Multi-party procurement arrangements: Can you enforce your rights?
Karen Ferris, CSO Senior Solicitor
Multi-party procurement arrangements are relatively common for NSW Government agencies and may take different forms.
Previously, the now discontinued State Contracts Control Board established whole-of-government ("WoG") agreements with suppliers for the benefit of NSW government agencies. These agreements typically took the form of a standing offer by the supplier to supply customer agencies with specified goods and services at stated prices (or at prices within agreed pricing parameters) if and when an agency placed an order with the supplier. The placing of the order would create a separate contract between the agency and the supplier, on relevant terms of the panel agreement and the additional terms agreed in the order.
Today a more decentralised procurement regime is in place under the Public Works and Procurement Act 1912 ("the Act"). Agencies now procure for themselves (subject to the requirements of the Act and relevant Procurement Board directions). However, certain agencies may also be accredited by the NSW Procurement Board to procure goods and services on behalf of other agencies.
The procurement arrangements established by agencies on behalf of other agencies may take various forms. They may be set up in the form of the traditional standing offer arrangement, or they may contain a "piggyback" clause enabling other agencies to procure from the supplier under separate contracts on the same terms. In some cases they may involve a lead agency procuring on its own behalf and then making a back-to-back supply to other agencies, or a lead agency procuring on behalf of other agencies as co-parties, or for the benefit of other, non-party agencies.
It is important to ensure that the structure of any multi-party arrangement will be effective to create enforceable rights on behalf of all agencies who procure under it, bearing in mind the privity rule of contract law, which provides that only the parties to a contract are bound by it and may take the benefit of it. This rule will normally prevent a non-party from suing to enforce a contract and may also prevent losses suffered by a non-party as a result of breach of the contract from being recovered by the contract party which is not in breach.
Agencies which are not corporatized are likely to have no separate legal identity from the Crown in right of this State and where they contract it is the Crown which will be the relevant legal entity to enter the contract in each case.
Nonetheless there may be good reasons why a non-corporatized agency should obtain express authority to contract on behalf of another such agency, with the intent that the Crown expressly enters the contract through both agencies. If the agencies are exercising the Crown's executive (non-statutory) power to enter the contract and each belongs to a different portfolio it would normally be necessary for the responsible Minister for each such agency (or that Minister's delegate) to authorise that agency to contract. Authorisation of the Minister of one portfolio (or his/her delegate) to enter a contract that crosses portfolios may require the approval of the Governor-in-Council.
A corporatized agency will have a separate legal identity to the Crown and will normally need to execute a multi-party contract in its own right unless it is legally able to authorise another agency to contract on its behalf.
It is preferable that a contract not be structured so as to give access to it by non-party agencies. (This is unlikely to occur under traditional standing offer arrangements or piggyback arrangements, both of which are likely to involve a separate contract between each customer agency and the supplier.) If an agreement is to be established to which non-parties will be given access, care needs to be taken to ensure it is structured in a way that, so far as possible, creates an exception to the privity rule for those non-party agencies. One method may be to include a supplier undertaking in the contract, given in the form of a deed poll, that the contract, or relevant supplier indemnity, binds the supplier for the benefit of the non-party agency together with associated provisions acknowledging rights to enforce the undertaking to recover losses suffered by non-party agencies as a result of supplier breach. Agencies should be aware however that whilst there may be supplier acceptance of such an approach there is still a risk that these types of provisions may not be upheld if ultimately litigated.
For further information, please contact Karen Ferris, on tel: (02) 9224 5265.