4 December, 2018
What does it mean for businesses operating in Papua New Guinea
What you need to know
The new government procurement laws comprise the National Procurement Act 2018 and the Public Finance (Management) (Amendment) Act 2018.
The laws have been passed by the National Parliament of Papua New Guinea, but are not yet in operation.
The laws make detailed structural, planning and technical changes to procurement and tendering procedures for the State and all public bodies and statutory authorities in Papua New Guinea.
What you need to do
Our article outlines the amendments and also looks at the new uncertainties surrounding contracts for the non-government parties seeking to supply goods, works and services to government or any public body or statutory authority.
The procedures for non–government parties entering into such contracts need to be carefully assessed, on a case by case basis, against the new legislative requirements to ensure that contracts remain valid and enforceable.
New government procurement laws have been passed by the National Parliament of Papua New Guinea, which are not yet in operation. The amendments will be the most significant reform to the management of public procurement in PNG for over 20 years and it will have major consequences for all bidders and contractors to the State and other bodies, and some require further clarification. The new laws comprise the National Procurement Act 2018 and the Public Finance (Management) (Amendment) Act 2018, and make detailed structural, planning and technical changes to procurement and tendering procedures for the State and all public bodies and statutory authorities in Papua New Guinea.
Key changes:
New procurement process and approving bodies
The Central Supply and Tenders Board is replaced with a National Procurement Commission (NPC), a statutory corporation with a board of directors comprising ex-officio and appointed members.
Approval to procure is vested in a committee comprising heads of the three key planning and financial departments known as the "Authority to Pre-Commit Committee" (APC Committee). The composition of these organisations is summarised below.
These entities are intended to become a central organisation for all procurement of goods, works and services by the State and public bodies and statutory authorities, with provision for some procurement below threshold levels to be done directly with prior blanket approval.
Application of the National Procurement Act
The National Procurement Act 2018 (NPA) by its terms applies to all public bodies and all statutory bodies in Papua New Guinea. These include:
- The Independent State of Papua New Guinea i.e. the State itself
- National Government Departments acting as arms or agencies of the State
- other National Government entities providing State Services e.g. the Police
- Provincial Governments
- Local-level Governments
- statutory corporations, authorities and instrumentalities established by Act of the Parliament for governmental or official purposes
- bodies, authorities and instrumentalities established by a Provincial Government or Local-level Government
- Statutory corporations set up other than for government or official purposes should be outside the ambit of the NPA.
While the NPC is a single, centralised agency, it appears that, where funds are provided by the National Budget for Provincial Governments or Local-level Governments, the expenditure of those funds on goods, works and services will be subject to the new procurement laws. There is reference to a Provincial Committee and a District Committee of the NPC and it is envisaged that the NPC will establish an internal committee system according to the provincial and district structure, although the detail of this appears to have been left to regulations and instructions.
The amendments to the Public Finances (Management) Act 1995 (PFMA) also refer to public and statutory bodies although some of the amendments, confusingly, only apply to the State.
Credentialing and limits for Government bodies to engage in direct procurement
Public and statutory bodies to which the NPA applies can make application to the APC Committee to demonstrate their credentials to undertake procurement, including demonstration of their history of procurement, experience of their procurement staff and ability to undertake good public finance management practices. Approval of this submission is required to obtain certification for a 3 year period to undertake procurement processes directly (rather than having the procurement undertaken by the NPC on their behalf). The relevant body will then undertake annual submission, commencing after the National Government budget, of a procurement plan for the forthcoming year. This plan will be subject to approval by the APC Committee as to both content and the availability of funds for the procurement.
Bodies which are certified to undertake procurement are subject to the following thresholds, which appear to operate as a limit for each procurement (and not by cumulative total):
Authority to Pre-commit Expenditure (APE)
Pre-approval for ongoing expenditure became subject to certification under the "authority to pre-commit" procedure introduced into the PFMA in 2002. A Departmental Head (which includes the administrative head of a public or statutory body) requires an APE before entering into any contract for the procurement of goods, works and services but the APE is provided without further investigation if the contract amount does not exceed a threshold limit. It appears that the limits for authorisation for departments and public and statutory bodies to undertake direct procurement will also operate as the new thresholds for this purpose.
This will link higher value procurement to the forward planning process administered by the APC Committee.
Multi-year procurement
The APE procedure can also apply to multi-year contracts for goods, works or services, whereby an APE can be issued with certification by the Treasury Secretary to the APC Committee that the future cost will be accounted for and included in the budget for all relevant financial years. Although this represents an improvement in the financial budgeting process for long-term contracts, the new procedure can be used to remove the right to damages for early termination of the relevant contract is excluded from funding by appropriation in later years of the term of the contract.
Tender instructions, guidelines and principles
The reforms cover a number of general principles about procurement, which are envisaged to be supplemented by regulations or procurement instructions (which would replace the existing, but now somewhat out of date, financial instructions issued under the PFMA). It is contemplated that these will prescribe the procurement method in detail. The general procurement principles in the legislation are:
- Non-discrimination
- Transparency, accountability and fairness (including a presumption of open bidding)
- Maximisation of competition and value for money
- Confidentiality
- Economy and efficiency
- Promotion of ethics
While a number of basic principles are set out in the legislation, supplementary detail would presumably be supplied by tender instructions and the documentation prepared by the NPC.
Pre-qualification and national preference
All bidders for contracts with public and statutory bodies are to be registered as qualified bidders with the NPC. The requirements for registration are linked to having correct legal status, compliance with tax obligations and having 3 years' experience.
National reservations and restrictions in public tenders for procurement contracts will apply in the following procurement value bands (with the estimate as determined by the NPC).
Certificates of inexpediency to tender
Under the current law, exemption from tender (by certificate of inexpediency to tender) can be granted by the Central Supply & Tenders Board, the Minister for Finance or the National Executive Council, according to their respective financial limits and in a range of circumstances. The new legislation restricts this power to exempt. Certificates of inexpediency can only be granted by the Board of the NPC:
- where an emergency has been declared by the National Executive Council; or
- in respect of negotiations for a loan or the procurement of a loan to a public or statutory body,
- and all such certificates are subject to ratification by the National Executive Council. This appears to apply even where the State itself needs to negotiate and procure loans under other specific legislation such as the Loans (Overseas Borrowings) Act.
Contract procedures
There are a number of general stipulations about contracts in the NPA which apply to all contracts for procurement, not just contracts to which the State is a party. These include:
All contracts for procurement must be drawn, approved and cleared by the State Solicitor, although approved contract formats may be used without alteration. On its face, this applies to contracts of small value which a Departmental Head is authorised to enter into, all contracts to be entered into by a statutory corporation or authority to procure goods, works or services (e.g. all employment and consultancy contracts), and all Provincial Government and Local-level Government contracts to procure goods, works or services.
The form of any such contract will be in sole discretion of the State Solicitor.
A contract award decision by the Board of the NPC must be confirmed by a signed written contract in a form approved and cleared by the State Solicitor. This may only apply to contracts over the K500,000 threshold.
Any procurement contracts which do not comply with this requirement are void.
For all contracts arising from procurement undertaken by the NPC, the contract management must be assigned to "third party contract management services, which shall independently manage a contract on behalf of the Commission", although this may be waived in appropriate cases.
Issues requiring clarification
The amendments raise issues that will require further consideration and clarification, including the following.
The potential reduction of the legal rights of a long-term contractor, even though they potentially benefit from the multi-year APE procedure, as noted above.
There are some inconsistencies between the NPA itself and the PFMA amendments which may need further amendment or clarification by regulation. For example, in the PFMA (new section 44), there is still reference to a threshold of K100,000 whereas this is not a relevant threshold under the NPA.
The relevant State contracting party and signatory for contacts is not clear in some instances.
Some of the legislation for procurement remains in the PFMA (dealing with the purchase/sale of property and stores or the supply of goods or services ), when the regime for dealing with this should now be covered in the NPA. This may create inconsistency in this type of procurement.
There appears to be no specific provision in the new legislation (nor any provision for exemption) for project contracts with these State which may involve some element of procurement, for example petroleum/ gas agreements and mining development contracts.
Conclusion
The new legislation sets out to make universal provision for government procurement at all levels and through all types of entities. However, it has made contracting for such procurement more difficult and introduced new uncertainties surrounding such contracts for the non-government parties seeking to supply goods, works and services to government or any public body or statutory authority.
The procedures for entering into such contracts will have to be carefully assessed, on a case by case basis, against the new legislative requirements to ensure that contracts remain valid and enforceable.
For further information, please contact:
Richard Flynn, Partner, Ashurst
richard.flynn@ashurst.com
