EXPLANATORY STATEMENT
ISSUED BY THE AUTHORITY OF THE MINISTER FOR FINANCE
Subject - Audit Act 1901
Finance Regulations
Finance (Overseas) Regulations
1989 No. 221
Subsection 71(1) of the Audit Act 1901 (the Act) provides that the Governor-General may make regulations (not inconsistent with the provisions of the Act) for carrying out the provisions of the Act.
Section 63 of the Act provides that the regulations may make provision for and in relation to financial administration by Departments outside Australia.
The attached Statutory Rules amend the Finance Regulations and the Finance (Overseas) Regulations made pursuant to subsection 71(1) and section 63.
In summary, the Statutory Rules change a number of fundamental financial provisions concerning the procurement of supplies and the entering into of financial commitments. The changes are based upon recommendations of an Interdepartmental Committee (comprising officers from the Departments of Finance, Administrative Services, Defence, Transport and Communications, Prime Minister and Cabinet, Primary Industries and Energy, and Community Services and Health) which undertook a Commonwealth-wide review of procurement practices. The key recommendations concerning the regulatory framework for Commonwealth financial arrangements that were accepted by the Government were that:
• the prime objective of Commonwealth purchasing should be to support Government programs by achieving value for money in the acquisition of supplies;
• open and effective competition should be adopted as the central operating principle of Commonwealth purchasing, permitting a range of methods and techniques to be employed as appropriate, with tendering being important but no longer the only prescribed method above a dollar threshold;
• the Minister for Administrative Services should have authority under the Finance Regulations and the Finance (Overseas) Regulations to issue guidelines about the procurement of supplies.
Accordingly, the Statutory Rules amend the Finance Regulations and Finance (Overseas) Regulations:
a) to provide for Commonwealth procurement to be based upon the operating principle of open and effective competition, including greater emphasis on gazettal of purchasing information;
b) to make provision for the Minister for Administrative Services to issue guidelines about the procurement of supplies and require persons performing duties in relation to the procurement of supplies to have regard to the guidelines;
c) to streamline the financial provisions regulating the authority of persons to enter into commitments requiring the expenditure of public moneys; and,
d) to repeal the existing provisions on tenders and quotations since these matters are now covered by the new provisions of (a) and (b); and
e) to repeal the process-orientated provisions requiring the use of prescribed requisition forms and purchase order forms.
Details of the amendments are shown in Attachment A (Amendments to the Finance Regulations) and Attachment B (Amendments to the Finance (Overseas) Regulations).
ATTACHMENT A
AMENDMENTS TO THE FINANCE REGULATIONS
REGULATION 1
Regulation 1 of these Statutory Rules sets 1 November 1989 as the date on which regulations 3 to 8 of these Statutory Rules will come into operation.
REGULATION 2
Regulation 2 of these Statutory Rules introduces a new Part IIAA to the Finance Regulations - called “Procurement of Supplies”.
Regulation 2 comes into effect upon gazettal to enable the Minister for Administrative Services to issue guidelines prior to the commencement of regulations 3 to 8 of these Statutory Rules.
PART IIAA PROCUREMENT OF SUPPLIES
Finance Regulation 42
Finance Regulation 42 provides for the Minister for Administrative Services to issue guidelines on the procurement of supplies. In addition, in accordance with section 73 of the Act, these guidelines will be disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901.
The guidelines will advise officers and others of the standard procurement methods to be employed for achieving compliance with the principle of open and effective competition (ie, the requirement under proposed Finance Regulation 43). These methods will include the quotation and public tender arrangements as well as staged procurement arrangements. The guidelines will also provide advice on a code of ethics to be observed by procurement personnel and advice for ensuring that Commonwealth procurement contracts are based on the concept of “value for money” for the overall expenditure of public moneys.
REGULATION 3
Regulation 3 of these Statutory Rules amends Finance Regulation 42 by inserting subregulation (2) to require persons performing duties in relation to procurement to have regard to guidelines issued by the Minister for Administrative Services under subregulation 42 (1).
It means that persons procuring supplies are required to take the guidelines into consideration but, having done that, they may, subject to other regulations, depart from the procedures set out in the guidelines. While procurement personnel may be able to choose methods outside the guidelines, the method chosen will still need to comply with the principle of open and effective competition (ie, the requirement under proposed Finance Regulation 43). Procurement personnel can, of course, be called on to account for any decision to depart from the guidelines.
REGULATION 4
Regulation 4 of these Statutory Rules inserts Finance Regulations 43, 43A and 43B.
Finance Regulation 43
Finance Regulation 43 sets the operating principle for all Commonwealth procurement. That is, it places a responsibility upon persons deciding methods of procurement to choose methods that will promote open and effective competition to the extent practicable. “Open” connotes that the methods chosen should enable visibility to Parliament and openness of opportunity to potential suppliers.
The decisions made by persons with that responsibility will, of course, be subordinate to a Minister who might give a direction that would make full compliance impracticable. Accordingly, subregulation 43 (2) provides for compliance with the principle to the extent that is possible while complying with a Ministerial direction.
Finance Regulation 43A
Consistent with the policy of openness, Finance Regulation 43A makes it mandatory for procurement personnel to comply with those guidelines providing for the publication of certain matters in the gazette. The matters requiring gazettal will, generally speaking, be those matters concerning public tender arrangements for supplies, public expressions of interest and other public invitations concerning the supply of goods and services to the Commonwealth.
Finance Regulation 43B
Finance Regulation 43B replaces the previous Finance Regulation 53 which has been repealed under regulation 6 of these Statutory Rules. The previous regulation provided for the gazettal of contracts above $2000 but it was deficient in that important procurement information contained in standing offer arrangements entered into by Departments was not required to be published. Also, the specific provisions authorising the non-disclosure of certain contract details have been seen as being redundant since the operation of the Freedom of Information Act 1982.
Under the new regulation, contracting persons are required to publish, in the Gazette, relevant details of all contracts for the procurement of supplies costing in excess of $2000 and of all standing offers. Subregulation 43B (5) defines “standing offers” to mean, in brief terms, those standing arrangements commonly referred to as “period contracts” for the supply of goods and services to Departments. (Orders placed on a supplier under a standing offer are, in fact, contracts and, accordingly, details of those orders are required to be published in the gazette if they exceed $2000.)
The new Finance Regulation is consistent with the general principle of openness and it ensures that most Commonwealth contracts and standing offer arrangements will be visible to the public, unsuccessful bidders and the Parliament. The relevant details to be published under the new Finance Regulation shall be those details sufficient to identify the supplies, the supplier and the total estimated liability under the contract or, for standing offers, an estimated potential value of the arrangements.
In addition, the new Finance Regulation has made provision for the guidelines:
• to require other contract information to be published in the Gazette, and
• to provide for details of the same supplier or supplies of a similar nature to be grouped under common headings for gazettal purposes.
The timing for gazettal of details has been set by the regulation to be “as soon as practicable” after the signing of a contract or entering into a standing offer. The new Finance Regulation has also made provision for the guidelines to specify a period within which details shall be published.
Because details of some contracts and standing offers should remain confidential in the national interest,
subregulation 43B (4) has made provision for a Secretary to the Department that is responsible for the procurement of the supplies (ie the Department spending the appropriation or the Department acting as an agent for a Department in the procurement of supplies, whichever is necessary in the circumstances), to make decisions on the non-disclosure of relevant contract and standing offer details. Non-disclosure is to be permitted for contract and standing offer details judged by a Secretary to be exempt matter under the Freedom of Information Act 1982 and, in circumstances where the Secretary has directed the non-disclosure of those details.
REGULATION 5
Regulation 5 of these Statutory Rules repeals the previous Part IIA on obligations and substitutes a new Part IIA dealing with the entering into of financial commitments. The new part includes the following Finance Regulations:
PART IIA COMMITMENTS REQUIRING THE EXPENDITURE OF PUBLIC MONEYS
Finance Regulation 44A
Finance Regulation 44A places conditions on persons exercising a power to approve a proposal to spend public moneys. The people with the power are:
• Ministers of State exercising their inherent executive powers under the Constitution to approve proposals to spend public moneys in the administration of their Departments (and persons acting under expressed or implicit authorisations of Ministers to exercise such powers); and
• persons having a power under an enactment to approve the spending of public moneys.
Other persons having this power are those persons empowered under Finance Regulation 44C to approve proposals for the Parliamentary Departments.
Persons approving proposals to spend public moneys have been permitted under subregulation 44A (1) to give approval only where they are of the opinion that proposals are consistent with policies of the Commonwealth and that the proposed expenditure will make an efficient and effective use of public moneys. The objective of the subregulation is to ensure that proposals leading to a wasteful or extravagant use of
public moneys will not be approved for the purpose of implementing Commonwealth policies.
For the purposes of accountability, internal control and for providing an audit trail, subregulation 44A (2) requires that approvals must be documented.
Finance Regulation 44B
Finance Regulation 44B replaces Finance Regulation 44A of the previous Part IIA which sets out the funding conditions for entering into obligations.
The financial matters covered by the previous Finance Regulation 44A have been limited to obligations for the procurement of supplies. This restriction has had its origins in section 71 of the Act as worded prior to the passing of the Audit Amendment Act 1989. As a consequence, the entering into of many other financial commitments (such as commitments under financial assistance agreements or commitments requiring a grant to be paid to an organisation) has not been subject to the commitment funding conditions of the Finance Regulations. That funding control was exercised by administrative procedure. The amendment to section 71 of the Act - ie, the introduction of paragraph (h) - has now enabled the making of a regulation covering all financial commitments of the Commonwealth.
The previous Finance Regulation 93 also imposed a condition on officers entering into obligations. It required officers to exercise “due economy” for the expenditure of public moneys. The regulation applied to any public expenditure.
However, the regulation resulted in a “lowest price suitable offer” mentality in relation to the procurement of supplies and as a consequence, important procurement factors (discussed below) for establishing “value for money” were overlooked in the consideration of offers. Accordingly, to ensure that procurement personnel take all relevant factors into consideration, Regulation 93 has been repealed (refer to regulation 6 of these Statutory Rules for the repeal) and a new provision substituted (Finance Regulation 44B) requiring persons entering into any financial commitment to be satisfied that no better value is available for the expenditure of public moneys. For example, under the new Finance Regulation, procurement personnel are required to make a judgement in terms of the concept of “value for money” and they should do so after taking into account such factors as the fitness of the product, the supplier’s capacity to produce quality products, fair market prices, whole of life costs, post-delivery support, effective
warranties, search and research costs of officers involved in the process, the timeliness of the purchase, any forgone revenue under the proposed commitment, etc.
Accordingly, Finance Regulation 44B is to regulate the authority of persons to enter into commitments requiring the payment of public moneys.
Finance Regulation 44C
Finance Regulation 44C replaces the previous subregulation 48 (a) which has been repealed under regulation 6 of these Statutory Rules. Ministers have an inherent power under the Constitution to approve proposals to spend public moneys appropriated for their Departments and Ministers may rely upon the “Carltona” doctrine to authorise officers to exercise that power on their behalf. On the other hand, the Parliamentary Departments are not being administered by a Minister of State and it follows, therefore, that the Presiding Officers cannot have an inherent Constitutional power to approve expenditure of public moneys.
The previous subregulation 48 (a) was seen as providing that power for supplies and the new Finance Regulation 44C retains and clarifies that provision.
Subregulation 44C (2) provides a delegation power to enable the Presiding Officers to delegate, to officers, the statutory powers of approving proposals to spend public moneys.
Finance Regulation 44D
Finance Regulation 44D replaces the previous Finance Regulation 44B which has been repealed under Regulation 5 of these Statutory Rules. No change of policy has been made to the provision which, essentially, provides protection of rights for all parties to a financial commitment entered into in contravention of the new Finance Regulation 44B. The provision has been renumbered due to drafting needs.
REGULATION 6
Regulation 6 of these Statutory Rules repeals Finance Regulations 46, 46A, 47, 48, 50, 51, 52, 52AA, 52A, 53 and 93. These Finance Regulations deal with different aspects of commitment control, including matters relating
to the existing purchasing process; for example:
• the preparation, funding and approval of Requisitions for supplies and the approval of expenditure in cases of emergency - (Previous Finance Regulations 46, 47, 48 and 50 refer, but see new Finance Regulations 44A, 44B and 44C);
• the use of existing contracts for the purchase of supplies - (Previous Finance Regulations 46A refers; while it remains Government policy, the matter is to be covered in the guidelines to be issued by the Minister for Administrative Services under the new Finance Regulation 42);
• the calling of quotations and tenders and the circumstances under which these may be dispensed with - (Previous 51, 52, and 52AA refer, but see the new Finance Regulations 42, 43 and 43A);
• the issue of Purchase Orders - (Previous Finance Regulation 52A refers, but see the new Finance Regulation 44B);
• the gazettal of details of contracts - (Previous Finance Regulation 53 refers, but see the new Finance Regulation 43B);
• the need to exercise due economy when incurring, authorising or approving expenditure - (Previous Finance Regulation 93 refers, but see the new Finance Regulations 44B and 131B).
The repeal of these regulations has been necessary to give effect to the new arrangements for purchasing and entering into commitments, and to meet necessary drafting needs.
REGULATION 7
Regulation 7 of these Statutory Rules makes provision, under Finance Regulation 131B, for a matter previously covered under the previous subregulation (2) of Finance Regulation 93.
Finance Regulation 131B provides that, where a person has a responsibility for entering into commitments or paying public moneys and that person has reason to believe that an appropriation or proposed appropriation is likely to be exceeded, he or she must report the matter to the Secretary controlling the appropriation or to an officer authorised for the purpose by that Secretary. The new regulation ensures that prompt remedial action can be taken by the Secretary or authorised officer.
There has been no change in policy on this matter and the provision has been relocated to meet drafting requirements.
REGULATION 8
Regulation 8 of these Statutory Rules omits Forms 11 (Requisition for Supplies) and 13 (Purchase Order) from the Schedule to the Finance Regulations. The omission is consequential upon the repeal of Finance Regulations 46 and 52A.