premises and access and copy records and accounts in connection with the performance of the work under the contract. In more complex contracts, the contractor may also be required to ensure that all significant subcontracts provide the Commonwealth Representative with similar access rights, including the right to copy.
Specific Access Requirements 48. There may be some specific circumstances in which the Commonwealth Representative may require access to the contractors premises, records and accounts and these circumstances will be contained in the contract, but it should be noted that in most cases Defences rights are not limited to these. Circumstances in which the Commonwealth Representative or other Defence staff member may require access include:

inspection and removal of Government Furnished Materiel; performance of quality audits; validation of progress against the Australian Industry Involvement Plan; investigation of the reasonableness of costs in contract change proposals; determining steps necessary to register or otherwise protect intellectual property; auditing of data and software related aspects of the contract to validate the contractors performance; performing reviews of the contractors earned value management system; and conducting integrated baseline reviews.
Access by the ANAO to a Contractors Premises, Records and Accounts 49. The Commonwealth Procurement Guidelines requires Commonwealth agencies to consider, on a case by case basis, including a provision in contracts to enable Australian National Audit Office (ANAO) access to contractors records and premises to carry out appropriate audits. Access by the ANAO to a contractors premises, records and accounts, is currently provided for in a number of different ways, depending upon the Defence Group concerned. Standard Page 6.28
50.
Defence Procurement Policy Manual 6.2 Performance Management practice in the DMO is to include provisions in contracts permitting the Commonwealth Representative to arrange for ANAO access to contractor and major subcontractor premises, records and accounts. This arrangement ensures that Defence is aware of the ANAOs intentions, that effort is not duplicated when Defence already holds the information being sought by the ANAO and that the interests of the contractor are taken into account when arranging for access. 51. Other Groups within Defence provide for direct ANAO access to contractor premises or include the model ANAO access clauses promulgated by the Department of Finance and Deregulation (Finance) in their contracts. When developing request documentation and contracts, consideration must be given to whether specific ANAO access provisions should be included in the contract. The model ANAO access clauses can be accessed on the Finance website. The inclusion of specific ANAO clauses will not usually be required in contracts for the delivery of products or basic services. However, given the complex nature of capital equipment contracts, it is recommended that the standard ASDEFCON access clauses, allowing for ANAO access through the Commonwealth Representative, continue to be used in DMO capital equipment contracts. Where a contract provides for the provision of outsourced services, specific clauses allowing for direct ANAO access will usually be required. For contracts that cannot be categorised as either capital equipment acquisition contracts or outsourced services contracts, or that fall somewhere between these two categories in the spectrum of Defence contracts, the need to include specific ANAO access provisions is to be considered on a case-by-case basis. The nature and circumstances of the contract should be taken into account when determining whether specific clauses allowing for direct ANAO access are required.
52.
53.
54.
Chapter Summary
Performance management involves those contract administration or management activities used by Defence to ensure that goods or services acquired under contracts conform to prescribed quality, quantity and other requirements. Key performance indicators are a way to measure performance. Key performance indicators should be objective, measurable and clearly stated. Performance measurement using earned value is a method of assessing contractor performance and forecasting future performance. Managing risk is an essential part of performance management and fundamental to achieving effective procurement of goods and services. Most potential risks should be identified and dealt with prior to contract signature. Quality Assurance mechanisms are employed by Defence to mitigate risk in the procurement of goods and services and to ensure that contractors meet their contractual obligations in relation to quality. The Company ScoreCard is a contractor performance measurement tool issued by the Defence Materiel Organisation, which illustrates a contractors performance as either the prime contractor or a significant subcontractor for specific contracts over a six-month reporting period. Contract performance reviews provide Defence with insight into the contractors development process and act as key points at which the risk can be assessed and progressively reduced. All contracts for Complex and Strategic Procurements must contain a contractual provision which obligates the contractor to permit the Commonwealth Representative or a person authorised by the Commonwealth Representative to access its premises and access and copy records and accounts in connection with the performance of the work under the contract. Access by the Australian National Audit Office to contractors premises, records and accounts,
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Defence Procurement Policy Manual 6.2 Performance Management is currently provided for in a number of different ways, depending upon the Defence Group concerned.
Further Reading
ASDEFCON (Strategic Materiel) Auditor-General Act 1997 Commonwealth Procurement Guidelines Defence CEI 8.7 - Insurance DMO CEI 8.10 - Insurance Defence CEI 8.6 - Contingent Liabilities (including Indemnities, Guarantees, Warranties and Letters of Comfort) DMO CEI 8.6 - Contingent Liabilities Defence CEI 4.3 - Financial Guarantees DMO CEI 2.7 - Bank Guarantees Department of Finance and Deregulation Model ANAO Access clauses Finance Circular 2003/02 Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort Project Performance Management Guide, November 2003
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Defence Procurement Policy Manual 6.3 Provision of Commonwealth Assistance
6.3
Introduction
1.
Provision of Commonwealth Assistance
This chapter outlines the various forms of Defence assistance available to contractors to facilitate the provision of supplies or services under a contract. The following Defence assistance may be provided under a contract:

Government Furnished Material; Government Furnished Facilities; Government Furnished Services; provision of Defence staff/members required in uniform; contractor access to Commonwealth premises; and access to and use of Defence equipment.
Government Furnished Material 2. Government Furnished Material is any equipment, information or data provided to a contractor by Defence to assist in the performance of the contract. The preferred Departmental position is to minimise the provision of Government Furnished Material to contractors. However, in some circumstances it will not be possible for a contractor to perform the work required without Government Furnished Material. Where Government Furnished Material will be provided to a contractor, the contract must:
3.
include a list of the Government Furnished Material that will be provided to the contractor (e.g. Part 2 of Attachment D of ASDEFCON (Complex Materiel) Volume 2); specify the place and times for delivery of the Government Furnished Material; detail the inspection and testing requirements that must be met by the contractor following receipt of the Government Furnished Material; specify the party that will be liable for lost, destroyed, damaged, defective or deficient Government Furnished Material; and detail the management requirements for the Government Furnished Material.
HANDY HINT Guidance on Government Furnished Materials clauses that can be used for: Strategic Procurements of supplies is contained in ASDEFCON (Strategic Materiel); Complex Procurements of supplies is contained in ASDEFCON (Complex Materiel); Strategic and Complex Procurements of maintenance and through life support services is contained in ASDEFCON (Support); and Complex Procurement consultancy, professional or other services is contained in ASDEFCON (Services). Delivery of Government Furnished Material 4. On delivery of Government Furnished Material, contractors must be required to inspect the material to ensure that it is not damaged, defective or deficient. The contract may also require the contractor to acknowledge receipt of the Government Furnished Material and test the Government Furnished Material to determine that it is serviceable for use as required by the contract.
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Defence Procurement Policy Manual 6.3 Provision of Commonwealth Assistance 5. Failure by Defence to provide Government Furnished Material at the places and times specified in the contract may entitle the contractor to claim a postponement of any affected delivery and milestone dates and recover postponement costs (see chapter 6.4).
Liability for Government Furnished Material 6. Following delivery and inspection of Government Furnished Material, the contractor will be responsible for its safe custody. Defence will usually be liable for lost, destroyed, damaged, defective or deficient Government Furnished Material, except to the extent that the loss, destruction, damage, defectiveness or deficiency was caused by a default or unlawful or negligent act of the contractor, its officers, employees, agents or subcontractors. In some circumstances, the contractor may be required to insure Government Furnished Material. Prior to requiring a contractor to insure Government Furnished Material, advice should be sought to ensure that the Government Furnished Material is not already covered by an existing Commonwealth insurance policy. HANDY HINT Guidance on insurance issues can be obtained by contacting the Defence Insurance Office on 1800 990 900 or via e-mail at definsurance@defence.gov.au. 8. When Government Furnished Material in the care of a contractor is damaged, defective or deficient, the contract may provide the Commonwealth Representative (or Project/Contract Authority or other position nominated in the contract as being responsible for management of the contract on behalf of Defence) with the choice of requiring the contractor to either transport, dispose of or repair the material. The cost of any work performed will be borne by Defence unless the damage, defect or deficiency was caused by a default or unlawful or negligent act of the contractor, its officers, employees, agents or subcontractors. In either case, the Commonwealth Representative should ensure that the cost of the work is agreed with the contractor prior to the work being undertaken.
7.
Mandating the Use of Government Furnished Material 9. Mandating that a contractor must use particular items of Government Furnished Material in the performance of a contract should be avoided wherever possible. Where it is considered necessary to mandate the use of Government Furnished Material, Defence will usually provide the contractor with a warranty that the mandated Government Furnished Material is fit for the purpose for which it has been provided under the contract (for guidance on warranties refer to chapter 6.5). This warranty will not apply, however, where an action by the contractor renders the Government Furnished Material that was fit for purpose on delivery, no longer fit for purpose. Circumstances in which it may be appropriate for the use of Government Furnished Material to be mandated in a contract include where:
10.
standard Defence equipment (e.g. radios) will be provided to the contractor for incorporation in the supplies to be delivered; or data required by the contractor to perform the contract can only be provided by Defence and cannot be independently verified by the contractor.
Management of Government Furnished Material 11. Government Furnished Material always remains the property of Defence. Where Government Furnished Material will be provided to a contractor, the contract must require the contractor to preserve any identification marks on the Government Furnished Material and obtain the prior written consent of the Commonwealth Representative before:

using it other than for the purposes of the contract; modifying it; transferring possession or control of it; Page 6.32

moving it from the original delivery location; or communicating it to another party.
HANDY HINT Further information on the provisions of Government Furnished Material is provided in Defence Instruction (General) LOG 07-4 Provision of Material to Contractors. Intellectual Property and Confidentiality 12. Where Government Furnished Material to be provided to a contractor contains intellectual property that is not owned by Defence it is important to ensure that:
Defence has sufficient rights to the intellectual property to be able to provide the Government Furnished Material to the contractor without breaching the intellectual property owners rights; and the contractor is made aware of, and abides by, any intellectual property licensing restrictions in relation to the Government Furnished Material.
13. 14.
In some circumstances it may be necessary to require the contractor to sign an intellectual property agreement with the owner of the intellectual property. Care should also be taken if the Government Furnished Material is subject to a confidentiality caveat such as commercial-in-confidence (see chapter 3.11). HANDY HINT Advice on protecting commercial-in-confidence information and intellectual property can be obtained from DMO Legal.
Government Furnished Facilities 15. Government Furnished Facilities are facilities that are made available to a contractor for the performance of their obligations under a contract. The preferred Departmental position is to minimise the provision of Government Furnished Facilities to contractors. However, in some circumstances it will not be possible for a contractor to perform the work required without the use of Government Furnished Facilities. Head National Operations Division, in consultation with the purchasing area, will determine what Government Furnished Facilities can be provided under a contract and on what basis they will be provided. Where Government Furnished Facilities will be provided, the contract must:
16.
include a list of the Government Furnished Facilities that will be provided to the contractor (e.g. Part 2 of Attachment D of ASDEFCON (Complex Materiel) Volume 2); specify the date for provision of access to the Government Furnished Facilities; detail the time period for inspection of the Government Furnished Facilities; and specify the intended use of the Government Furnished Facilities.
Government Furnished Facilities Licence 17. Where Government Furnished Facilities are provided under a Defence contract, a separate licence agreement will usually be executed by the parties. A copy of the licence agreement is usually contained in an attachment to the contract. National Operations Division should be contacted for advice and assistance to develop an appropriate licensing agreement. The licence agreement should include provisions that detail the:

period of the licence; fees payable under the licence; parties obligations under the licence in relation to maintenance, security, waste disposal, environmental obligations etc; Page 6.33
liability of the parties for damage to, and repair of, the Government Furnished Facility, including insurance and indemnity provisions; and termination provisions for the licence.
18. 19.
The Standard Licence Agreement for Use by Contractors of Defence Facilities can be accessed on the Infrastructure Management website. Where Defence mandates that the contractor use a particular Government Furnished Facility, the contractor will be required to pay a one-off fee of $1.00 to enter into the licence. In all other circumstances where the contractor elects to use a Defence facility as part of its performance of the contract, the contractor will usually be required to pay a commercial rent as consideration for the licence. The amount to be paid should be detailed in the licence agreement. Amounts paid by the contractor under the licence agreement will usually be reimbursed by Defence as part of the contract price. Care should be taken to provide Government Furnished Facilities as required by the contract. If Defence fails to do so, the contractor may be entitled to claim a postponement of any affected delivery and milestone dates and recover postponement costs (see chapter 6.4). HANDY HINT Further guidance on the provision of Government Furnished Facilities is available in Defence Instruction (General) ADMIN 35-1 Procedures for the Use of Defence Estate Assets by NonDefence Organisations or Individuals including Commercial Contractors.
20.
Government Furnished Services 21. Government Furnished Services are any services provided to a contractor by Defence to assist in the performance of a contract. Government Furnished Services do not include those services performed by Commonwealth staff (see the section below on provision of Defence staff). Government Furnished Services are most often provided under contracts for the maintenance and through life support of Defence equipment. An example of Government Furnished Services is waste removal services provided by a third party contractor to Defence establishments. If Government Furnished Services are to be provided under a contract, the contract must place an obligation on the contractor to enter into a Service Level Agreement with each person or organisation providing a service.
22.
23.
Provision of Defence Staff / Members Required in Uniform 24. Defence may choose to provide the contractor with Defence staff to perform specific duties in relation to the performance of a contract. This will occur most frequently under contracts for the maintenance and through life support of Defence equipment or other services based contracts. Defence may require the embedding of Defence personnel within the contractors staff for a number of reasons. This most common reason is to ensure that Defence staff (especially uniformed personnel) develop the skills necessary to maintain Defence capabilities and provide required support services to the Australian Defence Force. Provision of Defence staff under a contract is discretionary, but if Defence makes an undertaking to the contractor to provide staff for specific purposes and on specific dates, Defence must provide the staff as promised. Where Defence staff will be provided, their tasks need to be agreed with the contractor and clearly defined in the contract to ensure that there is no confusion as to the responsibilities of the Defence staff and the contractor. The contract may include a requirement for the contractor to credit Defence with the value of any work performed by Defence staff. This credit will normally be calculated by multiplying the
25.
26.
27.
28.
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Defence Procurement Policy Manual 6.3 Provision of Commonwealth Assistance hours worked by the hourly rate set out in the contract. The contractor may be required to offset this credit amount against any claims made for payment. 29. If Defence has elected to provide Defence staff under a contract, Defence should ensure that they are suitably qualified for the work that they have to undertake. If the Defence staff are not suitably qualified, Defence may expose itself to postponement claims (see chapter 6.4). Defence may also be in breach of the contract and be required to compensate the contractor for any losses suffered as a result of the breach.
Contractor Access to Commonwealth Premises 30. Many Defence contracts place a contractual obligation on Defence to provide the contractor or its employees with access to Commonwealth premises where such access is required for the performance of the contract. Where the contractor will be provided with access to Commonwealth premises, the contract must clearly detail the scope of the access rights and the obligations of the parties in relation to the access. Defence may retain the right under the contract to withdraw the access rights of the contractor or its employees to the Commonwealth premises. The contract may also place obligations on the contractor to ensure that its personnel comply with any relevant Commonwealth policies, safety and security requirements. Entry to the majority of Defence managed premises requires contractors personnel to either hold an appropriate Defence security pass or be escorted by the holder of an appropriate Defence security pass. Guidance on security issues associated with the provision of access is contained in chapter 3.9.
31.
32.
33.
Access to and Use of Defence Equipment 34. A number of Defence contracts, particularly contracts for the provision of services, allow contractors, their employees or subcontractors to access and use Defence equipment in order to perform the contract. Where Defence equipment is provided, contractors and their personnel must be advised of any applicable Commonwealth and Defence policies pertaining to their use. Policies that may apply include:
35.
Defence Instruction (General) ADMIN 10-6 - Use of Defence telephone and computer resources; Defence Information Management Policy Instruction 1/2004- Telephones and Related Goods and Services; and Defence Information Management Policy Instruction 5/2001- Defence Information Environment Provision of Defence E-mail and Internet Services.
Chapter Summary
The provision of Government Furnished Material and Government Furnished Facilities to contractors should be minimised. If Government Furnished Material is to be supplied under a contract, care must be taken to deliver or provide access to the material at the places and times specified in the contract. Government Furnished Material may be mandated by Defence. Defence will usually warrant that mandated Government Furnished Material is fit for the purposes for which it has been mandated. A separate licence agreement will usually be executed where Government Furnished Facilities are to be provided under a contract. Advice should be sought from National Operations Division. Care should be taken to ensure that Government Furnished Facilities are provided as required by the contract. Page 6.35
Defence Procurement Policy Manual 6.3 Provision of Commonwealth Assistance If Government Furnished Services are to be provided to a contractor, there must be an obligation on the contractor to enter into a Service Level Agreement with each person or organisation providing the service. Where Defence chooses to provide Defence staff under a contract, Defence should ensure that the staff are suitably qualified, and are provided on the dates agreed in the contract. Where Defence facilities and equipment are provided under a contract, contractors and their personnel must be advised of any applicable Commonwealth and Defence policies pertaining to their use.
Further Reading
ASDEFCON (Complex Materiel) ASDEFCON (Services) ASDEFCON (Strategic Materiel) ASDEFCON (Support) Defence Instruction (General) ADMIN 35-1 - Procedures for the Use of Defence Estate Assets by Non-Defence Organisations or Individuals including Commercial Contractors Defence Instruction (General) ADMIN 10-6 - Use of Defence telephone and computer resources Defence Information Management Policy Instruction 1/2004 - Telephones and Related Goods and Services Defence Information Management Policy Instruction 5/2001 - Defence Information Environment Provision of Defence E-mail and Internet Services Standard Licence Agreement for Use by Contractors of Defence Facilities
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Defence Procurement Policy Manual 6.4 Delivery, Acceptance, Payment and Ownership
6.4
Introduction
1. 2. 3.
Delivery, Acceptance, Payment and Ownership
This chapter applies to all procurement undertaken in Defence and Defence Materiel Organisation (DMO). This chapter provides policy and guidance on contractual issues associated with delivery, acceptance, payment and ownership in Defence contracts. Terminology and concepts described in this chapter are based on the ASDEFCON suite of tendering and contracting templates. Non ASDEFCON contracts, for example the Infrastructure Division suite of contracts, may not use this terminology and may contain alternative delivery, acceptance, payment and ownership provisions. Procurement officers using Infrastructure contracts should refer to the Infrastructure Management homepage for further guidance.
Mandatory Policy
All mobilisation payments must be secured by a financial guarantee from a suitable financial institution (refer to chapter 6.2 for further detail). All claims for payment must be in the form of a valid tax invoice that details the amount and calculation of any Australian Goods and Services Tax applicable to the supplies as a separate line item. Prepayments must only be made if the written contract provides for a prepayment. In DMO prepayments must be recognised, classified and reported in accordance with Defence Materiel Manual (FIN) 01-0-003 DMO Accounting Policy Manual. Written contracts with small businesses for payments valued up to and including $5 million (GST inclusive) must adopt maximum payment terms not exceeding 30 days from the date of receipt of a correctly rendered invoice. All written procurement contracts with small businesses for a value of up to A$1 million (GST inclusive) must include provisions which provide that where payment has not been made within 30 days of receipt of a correctly rendered invoice, simple interest is payable by Defence on the unpaid amount.
Overview 4. All Defence contracts should clearly detail the delivery, acceptance, payment and ownership requirements of the contract. The Commonwealth Representative is required to ensure that all of the contract requirements relating to delivery, acceptance, payment and ownership are met by both parties.
Delivery 5. All Defence contracts should specify the time and place for delivery of supplies. In most standard Defence contracts the delivery requirements may also be set out in the payment schedule and delivery schedule. A number of different delivery options are available under Defence contracting templates. The Commonwealth Representative should ensure that the delivery requirements of the contract are Page 6.41
6.
Defence Procurement Policy Manual 6.4 Delivery, Acceptance, Payment and Ownership monitored and managed in accordance with the terms of the contract. The checklist at Annex 6C provides general guidance on the problem scenarios and options for Defence where the contractor has not met its delivery obligations under the contract. 7. Any failure by the contractor to deliver supplies by the delivery dates or to the delivery points specified in the contract may place the contractor in breach of the contract and should be managed in accordance with the contract provisions. Chapter 6.5 provides general guidance on the problems that may be encountered and options for Defence where the contractor has not met its delivery obligations under the contract.
Risk of Loss of or Damage to the Supplies 8. All Defence contracts should specify the time at which risk of loss or damage to the supplies will pass from the contractor to Defence. In accordance with Commonwealth policy, standard Defence templates have been drafted to allocate risk to the party best able to manage the risk, that is, risks should not generally be accepted which another party is better placed to manage. Prior to supplies being delivered, the Commonwealth Representative must ensure that appropriate risk management measures are in place, for example in relation to security and storage of the supplies. Where required, the Commonwealth Representative should ensure that appropriate insurance coverage for the supplies has been arranged through the Comcover insurance scheme (see chapter 3.15).
9.
Acceptance 10. All Defence contracts should include a clause detailing the acceptance procedures for supplies delivered under the contract where Defence determines that the supplies meet the requirements of the contract. Failure by Defence to accept or reject the supplies within the timeframes specified in the contract may place Defence in breach of the contract and may entitle the contractor to make a claim in accordance with the contract provisions. Failure to accept or reject the supplies within the specified timeframe may also automatically constitute acceptance, depending on the terms of the contract. If this is the case, Defence may have lost its opportunity to object to any deficiencies and will be legally bound to pay for the supplies in accordance with the contract. Use of the supplies prior to acceptance may also limit Defences ability to object to any deficiencies in the supplies. If supplies are accepted but subsequently turn out to be defective, Defences remedies may be limited to relying on the warranties in the contract to have any defects remedied during the warranty period, rather than being able to sue the contractor for providing defective supplies. Therefore it is critical that the Commonwealth Representative ensures that the supplies meet the requirements of the contract prior to accepting them.
11.
12.
Conditional Acceptance 13. Subject to the acceptance regime detailed in the contract, the Commonwealth Representative may be able to give a conditional acceptance (e.g. accept the supplies subject to the contractor fixing particular defects). Any such conditions must be expressly stated on the Supplies Acceptance Certificate. Where Defence agrees to conditional acceptance, the contractor will be required to remedy the defects identified in the acceptance process within a specified period of time (as provided for under the contract). If the contractor fails to do this, Defence will usually be entitled to have the remedial work performed at the contractors expense. Extreme care should be exercised if the Commonwealth Representative elects to conditionally accept supplies and specialist contracting advice should be sought.
Acceptance of Over/Under Supplies 14. If flexibility is required in quantities supplied under a contract, this should be specified in specially drafted provisions of the contract, rather than by ad-hoc arrangements with the contractor. Page 6.42
Defence Procurement Policy Manual 6.4 Delivery, Acceptance, Payment and Ownership 15. If an over or under supply occurs, and is not provided for in the contract, the Commonwealth Representative should notify the contractor and reserve Defences right to reject the supplies until a decision is made as to whether to accept the over or under supply. Notification of Defences final decision to accept or reject the supplies is subject to the exercise of delegations required by paragraph 16 below. Where the Commonwealth Representative makes a determination to accept an over or under supply, a formal contract amendment should be prepared and delegations exercised in accordance with the Delegations Requirements outlined in chapter 6.7.
16.
Milestones 17. In addition to dates for delivery of supplies, Defence contracts may also provide for milestones that must be met by the contractor. Where milestones are included in a Defence contract, an attachment to the contract should list all the milestones that must be met by the contractor, the requirements that must be met for each milestone to be achieved and, if met, the amount that will be paid to the contractor for achievement of each milestone. As with dates for the delivery of supplies, where the contractor fails to achieve a milestone by the date specified in the contract, the contractor may be in breach of the contract and should be managed in accordance with the contract provisions (see chapter 5.6).
18.
Progress Certification Milestones 19. In standard Defence contracts for higher value Complex and Strategic Procurements, milestones may be subject to formal acceptance processes or progress certification. Progress certification permits the Commonwealth Representative to provide feedback to the contractor on progress of a particular milestone, make payment to the contractor and transfer ownership of the supplies to Defence. It is important to note that progress certification does not constitute acceptance of the supplies and when the supplies are delivered to Defence for acceptance at a later date, Defence may reject the supplies if they do not meet the requirements of the contract.
Final Acceptance Milestones 20. In standard Defence contracts for higher value Complex and Strategic Procurements, the final milestone of the contract may be referred to as the Final Acceptance Milestone. The final acceptance process provides a mechanism by which the Commonwealth Representative notifies the contractor that it has fulfilled all of its obligations under the contract and will make the final payment to the contractor. If allowed for in the contract provisions, the Commonwealth Representative can also withhold payment of the Final Acceptance Milestone until the contractor has satisfactorily completed all of the contracted requirements. Given that one of the main purposes of the final acceptance milestone is to provide incentive for the contractor to fully perform the contract, it is critical that an appropriate payment be tied to achievement of the final acceptance milestone. Even where the final milestone under a contract is not nominated as a final acceptance milestone it is important that a significant payment be tied to achievement of the milestone to provide incentive for the contractor to fully perform the contract. The final acceptance (or last) milestone payment should be 20-30% of the contract price depending upon the complexity of the supplies being delivered and the other types of payments paid to the contractor under the contract.
21.
Postponement 22. Circumstances may arise which delay the contractor in delivering the required supplies. Defence contracts for higher value Complex and Strategic Procurements should contain a clause that:
places an obligation on the contractor to advise Defence in writing where it is likely to be delayed in delivering the supplies or achieving a milestone; and
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Defence Procurement Policy Manual 6.4 Delivery, Acceptance, Payment and Ownership
enables the contractor to claim a postponement of the delivery date for the supplies and/or the milestone date where the contractors performance under the contract has been delayed by an event that is beyond the contractors or its subcontractors reasonable control, and the delay could not have been reasonably contemplated or mitigated by the contractor.
Clauses to this effect can be found in the ASDEFCON major capital equipment templates. 23. In order to be able to claim postponement of the delivery date and/or milestone date the contractor must follow the process and timeframes detailed in the contract. Where the contractor fails to comply with the process and timeframes detailed in the contract, specialist contracting advice should be sought. The contractor is under an obligation to minimise delay and mitigate its losses due to delay. Hence, Defence can challenge claims for postponement of the delivery date of supplies and/or milestone date where the contractor could absorb the delay in its schedule or reschedule so that the delay does not impact upon the delivery or milestone date. It is important to note that any rescheduling should be reasonable having regard to the contract price, the conditions of contract and any other relevant circumstances. Where the delay affects any contract provision, for example, the delivery schedule and schedule of payments, the contract should be amended via a Contract Change Proposal. Where the effect of a delay is not appropriately taken into account and reflected in the contract, Defences right to terminate the contract could be adversely affected.
24.
25.
Postponement Costs 26. Some contracts for higher value Complex and Strategic Procurements also entitle the contractor to claim postponement costs from Defence where the delay occurs as a result of Defence action or a failure to perform an activity required by the contract. As with postponement claims, the contractor must follow the process detailed in the contract, substantiate all claims for costs and meet the specified timeframes in order to be entitled to claim postponement costs.
Ownership 27. All Defence contracts should include a provision that details when ownership of the supplies will pass to Defence. Standard Defence practice in Simple Procurement is for ownership of supplies to pass to Defence following acceptance of the supplies. In Complex and Strategic Procurements, ownership of supplies usually passes to Defence following payment for the supplies.
Title to Supplies 28. In order to transfer ownership to Defence, the contractor must own the supplies or have appropriate rights to deal with the supplies. The Commonwealth Representative should carefully check the evidence put forward by the contractor in support of its ownership of the supplies. Contracts for Complex and Strategic Procurements should include a clause which notifies the contractor that at the time ownership of the supplies pass to Defence, the supplies must be free of any registered or unregistered charge, lien, mortgage or other encumbrance.
Re-passing of Ownership in Rejected Supplies 29. Defence may elect to repass ownership of supplies back to the contractor where supplies vested in Defence following payment for a progress certification milestone are subsequently rejected when submitted for acceptance. The election to repass ownership should be made at the time of notifying the contractor of the rejection of the supplies or as soon as possible after that. Unreasonable delay in notification of an election to repass ownership by Defence may result in Defence losing the right to do so.
30.
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Defence Procurement Policy Manual 6.4 Delivery, Acceptance, Payment and Ownership Payment Policy 31. In accordance with Defence CEI 2.4 and DMO CEI 2.4, all contracts should include payment terms not exceeding 30 days from receipt of the specified goods and services and a correctly rendered tax invoice. This policy is reflected in all standard contracting templates used within Defence. A correctly rendered invoice means an invoice that has no discrepancies, and is in accordance with all of the requirements of the contract. In addition, payment remains subject to goods or services having been accepted or satisfactorily performed. Finance Circular 2008/10 - Procurement 30 Day Payment Policy for Small Business provides that for procurement from small businesses for payments valued up to and including A$5 million (GST inclusive), agencies must adopt maximum payment terms not exceeding 30 days from the date of receipt of acceptable supplies and a correctly rendered invoice. Defence and DMO policy exceeds these requirements by applying this aspect of the policy to all its standard contracting templates whether the contractor is a Small Business or not. However, for ASDEFCON (Strategic Materiel), ASDEFCON (Support) and ASDEFCON (Complex Materiel) Volume 2, the payment terms require completion of the acceptance or progress certification process before a correctly rendered invoice can be submitted, while for all other standard contracting templates the acceptance or approval process runs concurrently with the 30 day payment period (i.e. from the date of invoice receipt). For the purposes of this policy, small business means an enterprise that employs less than the fulltime equivalent of 20 persons on the day that the written contract under which the payment is made is entered into (full time equivalent is as defined by the Australian Bureau of Statistics). If the enterprise forms part of a group, this test is applied to the overall group as a whole. Contracts for high value Complex and Strategic Procurements within Defence contain a wide range of price bases (see chapter 2.2) and payment options including:

32.
33.
34.
payment upon delivery and acceptance; progress payments; milestone payments; mobilisation (or advance) payments; price variation payment claims; earned value payments; incentive payments; and cost reimbursement payments.
The payment terms require completion of the acceptance or progress certification process before a correctly rendered invoice can be submitted. Timing of Payments 35. Defence policy and contracting templates provide for payment within 30 days from receipt of a correctly rendered invoice. Where the supplies have been approved or accepted in accordance with the timeframes in the contract, Defence should ensure that payments to contractors are processed and paid in a timely manner. This is especially important in circumstances where the contractor is a small business (see paras 32 and 51-56). For Strategic and high value Complex Procurements that contain early and late payment clauses, payment of a correctly rendered invoice before 30 days has elapsed can amount to a significant amount of interest foregone by the Commonwealth. Accordingly, in such clauses, early payment occurs prior to 30 days from receipt of a correctly rendered invoice and late payment occurs after 30 days from receipt of a correctly rendered invoice.
36.
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Defence Procurement Policy Manual 6.4 Delivery, Acceptance, Payment and Ownership Prepayments 37. A prepayment occurs when payment is made prior to the contracted goods or services associated with that payment being provided. Prepayments must only be made if the written contract provides for a prepayment. In DMO prepayments must be recognised, classified and reported in accordance with DMM (FIN) 01-0-003 DMO Accounting Policy Manual.
38.
Mobilisation Payments 39. A mobilisation (or advance) payment is a payment made to the contractor early in the contract period prior to the delivery of any supplies or achievement of any milestones. A mobilisation payment provides the contractor with funding to assist it to procure items required in order for it to fulfil obligations under the contract. A mobilisation payment should only be paid under a contract where the contractor or its subcontractors will incur significant non-recurring ramp-up costs, including the cost of procuring plant, machinery, materials and facilities for use in the production of the supplies. A mobilisation payment will not usually be required for commercial-of-the-shelf acquisitions or procurements off a well established production line where only minor modifications to the products are required. The cost of money with the required ramp-up costs should be considered when determining the need for and amount of any mobilisation payment. Only one mobilisation payment should be paid to the contractor under a contract. Mobilisation payments will usually be for between 5-15% of the contract price. Consideration should be given to the entire payment regime for the contract when determining an appropriate amount for the mobilisation payment. Where the contractor will be paid earned value payments, the contractor will be able to progressively claim a percentage of the cost of the upfront materials and labour required by the contractor and therefore a mobilisation payment may not be required or the amount required may be less. Where a mobilisation payment is paid it must be secured by a financial guarantee from a suitable financial institution (see chapter 6.2). Depending upon the value of the contract and the financial viability of the contractor, the mobilisation payment security may be for between 50% and 100% of the value of the mobilisation payment. Suitable clauses for mobilisation payments and mobilisation payment securities can be found in the draft conditions of contract of ASDEFCON (Strategic Materiel).
40.
41.
42.
43.
Price Variation Payment Claims 44. Defence contracts may include provisions that enable the contractor to claim variations in the contract price resulting from:

fluctuations in the cost of labour and materials during the contract period; and/or fluctuations in exchange rates.
45.
Guidance on Defence policy in relation to price variation and the standard price variation clauses used in Defence contracts is contained in chapter 2.2.
Incentive Payments 46. Defence contracts for high value Complex and Strategic Procurements may contain provisions that entitle the contractor to be paid incentive payments for superior performance of the contract. Incentive payments are paid in addition to the contract price where the contractors performance exceeds that required by the contract. The contractors performance is usually measured against key performance indicators (see chapter 6.2) that are detailed in the contract. A suitable clause for incentive payments can be found in the draft conditions of contract of ASDEFCON (Strategic Materiel).
Page 6.46
Defence Procurement Policy Manual 6.4 Delivery, Acceptance, Payment and Ownership Cost Reimbursement Payments 47. Cost reimbursement payments enable the contractor to recover the costs of labour and materials incurred by the contractor in the performance of the contract. Cost reimbursement payments may be paid to a contractor in relation to high risk and/or developmental elements of Strategic Procurement contracts. The elements of the contract for which payments will be made on a cost reimbursement basis should be clearly detailed in the contract. Cost reimbursement payments should generally not be made for more than 25% of the contract price. Where the contractor will be paid on a cost reimbursement basis, the contract should include provisions that enable Defence to undertake a cost investigation to determine the actual costs incurred by the contractor in performing the contract (see chapter 3.3). The contract should also include review points at which Defence may elect to terminate the contract where the cost reimbursement payments made to the contractor exceed the progress made by the contractor in performing the contract (as assessed by the relevant earned value management system) and the parties cannot agree to a contract change proposal to amend the contract. A suitable clause for cost reimbursement payments can be found in the draft conditions of contract of ASDEFCON (Strategic Materiel).
48.
49.
Claims for Payment 50. The contract should clearly detail the requirements that must be met by the contractor when submitting a claim for payment, including any requirements that must be detailed on the invoice and any documentation that must be submitted with the invoice. The requirements to be met by the contractor will vary depending on the type of payment being claimed. However, in all cases the claim for payment submitted by the contractor must be in the form of a valid tax invoice that details the amount and calculation of any Australian Goods and Services Tax applicable to the supplies as a separate line item (see chapter 3.7).
Early and Late Payments 51. In accordance with Finance Circular 2008/10, all written procurement contracts valued up to A$1 million (GST inclusive) with small businesses must contain clauses which provide that Defence must pay interest on payments not made within 30 days (or shorter period as specified in the contract) following receipt of a separate correctly rendered invoice. Paragraph 33 contains a definition of small business. The interest is payable at the general interest charge rate, calculated in respect of each day from the day after payment was due up to and including the day that payment of the contract amount is made. Interest is not payable unless the amount of interest is more that A$10 and the contractor has issued a correctly rendered invoice for the interest. The general interest charge rate means the interest charge determined under section 8AAD of the Taxation Administration Act 1953 on the day that payment is due. The general interest charge rate can be found at the following link http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/2832.htm The requirement to pay interest on late payment to small businesses does not include:

52.
procurement of real property including leases and licences; procurement from administered items (defined in Estimates Memorandum 2007/29 Criteria for Determining Departmental and Administered Classifications); where the nature of the goods and services or the structure of the procurement would make it impractical for the policy to be applied. This might be the case, for example, where the procurement occurs under standard terms and conditions put forward by the contractor rather than Defence; or procurement where prior to 1 December 2008, a written contract or standing offer was already in place or in the process of being negotiated.
53.
If a contract variation increases the value of a contract to above A$1 million (GST inclusive), there is no obligation for the interest on late payment clause to be removed. Page 6.47
Defence Procurement Policy Manual 6.4 Delivery, Acceptance, Payment and Ownership 54. Other Defence contracts that do not fall within the criteria in paragraphs 48 and 49 may include provisions for early and late payment of invoices. Where a late payment clause is included in a contract, the Australian Taxation Offices General Interest Charge should be the rate used to calculate these payments. The General Interest Charge rate can be accessed on the Australian Taxation Offices web site: http://www.ato.gov.au/taxprofessionals/content.asp?doc=/content/2832.htm Where an early payment clause is included in a Defence contract, the Reserve Bank of Australia target cash rate should be used to calculate early payments. The target cash rate is the rate charged on overnight loans between financial intermediaries. The Department of Finance and Deregulation has assessed this rate as representing the opportunity cost to the Commonwealth of paying early. The applicable rate is reviewed monthly and published on the Reserve Bank of Australia web site: http://www.rba.gov.au/. Financial approvals are required for the payment of interest on late payments. Government policy is for agencies to pay invoices on time. Accordingly, Defence should not anticipate facing late payment charges when arranging approvals for a procurement contract.
55.
56.
Key References
Commonwealth Procurement Guidelines Finance Circular No 2008/10 Procurement 30 Day Payment Policy for Small Business Defence CEI 2.4 Payment of Accounts DMO CEI 2.4 Payment of Accounts DMM (FIN) 01-0-003 DMO Accounting Policy Manual ASDEFCON (Strategic Materiel) ASDEFCON (Complex Materiel)
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Defence Procurement Policy Manual 6.5 Exercising Contractual Remedies
6.5
Introduction
1.
Exercising Contractual Remedies
This chapter examines the exercise of certain contractual remedies available to the Commonwealth Representative (or Project/Contract Authority or other person responsible for managing a contract on behalf of Defence) in circumstances where a breach of contract has occurred. Exercising a remedy, like any other aspect of contract management, requires forethought and planning. Specialist advice should also be sought before exercising any contractual remedy. Because of the relative ease with which contractual rights and remedies can be varied (or waived entirely) by express or implied conduct (or by a failure to take action at a certain time) it is important to understand the nature of the remedy before the need to exercise the remedy 1 arises. The nature of the remedies available, and the circumstances in which rights can be exercised, will vary according to a number of factors including:

2.
3.
the contracting model that has been used; the terms of the contract; and the nature of the breach.
Common Contractual Remedies 4. Where a breach of contract has occurred, Defence contracts may provide various remedies including those listed in the following paragraph. These remedies are often additional to any remedies available under common law, although in some cases access to the common law rights may be altered by the contractual provisions. For example, the contract may provide that while a right to claim liquidated damages exists any overlapping common law right may not be exercised. This chapter examines the following remedies:

5.
liquidated damages; termination for default; withholding payment; drawing down on financial securities; contractual warranties; and substitution and indemnity.
6.
Some consideration is also given to common defences that may be raised by contractors in an effort to defeat the exercise of the remedies.
Liquidated Damages Context 7. Provision to claim liquidated damages is often included in Defence contracts for Complex and Strategic procurements to compensate for losses incurred by Defence when a contractor fails to fulfil nominated events. The most common events to which liquidated damages attach are failures by the contractor to meet agreed delivery timeframes. When a liquidated damages
The Office of Special Counsel should be contacted before exercising a contractual remedy as per web form AD553
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Defence Procurement Policy Manual 6.5 Exercising Contractual Remedies event occurs, damages in the form agreed between the parties become a debt due to the Commonwealth. Advantages of Using Liquidated Damages 8. The advantage of liquidated damages over common law damages is that it is only necessary to show that a breach (such as failure to deliver on time) has occurred, whereas in the case of common law damages it is also necessary to show that Defence has suffered loss as a result of the breach.
Liquidated Damages Not Always an Appropriate Remedy 9. Liquidated damages will not always be an appropriate remedy. For example, claiming liquidated damages in relation to a performance shortfall may not adequately compensate Defence where the performance shortfall will significantly affect the performance of the capability.
Calculation and Enforceability of Liquidated Damages 10. Liquidated damages should not be used as an incentive or a penalty, although their inclusion may have an incidental effect on contractor performance. Their use as an incentive or penalty may render them inoperative. To be enforceable by the courts, liquidated damages must reflect a genuine pre-estimate of the likely loss that will be suffered by Defence as a result of the breach of contract. If the court considers that the liquidated damages claimed are not a genuine pre-estimate the provisions may be inoperative. Sometimes an accurate estimate of the loss that is likely to be suffered by Defence on the occurrence of a particular default may be difficult to develop, particularly where the breach does not appear to have a direct monetary impact on Defence (eg. where an Australian Industry Involvement Plan imposing local content quotas has been breached). It is for this reason that all Defence contracts that include liquidated damages provisions should contain a clause that includes an acknowledgement from the contractor that Defence will suffer loss and damage as a result of the contractors breach of contract. An example clause is contained at clause 7.14.1 of the draft conditions of contract in ASDEFCON (Strategic Materiel). It is also important that Defence keeps records of the calculations used to determine the liquidated damages amounts used in the contract. These records will provide evidence that reasonable steps were taken to determine a genuine pre-estimate of loss even if the estimate ultimately turned out to be inaccurate. Heads of damage that should be considered for inclusion in any liquidated damages calculation in relation to the late delivery of supplies include:

11.
12.
maintaining current capability, including upgrades, until the supplies are delivered; project office costs during the period of delay (e.g. salary, including for professional service providers, cost of office accommodation); additional training costs associated with the delay; legal costs; and costs associated with obsolescence.
13.
It is acceptable for a formula (rather than a fixed amount) to be specified as a means of calculating the liquidated damages payable.
Claiming Liquidated Damages 14. 15. Liquidated damages are a contractual remedy, and as such will only be available where they are specified in the contract. Management strategies and contract clauses have been developed to provide Defence and Defence industry with flexibility in the management and collection of liquidated damages. Defence has introduced revised liquidated damages provisions in the ASDEFCON suite of tendering and contracting templates to ensure that liquidated damages do not immediately Page 6.52
Defence Procurement Policy Manual 6.5 Exercising Contractual Remedies accrue as a debt to Defence on the occurrence of a breach of contract and to provide the Commonwealth Representative with more control. 16. These clauses provide that the Commonwealth Representative must make an election to claim the liquidated damages or alternative compensation before a debt will become payable by the contractor. A certain period is usually provided in which the Commonwealth Representative must make the election as to whether to claim liquidated damages, alternative compensation or a combination of both. To ensure that Defence does not lose its right to claim the liquidated damages where no election is made within the required timeframe, Defence contracts usually deem an election to have been made to claim the liquidated damages in monetary form on the expiry date of the election period. It is strongly recommended that all Defence contracts that include liquidated damages provisions use the standard ASDEFCON liquidated damages provisions amended, as appropriate, to suit the particular contract.
17.
18.
Alternative Forms of Compensation 19. Many Defence contracts that allow for the recovery of liquidated damages provide Defence with the option to claim alternative compensation in the form of additional goods or services rather than claim the liquidated damages in a monetary form. The form of the alternative compensation must be agreed with the contractor. Where agreement cannot be reached, Defence will still be entitled to claim the liquidated damages in a monetary form. Prior to making an election to claim an alternative form of compensation, the Commonwealth Representation should consider:

20.
the value of the compensation; the usefulness of the compensation to Defence; the through life support costs of the compensation (e.g. storage, maintenance, fuel, training etc); whether the compensation is within the scope of the contract; whether the compensation will be provided under the current contract or another contract with the contractor; what delivery dates, functional/performance requirements, warranties, liquidated damages etc should be agreed with the contractor and included in the relevant contract; and whether electing to claim the liquidated damages in a monetary form would better compensate Defence for the loss it has suffered as a result of the contractors breach of contract.
21.
Any alternative compensation that is agreed must be of equivalent value to the liquidated damages that would otherwise be payable. Claiming a combination of both liquidated damages and alternative forms of compensation is permissible. Where alternative compensation will be provided, the relevant contract must be amended in accordance with the applicable contract amendment process (see chapter 6.7). It is recommended that any decision to claim alternative compensation be referred to the original Contract Approver delegate for the contract.
Liquidated Damages Provisions 22. An example liquidated damages clause for use in:

Strategic procurements of supplies is contained in ASDEFCON (Strategic Materiel); Complex procurements of supplies is contained in ASDEFCON (Complex Materiel) Volume 2; and
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Strategic and Complex procurements of maintenance and through life support services is contained in ASDEFCON (Support).
23.
Where liquidated damages provisions are included in a Defence contract, the contract must specify:
the breaches of contract for which Defence will have an entitlement to claim liquidated (e.g. failure to achieve nominated milestone dates); the amount of liquidated damages that Defence is entitled to claim for each breach of contract. This may be detailed on a daily (e.g. for delay) or once-off basis; the period in which Defence must make its election to claim the liquidated damages; and the circumstances and method by which Defence can claim alternative compensation where it is provided for under the contract.
Debt Management 24. Once liquidated damages become payable under a contract, the amount payable becomes a debt due to Defence and the Financial Management and Accountability Act 1997 requires Defence to pursue debt recovery action, unless the Minister for Finance and Deregulation has waived collection action under section 34 of the Act.
Waiver and Write-Off 25. Write-off of a debt defers recovery of the debt, whereas waiver extinguishes the Commonwealths claim to the debt altogether. The Chief Executives Instructions for both Defence and DMO make provision for the write-off and waiver of debts. All decisions relating to the waiver or write-off of liquidated damages must be referred to Branch Head level or higher for submission to the Minister for Finance and Deregulation. Defence Chief Executives Instructions 5.2 Debt Management and DMO Chief Executives Instructions 5.1 Debt Management provide further information on the procedures that must be followed to write-off or waive debts.
GST Implications 26. GST will be payable by Defence to the Australian Taxation Office on liquidated damages claimed by it where the liquidated damages are deemed to be a supply for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (see chapter 3.7). As such the amount of liquidated damages detailed in the contract should generally include GST, and Defence should issue a GST invoice to the contractor when claiming liquidated damages. Further advice on taxation issues arising out of a claim for liquidated damages should be obtained from the Defence Treasury and Taxation Management Branch of the Chief Finance Officer Group. Advice can be obtained by contacting the Defence Tax Management Office on 1800 806 053 or via email at taxation.management@defence.gov.au.
Liability Cap 27. Exposure to a claim for liquidated damages is one factor a contractor will consider in determining a contract price. A cap on a contractors liability is one way of reducing their risk and may allow them to offer Defence a better contract price. However, it also reduces the value of the clause to Defence and so consideration should be given to whether, on balance, Defence is better off without a liquidated damages provision, relying solely on its common law remedies for breach of contract. The starting position for Defence Materiel Organisation contracts is that liquidated damages should not be capped.
Termination for Default 28. All Defence contracts must specify the circumstances in which Defence may terminate a contract for default. Provisions may also allow Defence to reduce the scope of the contract rather than terminate it altogether. Page 6.54
Defence Procurement Policy Manual 6.5 Exercising Contractual Remedies 29. The circumstances that usually give rise to a right to terminate the contract for default involve breaches of contract which have serious consequences for Defence, and may include where the contractor:

breaches its obligation to grant Defence intellectual property rights; fails to comply with Defence security requirements imposed under the contract; fails to achieve nominated critical milestones by the required date; faces a range of insolvency issues or ceases to carry on business; assigns its rights other than in accordance with the contract; and fails to obtain or ceases to hold any necessary licences.
Requirement for Notice 30. The exercise of a right to terminate must be by notice in writing and in strict accordance with the contract. Some circumstances give rise to a right of immediate termination. Others, such as where some remedy is required, specify a time in which the contractor must remedy the default. This is sometimes known as a cure notice. Failure to remedy the default within the prescribed period can lead to a second notice declaring the termination of the contract. As there are certain formal requirements that must be met for a notice of default or notice of termination to be valid, legal advice should be sought before notice is given. DMO Legal should also be contacted at this point. Even though there has been a termination for default, the contractor may still be entitled to payment for items already accepted by Defence. Defence may also retain the right to repurchase any unsupplied items elsewhere and charge any excess re-procurement costs to the contractor.
31.
32.
Common Law Termination 33. Where a contractor has breached an essential term of a contract there may also be a common law right to terminate the contract, that is a right not arising out of the terms of the contract but from the common law itself. Where this situation is encountered, and before any steps to terminate are taken, legal advice should first be sought.
Withholding Payment 34. Normally Defence will not have the right to withhold future payments under a contract where the contractor fails to achieve a milestone or delivery date. Defence will usually only have the right to withhold the payment associated with the milestone or delivery date until the relevant milestone or delivery requirement is achieved. However, some Defence contracts for higher value Complex and Strategic procurements may include provisions that entitle Defence to not only withhold payment of the relevant milestone payment but also to withhold all future payments due under the contract until the milestone is achieved. The milestones for which this right will arise are normally referred to as Stop Payment Milestones and must be detailed in the contract and should represent milestones that will significantly impact on the contract schedule. The number of milestones will depend on the value, length and complexity of the contract. An example clause is contained at clause 7.11 of the draft conditions of contract in ASDEFCON (Strategic Materiel). Payments to a contractor may also be stopped in other circumstances such as failure by the contractor to maintain financial securities or insurance policies. To ensure that Defence will be able to exercise its right to withhold payments under the contract, the circumstances in which this right will arise must be clearly stipulated in the contract. The exercise of a contractual right to withhold payment will not usually prejudice other rights of Defence such as the right to terminate for default. Page 6.55
35.
36.
37.
Defence Procurement Policy Manual 6.5 Exercising Contractual Remedies 38. To ensure that Defence appropriately exercises any right to withhold payment, advice must be sought from the Office of Special Counsel, DMO, or other contracting specialists prior to withholding payments under a contract.
Financial Securities 39. 40. Many Defence contracts for Complex and Strategic procurements will contain provisions that require the contractor to provide financial securities (or guarantees). Securities are most commonly obtained to secure mobilisation (or advance) payments made under the contract (see chapter 6.4) and to secure the contractors proper performance of the contract. Where securities will be provided under a contract, Defence must ensure that the securities are provided by a reputable financial institution and in a suitable format (see chapter 6.2). The contract must detail the circumstances in which Defence may draw down on any financial security provided by the contractor. Defence cannot exercise a security in any other circumstance or the contractor may have grounds for legal action against Defence. Performance securities are generally exercisable by Defence to:

41. 42.
43.
recover debts due to Defence under the contract; and obtain compensation for loss suffered where the contractor has failed to perform the contract, including where the contract is terminated for default.
44.
Mobilisation payment securities are generally exercisable by Defence to:

obtain repayment of the non-offset component of the mobilisation payment; and recover debts due to Defence under the contract.
45. 46.
Example mobilisation and performance security clauses are contained at clauses 7.5 and 7.6 of the draft conditions of contract of ASDEFCON (Strategic Materiel). Drawing down against a financial security is a complicated matter and as such specialist contracting and legal advice should be sought (e.g. Office of Special Counsel, DMO) before any attempt is made to exercise Defences rights under a financial security.
Deed of Substitution and Indemnity 47. Some Defence contracts for Complex and Strategic procurements may contain a requirement for the contractor to arrange the execution of a Deed of Substitution and Indemnity instead of a performance security. A Deed of Substitution and Indemnity entitles Defence to request that the entity providing the Deed (usually, but not always, the contractors parent company), be substituted as the contractor to perform the contract where Defence is entitled to issue a notice of termination for default.
In some circumstances it may be preferable to terminate the contract for default rather than issue a notice of substitution. Issues to be considered include: the ability of the substituted contractor to perform the contract from both a financial and technical perspective; the existing delay in the delivery of the supplies under the contract; and the likely damages recoverable by Defence if it terminates the contract for default.
48.
Advice should be sought from Office of Special Counsel, DMO or another contracting specialist prior to Defence issuing a notice of termination or substitution under the contract.
Page 6.56
Defence Procurement Policy Manual 6.5 Exercising Contractual Remedies Warranties 49. Defence contracts for the supply of goods or services may include a variety of warranties. The number and types of warranties will depend on the goods or services being procured. Types of warranties that will commonly be included in Defence contracts include:

a fitness for purpose warranty; a general warranty; a latent defects warranty; a date dependency warranty; and a technical data warranty.
Fitness for Purpose Warranty 50. Under a fitness for purpose warranty, the contractor will usually be required to warrant that the goods or services provided under the contract are fit for the purpose(s) for which they were acquired. A fitness for purpose warranty should be sought from a contractor in all Complex and Strategic procurements. In higher value, more Complex procurements, the efficacy of the warranty will often hinge on the provision of a clear and unambiguous statement (usually to be found in the Operational Concept Document or Statement of Work) detailing the purpose for which the goods or services have been provided. An example fitness for purpose warranty clause for:

51.
Complex procurements of supplies is contained in ASDEFCON (Complex Materiel), Strategic procurements of supplies is contained in ASDEFCON (Strategic Materiel); Complex and Strategic procurements of maintenance and through life support services is contained in ASDEFCON (Support); and Complex procurements of consultancy, professional and other services is contained in ASDEFCON (Services).
General Warranty 52. Under a general warranty provision, the contractor will usually be required to warrant that:
for contracts for the procurement of supplies, the design, materials and workmanship in the supplies meet the requirements of the contract; and for contracts for the procurement of services, the contractor has the necessary expertise, experience, capacity and capability to perform the services in accordance with the contract.
53.
The contractor will also usually be required to remedy any defects in the design, materials or workmanship of the supplies or defects in the services that occur and are notified to the contractor within an agreed timeframe (known as the warranty period). The warranty period will usually commence on acceptance of the supplies or services, so in determining an appropriate warranty period consideration should be given to:

the type of supplies or services being procured; the standard commercial warranty period; the cost of the proposed warranty; and the repair and maintenance requirements in any through life support contract.
54.
All Defence contracts should include a general warranty provision. An example warranty clause for:
Simple procurements of supplies and services is contained in Form SP020 - Purchase Order and Contract; Complex procurements of supplies is contained in ASDEFCON (Complex Materiel), Page 6.57

Strategic procurements of supplies is contained in ASDEFCON (Strategic Materiel); Complex and Strategic procurements of maintenance and through life support services is contained in ASDEFCON (Support); and Complex procurements of consultancy, professional and other services is contained in ASDEFCON (Services).
55.
Where a defect is found in supplies or services provided under a contract, it is essential that appropriate and timely action is taken in accordance with the contract to exercise Defences rights under the warranty provisions.
Date Dependency 56. Under a date dependency warranty, the contractor is usually required to warrant that the supplies to be delivered under the contract are not date dependant and that the operation of the supplies will not be adversely affected by the date. An example date dependency warranty clause is contained in ASDEFCON (Strategic Materiel).
Latent Defects 57. Under a latent defects warranty, the contractor is usually required to warrant that it will diagnose and correct any latent defects in supplies provided under the contract that occur and are notified to the contractor within an agreed period. A latent defect is a defect that was not discoverable by the exercise of reasonable skill and care at the time the supplies were accepted. An example latent defects warranty clause for:
58.
Complex procurements of supplies is contained in ASDEFCON (Complex Materiel) Volume 2; Strategic procurements of supplies is contained in ASDEFCON (Strategic Materiel); and Complex and Strategic procurements of maintenance and through life support services is contained in ASDEFCON (Support).
59.
Where a defect is found in supplies or services provided under a contract, it is essential that appropriate and timely action is taken in accordance with the contract to exercise Defences rights under the warranty provisions.
Technical Data Warranty 60. Under a technical data warranty, the contractor is usually required to warrant that the technical data provided by the contractor will enable Defence, or another person on behalf of Defence, to exercise its intellectual property rights under the contract. An example technical data warranty clause is contained in ASDEFCON (Strategic Materiel).
Notification of Defects 61. Some Defence contracts may also contain provisions whereby a contractor agrees that it will, within a defined period, notify Defence if it becomes aware of any defects in the supplies that will affect or are likely to affect the operation of the supplies or the safety of Defence personnel.
Rights Under Warranties 62. If a warranty is breached, Defence will be entitled to exercise the rights detailed in the contract. Defence may also be able to claim damages from the contractor where it has suffered loss as a result of the breach of warranty. However, Defence will have no automatic right to terminate the contract, unless the warranty is shown to be an essential condition of the contract. Warranty coverage provided under a contract will not extend to defects in the supplies or services that arise from Defences negligent or wilful damage of the supplies or services.
63.
Page 6.58
Chapter Summary
Liquidated damages will only be available where the contract specifies that they are available. Both the ASDEFCON (Strategic Materiel) and ASDEFCON (Complex Materiel) templates provide a model set of clauses to be used for the recovery of liquidated damages. When calculating the liquidated damages payable, it is acceptable for a formula to be used rather than a fixed amount. All Defence contracts must specify the circumstances in which Defence may terminate a contract for default. Provision may also be made to reduce the scope of the contract rather than terminate it altogether. Some Defence contracts will include provisions that entitle Defence to withhold payments from the contractor for failure to achieve nominated milestones or delivery dates, or meet other agreed contractual provisions. Many Defence contracts for Complex and Strategic procurements will contain provisions that require the contractor to provide financial securities (or guarantees). Securities are most commonly obtained to secure mobilisation (or advance) payments made under the contract and the contractors proper performance of the contract. Defence should not exercise financial securities for any other purposes than those provided for in the contract or the contractor may have grounds for legal action against Defence. The contract may contain a Deed of Substitution and Indemnity entitling Defence to request that the entity providing the Deed of Substitution and Indemnity be substituted as the contractor to perform the contract. Defence contracts for the supply of goods or services may include a variety of warranties. The number and types of warranties will depend on the goods or services being procured. Types of warranties that will commonly be included in Defence contracts include a fitness for purpose warranty, a general warranty, a latent defects warranty, a date dependency warranty and a technical data warranty.
Further Reading
Defence Chief Executives Instructions 5.4, Liquidated Damages DMO Chief Executives Instructions 8.7, Liquidated Damages Defence Chief Executives Instructions 4.3, Financial Guarantees DMO Chief Executives Instructions 2.7, Bank Guarantees Defence Chief Executives Instructions 5.2, Debt Management DMO Chief Executives Instructions 5.1, Debt Management ASDEFCON (Complex Materiel) ASDEFCON (Services) ASDEFCON (Strategic Materiel) ASDEFCON (Support) Form SP020 - Standard Purchase Order and Contract
Page 6.59
Defence Procurement Policy Manual 6.6 Preserving the Commonwealths Position
6.6
Introduction
1. 2.
Preserving the Commonwealths Position
This chapter addresses important issues that Defence staff must be aware of to ensure that they preserve the position of Defence throughout the procurement process. The Commonwealth Representative (or Project/Contract Authority or other person responsible for the management of the contract on behalf of Defence) must ensure that his or her actions, and those of other Defence personnel, do not lead to Defence waiving its rights to take action under the contract or being prevented from relying on the contract. This chapter also addresses legal professional privilege and the circumstances by which legal professional privilege can be waived.
3.
Awareness of Contractual Rights and Obligations Understanding Contractual Obligations 4. At any level of procurement, the Commonwealth Representative should ensure that there is a common understanding with the contractor as to the terms of the contract. This will enable proper administration of the contract and serve to minimise risks associated with the contract. Understanding the contract involves understanding the main contractual themes, including the:

5.
nature of the obligations; nature and timing of the supplies or services to be delivered; rights of Defence if the supplies or services delivered do not meet the contract requirements; benefits available to Defence under any express or implied warranty; payment arrangements; performance levels; performance monitoring mechanisms; parties understanding of the scope (i.e. what incidental matters are within scope and what are outside scope); and contract amendment procedures (e.g. use of contract change proposals).
6.
The Commonwealth Representative also needs to understand the legal rights and obligations of Defence and the contractor as set out in the:

Privacy Act 1988; Superannuation Guarantee (Administration) Act 1992; Racial Discrimination Act 1975; Racial Hatred Act 1995; Sex Discrimination Act 1984; Disability Discrimination Act 1992; Human Rights and Equal Opportunity Commission Act 1986; Occupational Health and Safety (Commonwealth Employment) Act 1991; and Environment Protection and Biodiversity Conservation Act 1999. Page 6.61
Defence Procurement Policy Manual 6.6 Preserving the Commonwealths Position 7. The legislation detailed above is not only applicable to Defence as an employer of military and civilian personnel, but also applies when selecting and dealing with contractors. For further information on the legislation listed above see chapter 1.2 and chapter 3.14 respectively.
Waiver 8. 9. A waiver is a statement or other conduct which might suggest to the contractor that Defence does not intend to enforce its rights under the contract. All Defence contracts must include a clause that acknowledges that the enforcement of a provision of the contract or the contract as a whole will not be affected by a failure by either party to enforce the provision. An example clause is contained at clause 9.2 of the draft conditions of contract in ASDEFCON (Complex Materiel) Volume 1. However, inclusion of such a clause will not always protect Defence from waiving its rights under the contract. If the Commonwealth Representative considers that the contractor may be in default, it is important that it does not waive or otherwise affect the rights that Defence may have against the contractor. The Commonwealth Representative should not make any statements or representations to the contractor that Defence will not take action in relation to a breach of contract. Similarly, the Commonwealth Representative should not simply ignore a possible default because it may also prejudice Defences ability to take later contractual or legal action in relation to the default. If a default arises, the Commonwealth Representative should be consistent in his or her communication that Defence reserves all its rights under the contract, until a decision is made by Defence in relation to the default. For further information on contract default and the possible remedies available to Defence see chapter 6.5. Where the Commonwealth Representative or other Defence personnel involved in the management of a contract believe that they may have inadvertently waived Defences rights under a contract, immediate advice should be sought from the Office of Special Counsel DMO, or another relevant contracting specialist.
10.
11.
12.
Estoppel 13. While most Defence contracts include an express provision to protect the rights of a party to the contract in the event that that party fails to enforce a provision of the contract (see paragraph 9 above), this may not provide absolute protection. Where it is reasonable for a contractor to rely on a representation by Defence that the contractor need not comply with a provision of a contract or that Defence will not sue the contractor for a particular default, Defence may be prevented (i.e. estopped) from subsequently seeking a remedy for the non-compliance or default. For example, if the contractor delays in delivering supplies, Defence may be able to terminate the contract for default. Maintaining this right will depend on the Commonwealth Representative not agreeing to an extension of the time for delivery of the particular supplies, and insisting that the delivery schedule in the contract remains unchanged. Where the Commonwealth Representative or other Defence personnel involved in the management of a contract believe that their conduct may have inadvertently given rise to an estoppel, immediate advice should be sought from the Office of Special Counsel DMO or other relevant contracting specialist.
14.
15.
Development of Revised Schedules 16. When communicating with the contractor in relation to an actual or potential default by the contractor, the Commonwealth Representative should expressly state that Defence reserves its rights under the contract and does not waive any delivery dates or other obligations of the contractor to deliver supplies in accordance with the contract. Any new schedule setting out new delivery dates to take into account the contractors delay must not be incorporated into the contract although it may be used as an administrative guide. Page 6.62
Defence Procurement Policy Manual 6.6 Preserving the Commonwealths Position HANDY HINT In relation to an actual or possible default, the Commonwealth Representative should communicate with the contractor in writing. If there are additional discussions with the contractor in relation to default issues, these should be confirmed in writing or at least be recorded in a detailed file note and placed on the project file. When writing to the contractor, it is important that the Commonwealth Representative follows the notice provisions of the contract (including using the correct address for notices) to ensure that the contractor cannot argue that they were not given proper notice. Guidance on the content of any written communication with the contractor should be obtained from the Office of Special Counsel DMO or other relevant contracting specialist. Assignment and Innovation 17. Assignment means the transfer by a party to a contract of their contractual rights to another person. It should be noted that a party cannot assign its obligations under a contract. Obligations must be novated. Accordingly, a deed of novation will be required if a party wants to transfer all its rights and obligations under a contract to a third party. A novation is effectively the substitution of another entity for a party named in the contract. At law, novation can only occur where both parties to the contract agree to the novation. By contrast, unless the contract provides otherwise, a party can assign its rights under the contract to another person without the consent of the other party to the contract. Most Defence contracts contain a clause which prevents the contractor or Defence from assigning the contract, in whole or in part, without first obtaining the written consent of the other party. Any request by a contractor to allow an assignment of the contract in whole or in part should be considered carefully to assess the impact of the assignment on the contractors performance of the contract and on Defence. Defence is not obliged to consent to any assignment proposed by the contractor but any refusal to allow an assignment should not be unreasonable. Most Defence contracts place an obligation on the contractor to notify Defence within a reasonable period where the contractor is seeking to novate the contract to another party. Careful consideration should be given by Defence to any request by the contractor to allow a novation. Prior to agreeing to a novation, Procurement officers should ensure that they have a deep understanding of the underlying corporate relationships and contractual obligations, rights and risks and how this will differ after novation. Issues that must be considered include:

18.
19.
20.
value for money; the contractors current performance under the contract; the financial stability of the proposed party to be substituted for the contractor; the ability of the proposed party to perform the contract and deliver the supplies or services as required by the contract; whether the proposed party has the capacity to manage the risks associated with the contract; the impact that the novation may have on the subcontract arrangements; any taxation issues; the management capabilities of the proposed party; the impact that the novation may have on securities provided under the contract; and Defences previous relationship with the proposed party.
21.
Defence is not obliged to consent to any proposed novation of the contract. However, where the contractor is unable to perform the contract, novation of the contract to another entity may be preferable to termination for default. Prior to novating a contract, a business case that Page 6.63
Defence Procurement Policy Manual 6.6 Preserving the Commonwealths Position addresses the above issues should be prepared and agreed by the appropriate delegate. This will usually be the original Contract Approver. For Defence Materiel Organisation contracts, approval to novate the contract must be obtained from the relevant Division Head. 22. It is unlikely that Defence will need to assign its rights under a contract or novate the contract to another party. A need may arise where a statutory authority or Commonwealth corporation takes over responsibility for the contract.
Legal Professional Privilege 23. Legal professional privilege is a privilege against disclosure which attaches to communications made for the dominant purpose of obtaining legal advice or for use in legal proceedings. The privilege arises from the public interest in enabling frank and full disclosure between a lawyer and a client in order that the lawyer may properly advise his or her client. The privilege is the clients and it is for the client to waive or maintain the privilege. In relation to Defence procurement, legal professional privilege will apply when the following criteria are satisfied:
24.
the communication is made as part of a lawyer/client relationship and is given and received in confidence; the communication (whether or not it ultimately reaches the intended recipient) is between: Defence as the client and its legal advisor; two or more lawyers acting for Defence; or a lawyer or Defence and a third party; the dominant purpose for the creation of the communication must be to enable the giving or receiving of legal advice, or its use in existing or anticipated litigation; and legal professional privilege in respect of the communication must not have been waived by Defence.
25.
The relevant lawyer-client relationship will exist in relation to any external legal advisor who is admitted to practice and who is acting on the instructions of Defence. The relevant relationship will also exist in the case of in-house legal advisors where:

the advisors are qualified lawyers; the provision of legal services is attended by a sufficient degree of independence; and the advice is not being given purely as part of an administrative decision-making or policy development process.
Waiver of Professional Legal Privilege 26. Waiver of legal professional privilege is governed by the Common Law and by statutory provisions contained in the Evidence Act 1995 (the Evidence Act). The Evidence Act applies only to the actual evidence in legal proceedings, including at an intermediary stage. In other circumstances, such as responding to subpoenas or Freedom of Information requests, the Common Law principles in respect to waiver will apply.
Common Law Waiver of Legal Professional Privilege 27. Waiver of legal professional privilege will occur at Common Law when the person entitled to rely on the privilege, treats the privileged communication in a manner which is inconsistent with the maintenance of privilege. Waiver by inconsistent treatment may occur intentionally or inadvertently.
Page 6.64
Defence Procurement Policy Manual 6.6 Preserving the Commonwealths Position Waiver of Legal Professional Privilege and the Evidence Act 28. Section 122 of the Evidence Act applies to the actual evidence in litigation and provides that legal professional privilege will be waived when a client knowingly and voluntarily discloses the substance of a privileged communication except where the disclosure:

is on a confidential basis; occurred as a result of duress or deception; occurred under the compulsion of law; or is by the agency to the responsible Minister.
Avoiding inadvertent waiver of legal professional privilege under the Evidence Act and at Common Law 29. There are many risks associated with the inadvertent waiver of legal professional privilege. Waiver of legal professional privilege will, in many circumstances, severely compromise Defences ability to negotiate an optimal settlement or successfully pursue court action. Such a risk represents a direct threat to Defences capacity to fulfil its mission. Defence employees involved in contracting and procurement should be careful to ensure that:
30.
they do not disclose legal advice to anyone who does not have a bone fide, legitimate need to know about the advice or its contents. In particular, personnel must not disclose the content of legal advice to representatives of contractors in an attempt to influence those representatives during negotiations or at any other time; when preparing documents based on privileged source documents, they are written to stand alone, and do not require reference to the source documents to be fully understood; they do not selectively waive privilege to create a more favourable impression of Defences legal position; during the course of meetings or negotiations with contractors, experts or other parties, they do not cite legal advice as supporting Defences stance or position with respect to that matter at issue. It will be in order to say that Defence has obtained legal advice, but not that the advice is being relied on; if called upon to provide documents to other parties in negotiations or in a pre-trial discovery process, they ensure that privileged documents are not provided to unintended recipients. It should be noted that it is unlikely that Defence personnel would be called upon to provide assistance without the aid and guidance of a legal advisor; and they only circulate summaries of legal advice on a confidential basis and in a form that reflects the legal principles rather than making specific reference to the matter which gave rise to the request for advice.
HANDY HINT If Defence employees have any doubt as to whether their representations or communications, either verbal or written, internal or external to Defence, constitute a waiver of legal professional privilege, they should contact the Office of Special Counsel DMO.
Chapter Summary
At any level of procurement, the Commonwealth Representative should ensure that there is a common understanding with the contractor as to the terms of the contract. If the Commonwealth Representative considers that the contractor may be in default, it is important that the Commonwealth Representative does not waive or otherwise affect the rights that Defence may have against the contractor. If a default arises, the Commonwealth Representative should be consistent in its communication that the Defence reserves all its rights under the contract, until a decision is made by Defence in relation to the default. Page 6.65
Defence Procurement Policy Manual 6.6 Preserving the Commonwealths Position Legal professional privilege is a privilege against disclosure which attaches to communications made for the dominant purpose of obtaining legal advice or for use in legal proceedings. Waiver of legal professional privilege is governed by the Common Law and by statutory provisions contained in the Evidence Act 1995. There are many risks associated with the inadvertent waiver of legal professional privilege. Waiver of legal professional privilege, will, in many circumstances, severely compromise Defences ability to negotiate an optimal settlement or successfully pursue court action. Any request by a contractor to assign its rights under a contract or novate the contract to another party, should be considered carefully to assess the impact.
Further Reading
Evidence Act 1995
Page 6.66
Defence Procurement Policy Manual 6.7 Contract Amendments
6.7
Introduction
1. 2.
Contract Amendments
This chapter applies to all procurement undertaken in Defence and the Defence Materiel Organisation (DMO). This chapter details Defence policy on contract amendments and provides guidance on how to manage them throughout the contract management phase of a procurement process.
Mandatory Policy
To exercise an option in an existing contract to procure additional quantities of supplies and/or optional extras Defence must acquire those additional supplies and/or optional extras in accordance with the mechanism set out in the contract, including by notifying the contractor in writing within the specified period. Where the contract contains a formal contract amendment process, this process must be followed when seeking to amend a contract. A contract that does not contain a valid extension clause must not be extended (in scope and/or time) unless the extension is approved as a single supplier direct source procurement in accordance with chapter 3.1. A contract must not be amended in scope to obtain additional or different supplies or services that fall outside the terms of the original contract unless that amendment is approved as a single supplier direct source procurement in accordance with chapter 3.1.
Background 3. A contract can be amended using various formal and informal approaches. In this chapter the term contract amendment also refers to an agreed contract change proposal, contract variation, contract change, option and extension. Contract amendments can affect any aspect of the contract (e.g. contract price, scope, duration, delivery schedule, technical specifications or the contract clauses). Contract amendments are usually agreed in writing between the contractor and Defence. Contract amendments may also be made verbally or through other informal means as a result of representations or actions by Defence staff. All Defence contracts should provide that contract amendments will only be effective if made by agreement in writing. Where the contract details a formal contract amendment process, this process must be followed.
4.
5.
Contract Amendments Contract Change Proposals 6. It is recommended that all Defence contracts for higher value Complex and Strategic procurements require a formal contract change proposal process to be followed in order to amend the contract. Use of a formal contract change proposal process assists to ensure that:
all information required to understand the proposed amendment and its impact on the performance of the contract is obtained from the contractor; Page 6.71

appropriate consideration is given to the proposed amendment by Defence; an appropriate audit trail of amendments made to the contract is kept; and the contract remains current by incorporating any contract amendments.
7.
Contract change proposal provisions may allow both the contractor and Defence to propose amendments to the contract. They may also place an obligation on the contractor to prepare and submit a contract change proposal at the request of Defence. Guidance on the recommended content of a contract change proposal is contained at Annex 6E. An example contract change proposal clause is contained at clause 10.1 of the draft conditions of contract in ASDEFCON (Complex Materiel) Volume 2. The ASDEFCON suite of tendering and contracting templates can be accessed from the Commercial Policy and Practice Branch, Defence Materiel Organisation website.
8.
Verbal and Informal Amendments 9. Defence staff involved in the management of Defence contracts should take care not to enter into any verbal or other informal contract amendments. The courts have said that parties can still effect an amendment to the contract by conduct, even if there is an express contractual provision stating that amendments will only be effective if in writing. For example, if the Commonwealth Representative (or Contract or Project Authority) asks the contractor to provide additional quantities of supplies or to modify particular specifications, and the contractor complies with the request, a court may find that the contract has been amended, even if the formal requirements for a contract amendment have not been complied with. A similar result may occur if the Commonwealth Representative becomes aware that the contractor is not undertaking work in accordance with the contract, but takes no action to prevent them from continuing to do so. Such tacit approval could amount to an amendment of the contract, including an amendment of the provisions stating that amendments will only be effective if in writing. The Commonwealth Representative should ensure that:
10.
any contract amendments are made by agreement in writing between the parties and that any contract change proposal mechanism in the contract is complied with; the contractor is not permitted to undertake additional work under the contract (whether through express or implied permission) until a formal contract amendment is agreed and signed by both parties: and the contractor complies with the requirements of the contract and the Commonwealth Representative or any Defence personnel do not express or imply permission for the contractor to perform work in a way that is inconsistent with the contract (otherwise the contractor may argue that Defence has through its conduct impliedly agreed to vary the contract or is estopped from denying that the contract has been amended in that way).
11.
In contracts for higher value Complex and Strategic procurements, the development and use of a formal review process is recommended to ensure that all interested parties have had the opportunity to comment and all required specialist advice is obtained.
Amendments to Standing Offers and Contracts Raised Under Standing Offers 12. Defence standing offers may also need to be amended during the period of the standing offer. Amendments to standing offers should be agreed in writing by Defence and the entity or entities with whom the standing offer has been signed. Amendments to contracts raised under standing offers should be treated like an amendment to a stand alone contract. For all delegation requirements regarding amendments to standing offers and contracts raised under standing offers see below.
13. 14.
Page 6.72
Defence Procurement Policy Manual 6.7 Contract Amendments Options for Additional Quantities or Extras 15. Some Defence contracts may include an option that entitles Defence to obtain additional quantities of supplies and optional extras from the contractor prior to a specific date. If an option is included in a Defence contract, it constitutes an offer from the contractor to Defence and therefore the contractor is bound to keep the offer open for acceptance by Defence for the period specified in the contract. Defence is under no legal obligation to accept the offer but may elect to do so at any time within the specified period. If Defence does not elect to exercise the option within the specified period, the contractors offer will lapse. To exercise an option to procure additional quantities of supplies and/or optional extras Defence must notify the contractor in writing within the specified period. In doing so Defence should also notify the contractor of the quantity and type of additional supplies and/or optional extras it wishes to procure. Where the contract specifies a formal process that must be followed to exercise an option, this process must be followed. Where an option is exercised this should be reflected in the contract. Some Defence contracts may require the changes to be made through the formal contract amendment process detailed in the contract. Typically the terms and conditions of the contract will apply to any additional quantities of supplies or optional extras purchased by Defence. Where an option is included in a Defence contract, the contract should specify:

16.
17.
18.
19. 20.
the additional quantities of supplies offered; the optional extras offered; the process for exercising Defences option to procure the additional supplies and optional extras; the time by which the option must be exercised by Defence; and any different contractual terms and conditions that will apply to the additional quantities or optional extras.
Contract Term Extension 21. In certain circumstances it may be appropriate to extend or renew an existing Defence contract rather than enter into a new contract. In this context, the extension relates to an extension of the term (or duration) of the contract, Some contracts, particularly those relating to the provision of services, will include provisions that enable the contract to be extended for a particular period of time. These provisions are usually drafted in the form of an option which can be exercised by Defence and should clearly detail:

22.
the method by which Defence may exercise the option to extend; the payment terms; the date by which the option must be exercised; and the period or periods of time by which the contract may be extended.
23.
Where a contract does not contain a clause that entitles Defence to extend the contract period that contract should not be extended unless the extension can be justified as a single supplier direct source procurement. An extension to a contract or deed of standing offer beyond the terms of the original contract (and where no unexpired extension option exists within the terms of the contract),is a new procurement. Extending the current contract therefore constitutes a single supplier direct source Page 6.73
24.
Defence Procurement Policy Manual 6.7 Contract Amendments procurement and must be approved as such in accordance with chapter 3.1. If the extension is approved as a single supplier direct source, and the contract has not expired, the original contract may be extended by agreement of the parties. 25. In addition, any contract amendment to include a new extension option (post contract signature) will increase the scope of the original contract or panel arrangement and is therefore not allowed unless able to be approved as a single supplier direct source in accordance with chapter 3.1 In particular any contract that was entered into before 1 January 2005 (the date of commencement of the Commonwealth Procurement Guidelines 2005) cannot now be amended to include a new option to extend the contract term.
26.
Contract Scope Change 27. A proposed change to a contract that involves procuring additional or different supplies or services that falls outside the scope of the original contract must be treated as a new procurement. This means that those supplies or services must not be acquired via a contract amendment unless the amendment can be justified as a single supplier direct sources procurement in accordance with chapter 3.1.
Relevant Considerations 28. Where Defence staff propose to amend the scope of a contract (in accordance with paragraph 27) or extend the term of a contract where no valid extension provision exists (in accordance with paragraph 24) specialist advice should be sought and consideration given to a range of issues, including the following:
whether the contract relates to a covered procurement or a Defence/DMO Exempt Procurement and is therefore subject to the mandatory procurement procedures in the Commonwealth Procurement Guidelines; whether the amendment to the contract is the most efficient and effective method of procurement for the requirement and will result in a value for money outcome; whether the contractors performance of the contract has been satisfactory; the extent to which the contract will need to be changed to accommodate the amendment and any change in the contract requirement; the availability of alternative contractors; the effect on competition in the market of tendering or not tendering the requirement; and the amount of time that has passed since the original tendering process was undertaken.
29.
In addition to confirming that a sound basis exists to amend the contract as a single supplier direct source procurement, Defence should be satisfied that not re-tendering the requirement will achieve value for money, particularly where new contractors may have entered the market since the original procurement process was conducted. Advice should be sought from the Office of Special Counsel DMO or other relevant contracting or legal specialist prior to Defence agreeing to extend a contract.
30.
Review of Proposed Contract Amendments 31. Proposed contract amendments should be closely examined to determine:

the effect on the contract price and payment schedule; the effect on the delivery schedule; the effect on the contract specifications; the effect on the risk allocation under the contract (including liability caps, liquidated damages and insurance requirements); Page 6.74
the effect on other existing terms and conditions of the contract (including Australian Industry Capability (AIC) requirements); whether the proposed amendment may amount to unfair treatment of unsuccessful tenderers who have been denied the opportunity to tender for the changed requirements; whether the proposed amendment will impact on other related Defence contracts (e.g. changes to an acquisition contract may effect the sustainment contract); and whether the proposed contract amendment will impact compliance with technical regulatory requirements, including compliance with the Certification Basis.
32.
When evaluating a proposed contract amendment, advice should be obtained from subject matter experts where the change will effect Defence obligations, Technical Integrity of ADF Materiel or risk under the contract. Subject matter experts who may need to be consulted include financial advisers, contract advisers, technical specialists, Technical Regulatory Authorities (or their delegates) AIC advisers etc.
Financial Investigation 33. 34. Where a contract amendment proposes additional expenditure by Defence, financial investigation may assist in making a value for money judgement. In some circumstances a contract amendment may effectively constitute a single supplier direct source procurement and financial investigation may be appropriate to verify that value for money will be achieved if the proposed amendment is agreed. All Defence contracts for Complex and Strategic procurements should include provisions that entitle Commonwealth staff to access the premises, records and accounts of the contractor to verify additional costs proposed under a contract amendment. An example clause is contained at clause 10.7 of the draft conditions of contract of ASDEFCON (Strategic Materiel). Further advice on financial investigation is contained in chapter 3.3. The Financial Investigation Service is part of Commercial and Enabling Services, DMO.
35.
Delegation Requirements 36. Prior to agreeing to a proposed change to a Defence contract, one or more of the financial delegations for procurement will need to be exercised. Guidance on exercising Proposal Approval, Procurement Approval, Contract Approval and Contract Signatory delegations, including the competency requirements for Contract Approvers, is contained in chapter 1.4. Once these delegations have been exercised, the Commonwealth Representative may agree and sign the contract amendment in accordance with the approval requirements detailed in the contract.
Administrative contract amendments (no price or scope change) 37. A proposed contract amendment which does not affect the scope (including price and/or duration) of the contract still requires the Contract Approval and Contract Signatory delegations to be exercised as the contract amendment effectively represents a new contract. The Proposal Approval and Procurement Approval delegations do not need to be exercised.
Contract amendments that change scope 38. A proposed contract amendment which does not fit within the scope (including price and/or duration) of the current contract (and approvals) will require the Proposal Approval and Procurement Approval delegations to be exercised, as well as Contract Approval and Contract Signatory delegations as the contract amendment represents a new contract.
Standing offers 39. The delegation requirements for amendments to standing offers are the same as the requirements for all other contract amendments. Page 6.75
Defence Procurement Policy Manual 6.7 Contract Amendments Options 40. The delegation requirements for the exercise of an option for additional supplies or services are the same as the requirements for contract amendments that change scope (if these options were not included within the scope of the original approvals).
Reporting Contract Amendments 41. 42. Contract amendments may need to be reported on AusTender. Chapter 5.8 provides details of the circumstances in which contract and standing offer amendments must be reported. Contract amendments will also need to be reported in the Interim Defence Contracts Register where a material change has been made to the contract. Further guidance on the reporting requirements of the Interim Defence Contracts Register is contained in chapter 5.8.
Key References
Department of Finance and Deregulation Finance Circular No. 2011/01 Commitments to spend public money (FMA Regulations 7 to 12) Defence Materiel Instruction (Procurement) DMI(PROC)) 130002 - Mandatory Procurement Policy Requirements for Contract Changes (DMO Procurement officers must comply)
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Defence Procurement Policy Manual 6.8 Dispute Resolution
6.8
Introduction
1.
Dispute Resolution
This chapter outlines the use of dispute resolution in Defence procurement and examines some alternative approaches to dispute resolution that may also be successful.
Dispute Resolution 2. The aim of the dispute resolution process is to encourage parties to negotiate the resolution of disputes before resorting to court proceedings, although this does not prevent an application to court where urgent relief is sought. (Urgent relief could include where one of the parties seeks an injunction to prevent another party from taking certain action). Most Defence contracts for Complex and Strategic procurement incorporate a dispute resolution clause proposing the use of a dispute resolution process that can be used by the parties to attempt resolution of a dispute arising under the contract without having to resort to litigation. The Commonwealth Representative (or Project/Contract Authority or other person nominated to manage the contract on behalf of Defence) needs to be aware of what the dispute resolution process is for a particular contract.
3.
Dispute Resolution Mechanisms 4. Most standard Defence contracts for Complex and Strategic procurement include a simple dispute resolution mechanism which provides for a three step process:
an attempt is made to resolve the dispute by negotiation within a specified timeframe (e.g. 90 days); if the dispute cannot be resolved by negotiation, then the parties may agree to use an alternative dispute resolution process to attempt to resolve the dispute. An alternative dispute resolution process is one that does not involve commencement of court proceedings and could include processes such as mediation or arbitration. The requirement for an alternative dispute resolution process is not mandatory as the contract indicates that the parties may agree to such a process; and if the parties do not agree to an alternative dispute resolution process or the alternative resolution process does not achieve a successful outcome, then the parties may commence court proceedings.
5.
Where a contract provides for a dispute resolution mechanism it must be followed. Dispute resolution clauses for the ASDEFCON suite of tendering and contracting templates may be found in each individual template. Advice on the use of these clauses may be found in the ASDEFCON handbook for the particular template, where this is available. The ASDEFCON suite can be accessed on the Commercial Policy and Practice Branch.
6.
Negotiations 7. Negotiations are the most commonly used method of resolving all types of disputes. In its simplest form it is the process of disputants contracting with each other and seeking a mutually acceptable outcome through discussion, without the assistance of other persons. It has been described as the preventative medicine of dispute resolution. Negotiation strategies and approaches range from competitive or adversarial to an interest-based, collaborative or problem solving approaches. Best practice suggests that parties should negotiate in good faith, keeping an open mind and be willing to consider options for resolution of the dispute put forward by the opposing party and also be willing to put forward options for the resolution of the dispute themselves. Essential or core components of this concept in a business context include some fundamental tenets like Page 6.81
8.
Defence Procurement Policy Manual 6.8 Dispute Resolution creating a climate of trust, respect, flexibility, confidentiality and a willingness to do the right thing by each other. 9. At times negotiation may include the participation of parties in support of the respective disputants or it can be facilitated where the parties to a dispute utilise the assistance of a dispute resolution practitioner (the facilitator) to negotiate the outcome. In this case the facilitator has no advisory or determinative role on the content of the matters discussed to the outcome of the process, but may advise on or determine the process of facilitation. While the contract may not set out specific procedures with respect to how negotiations are to be conducted, the Commonwealth Representative should consider the following issues when seeking to resolve a dispute through negotiations:
10.
the party claiming that there is a dispute must give the other party notice of the dispute including full details of the issue in dispute and any other incidental matters such as who is authorised to negotiate with respect to the issues in dispute. The notice should also refer to the negotiation period specified in the contract; and whether any communications should be marked without prejudice. This is to ensure that negotiations can be conducted in full confidence that anything said/written in the course of the negotiations will not be used in court proceedings in the event negotiations fail.
11.
Negotiations to resolve a dispute may be conducted at various levels between Defence and the contractor. If a dispute arises, the Commonwealth Representative may seek to resolve the dispute quickly through discussions with the contractors representative for the contract. If the dispute cannot be resolved at that level, the Commonwealth Representative and the contractors representative may then decide to escalate the dispute to persons higher up in their respective organisations (e.g. in the case of Defence this could be the relevant Director General). Further escalation may follow to the heads of the respective organisations (e.g. the Chief Executive Officers of DMO and the contractor), if considered necessary or appropriate. The following factors must normally be present for negotiations to be successful:
12.
the parties must be in communication with one another and be willing to continue these communications; participants in the negotiations or their representatives must have authority to settle; the problem must directly concern the parties in question and not involve third parties; and the parties must want to negotiate or at least be willing to do so, and must consider that the particular dispute involves an issue that is in fact negotiable.
13.
It may be appropriate to develop a negotiation directive prior to commencing negotiations with the contractor which outlines:

the issues to be negotiated and the authority of the Commonwealth Representative; the aims, objectives and constraints of the negotiation; the policy objectives which are to be maintained during the negotiation; the likely objectives and approaches of the contractor with whom the negotiation is taking place; definition and commitment of the resources available including financial and technical advice; clearly defined optimum, acceptable and fall-back positions; and checks to ensure that both negotiating parties have the necessary legal authority to act within the scope of their stated or perceived instructions.
Management Review 14. In exceptional circumstances, Defence may attempt to resolve a dispute with its contractor by stepping outside of the contract and implementing a management review. This would involve Page 6.82
Defence Procurement Policy Manual 6.8 Dispute Resolution a process whereby the management of the project, on both Defences and the contractors side, is reviewed by a person who is independent of the particular project. It is then the responsibility of that person to make recommendations to the respective senior managements suggesting ways in which the dispute may be resolved. A management review will invariably occur some time after the parties have indicated that they are in dispute (which is normally triggered by a notice of dispute being sent in accordance with the contract), but before the parties resort to another dispute resolution process such as arbitration or litigation. 15. The scope of a management review is determined by the parties and should be the subject of a separate agreement or charter detailing how the review is to be conducted. The charter should clearly establish that:
the contract is paramount and remains fully enforceable and operative throughout the period of any management review; any recommendations which are adopted from the management review will only affect the rights and obligations of the parties under the contract if they are incorporated by way of a formal change to the contract in accordance with the amendment process detailed in the contract; and the management review is a without prejudice process and does not affect either partys rights and obligations under the contract. Therefore, any issues that are discussed or conceded, or documents that are prepared, cannot be relied on by a party to prejudice the other partys rights and obligations under the contract.
16.
Where use of the management review process is being considered, advice should be sought from the Office of Special Counsel DMO or an alternative specialist contracting officer.
Keeping an Audit Trail 17. The Commonwealth Representative must have regard to their responsibilities under the Financial Management and Accountability Act 1997 and the Defence and DMO Chief Executives Instructions when seeking to settle a commercial dispute. This requires, among other things, that Defence must keep documentation to show that the settlement:

was justified; was conducted in a fair and unbiased manner; and provided value for money in the circumstances.
18.
The dispute resolution process must be supported by a clear audit trail for the purpose of maintaining accountability. The Commonwealth Representative should ensure that both parties understand and agree to the terms of any settlement to ensure that there is no difference in the interpretation of the outcome. Documentation of the dispute settlement process must clearly record the terms of any settlement. Records should clearly show:

19.
the aim of the dispute settlement; the justification and approval for dispute settlement; the terms and conditions for dispute settlement; the settlement directive or process followed; the value for money argument; a complete and accurate record of negotiation (subject to any confidentiality constraints in accordance with the process employed); executive approval for the negotiated outcome; and an evaluation of the effectiveness of the dispute settlement process.
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Defence Procurement Policy Manual 6.8 Dispute Resolution Other Alternative Dispute Resolution Processes 20. If negotiations (and/or a management review) do not succeed in resolving a dispute, the parties may agree to try to resolve the dispute by using other alternative dispute resolution procedures such as mediation, conciliation, independent expert determination or arbitration. From a Defence contracting perspective, the alternative dispute resolution procedures most commonly used are mediation and arbitration.
Mediation 21. The difference between mediation and negotiation is that in the case of mediation an independent and impartial third party is appointed as the dispute resolution practitioner (the mediator) to facilitate the resolution of the dispute between the parties. The ultimate aim of mediation is that parties work together to reach a mutually agreeable outcome of their own accord. Mediation is a process in which the parties to a dispute, with the assistance of the mediator, identify the disputed issues, develop options, consider alternatives and endeavour to reach an agreement. The mediator has no advisory or determinative role in regard to the content of the dispute or the outcome of its resolution, but may advise on or determine the process of mediation whereby resolution is attempted. Mediation may be undertaken voluntarily, under a court order, or subject to an existing contractual agreement. The main feature of mediation is that it is a voluntary process and a defining characteristic is that the mediator and the parties agree before they begin that nothing said or produced during the process will be divulged. This enhances the effectiveness of a process where parties can feel ready to divulge relevant facts or interests, and an organisation is protected from expenditure or resources around challenges to the processes and the outcome. It should be noted that the legal doctrine around the limits of confidentiality has not been fully tested by the courts. In general terms parties must reach an agreement on the level of confidentiality, and sign an agreement to this effect prior to the commencement of the process. The mediator will not disclose any information for any reason unless specifically agreed by all parties. Any records, reports, or other documents received by the mediator while serving in that capacity will be confidential and will be returned to the parties at the conclusion of the process, and mediator notes will be destroyed at the end of the mediation. Information disclosed or documents produced or brought into existence by the parties in the course of the mediation are not disclosed by the parties for any reason unless specifically agreed by all parties or unless required by law. HANDY HINT Further information on the limits of confidentiality can be found in DI(G) PERS 34-4 The Use and Management of Alternative Dispute Resolution in Defence. 26. Mediation should not be used where the dispute turns on a determination of whether a party is right or wrong on one issue as there will be no scope for negotiation unless both parties are willing to compromise. Mediation may be appropriate in the following circumstances:
22.
23.
24.
25.
the parties wish to engage in free and open discussion and are willing to disclose positions and interests and seek an expeditious solution at an early stage; the parties are desirous of maintaining their commercial relationship; there are economic and financial factors which make mediation desirable. This would include the cost of proceeding to litigation and also the amount of the claim which is disputed; and the nature of the dispute and the availability of an appropriate mediator make it appropriate for mediation.
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HANDY HINT The Commonwealth Representative should consider what might be necessary to justify a payment of money to the contractor agreeing to mediation, if that is a possible outcome of the mediation. Conciliation 27. Conciliation is a process in which the parties to a dispute, with the assistance of a dispute resolution practitioner (the conciliator), identify the disputed issues, develop options, consider alternatives and endeavour to reach an agreement. The conciliator may have an advisory role on the content of the dispute or the outcome of its resolution, but not a determinative role. The conciliator may advise on or determine the process of conciliation whereby resolution is attempted and may make suggestions for terms of settlement, give expert advice on likely settlement terms and may actively encourage the participants to reach an agreement. If the parties do not settle the matter, then there is no decision binding upon them.
28.
Independent Expert Determination 29. The expert determination process involves:
use by parties of the services of an independent and impartial third party expert, who is chosen by themselves, on the basis of their specialist qualification or experience in the subject matter of the dispute, to give an opinion on some disputed issue of fact or law; the third party expert having an investigative and decision making role; and the parties agreeing whether or not the experts opinion shall be final and binding or whether it would be an advisory or recommendatory opinion.
30.
Expert determination is a flexible process as parties negotiate matters such as the structure of the process, the issues to be submitted to the expert, choice of the expert, procedures for the expert to receive information and submissions and the use to be made of the experts opinion. Expert determination may be appropriate if the Commonwealth Representative considers that a dispute could be assisted by a reliable unbiased opinion of a technical issue under the contract, or the parties have agreed in principle in relation to the issue in dispute but require a precise valuation of certain supplies or work. An expert is chosen to give an opinion after considering and investigating the differences between the parties. Unlike a mediator, an expert is expected to provide an answer to a particular matter submitted by the parties and it is generally expected that an expert will reach a decision on the basis of his or her personal opinion and expertise rather than upon the parties submissions or on the law. The parties agree to accept the opinion as binding. However, the opinion may relate to only one factor in the overall dispute and so a negotiated outcome may still result. The expert plays an investigatory, inquisitor role in eliciting further information and makes a determination as an expert and not as an arbitrator.
31.
Partnering 32. The partnering process is both a dispute avoidance and resolution process that focuses on the definition of mutual objectives, improved communication, the identification of likely problems and development of formal problem-solving and dispute resolution strategies. The agreed processes and procedures are designed to:
33.
enhance communication and facilitate development of constructive synergies between parties; help parties work collaboratively to resolve problems without external assistance; and
Page 6.85
help parties to handle unresolved problems efficiently using a nominated dispute resolution practitioner (the facilitator).
34.
The partnering group can be comprised of all those involved in the venture or relationship, or their nominated representatives and others who then meet regularly to exchange information, report on issues and evaluate the relationship. It is not in itself a contract. Rather it is a partnering charter developed to run in parallel with the traditional contract management processes and practices. Partnering relies solely on the commitment of the individuals to act reasonably and fairly to produce a productive working relationship, based on mutual respect, trust and integrity. Further guidance on partnering is contained in chapter 4.1.
35.
Arbitration 36. Like mediation, the essential feature of most arbitrations is that they are consensual, with the parties choosing arbitration to resolve the dispute. Under arbitration, however, the arbitrator makes decisions which are binding on the parties and it is generally a win/lose solution similar to that of a court outcome. Arbitration, therefore, is the dispute resolution technique which most closely resembles litigation. Like mediation, generally any dispute, whether of law or fact that can be decided by a court, may be referred to arbitration. The features of an arbitration include:

37.
the process is voluntary but adversarial; the parties agree to an arbitrator who is a neutral third party; the process leads to a binding decision by the arbitrator which affects the parties rights; and the arbitration can be formal, like a trial in court with evidence being given on oath and procedures similar to that involved by the court, or it can be informal (e.g. when a decision is given based on agreed facts and papers).
38.
Although parties have considerable freedom in determining the scope and nature of an arbitration, commercial arbitration in Australia is subject to legislation and court review. Parties have limited rights of appeal to the courts. Each of the States and Territories have enacted legislation for the conduct of arbitration. There is a concept known as court ordered arbitration where courts refer cases to an arbitrator rather than by court adjudication.
39.
Court Connected Dispute Resolution Programs 40. Most Australian courts now have legislation and/or rules of court which give explicit authority for the court to refer eligible matters to some form of dispute resolution, and there is relatively little restriction on the ability of courts to make such referrals. Rarely, legislation or rules will require referral to dispute resolution programs for certain types of cases, with the possibility of nonreferral for cases shown to be unsuitable. Court referral to these programs may occur at any stage of the litigation process, even before a formal claim is filed with the court. Many courts are able to refer disputes to the program without party consent. At the same time, legislation or rules provide only minimal guidance to courts about the appropriate referral to dispute resolution programs. The most frequently used statutory factor appears to be likelihood of settlement, with some recognition of other possible benefits. The most striking feature of dispute resolution programs and the courts is the wide variety of programs and referral practices, and legal advice should be sought on the type of courtconnected dispute resolution program relevant to the specific jurisdiction where litigation proceedings are likely or have commenced.
41.
42.
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Defence Procurement Policy Manual 6.8 Dispute Resolution 43. Dispute resolution processes which are fairly widely used include mediation, conciliation, arbitration, case appraisal, settlement conferences and settlement weeks. The process may be conducted by court staff, judicial registrars, judges and magistrates themselves or by external practitioners approved by the court and/or chosen by the parties. Dispute resolution programs may be free, partly subsidised or entirely at the parties expense, and program expenses may or may not be recoverable costs.
The Litigation Process 44. Today most courts refer eligible matters to some form of dispute resolution program at some stage of the litigation process. Therefore early resolution strategies should always include consideration of dispute resolution programs before litigation is contemplated or commenced. If early dispute resolution mechanisms do not succeed, the Commonwealth Representative, acting on legal advice, may decide to commence court proceedings in relation to a contractual dispute. Before resorting to court proceedings, the Commonwealth Representative should consider whether there are other avenues available under the contract that would provide a sufficient remedy to a contractual dispute. These may include Defence being able to:

45.
claim liquidated damages under the contract; draw down on a financial (or performance) security under the contract; transfer the contract to a parent of the contractor or another entity under a deed of substitution and indemnity (i.e. novate the contract); or take advantage of any compulsory alternative dispute resolution procedures prescribed by the relevant contract.
Preliminary Litigation Issues 46. Before deciding to commence proceedings, the Commonwealth Representative will need to consider some preliminary issues with its legal adviser, including:
jurisdictional issues: Defence contracts normally identify the laws of which jurisdiction (i.e. which state or territory) will apply to the contract (e.g. the laws of the Australian Capital Territory). what remedy is being sought: there are several forms of relief that could be sought by Defence in relation to a contractual dispute, including: damages, which are largely compensatory in effect; an injunction, which is basically an order prohibiting one party from doing or continuing to do something; a declaration, where a court declares what the rights are between the parties; and in limited circumstances, an order for specific performance of a contract; and what time limits apply: in most instances where a contractual dispute arises, proceedings have to be brought within 6 years of the time when the breach of contract occurred (though this may vary from jurisdiction). However, if a claim is brought under the Trade Practices Act 1974, the limitation period may be restricted to 3 years.
The Court Process 47. The Commonwealth Representative should be aware that, if it proposes to go to court in relation to a contractual dispute, the litigation process can be a lengthy one and may not lead to a final resolution of a dispute for some years. Accordingly, the Commonwealth Representative will need to consider what effect litigation may have on continued performance of the contract. The basic court process involves a number of stages (though there may be differences in the terminology used with respect to the originating process in each court). The court process can be divided into a number of discrete stages which include:
48.
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the filing of pleadings; the interlocutory stage; the final hearing; judgement; and enforcement.
Pleadings 49. The pleadings comprise the statement of claim, defence and reply where applicable. If Defence, acting on behalf of the Commonwealth, wishes to commence an action (or proceedings) against a contractor in court, it will need to file an application with the court. The application must be accompanied by a statement of claim which:

tells the court and the contractor what facts Defence relies on to establish its claim; generally outlines the events in chronological order and details what Defence says was the contractors wrongful conduct; provides details (called particulars) of how these facts give rise to a legal liability in the contractor; and describes in a generalised fashion the losses suffered by Defence and the relief (usually damages) claimed against the contractor.
50. 51.
Defence would then need to serve (i.e. physically deliver) the application on the contractor. If the matter is to be defended, the contractor would then be required to file an Appearance. The contractor is entitled to know all the facts upon which Defence bases its claim, and may therefore request further and better particulars about the claim ie facts which should have been included in the original statement of claim. At this stage, the contractor is generally not entitled to know the evidence that Defence will rely upon to prove the facts in the Statement of Claim. The contractor will then normally file a defence, which is structured in the same way as the statement of claim, listing the facts the contractor admits, disputes and relies upon and addresses each allegation made in the statement of claim. If no defence is filed, steps might be taken to ask the court to decide at that stage whether Defence is successful in its claim and to order the contractor to pay damages to Defence. A contractor would, however, normally be expected to file a defence. The contractor may also raise other matters in its defence eg make a claim against Defence (called a counterclaim). If a counterclaim is made, Defence would then need to file a defence to the counterclaim in the same way that the defendant files a defence to the original claim. A defence to a counterclaim would need to be drafted and filed with the Court by Defences solicitors.
52.
53.
Interlocutory Stage 54. The next stage is the interlocutory stage. Interlocutory means any steps to be taken before Defences claim is heard by the court. Most importantly, this is the stage where each party tries to find out as much as they can about each others case. This is done through two mechanisms: discovery of documents and the use of interrogatories. Discovery of documents enables one party to compel the other party to disclose relevant documents before the hearing, which are or have been in their possession, custody or power. A party that has been served with a notice of discovery must disclose ... all documents which are or have been in his or her possession or power relating to any matter in question therein. This is a wide obligation that in practice requires Defences to collate all documents in its possession, custody and control relating to the issues in dispute in the proceedings. The party who is to provide discovery must provide a list of the documents, which are or have been in its possession, custody or power. Documents that were brought into existence for the Page 6.88
55.
56.
Defence Procurement Policy Manual 6.8 Dispute Resolution dominant purpose of obtaining legal advice or in anticipation of litigation may be a subject of a claim for privilege and will be included in a separate section of the list of documents (see chapter 6.6). The other party will then have an opportunity to inspect the documents in the nonprivileged section of the list of documents and request copies of these documents. 57. Interrogatories involve one party providing written questions to the opposing party who is required to answer the questions on oath. Interrogatories are commonly issued by parties in an attempt to obtain admissions which may assist in proving a partys claim or alternatively damage the case of the answering party. As answers to interrogatories are made on oath and may be tendered into evidence it is very important that they be answered accurately. A person attending to answer interrogatories on behalf of Defence should be familiar with the issues in the proceedings and have carried out all reasonable enquiries to gather information and/or documents required to provide accurate answers. Defences solicitors should be able to assist the Commonwealth Representative in attending to the proper answer of the interrogatories. HANDY HINT The Commonwealth Representative needs to be aware that the interlocutory stage of litigation can be very time consuming and expensive, as the discovery process will normally be undertaken by a team of lawyers over a significant period. Mentions, Directions and Interlocutory Applications 58. From the time proceedings are commenced, the parties may come before the court either on what is known as mentions (a term used in the Supreme Court) or for directions hearing (used in the Federal Court). These are designed to ensure that the proceedings are continuing in an expeditious manner or where parties may be seeking directions requiring another party to undertake certain action. There may also be what are known as interlocutory applications which include:

59.
applications to strike out pleadings; applications for summary judgment; and applications for a party to provide discovery or answers to interrogatories.
Chapter Summary
Negotiation to resolve a dispute may be conducted at various levels between Defence and the contractor The aim of the dispute resolution process is to try and encourage parties to negotiate with respect to a dispute before resorting to court proceedings, although this does not prevent an application to court where urgent relief is sought. Defence contracts will usually incorporate a dispute resolution process that can be used by the parties to try to resolve a dispute arising under the contract without having to resort to litigation. Where negotiations fail, an alternative dispute resolution mechanism may be used including mediation, conciliation, independent expert determination and arbitration. The ultimate aim of mediation is that parties reach a compromise of their own accord. The difference between mediation and negotiations is that an independent third party is appointed as a mediator to facilitate the resolution of the dispute between the parties. Conciliation in Australia generally operates upon similar principles to mediation except that the conciliator (selected for his or her particular expertise) plays an active role in trying to settle the dispute and in advising the parties towards a proper settlement. Expert determination is a flexible process as parties negotiate matters such as the structure of the process, the issues to be submitted to the expert, choice of the expert, procedures for the expert to receive information and submissions and the use to be made of the experts opinion. Partnering processes are both a dispute avoidance and resolution process that focus on the Page 6.89
Defence Procurement Policy Manual 6.8 Dispute Resolution definition of mutual objectives, improved communication, the identification of likely problems and development of formal problem-solving and dispute resolution strategies. Under an arbitration, the arbitrator makes decisions which are binding on the parties and it is generally a win/lose solution similar to that of a court outcome. If other dispute resolution mechanisms do not succeed the Commonwealth Representative, acting on legal advice, may decide to commence court proceedings in relation to a contractual dispute. The court process can be divided into a number of discrete stages which include the filing of pleadings, the interlocutory stage, the final hearing, judgement and enforcement. Commonwealth Representatives need to be aware that court processes are time consuming and expensive.
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Defence Procurement Policy Manual 6.9 Contract Closure and Evaluation
6.9
Introduction
1.
Contract Closure and Evaluation
This chapter provides policy and guidance on the discharge of Defence contracts, including the circumstances in which contractual rights and obligations may survive the discharge of the contract, and the contract closure activities that should be undertaken by Defence. Policy and guidance is also provided on conducting evaluations of procurements and the disposal of procurement-related records.
Discharging the Contract 2. A contract may be discharged when contractors have performed and completed their obligations in strict accordance with the terms of the contract. A contract may also be discharged by other means including mutual agreement, frustration, termination for default and termination for convenience or by repudiation by one party. HANDY HINT Any discharge of a contract other than through satisfactory performance of obligations may be contentious legally and purchasing areas should seek support from the Office of Special Counsel DMO or other contracting specialist in these circumstances. Mutual Agreement 3. A contract may be terminated by mutual agreement where both parties agree that they no longer want to continue with performance of the contract. The agreement to terminate the contract must be documented in writing. Normally the agreement to terminate will be given effect by a Deed of Termination or a Deed of Settlement in which the parties set out the basis of the termination, including any payments owing and the settlement of any outstanding claims and actions.
Frustration 4. The parties to a contract may be relieved of the obligation to perform the contract where a change in circumstances from the time the contract was entered into renders further performance of the contract impossible, either physically, legally or in some cases commercially. The application of the doctrine of frustration will depend on the circumstances of each contract. Circumstances which can result in a contract being frustrated include where:

a change in the law occurs which makes performance of the contract illegal; the contractor, due to unforseen circumstances, is unable to deliver the contracted services; the subject matter is destroyed before it is possible for the obligations under the contract to be completed; an event on which the whole contract is based fails to take place; and other supervening circumstances make further performance of the contract completely different from that considered by the requirements of the Statement of Work and the parties involved.
5.
Where frustration occurs, the whole contract is brought to an end. The contract is not considered to be void, however, so accrued rights and obligations remain. Therefore, Defence will be entitled to take action against the contractor for any breach of the contract that occurred prior to the date of the termination for frustration and, depending on the payment clauses included in the contract, the contractor may be entitled to outstanding claims for payment due under the contract. Page 6.91
Defence Procurement Policy Manual 6.9 Contract Closure and Evaluation HANDY HINT The application of the doctrine of frustration is legally complex. Where it is considered that a frustrating event may have occurred, advice should be sought from the Office of Special Counsel DMO or other contracting specialist, who may in turn seek legal advice. Termination for Default 6. All Defence contracts should specify the circumstances under which Defence may terminate the contract or reduce the scope of the contract as a result of contractor default. In addition, other breaches of contract may give rise to a right to terminate the contract at common law even where the circumstance is not specified in the contract. Further guidance on termination for default is contained in chapter 6.5.
Termination for Convenience 7. Defence contracts for longer duration Complex and Strategic procurements should contain a termination for convenience clause which gives Defence discretion to end the contract without having to give any reason. Termination for convenience clauses give contractual form to the common law doctrine of Executive Necessity which allows the Commonwealth to terminate a contract if it is necessary to do so for Government purposes. However, Defences ability to utilise this doctrine outside of contingencies such as national emergencies is untested, and purchasing areas should not rely on this clause to terminate a contract without first seeking advice from the Office of Special Counsel DMO or other contracting specialists. Termination for convenience clauses should not be used where another provision in the contract provides a more appropriate remedy (e.g. where Defence is entitled to terminate the contract for default). Any termination of a contract for convenience should be undertaken by Defence in good faith and in accordance with the principle of fair dealing. An example of where the exercise of the provision might be warranted could be where an unexpected change in national strategic priorities due to a shift in the international situation makes the continuation of a procurement process unnecessary. Termination for convenience clauses usually provide for the payment of limited compensation to the contractor for costs incurred up until the date of termination. A contractors right to recover in these circumstances will be governed by the provisions of the particular contract, however, it is usually limited to:

8.
9.
10.
11.
costs incurred; profit on work completed; and costs of preparing the termination settlement.
The contractors right to recover anticipated profit is usually specifically excluded. 12. The doctrine of Constructive Termination for Convenience was considered in the recent case of GEC Marconi v BHP-IT [2003] FCA 50 (12 February 2003). Further information on this important case is provided in chapter 2.1. HANDY HINT An example termination for convenience clause is contained at clause 12.3 of the draft conditions of contract in ASDEFCON (Strategic Materiel). Repudiation of Contract 13. Repudiation occurs when a party intimates by words or conduct that it does not intend to honour its obligations under the contract. Where the other party then accepts the repudiation the contract is at an end and an action for damages can be brought by the non-repudiating party. Defence contract managers should avoid using words or conduct that could be seen as Page 6.92
Defence Procurement Policy Manual 6.9 Contract Closure and Evaluation amounting to a unilateral termination or repudiation of a contract. Purchasing areas should seek support from the Office of Special Counsel DMO or other contracting specialists in cases of suspected repudiation. Contract Closure 14. The contract closure and evaluation stage of the procurement process is important but often overlooked. Undertaking contract closure activities helps to ensure that all the requirements of the contract have been met and the delivered supplies (i.e. goods and services) can be appropriately used by Defence in the future. This is also a necessary stage where the contract has been terminated, to ensure that all required activities have been performed. The point at which contract closure activities should be undertaken will depend on the type of procurement being undertaken. Services contracts often include a specific date on which the contract will come to an end and any required closure activities should be completed within a short period of time following that date. Contracts for the delivery of goods do not usually specify a particular end date and as such contract closure activities are usually performed following delivery and acceptance of the last item of supplies under the contract. Where a contract is terminated, required closure activities should be completed as soon as possible after the contract termination takes effect. Contract closure activities that may be required to be conducted by the Commonwealth Representative (or Project/Contract Authority or other person responsible for the management of the contract on behalf of Defence) include:
15.
16.
verifying that all contractual obligations have been satisfactorily completed, including payments and final accounting; ensuring that all Government Furnished Material and Government Furnished Facilities have been returned as required by the contract (including security passes); ensuring that all classified material provided to the contractor or its subcontractors has been returned or destroyed as required by Defence; ensuring that all disputes under the contract have been resolved; completing records and ensuring that there is an appropriate audit trail; post activity evaluation, analysis and reporting; documenting results and learning outcomes; reviewing Statement of Work and specifications to ensure that the supplies delivered reflect requirements; ensuring that appropriate plans are in place for the transition of the supplies into service; transferring responsibility and documentation to the Defence area responsible for the through-life support of the supplies; ensuring that any transition arrangements required under the contract have been implemented; the return of bank guarantees and other securities (including relevant deeds) upon closure; recording intellectual property rights (including licence access rights) including updating any intellectual property register; documenting lessons learned; where the contract is terminated, ensuring that any requirements specified in the deed of settlement are met; and releasing or reassigning resources.
Page 6.93
Defence Procurement Policy Manual 6.9 Contract Closure and Evaluation Survivorship 17. Even after a contract is discharged certain rights and obligations will survive either expressly or by implication. All Defence contracts for Complex and Strategic procurements should contain a clause detailing the circumstances in which provisions under the contract will survive the expiration or termination of the contract. Provisions in Defence contracts that will commonly survive the expiration or termination of a contract include: commercial-in-confidence provisions;

18. 19.
intellectual property provisions; the right of the Commonwealth to recover money; Defence security requirements; warranties; guarantees; and indemnities.
20.
Deeds entered into under or in relation to the contract such as intellectual property deeds and confidentiality deeds will also often survive the expiration or termination of a contract. HANDY HINT An example survivorship clause is contained at clause 12.5 of the draft conditions of contract in ASDEFCON (Strategic Materiel).
Evaluation 21. It is good practice to evaluate the procurement once a contract has been completed to identify strengths and weaknesses in the procurement process and lessons that can be applied to other procurements. An evaluation can be conducted by comparing performance and likely outcomes against forecasts for any point in the procurement cycle and in due course against the final outcome. These are then compared with agreed plans and expectations, targets and performance measures. The final evaluation of contractor performance should be based on the performance criteria established at the commencement of the contract. These should cover all aspects of the procurement and provide data for the continuous improvement of the Defence procurement process. They will include the following aspects of procurement:

22.
attainment of the objective of the procurement; effectiveness and efficiency of the processes adopted and the relevance of the selected process to future procurements of the same or similar type; suitability of the deliverables and the success of the procurement outcome; and establishing whether value for money has been achieved.
23.
For Simple procurements evaluation activities should be undertaken to record whether the procurement results have met expectations in terms of cost, delivery and service. At the most basic level, information on contractor performance should be available by comparing, for example, variations in cost, delivery timing and quality and quantity against the requirements specified in the purchase order. Complex and Strategic procurements also require an evaluation on completion, which can examine issues such as whether the forecast value for money outcome was achieved, the contractors performance and the effectiveness of the procurement process. Typical questions asked in a lessons learned evaluation might include the following:
24.
was value for money achieved?; Page 6.94
Defence Procurement Policy Manual 6.9 Contract Closure and Evaluation

were the customer's needs met?; was the market research accurate?; was the appropriate strategy selected for the procurement?; was the documentation adequate?; was adequate time allowed for the tendering process?; did the evaluation criteria reflect the customer's priorities?; was the negotiation strategy appropriate?; was the form of contract appropriate and were there any omissions?; were the risks correctly evaluated?; were the records for contract management adequate?; what problems could have been avoided during contract performance?; was the relationship with the contractor a productive one?; and what went right or wrong and how can these lessons be transferred to other procurements?
Conversion and Disposal of Quotation, Tender and Contract Records 25. 26. Both during and after a procurement activity consideration must be given to records management issues. The advent of modern information management systems provides areas involved in small, medium and large scale procurement activities with effective electronic management and storage systems, including the capacity to convert hardcopy documents into a range of electronic formats, without loss of on-demand retrieval. The Defence Records Management System (DRMS) is an approved records management system that satisfies the requirements of Commonwealth policy as determined by the Australian National Archives. DRMS and the (GDA) provide Systems Pro General Disposal Authority for Source Records that have been Copied Converted or Migrated gram Offices (SPOs) and other areas involved in procurement activities with an electronic solution to record keeping problems. However, as decisions to destroy or otherwise dispose of Defence records must comply with a range of legislative, legal and policy requirements all proposed disposals involving the destruction of records should be forwarded by e-mail to drmp.policy@defence.gov.au. Documentation relating to a procurement must be retained for a period of three years or potentially longer in accordance with legislative or other requirements. It is likely that there will be an increased move towards the use of the DRMS document conversion and storage capabilities. The conversion of documents from hardcopy into an electronic format can have implications, such as when legal proceedings have been instituted and parties to these proceedings seek to introduce electronic copies of records into evidence. Changes to the rules of evidence have seen courts adopting a more flexible approach to admission of electronic copies of source or original records, although the weight that a court will attach to any given record can never be determined in advance. For these reasons there are classes of source or original records that should not, under any circumstances, be destroyed following a conversion process. These include:

27.
28.
29.
30.
original signed copies of contracts; original signed contract change proposals and contract amendments; and other original records that, following a risk assessment, are considered too valuable to destroy (although they may be converted).
Page 6.95
Defence Procurement Policy Manual 6.9 Contract Closure and Evaluation 31. Other source or original records, including related administrative and correspondence documents, may be destroyed after conversion to electronic formats, in accordance with General Disposal Authority for Source Records that have been Copied Converted or Migrated (GDA).
Non-Materiel Procurement 32. Contracting records relating to the acquisition of non-combat related equipment, stores and systems may be disposed of under the Administrative Function Disposal Authority using the Equipment and Stores (entries 1124-1180). The Administrative Function Disposal Authority can be accessed through the Document and Records Management Policy website.
Materiel Procurement 33. Records relating to procurement of Defence military combat equipment, stores and systems must not be disposed of under the Administrative Function Disposal Authority. They should be disposed of under Defence Records Disposal Authorities. These are in the process of revision by the Directorate of Record Management Policy. They will complement the Administrative Function Disposal Authority administrative functions. Until these new authorities come into effect, any destruction of military combat related official records using current Records Disposal Authorities should only take place in consultation with the Directorate of Record Management Policy. This will ensure that any sensitivity in relation to the materials is fully considered prior to destruction. In some cases non-operational and technical administrative materiel related records may be disposed of under the Records Disposal Authorities and Administrative Function Disposal Authority. Policy and guidelines are available on the DRMP website. Notification of proposed disposals involving the destruction of records should be forwarded by e-mail to drmp.policy@defence.gov.au for approval for destruction. Further information on registering disposal of procurement related records on DRMS can be obtained from the Defence Record Management System Help Desk via e-mail drms@defence.gov.au.
34.
Chapter Summary
The contract closure and evaluation stage of the procurement process is an important stage. Contract closure activities help to ensure that all the requirements of the contract have been met and the delivered supplies can be appropriately used by Defence in the future. A contract may be discharged when contractors have performed and completed their obligations in strict accordance with the terms of the contract. A contract may also be discharged by other means including mutual agreement, frustration, repudiation by one party, termination for default and termination for convenience. Even after a contract is discharged certain rights and obligations will survive either expressly or by implication. The final evaluation of contractor performance should be based on the performance criteria established at the commencement of the contract, which should cover all aspects of the procurement and should provide data for the continuous improvement of the Defence procurement process.
Further Reading
Administrative Function Disposal Authorities Australian National Audit Office Better Practice Guide, Contract Management, February 2001 ASDEFCON (Strategic Material)
Page 6.96
Defence Procurement Policy Manual Annex 1.A Value for Money Checklist
Annex
1.A Value for Money Checklist
Procurement officers should refer to chapter 1.2 in conjunction with this checklist.
Factors Procurement officers can take into account in determining value for money include: Short-Term Considerations Status of tenderers involved

financial viability; design capability; production capacity; quality assurance status and record of performance; cost management arrangements and record of performance; and delivery record.
Equipment offered

extent to which equipment meets minimum requirement; design/artistic qualities (where appropriate); quality; fitness for purpose; extras above minimum requirement which offer cost-effective advantage; scope for improvement by later modifications or add ons etc; ease of operation; conformity with standards; scope for value engineering; maintainability and durability; defect reporting and rectification arrangements; repair/servicing arrangements; and whole-of-life cost analysis.
Immediate cost of acquisition

initial price; price basis (e.g. firm, variable, cost plus etc); basis for agreeing prices on associated or follow-on orders; differences in price variation formulae; foreign exchange risks and costs; payments terms (on delivery or progress/milestone payments etc); quality assurance; insurance liabilities in different circumstances and at different times in the process; Page Annex 1.A1
Defence Procurement Policy Manual Annex 1.A Value for Money Checklist

cost of financing interim payments; financial/performance guarantee requirements; duties and taxes; credit terms; transport costs; installation costs; costs of working capital for stocks; discounting factors; differences in administrative cost (including overheads); conversion or changeover costs from existing equipment or systems (e.g. software conversion or staff training); warranties and technical guarantees offered; product liability arrangements; scope for, and cost of, accelerating or delaying procurement; responsibility for risks (e.g. product liability, negligence, third party claims); and rights to intellectual property.
Delivery

conformity with requirement; reliability of offer; operation and financial effects of earlier/later availability; cost and trade-offs with stock holding costs at various locations; and acceptance testing, inspection and/or rejection.
Medium-Term Considerations Operating costs

running costs; cost of spares - present and future; servicing and maintenance costs; and storage and other support costs.
Product support

quality of after-sales facilities; and ease of legal recourse to contractor.
Replacement arrangements

receipts from eventual disposal; commitment to particular replacement equipment; and replacement time-frame.
Page Annex 1.A2
Defence Procurement Policy Manual Annex 1.A Value for Money Checklist Longer-Term Considerations Strategic and structural

safeguarding of vital sources of supply; length of the supply chain and its vulnerability to disruption; and effect of procurement on price, availability and competition for future supplies (eg arising from dumping or artificially depressed quotations) including, as appropriate, supplies for other public purchasers.
Page Annex 1.A3
Defence Procurement Policy Manual Annex 3.A Risk Management Matrix
Annex
3.A Risk Management Matrix
Procurement officers should refer to chapters 3.2 and 3.5 and section 5 in conjunction with this risk matrix.
Introduction Risk is the chance of something happening that will have an impact upon objectives. It is measured in terms of consequences and likelihood. Risk management is the systematic application of management policies, procedures and practices to the tasks of identifying, analysing, assessing, treating and monitoring risk. Areas of risk exposure generally are: procurement project cost, usually due to unexpected price increases; delivery schedule delays, usually due to unrealistic estimates of lead times; acceptability of the delivered goods or service to the end user; and human error and unethical or illegal behaviour on the part of Procurement officers or contractors.
Effective risk management is as much about identifying opportunities to improve performance as it is about avoiding or reducing negative outcomes. Effective risk management also requires preparation. Complex procurement may require detailed risk analysis. The Defence contracting officer should consider requiring tenderers to include their own risk management plan with their offer. Methods of Risk Management The following table sets out: risks that may arise in the procurement process; the likely consequences of the occurrence of the risk; and possible options for dealing with the risk.
The table addresses the following stages in the procurement process: the procurement process as a whole; developing a procurement method; preparing the specification; requesting offers; and evaluating offers.
Risks in the procurement process

What can go wrong? Requirement not fully understood. Likely consequences Procurement does not meet needs, time and money wasted. Inadequate tender responses. Delivery schedule not met. Ensures users understand feasible How to deal with them Analyse need properly, including functional and performance requirements.
Impractical time frame set.
Page Annex 3.A1

time frames. Improve planning. Non-compliance with legislative requirements e.g. superannuation payments for contractors. May be in breach of statutory obligations. Ensure requirements fully understood. Improve planning. Failure to comply with procurement policy (i.e. Commonwealth Procurement Guidelines or DPPM). May create grounds for complaint by aggrieved tenderer, either via complaints handling policy, to the minister or by legal means. Follow Interim Defence Complaints Handling Policy. If in doubt, seek advice from Office of Special Counsel, DMO.
Developing a procurement method

What can go wrong? Failure to identify potential sources (including ANZ suppliers and SMEs). Inappropriate method selected. Likely consequences May not receive offers from appropriate tenderers. May need to seek offers again. Poor value for money outcome. Excessive bidding and evaluation costs. How to deal with them Research the market. Seek industry feedback. Ensure staff are suitably trained and experienced.
Preparing the specification

What can go wrong? Too narrowly defined specification. Likely consequences Reduced competition. Discouragement of innovative solutions and alternative solutions. Discrimination against viable potential suppliers. Claims of unethical or unfair dealings. How to deal with them Define required outcomes rather than a description of product or service. Inadequate tender response. Use functional and performance specifications. Call up relevant Australian or International Standards where available. Follow advice in Guide to Specification Writing. Get training in writing specifications. Allow industry a preview of the specification. Specify performance outcomes.
Biased specification.
Imprecise specification.
Significant variation in offers received. Insufficient responses. Products offered do not meet user needs. Competing offers are difficult to evaluate. Obsolescence. Poor performance.
Specifications of technical requirements rather than performance.
Requesting offers
What can go wrong? Terms and conditions which are unacceptable to potential suppliers and tenderers. Likely consequences Loading of costs in offers. Offers with many specifications. Too few bids. How to deal with them Check with the market. negotiate commercially acceptable terms. Use standard conditions of contract. Allocate risks appropriately. Seek early legal advice. Include requirements for quality and quality management requirement commensurate with the risks involved. Ensure staff are suitably trained. Review documents before issue. Implement standardised procedures for responding to inquiries. Extend tender period. Advise all potential suppliers of all responses to queries
Potential suppliers are given inadequate information and time to respond.
Bids are high, reflecting uncertainty. Extensive clarification required by tenderers. Poorly prepared bids. Claims of unethical or unfair practices. Withdrawal of offers.
Page Annex 3.A2

received. Actual/perceived breach of confidentiality. Potential supplier and tenderer complaints. Mistrust by potential suppliers and tenderers. Probity compromised. Establish formal security procedures. Perform regular security audits and reviews. Advise potential suppliers and tenderers of security measures. Train staff in responsibility for handling in confidence documents. Use proven methods to notify potential suppliers of the requirement in good time. Publish forward procurement plans. Seek early industry participation. Research the market. Ensure qualified suppliers get request for offer documents. Report to ACCC. Do not disclose competitors details.
Insufficient responses.
Need to start procurement process again. Delays to procurement schedule. Poor value for money due to limited competition. Offers fail to meet users requirements. Best value for money not achieved. Higher prices and lower value for money.
No response from known high quality potential suppliers.
Collusive conduct between tenderers.
Evaluating offers
What can go wrong? Breaches of Security. Likely consequences Claims of illegal, unethical or unfair practices. How to deal with them Maintain formal security procedures. Perform regular security audits and reviews. Promote security conscious culture. Ensure selection criteria are appropriate, well defined and measurable before offers are sought. Evaluate tenderer capabilities (including quality) before awarding contract. Ensure users and relevant technical experts are involved in the evaluation. Establish sound evaluation procedures. Ensure planning is realistic and time frames are met. Consider separation of technical and commercial evaluation. Notify evaluation period in advance.
Published evaluation criteria not used.
Claims of unethical or unfair practices. Inconsistent evaluation of offers. Contractor unable to fulfil contract.
Inappropriate tenderer selected.
Inappropriate product or service selected.
Product or service offered does not meet need.
Evaluation takes too long.
High costs to buyers and tenderers.
Page Annex 3.A3
Defence Procurement Policy Manual Annex 3.B Intellectual Property Summary
Annex
3.B Intellectual Property Summary
Procurement officers should refer to chapter 3.6 with this Annex.
Material, Subject Matter or Creative Effort, etc associated with the IP An expression e.g. a literary work, documentation, artistic work, musical work, software, film, recordings, engineering designs, etc. Information, ideas, documentation Invention Mark, symbol, logo, word Electronic integrated circuit Design (mostly visual and ornamental designs and shapes) Plant Breed Trade reputation All types Copyright
Intellectual Property Type of IP The Rights Right to copy, publish, broadcast, perform, rent out. (Copy includes build in certain conditions).
Confidential Information Patent Trademark Circuit Layouts Registered Design Plant Breeders Rights Trade Reputation Background IP
Right to use, disclose to others. Right to commercialise, i.e. turn the invention into a product. Right to trade using the mark, symbol, logo or word. Right to copy, manufacture, market. Right to apply the design to a product. Right to commercialise right to grow and market the breed. Right not to have someone else use ones reputation in trade. Rights to IP in existence at the date on which a contract is signed or is subsequently brought into existence other than as a result of the performance of a contract, research or development task by the Commonwealth, contractor or collaborator and is related to the scope of the contract and all relevant requirements. Rights to IP created under or otherwise in connection with a contract or created as a direct consequence of a research or development task by the Commonwealth, contractor or collaborator. Rights to IP which is owned by a party other than the Commonwealth, contractor or subcontractor.
All types
Foreground IP
All types
Third Party
Approved by GM Com 1 April 2011
Page Annex 3.B1
Defence Procurement Policy Manual Annex 3.F Foreign Exchange Risk Management
Annex
3.F Foreign Exchange Risk Management
Procurement officers should refer to chapter 3.3 in conjunction with this Annex 3F.
Introduction 1. The Department of Finance and Deregulation (Finance) has a requirement for Defence to report periodically on issues that would assist Finance in determining if Defence is complying with the Guidelines for the Management of Foreign Exchange Risk and is therefore entitled to supplementation. The following annex should be used by Procurement officers and others involved in tender evaluation, contract negotiation and contract management during the procurement cycle. This annex complies with Defence policy and practice and is subject to review on a periodic basis.
2.
Adhering to No Win No Loss Policy No Hedge Rule 3. 4. Do not hedge foreign currency exposures. In certain circumstances, the Minister for Defence may seek exemption from the hedging restriction from the Minister for Finance and Deregulation (Finance Minister). The Finance Minister in consultation with the Treasurer is able to grant an exemption to the hedging restriction either on a case-by-case or general basis. It should be noted an exemption for hedging may be granted only in rare and unusual circumstances and where the arrangement is classified as outside of normal government business.
Liaise with the Assistant Secretary Financial Operations Branch in the Chief Finance Officer Group in the first instance where you have such proposals. 5. Do not use foreign currency bank accounts for the purposes of hedging foreign exchange exposures or replicating forward currency transactions. Where foreign currency bank accounts are maintained as part of commercial arrangements or acquisition of military equipment, the accounts should not be kept for the purposes of currency hedging. Do not pre-pay purchases for the purposes of hedging contractors foreign exchange exposures.
6.
Contract Negotiation 7. 8. When negotiating contracts with tenderers, Procurement officers will ensure that foreign currency exposures are correctly identified and reportable to Finance. Be aware of any clause within a contract or supply agreement or any other arrangement that results in a change in the AUD value of that agreement caused by movements in exchange rates. Be aware of contracts or agreements that contain clauses and methodologies that purport to mitigate foreign exchange risk. These methodologies embedded within contracts agreements include, but are not limited to the use of:

9.
fixed price structures; or option structures.
Page Annex 3.F1
Defence Procurement Policy Manual Annex 3.F Foreign Exchange Risk Management 10. The following are examples of embedded option structures where the foreign currency exposure is impacted:
Embedded Floor or Cap: guarantees that allow a contractor a minimum or maximum exchange rate; Rise and fall clause: uses changes in the exchange rate to alter the delivery price of goods or services. This clause may also include a multiplier effect on the exchange rate or have a non-linear impact upon the underlying currency exposure. Rise and fall clauses may also use an average rate methodology for calculating the exchange rate which may not align to the actual exchange rate transacted by the entity; or Fixed exchange rate clause: provides a fixed AUD price despite the underlying exposure being initially priced in a foreign currency. However, this does not prevent a contract with a fixed AUD amount being written with an overseas party, as long as the AUD amount is not contingent upon a foreign exchange rate (such as through a fixed exchange rate embedded within the contract).
11.
Have a clear understanding of the financial impact of any embedded structures proposed in contracts or agreements and compare these alternative-pricing arrangements using financial analysis to seek a best value outcome. Exclude requests for embedded structures from contract documents. Where pricing is available in alternative currencies, Procurement officers must select the pricing alternative that achieves the best value AUD outcome at the Base Date, using current rather than forecast foreign exchange rates for all pricing analysis, including those over multiple years. Contracts, agreements and arrangements that offer AUD pricing but are impacted directly by movements in exchange rates should be considered foreign currency exposures and be managed as such. Maintain sufficient documentation and audit trails to support all relevant decisions. Copies of this documentation should be provided to Finance on request to support the case for budget adjustments. All contracts, agreements and arrangements containing the structures described should be monitored and reviewed with enough frequency to ensure that any change in the AUD value caused by these structures is understood and reported. Procurement officers must ensure that any exceptions or variations to the authorised procedure for foreign exchange transactions are reported to an appropriate senior manager for review and remedial actions should be undertaken where necessary.
12. 13.
14.
15.
16.
17.
Audit Requirements 18. 19. All foreign exchange transactions must be appropriately authorised. Procurement officers must provide accurate details of all foreign exchange transactions including details such as:

currency paid; AUD equivalent amount; payment date (Plan Expenditure date); foreign exchange rate (as advised by the CFO in ROMAN); deal date (date of prime contract signature); current spot rate if different to rate at which the transaction is dealt (refer to ROMAN); and the reason for the difference between the spot rate and the rate at which the transaction is dealt.
Page Annex 3.F2
Defence Procurement Policy Manual Annex 4.A Sample Partnering Agreement
Annex
4.A Sample Partnering Agreement
For more information on partnering, please refer to chapter 4.1.
SENIOR MANAGEMENT COMMITMENT STATEMENT We are committed to the implementation of the Partnering process on the [Defence project]. The purpose of this process is to foster better working relationships while not compromising the contractual arrangements between the parties. A Partnering Workshop will take place as soon as possible so that the Team Members can develop the following: (1) (2) PARTNERING CHARTER that includes a mission statement, objectives and working arrangements for the Project Team; ISSUE RESOLUTION PROCESS which provides for issues to be identified and resolved at the appropriate authority level, failing which they are escalated together with a statement of facts, to the next authority level before they impact on project quality, costs or time; and PARTNERING EVALUATION PROCESS which evaluates and monitors the performance of the Project Team on a monthly basis.
(3)
Our commitment is:
AS CHIEF EXECUTIVES OF THE PARTIES TO THE [DEFENCE PROJECT] WE GIVE OUR FULL SUPPORT TO ENSURING THAT ALL MEMBERS OF THE PROJECT TEAM WILL AT ALL TIMES ACT IN A MANNER WHICH CONTRIBUTES TO THE COMPLETION OF A QUALITY PROJECT, ON TIME, ON BUDGET, AND WITH NO UNRESOLVED ISSUES AT PRACTICAL COMPLETION.
_________________________ Commonwealth representative
___________________________ Company representative
Page Annex 4.A1
Defence Procurement Policy Manual Annex 5.B Examples of Commonly Used Evaluation Criteria
Annex
5.B Examples of Commonly Used Evaluation Criteria
Procurement officers should refer to chapter 5.4 as well as the tender evaluation clauses in the Conditions of Tender of the ASDEFCON templates in conjunction with this Annex.
Commonly used Evaluation Criteria include:
Technical Criteria
Financial Criteria

compliance with the specifications and draft Statement of Work; fitness for stated purpose; technical merit of proposal; availability of spares and technical backup support; minimum baseline capability; training needs of operators; ease of maintainability and related through life costs; and commonality with existing Defence assets/systems.
initial price; delivery costs; installation costs; logistic support costs; warranty premiums; payment terms/payment schedule on overall price (for example, milestone payments and mobilisation payments); discounts for early payment; price basis (firm, variable for exchange only, variable by formula/indexation); bank guarantees for mobilisation payments; and performance and/or security guarantees. Quality
Company Assessment
demonstrated relevant past experience with Defence (including as recorded on a Defence Company ScoreCard); capacity to perform; capability to perform; delivery record; reputation in industry; managerial strengths, resources, facilities and support; cost management arrangements; and current financial position/financial viability/technical competence. Life Cycle Cost (LCC)
evidence of quality assurance accreditation; procedures manuals; durability; cost schedule control systems; past reputation; evidence of sound management practices and procedures and the condition of premises; and project evaluation and review systems.
General Contractual Criteria
warranty; back-up/support/service/repair; availability of spares; maintenance; and mean time between failures.
compliance with Commonwealth terms and conditions; response times; policy considerations; risk; and validity period.
Page Annex 5.B1
Defence Procurement Policy Manual Annex 6.A Contract Management Principles
Annex
6.A Contract Management Principles
The Commonwealth Representative must: be familiar with and understand the terms of the contract to be administered; oversee the planning and implementation of the phase in and phase out arrangements provided in the contract; manage the contract in accordance with its terms ie. ensure that the outcomes required under the contract are met within the confines of the contract; provide information and equipment to the contractor as and when required by the contract and ensure its return if the contract so requires; ensure that claims for payment are processed in accordance with the requirements of the Defence and DMO Chief Executives Instructions and the Financial Management and Accountability Act 1997 and Financial Management and Accountability Regulations; ensure that adequate written records of all dealings with the contractor and administration of the contract are kept. This means file notes of telephone conversations, minutes of meetings, copies of correspondence including e-mail and documented invoice processing; seek legal advice in accordance with the current DPPI regarding the requesting of professional services from the Office of Special Counsel DMO particularly whenever unsure of the rights of either party or the correct application of the contract ; deal with problems and disputes in a reasonable manner as soon as they arise and in accordance with the contract; protect the interests of the Commonwealth in an appropriate and ethical manner; elevate problems which cannot be resolved quickly, both internally within Defence and within the contractors management structure. This may involve, in the first instance, informing senior management of problems that have not been resolved at the working level. Defence policy regarding actions to be taken under the liquidated damages provisions, for example, must be referred to Branch head level or higher; establish and maintain a good relationship with the contractor i.e. dealings should always be in good faith and procedural fairness observed; know the market and know what constitutes standard business practice in that market; treat the contractor as an equal; and negotiate and manage contract amendments in accordance with the contract.
The Commonwealth Representative must understand and act within the limits of his or her authority. Care must be taken not to inadvertently waive Defences rights under the contract or commit Defence to new liabilities.
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Defence Procurement Policy Manual Annex 6.B Contract Management - Practical tips, tricks and pitfalls
Annex
6.B
1.
Contract Management - Practical tips, tricks and pitfalls

Identify and obtain necessary skills
A good Commonwealth Representative needs to be sure that they have access to the skills needed to properly manage the contract. The Commonwealth Representative cannot be expected to become expert in all fields overnight and it isnt efficient for them to try to do so. The Commonwealth Representative does not need to know all the answers, but needs to know who to ask for the answers. 2. Acceptance 1
Procurement officers often come under pressure from contractors to help them with cash flow problems by making payments for supplies that may not be fully completed or which have not been provided in accordance with the delivery schedule because the contractor is having difficulty making the supplies work (eg supplies incorporating cutting edge software). The Commonwealth Representative should be extremely reluctant to accept such supplies simply to facilitate the making of a payment to the contractor, even if the acceptance is conditional (eg on rectification of the defects). If the supplies cannot be rectified or made to work, the Commonwealth may have limited rights against the contractor to recover any money paid for the supplies once they have been accepted. 3. Acceptance 2
Procurement officers need to be aware that, if a contractor fails to achieve the final acceptance milestone under a contract, the Commonwealth Representative is not normally entitled to reject the previously accepted supplies. Remedies available to the Commonwealth Representative may be liquidated damages, draw-down of a financial security or termination for contractor default. 4. Have a system for tracking key dates
The Commonwealth Representative should keep a diary system of relevant dates. A number of actions under the contract will be subject to set time limits: acceptance/rejection of supplies, payment of invoices, consideration of postponement claims, supply of Government Furnished Material etc. By keeping track of the timing for Commonwealth actions and the timing of contractor deliverables, the Commonwealth Representative can avoid contractor claims that the Commonwealth has caused or contributed to any delay. 5. Contact with contractors
The Commonwealth Representative should be aware of all project contact with the contractor. There are a number of people in a project who will have regular contact with the contractor. It is important that the Commonwealth Representative is aware of this interaction and can document it where necessary. If a project officer or member of the senior management makes a representation to the contractor it is important that the Commonwealth Representative knows about this and can action it or advise of implications. 6. Provide regular progress reports
Even though all contact and decisions may be documented, it is difficult for someone new to the contract to read through volumes of correspondence. The Commonwealth Representative should report on progress at least every 6 months and the report placed on file so that if the Commonwealth Representative is suddenly absent a new person can understand what needs to be done and where the contract is up to.
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Defence Procurement Policy Manual Annex 6.B Contract Management - Practical tips, tricks and pitfalls 7. Manage personnel issues
An important responsibility of the Commonwealth Representative is to manage the turnover of both Commonwealth project personnel and key contractor personnel. Loss of corporate knowledge in relation to a project, whether on the Commonwealth or the contractor side, is a major factor in why some projects can go off the rails. For example, new project staff may be unwilling to take action against a contractor in relation to a performance issue because they may not be totally familiar with the project and its history. Similarly, if the contractor loses key personnel with particular expertise, this can cause delays in the project unless a suitable replacement can be found. Under some Defence contracts, the Commonwealth Representative may be responsible for ensuring that replacement contractor personnel are satisfactory and have the necessary skill sets for the project. A responsible Commonwealth Representative should therefore have a strategy for managing the replacement of Commonwealth project personnel and dealing with the loss of contractor personnel. This may include: ensuring a clear audit trail in relation to the contract, including key decisions, disputes between the parties, records of contract defaults and the action taken in relation to them (i.e. so that a new Commonwealth Representative or other project personnel can see what has occurred under the contract); providing a detailed handover brief to a new Commonwealth Representative or other key project personnel to ensure that they get up to speed quickly in relation to the project; identifying what skills are required for the project team and where these skills can be obtained should the need arise to replace project personnel; having good lines of communication with the contractor so that the Commonwealth Representative is aware as soon as possible when key contractor personnel may be leaving, and working with the contractor to identify a suitable replacement (eg by agreeing what skill sets are required for the particular position); and ensuring that the contractor has in place appropriate transition arrangements for bringing new personnel up to speed. HANDY HINT The Commonwealth Representative should have a strategy for managing the replacement of project or contractor personnel. 8. Make sure all outstanding matters are followed up.
If an issue arises it should be resolved as quickly as possible. Even if the Commonwealth Representative has placed responsibility on the contractor to do something in relation to an issue, this should be regularly followed up so the issue does not remain unresolved.
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Defence Procurement Policy Manual Annex 6.C Contractor Default Checklist
Annex
6.C Contractor Default Checklist
Note: The remedies suggested in this checklist are based on the default liability regime contained in the ASDEFCON suite of tendering and contracting templates.
Scenario Contractor fails to complete contracted requirements Type of damage that may be claimed Damages for breach/repudiation of contract including:
Possible remedies Commonwealth may be able to claim liquidated damages, if provided for in the contract. The Commonwealth may also be able to sue the contractor for damages at common law. Amount of damages may be subject to a limitation of liability cap in the contract. Otherwise, where applicable, the Commonwealth may have the option of drawing on financial/ performance securities under the contract. Commonwealth may be able to sue for damages. Loss associated with damage to people or third party property is normally not capped in accordance with Commonwealth policy and would have to be borne by the contractor. Loss associated with damage to Commonwealth or Defence property may be capped under the contract. Financial loss such as travel and accommodation costs and costs of hiring substitute equipment or maintaining current equipment may be capped.
extra expense to Defence of engaging alternative contractor and acquiring alternative supplies; and loss of use of supplies in period from expected completion to actual completion by new contractor.
Contractor completes contracted requirements but the resulting good or service does not work or is defective
If no acceptance refer to Scenario 1. If there has been acceptance then it is a breach of warranty issue. However, there may also be a claim for the contractors negligence depending on the cause of the defect.
Damage suffered includes:
cost to have supplies repaired, if necessary by a third party; loss of use of supplies while being repaired, e.g. expense incurred in hiring other equipment to meet need while supplies are being fixed or cost of maintaining existing equipment that otherwise would be retired; and depending on the nature of the defect there could possibly be other loss e.g. defect causes damage to property or people; defect causes Defence to incur other expenses like travel and accommodation for personnel.
Contractor completes but not on time.
Damage suffered includes cost of hiring substitute equipment or maintaining current equipment for longer than expected. Costs associated with delays e.g. keeping project office or contract management for longer, delays in training or need for refresher training, costs of delaying exercises, etc.
Commonwealth may be able to claim liquidated damages, if provided for in the contract. For delays causing loss to the Commonwealth which go beyond the amount provided in the contract for liquidated damages (or if no Liquidated Damages clause has been included) the Commonwealth can seek a remedy at common law (e.g. damages).
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Defence Procurement Policy Manual Annex 6.C Contractor Default Checklist
Scenario Contractors actions in performing the work under the contract results in injury or death. Contractor damages Commonwealth or third party property in the course of performing the work. Defects in supplied system results in injury or death. Defects in supplied system cause damage to other Commonwealth or third party property.
Types of damage that may be claimed Commonwealth incurs loss because sued by injured third parties or their dependants for personal injury damages. Commonwealth incurs loss because sued by third parties for property damage.
Possible remedies While the Commonwealth Procurement Guidelines do not prohibit this loss from being capped, under Defence contracts, the contractor typically bears this liability. Under Defence contracts, the contractor bears this liability which would normally not be capped.
Commonwealth incurs loss because sued by injured third parties or their dependants for personal injury damages. Commonwealth incurs loss because sued by third parties for property damage or because it has to replace damaged Commonwealth property.
Under Defence contracts, the contractor bears this liability which would normally not be capped. Under Defence contracts, the contractor bears liability for third party property damage (which would normally not be capped); and would be liable for damage to Commonwealth or Defence property (which may be subject to a liability cap under the contract).
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Defence Procurement Policy Manual Annex 6.D Supplies Acceptance Certificate Form (SG001)
Annex
6.D Supplies Acceptance Certificate Form (SG001)
Procurement officers should refer to chapter 6.4 in conjunction with this Annex.
The following guidance is based on the terminology and concepts used in the ASDEFCON suite of tendering and contracting templates. Guidelines for use of the Supplies Acceptance Certificate When to Use the Supplies Acceptance Certificate A contract should state the instrument that is to be used for formal acceptance of supplies. The Supplies Acceptance Certificate is intended for use in contracts where supplier certification and Commonwealth acceptance are a requirement. A specific example is where items are to be receipted at a storage facility. The Supplies Acceptance Certificate or derivatives are used when agreed between the Commonwealth Representative and the contractor. Generally, Defence acceptance of commercialoff-the-shelf products does not require the use of the Supplies Acceptance Certificate. Supplier Certification The Supplies Acceptance Certificate provides for an authorised representative of the supplier to certify that the supplies conform in all respects to the conditions and requirements of the contract. Provision is also made for the supplier to record details of any non-compliance with the terms and conditions of the contract. Any non-compliance with contractual requirements must be approved by, or on behalf of, the Commonwealth Representative prior to acceptance. The details of any non-compliance must be recorded on the Supplies Acceptance Certificate or its Annex. When an Annex is used, this is to be referred to in the body of the Supplies Acceptance Certificate and is to be signed by a representative of the supplier and by an authorised officer on behalf of the Commonwealth. Commonwealth Acceptance The Supplies Acceptance Certificate provides for formal acceptance of supplies without prejudice to any remedies that the Commonwealth may have under the contract when the supplies do not conform with the requirement or do not comply with the terms and conditions of the contract. This qualification of acceptance is not intended to create any additional rights for the Commonwealth under the contract but rather to notify the supplier that acceptance by the Commonwealth will not extinguish any existing rights. The Commonwealth Representative is responsible for accepting the supplies but may delegate signing the Supplies Acceptance Certificate to others. Such delegation must define any discretionary authority to approve/accept any deviations from the contract requirements. Before accepting the supplies the officer performing acceptance is to take all reasonable steps, appropriate to the nature of the supplies, to determine that the supplies fully conform to the requirements of the contract. This will include, but not be limited to, the sighting of objective evidence that all technical, functional and performance requirements have been met.
Page Annex 6.D1
Defence Procurement Policy Manual Annex 6.D Supplies Acceptance Certificate Form (SG001) Preparation of the Supplies Acceptance Certificate The supplier should prepare the Supplies Acceptance Certificate and sign Section l, Suppliers Certification, prior to offering the supplies to the Commonwealth. The person appointed by the Commonwealth Representative to accept the goods or services on behalf of the Commonwealth should ensure that the Supplies Acceptance Certificate has been correctly completed. Use of an appropriate Defence computer generated form similar to the Supplies Acceptance Certificate is also acceptable. All data entry boxes on the Supplies Acceptance Certificate are to be completed or marked Not Applicable (NA) before the Supplies Acceptance Certificate is signed on behalf of the Commonwealth and a copy forwarded to the suppliers representative. Commonwealth copies of a completed and signed Supplies Acceptance Certificate are important contractual documents and should be filed properly for record and audit purposes. Importance of the Supplies Acceptance Certificate When the supplier advises that the supplies are ready for acceptance, the Quality Assurance Representative is required to advise the buyer whether or not all quality audit and quality surveillance tasks have been satisfactorily completed and whether or not there are any outstanding supplier quality management actions. It should be noted that the buyer is responsible for determining the acceptability of the supplies, based on input and reports from the buyers agents of which the Quality Assurance Representative is one. Determining the acceptability of the supplies is a buyer responsibility which cannot be delegated because the buyer has full knowledge of contract requirements and other relevant information. Once the buyer has determined the acceptability of the supplies the delegate should sign the Supplies Acceptance Certificate, which signifies that the supplies have been assessed as acceptable. Supplies are generally accepted on an exception basis (that is the supplies will be assessed as acceptable unless agents input and reports indicate that they are not acceptable). Results of Acceptance When the Supplies Acceptance Certificate has been signed by both the supplier and the person authorised by the Commonwealth Representative to accept the supplies on behalf of the Commonwealth, the supplies are accepted by the Commonwealth in accordance with the contract. The immediate consequences of acceptance will depend on the terms and conditions of the particular contract but may include commencement of the warranty and maintenance periods and transfer of title to the Commonwealth. Risk of loss or damage to the supplies will reside with the supplier until the supplies have been delivered to the Commonwealth. If the Commonwealth takes delivery of the supplies for inspection and/or testing purposes to verify compliance with the contract, signing of the Supplies Acceptance Certificate by the Commonwealth is to be withheld until satisfactory completion of all such inspections and/or tests. Such inspections/tests are to be conducted promptly and the supplier advised of acceptance or non-acceptance as soon as possible. Most standard contracts specify time periods within which the Commonwealth is required to either accept or reject supplies and advise the supplier. When specified in the contract, a completed Supplies Acceptance Certificate is necessary to support a suppliers claim for payment. The Supplies Acceptance Certificate is not to be used for progress payments to a supplier unless contingent upon delivery of goods or services. Part or Qualified Performance and Non-Conforming Supplies Acceptance by the Commonwealth of part delivery of a contract should not be made unless provided for in the contract. If part-delivery is not provided for in the contract, the person authorised by the Commonwealth Representative to accept delivery on behalf of the Commonwealth should consult the Commonwealth Representative for approval to accept part-delivery. The details should be entered appropriately on the Supplies Acceptance Certificate.
Page Annex 6.D2
Defence Procurement Policy Manual Annex 6.D Supplies Acceptance Certificate Form (SG001) When the supplies offered for acceptance do not conform to the requirement, or a condition of the contract required for their acceptance has not been met, the supplies are not to be accepted without approval from the Commonwealth Representative. Two possibilities exist where: the supplies can be made to comply by post delivery action. This will generally comprise rectification of minor defects or omissions, or the incorporation of an agreed modification. In such cases, the supplies may be accepted on condition that the necessary work will be carried out post delivery. Details of the non-compliance and the conditions attached to acceptance are to be shown on the Supplies Acceptance Certificate or its Annex. When an Annex is used, this is to be referred to in the body of the Supplies Acceptance Certificate and is to be signed by a representative of the supplier and the officer authorised to sign the Supplies Acceptance Certificate on behalf of the Commonwealth; and the supplies cannot be made to comply by post delivery action but the Commonwealth Representative has decided to accept the supplies. In such cases, the Commonwealth Representative must indicate that it is fully aware of the non-compliance and clearly state that the supplies are to be accepted in the non-complying state. Details of the non-compliance are to be shown on the Supplies Acceptance Certificate or its Annex. When an Annex is used, this is to be referred to in the body of the form and is to be signed by a representative of the supplier and the officer authorised to sign the Supplies Acceptance Certificate on behalf of the Commonwealth.
Progress and Milestone Payments Where progress or milestone payments for staged delivery are provided for in a contract, a separate Supplies Acceptance Certificate is to be used for each progressive stage of delivery. Columns 5 to 10 of the Supplies Acceptance Certificate will show the delivery status of the contract at the date of signature. Cancelled and Non-Completed Contracts When a contract has been officially cancelled or terminated prior to completion, the supplier may need to be paid for the work performed. The use of the Supplies Acceptance Certificate is not normally appropriate in such circumstances except for authorising payment for the work completed and to release the supplies (even in an incomplete state).
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Defence Procurement Policy Manual Annex 6.E Contract Change Proposal Checklist
Annex
6.E Contract Change Proposal Checklist
Before reviewing any contract change proposal in detail, Procurement officers should confirm that the contract change has been prepared in accordance with the change process contained within the contract. Only where this is the case should further details be reviewed and the change conducted. General originator of proposal; date proposed; validity period within which the proposal may be countersigned by the Commonwealth; date of incorporation; change, proposal number or identification; and contract number.
Specification number or other identification of the specification to be varied by the proposed change; and reason for the proposed change.
Note: Draft pages reflecting the proposed amendment to the specification should be attached. Price variation to total contract price; price of item(s) varied by the change; and alteration to price basis and payment and payment schedule if any.
Financial Securities variation to bank guarantee or other security.
Variation to Delivery Dates variation to date upon which the supplies are to be offered for acceptance.
Terms of Contract identify, by clause numbers or otherwise, areas of the contract and other relevant documents that are to be varied by the proposal.
Consequential Effects effect on performance of the supplies; effect on performance of part changed; identification of, and effect on, source of manufacture and availability of spares; effect on documentation; effect on training; and
Page Annex 6.E1
Defence Procurement Policy Manual Annex 6.E Contract Change Proposal Checklist alterations required to any tests or spare parts and support provided by the company.
If no amendment is required in respect of one or more of the above matters the proposal should include a specific statement to that effect.
Note: A form along these lines should be included in contracts as a guide to contractors in the preparation of contract change proposals. The contracting specialists listed at the front of this Manual should be consulted to determine the appropriate contract change proposal proforma to include in a contract.
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Defence Procurement Policy Manual Definitions
Definitions
Acceptance Certification that the goods or services provided by the contractor meet the requirements of the contract. In Complex and strategic procurements the contractor will usually be required to provide a Supplies Acceptance Certificate and other supporting evidence to facilitate the acceptance process by Defence. Accountability Accountability means that officials are responsible for the actions and decisions that they take in relation to procurement and for the resulting outcomes. Accreditation Recognition and approval by an approved accreditation agency. Alliance Contract A legally enforceable contractual arrangement aimed at sharing risk between Alliance participants and creating mutually beneficial relationships. Annual Procurement Plan (APP) A document through which Defence provides a short summary of the strategic procurement outlook for the coming year and information on significant procurements they plan to undertake. ASDEFCON (Complex Materiel) A Request for Tender and contracting template designed to assist drafters to prepare Requests for Tender and contracts for low to medium risk procurements of minor and complex capital equipment and systems. ASDEFCON (Complex Materiel) consists of two volumes, each addressing a different level of complexity. ASDEFCON (Services) ASDEFCON (Services) is designed to be used to engage consultants, professional service providers and other contractors to provide services to Defence. The template is to be used where the services to be procured are straightforward, low risk, low value and of short to medium duration. ASDEFCON (Standing Offer for Goods) ASDEFCON (Standing Offer for Goods) is designed for use when establishing a standing offer arrangement with a supplier or a panel of suppliers for low value, low risk procurements of goods up to an aggregate value of $5 million. It should not be used to acquire spare parts for equipment required as part of a project that has established its own arrangements for the acquisition of spare parts. ASDEFCON (Strategic Materiel) ASDEFCON (Strategic Materiel) is for acquiring high risk, software intensive systems including major platforms. ASDEFCON (Support) ASDEFCON (Support) is designed to assist a drafter to prepare a Request for Tender and a contract for use in the procurement of support and maintenance activities for a system or item of equipment that is in use. AusTender The central web-based facility for the publication of Australian Government procurement information, Approved by GM Com 1 July 2011 Page Definitions1
Defence Procurement Policy Manual Definitions including business opportunities, annual procurement plans and contract awarded. Base Date The specified date from which a tender price is valid and the date for calculation of contract price and price variation. Best Practice A cooperative and integrated approach to managing, organising and improving operations during all stages of the procurement process. It involves the adoption of consistent standards, policies and procedures, and benchmarking. Best practice is an ever-evolving goal whose performance indicators move higher as it is acknowledged that someone elsewhere is doing it better. Chief Executives Instructions Directions issued by the Chief Executive (the Secretary of Defence and the CEO DMO) under the authority of Section 52 of the Financial Management and Accountability Act 1997 (FMA Act), and FMA Regulations. Commercial-off-the-shelf Goods or services that are immediately available in the market place.
Commonwealth Procurement Guidelines (CPGs)

The CPGs represent the policy framework under which Commonwealth Departments and Agencies govern and undertake their own procurement. The CPGs establish the procurement policy framework within which agencies determine their own specific procurement practices. Commonwealth Representative The position responsible for managing a contract on behalf of Defence. Often also referred to as the Project or Contract Authority. Company An association, such as a corporation, formed by a group of people with a common purpose, such as the acquisition of profit by means of commercial enterprise. (Macquarie dictionary) Competition and Consumer ACT 2010 Commonwealth legislation which prohibits certain kinds of restrictive trade practices such as agreements which have the purpose or effect of substantially lessening competition, boycotts, monopolistic practices, exclusive dealings, resale price maintenance and so on. Provisions in the Act also apply in contracts for the supply of goods by a corporation to a consumer conditions as to title, correspondence with description, merchantable quality and fitness for purpose. It applies generally to organisations engaged in overseas or interstate trade but may also apply to trade and commerce within or involving a Territory. Complex Procurement A procurement category where the overall level of risk and complexity is assessed as medium to high after a risk assessment commensurate with the size and complexity of the procurement has been conducted. Consequence Consequence is the outcome of an event or situation expressed qualitatively or quantitatively, being a loss, injury, disadvantage or gain. Three levels of consequence are employed for selection of the appropriate quality management requirements. They are:
low (small or minimal impact, manageable with routine procedures);
Page Definitions2
Defence Procurement Policy Manual Definitions
moderate (significant impact, requiring some functional/ performance compromise but manageable with some effort); and high (extreme or very serious impact, inappropriate performance, potentially very large financial and operational costs and delays requiring containment/ contingency planning and close monitoring).
Conditions of Participation Minimum conditions that potential suppliers must meet in order to participate in a procurement process or for submissions to be considered. Contract A contract is an agreement made between two or more parties and includes legal rights and obligations that are enforceable in law. Contractor A contractor is any party who has entered into a contract to supply goods or services to Defence and DMO. Contract Approver Contract Approver is the third step in the procurement delegation process and this delegate can approve the entering into of a contract on behalf of the Commonwealth. Contract Signatory Contract Signatory is the final step in the procurement process, which binds the Commonwealth to making a payment of public money. Coordinated procurement contracting arrangements The Government may decide on a case-by-case basis that for certain property or services improved value for money will be achieved through aggregation of government demand and negotiating whole of government procurement contracts. These processes are known as coordinated procurement arrangements. Correctly rendered invoice An invoice which is:
Rendered in accordance with all of the requirements of the written contract (note that written contracts will often specify that the invoice must be a tax invoice and/or that certain information must be included in the invoice and/or the format of the invoice). For amounts that are correctly calculated and due for payment and payable under the terms of the written contract (note that many written contracts will specify that payment is not required until the agency is satisfied with the goods or services).
Cost reimbursement basis All costs incurred paid for by Defence. Counsellor Defence Materiel (CONDMAT) The acquisition and logistics headquarters for overseas purchases, based Washington and London. Covered Procurement A procurement, other than one specifically exempt in accordance with Appendix A of the Commonwealth Procurement Guidelines, where the value of the property or service being procured exceeds the relevant procurement threshold. A Defence/DMO Exempt Procurement is a Covered Procurement. Covered Procurements (other than Defence/DMO Exempt Procurements) must comply with the Mandatory Procurement Thresholds. Approved by GM Com 1 July 2011 Page Definitions3
Defence Procurement Policy Manual Definitions Deadline for Submissions The precise time and date by which submissions must be received in response to an approach to the market. Deed of Standing Offer Standing Offer deeds set out the terms and conditions, including indicative pricing, under which a supplier agrees to supply Defence for a specific period. Defence Unless otherwise stated references to Defence apply to both Defence and DMO. Defence Instructions (General) Defence Instructions (General) are issued jointly by the Secretary of the Department of Defence and the Chief of the Defence Force on a variety of matters including procurement matters. Defence Purchasing Card The Defence Purchasing Card is a payment mechanism that can be used as an alternative to other methods of payment, such as cheque, direct credit and petty cash. Delivery The physical movement of supplies into Defences possession. Direct Sourcing Direct sourcing refers to a procurement process in which Defence invites a potential supplier or suppliers of its choice to make a submission. Direct sourcing may include a competitive process, for example obtaining quotes. For Covered Procurements, direct sourcing is permitted only under certain circumstances. DMO/Defence Exempt Procurement A Covered Procurement that is exempt from the operation of the Mandatory Procurement Procedures in Division 2 of the Commonwealth Procurement Guidelines for essential security reasons as explained in chapter 1.2. These procurements are still categorised as Covered Procurements for all other purposes (for example, the application of other Government policies such as the Fair Work Policy). Dumping Where goods are exported to Australia at a price which is below the normal market value of those goods in the exporter's domestic market and, as a result, causes or threatens material injury to Australian industry. Effective Date Means the date upon which a contract is signed by both parties, or if signed on different days, the date of the last signature. Efficiency and Effectiveness Efficiency and Effectiveness requires openness in the procurement process, encouragement of effective competition through procurement methods suited to market circumstances, and a framework of procurement laws, policies and practices that is transparent and available to the public. Ethics In the context of procurement, behaviour which ensures that the purchasing officer and the Department are trusted and respected by those with whom they deal. It also ensures that business is conducted by all parties efficiently, in a fair and reasonable manner, and with integrity. Approved by GM Com 1 July 2011 Page Definitions4
Defence Procurement Policy Manual Definitions Evaluation Criteria The criteria which are used to evaluate the compliance and/or relative ranking of submissions. All evaluation criteria must be clearly stated in the request documentation. Exempt A procurement or class of procurement which is exempt from the Mandatory Procurement Procedures set out in Division 2 of the CPGs. Such a procurement is not a Covered Procurement irrespective of the value of the property or services being procured. Exempt procurements remain subject to other requirements of the CPGs, including the core principle of value for money. Finance Circulars Issued by the Department of Finance and Administration to provide information on new or changed policies or practices.
Financial Management and Accountability Act 1997

Provides the framework for financial management for the Commonwealth. Financial Viability In the context of Defence contracting, the term means the ability of the tenderer, if it was awarded the contract, to satisfactory perform the contract to completion, on schedule, and without any diminution to the contract requirements. Gazettal Reporting of contracts on AusTender via ROMAN or the Card Management System (CMS). Hedging Any arrangement that attempts to reduce foreign exchange risk. Insurance A contract where a person (called the insurer) agrees, in return for money paid to them by another person (called the premium), to indemnify that second person against loss resulting to that second person on the happening of certain detrimental or costly events. Invitation to Register Interest (ITR) A request in which Defence outlines through a public advertisement its intention to acquire goods and services and invites potential suppliers to indicate their interest in meeting the requirement. At this stage the requirement may not be clearly defined but a general description should allow the potential supplier to assess their ability to supply. The cost to registrants in responding to an invitation to register is relatively low, compared with that of preparing a detailed tender and registrants who are clearly ineligible to supply can withdraw or be passed over before incurring the additional expense associated with further development of a formal offer at a later stage. Likelihood Likelihood is used as a qualitative description of probability and frequency of an event occurring. Three levels of likelihood of occurrence are employed for selection of the appropriate quality or risk management requirements. They are:

unlikely (less than 20% chance of occurrence); likely (20-50% chance of occurrence); and almost certain (more than 50% chance of occurrence).
Liquidated Damages
Page Definitions5
Defence Procurement Policy Manual Definitions An amount agreed between the parties to a contract as a genuine pre-estimate of damages to be recoverable from the party in the event of specified breaches of contract. Memorandum of Understanding (MOU) A memorandum of understanding, or a memorandum of agreement, is a document setting out an agreement, usually between two Government agencies. This agreement is not a contract and is not legally binding. Mandatory Procurement Procedures A set of rules and procedures, outlined in Division 2 of the CPGs, which must be followed when conducting a covered procurement. Materiel. All items including ships, tanks, self-propelled weapons, aircraft etc and related spares, repair parts and support necessary to equip, maintain and support military activities without distinction as to its application for administrative or combat purposes. (Australian Defence Force Publication 101 Glossary.) Minimum content and format of submissions The criteria that a submission must meet to be eligible for further consideration in a procurement process. These include conditions of participation where relevant. Mobilisation payments A mobilisation (or advance) payment is a payment made to the contractor early in the contract period prior to the delivery of any supplies or achievement of any milestones. A mobilisation payment provides the contractor with funding to assist it to procure items required in order for it to fulfill obligations under the contract. Non-Covered Procurement A procurement that is not a Covered Procurement and does not include DMO/Defence Exempt Procurement. Open Approach to the Market An approach to all potential suppliers, usually in the form of an advertisement, seeking submissions as to the potential suppliers ability to provide certain property or services. Ownership A legal right to possession of supplies. Overseas Supplier Is a Potential Supplier that is:
an overseas-based company, division or group of a corporation that produces part or all of the imported content of a good or service, irrespective of whether such goods or services are provided directly or indirectly through a local representative, agency or company; or a prime contractor to an agency of a foreign government that supplies the imported goods or services to Defence or DMO.
Partnership
Page Definitions6
Defence Procurement Policy Manual Definitions Composed of individuals bound together by contract to continue in combination for some joint objective. It is essentially a private arrangement between the persons originally entering into the contract with one another, and each member has unlimited liability. A partnership may have up to 20 members, although there are several exceptions to this. A distinction should be drawn between partnership and co-ownership. A partnership generally involves and depends upon carrying on business in common and sharing of profits and losses; co-ownership does not necessarily involve this. A partner cannot transfer her or his interest and make the assignee a partner without the consent of the other parties to the partnership; a co-owner may. A partner is an agent of the partnership; a coowner is not necessarily an agent of her or his co-owners. Partnering A management strategy where the parties to a contract agree from the outset to focus on cooperation, problem solving and conflict avoidance procedures. Potential Supplier Any provider of goods or services that is not a Tenderer, Supplier or Contractor. Predatory Pricing The policy of setting prices, the purpose of which is to weaken or eliminate competitors or to discourage and prevent entry of new sellers in a market. Procurement Approval The delegation to approve the method of procurement which promotes value for money. Procurement threshold A value above which a procurement, unless exempt, is considered to be a covered procurement. Procurement value The maximum anticipated value of a contract, including options, extensions, renewals or other mechanisms that may be executed over the life of a contract. This value is used to determine whether a particular procurement is a Covered Procurement. Property Every type of right, interest or thing which is legally capable of being owned. This includes, but is not restricted to, physical goods and real property as well as intangibles such as intellectual property, contract options and goodwill. Proposal Approval The delegation that approves a proposal to spend public moneys and is the first step in the procurement process.
Public-private partnership A method of procurement that involves the use of private sector capital to fund an asset - that may not be ultimately owned by the public sector - which is used to deliver outcomes for an Australian Government agency. PPPs are used most frequently for major asset and infrastructure procurements. Published Listed electronically on AusTender in accordance with government policy, as stated in the Accountability and Transparency chapters of these CPGs. Procurement officer
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Defence Procurement Policy Manual Definitions An individual whose responsibilities and authority may include planning procurement, tenderer selection, negotiation, Contract or Purchase Order placement, contractor follow-up, measurement and control of contractor performance, and evaluation of new materials and processes. Purchase Order The Purchase Order is the most widely used form of contract and is often used to purchase commercially available goods and services where a firm price has been offered and the timescale for delivery is short. Standard Commonwealth terms and conditions are incorporated on a Purchase Order. Form SP20 is a Purchase Order which is available as a Webform on the Defence Intranet site. Qualification Recognition of successfully gaining a defined set of procurement competencies. Quality Assurance Quality Assurance is all those planned and systematic actions necessary to provide confidence that goods and services will satisfy the contracted requirements for quality. Quality and Environment Management System (QEMS) The Quality and Environment Management System provides current policies, procedures and practices electronically and links information together in the framework which facilitates comparison within and between Systems Project Offices. The systems aims to capture and share the best practices, to develop Quality Management Systems and improve organisational business practices Reporting Threshold The value above which a procurement contract is required to be reported on AusTender. Request Documentation Documentation provided to potential suppliers to enable them to understand and assess the requirements of Defence and to prepare submissions. This general term includes documentation for Requests For Proposals, open and select tender processes and direct sourcing. Requests For Proposal (RFP) A formal invitation seeking industry interest, used to encourage the offer of innovative solutions and indicative costs to meet desired outcomes in a broadly based project proposal. A Request for Proposal seeks information on potential suppliers and their capabilities or capacities to ascertain what solution exists to meet problems or needs. Request for Tender (RFT) An invitation to suppliers who satisfy the conditions of participation to submit a tender in accordance with the RFT documentation. Risk The possibility of something happening that will have consequences for a project. It is measured in terms of consequences. Risk Avoidance Evasion of risks by not proceeding with the project or ensuring that another party is responsible for them. Risk Management The systematic application of management policies, procedures and practices to the tasks of identifying, analysing, assessing, treating and monitoring risk. Select tender process Approved by GM Com 1 July 2011 Page Definitions8
Defence Procurement Policy Manual Definitions A procurement procedure in which the procuring selects which potential suppliers are invited to submit tenders. For covered procurements, a select tender process may only be conducted in accordance with certain procedures and circumstances set out in Division 2 of the CPGs. Simple Procurement A procurement category where the overall level of risk and complexity is assessed as low after a suitable risk assessment has been conducted. There is no monetary threshold for simple procurement. Small to Medium Enterprises (SMEs) A SME is an Australian or New Zealand firm with fewer than 200 full time equivalent employees. Standing Offer Is not a contract but a continuing offer by a supplier for a pre-determined length of time, usually at a pre-determined price. Standing Offers are used to enable Defence to buy goods and services over a specific period on set terms. However each time Defence uses the Standing Offer to order goods or services a discrete contract arises. Statement of Work (SOW) A Statement of Work forms part of a contract, and is a statement of the requirement to be delivered under the contract. Strategic Procurement A procurement category where the overall risk and complexity is high to extreme after a risk assessment commensurate with the size and complexity of the procurement has been conducted. Submissions Includes any formally submitted response from a potential supplier to an approach to the market. Submissions include tenders, expressions of interest and applications for inclusion on a multi-use list. Specification A description of the features of the property or services to be procured. Supplier A provider of goods or services that:

has qualified for inclusion on a multi-use list; has been shortlisted in a staged procurement process such as an Invitation to Register Interest; or has entered into a standing offer deed with the Commonwealth.
Teaming The affiliation (not necessarily a formal arrangement) of companies brought together to be better able to meet a requirement. This arrangement is often established pre-contract. Tender A submission from a Tenderer making an offer to perform a procurement in response to the release of request documentation in the form of a Request for Information; Invitation to Register Interest; Request for Proposal; Project Definition Study; and/or Request for Tender. Tenderer
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Defence Procurement Policy Manual Definitions A provider of goods or services that has responded to request documentation issued by Defence or DMO and includes providers that have responded to a: Request for Information; Invitation to Register Interest; Request for Proposal; Project Definition Study; and/or Request for Tender. Tender Evaluation Plan Records the method by which tenders for a requirement will be evaluated, including the evaluation criteria and the relevant probity requirements. Third Party Certification Third Party Certification is that conducted by an independent Joint Accreditation System of Australian and New Zealand (JAS-ANZ) accredited certification body. Time Limit The minimum time that Defence must allow potential suppliers to respond to an approach to the market. Value For Money A procurement concept which requires objective consideration of all factors contributing to the utility, usability and usefulness of items offered for sale as inputs to a procurement decision, rather than automatic choice of the suitable item having the lowest purchase price. Whole-of-Life Costs Also known as life-cycle costs. The total costs of owning (or leasing), operating and maintaining an item over a specified period of time.
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Defence Procurement Manual

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Defence Procurement Policy Manual

Mandatory Procurement Guidance for Defence and DMO Staff

Defence Procurement Policy Manual Foreword

HARRY DUNSTALL General Manager Commercial

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Notices

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Defence Procurement Policy Manual Introduction

Whole of Defence Procurement Guidance

Defence Procurement Policy Manual System

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DMO Procurement Guidance

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Defence and DMO Procurement Support Areas

Defence Materiel Organisation

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Head Commercial Enabling Services

Head Commercial and Industry Programs

Commercial Group Business Unit

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Defence Support Group

Chief Information Officer Group

Capability Development Group

Office of the Secretary and Chief of the Defence Force Group

Intelligence and Security Group

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Defence Science and Technology Organisation

How to request external legal services

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Defence Procurement Policy Manual Complex Procurement Process Flowchart

Complex Procurement Process Flowchart

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Defence Procurement Policy Manual Simple Procurement Process Flowchart

Simple Procurement Process Flowchart

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Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Table of Contents

Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Table of Contents

Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011

Defence Procurement Policy Manual Table of Contents

4.A 5.B 6.A 6.B 6.C

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Defence Procurement Policy Manual Table of Contents

Approved by GM Com 1 July 2011