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9 Jun 11
Reconstructing Queensland - what is value for money?

While Queensland’s devastating floods and Cyclone Yasi have seen over $1 billion in insurance claims paid out for damage to property and businesses, affected local government authorities are still counting the cost as they begin to repair council property.

More than 99% of Queensland, or 72 local government areas are covered by the Natural Disaster Relief and Recovery Arrangements and 51 councils have already received $406 million in advance funding from the State and Federal Governments.

The pressure on councils

The Queensland Reconstruction Authority (QRA) was established in January with significant powers to fast track the reconstruction works and to allocate State and Federal funding. Importantly, QRA can, in some circumstances, provide funding directly to councils in advance of the works being carried out.

This early and direct release of funds increases the responsibility on councils to ensure rapid and timely repair work is balanced with value-for-money outcomes. While council staff around Queensland work long hours to arrange vital repairs of infrastructure that has been destroyed by the floods, council CEOs are under pressure to ensure all due diligence and reporting requirements are met.

Beware - it’s not ‘repair at any cost’

Every council needs to concern itself with value for money in its procurement.

This article highlights the type of due diligence issues that the QRA might expect from councils who receive reconstruction funding.

When using funding from external sources, such as the QRA, the need to achieve ‘value-for-money’ becomes more important.

So what is value for money? It is one of the foundation principles of the State Procurement Policy, September 2010 edition (SPP). Among other things, the SPP states:

‘In assessing value for money, agencies must consider the following:

  • contribution to the advancement of priorities of the Government
  • non-cost factors such as fitness for purpose, quality service and support, and sustainability considerations, and
  • cost-related factors including whole-of-life costs and transaction costs associated with acquisition, use, holding, maintenance and disposal.’

For flood damaged infrastructure, value for money for the QRA is likely to include, among other things, that the infrastructure is re-built to current engineering standards, as opposed to its former engineering standards, which may be less adequate for dealing with floods and cyclones such as we have seen in 2011.

It is important to bear in mind that infrastructure in most cases does not need to be completely resistant to natural disasters (that is either impossible or commercially unrealistic), but people will want to know that new infrastructure is more resilient than it previously was.

For those councils that may be procuring any reconstruction works by relying on the exception to the tendering requirements in section 184 Local Government (Finance, Plans and Reporting) Regulation 2010, then both a tender process and a quote seeking process can be avoided. However, councils should still make some attempt to benchmark the prices quoted from the relevant contractor against prices for comparable work that the same or a similar contractor has carried out in the past.

An emergency procurement is not a free licence to avoid all value for money and probity obligations.

Probity - don’t ignore proper process

The political pressure on both the State and Federal Governments to prove they can achieve outcomes, particularly in responding to crises such as floods and cyclones, is building in the wake of growing criticism over perceived government waste.

It’s likely that this pressure will be passed on to councils, particularly those who have received advance funds. So, councils can’t afford to mismanage processes, and the QRA will be looking closely at probity.

The concept of probity is not uniformly understood. The SPP refers to four interrelated principles for ensuring probity and accountability in procurement:

  • ‘fairness and impartiality
  • transparency of process
  • confidentiality and security of information and materials, and
  • effective management of conflicts of interest.’

Both the requirement to ensure value for money, and most of these probity principles, are encompassed within the ‘sound contracting principles’ that are prescribed in section 106(3) Local Government Act 2009. Councils must comply with the sound contracting principles in all of their procurement activities. They include:

‘value for money:

  • open and effective competition
  • the development of competitive local business and industry
  • environmental protection, and
  • ethical behaviour and fair dealing.’

Whenever undertaking procurement activities, especially when using external funding, councils need to apply these principles and demonstrate how they have applied them.

In particular, the QRA is likely to impose audit and reporting obligations on councils as a condition of its funding and it will want to see evidence that appropriate systems and processes have been implemented to ensure probity as well as value for money.

For some business operators, the opportunity to make fast money on the back of council’s urgency may be tempting. Suppliers of everything from raw materials for road repairs, to plant and equipment and IT services will be approaching councils throughout the state and making a range of offers and promises.

To achieve both value for money and probity, councils need to:

  • engage professionals to prepare written contracts outlining what is to be supplied, how and when, including detailed delivery and payment options
  • resist the temptation to make ‘handshake deals’ even if the supplier/contractor is local, reliable and well-known, government won’t want your reassurances, they will want to see the paperwork if it goes wrong
  • ensure that all documents and processes comply with applicable laws and guidelines, such as the sound contracting principles in section 106 Local Government Act 2009, Local Government (Finance, Plans and Reporting) Regulation 2010 and SPP
  • comply with all funding requirements of the QRA, and
  • ensure reconstruction meets any new or amended building guidelines for flood and cyclone proofing.

McCullough Robertson works closely with many local governments throughout Queensland and has a thorough understanding of the procurement and probity requirements of both State and Federal Governments.

Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.

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