When is a procurement an emergency? Recent guidance from the NSW Ombudsman

The NSW Ombudsman has recently made findings that a Department had acted unreasonably and breached NSW procurement policies and regulatory requirements in respect of the Department's use of the "emergency" procurement provisions under the Public Works and Procurement Regulation 2019 (NSW) (PWP Regulation) to fill a vacant senior executive role within the Department.

As NSW continues to respond to, and manage, the COVID-19 pandemic and enter bushfire season, the Ombudsman's findings provide some helpful and timely guidance for NSW "government agencies" as defined under section 162 of the Public Works and Procurement Act 1912 (NSW) (PWP Act) (Government agencies) on how the statutory procurement provisions operate when there is a purported "emergency". The NSW Ombudsman's findings also raise broader systemic issues in relation to the use of contingent workers to fill executive roles within government in circumstances where contingent workers are not employees of an agency.

Procurement in NSW

In NSW, Government agencies must conduct their procurements in accordance with the PWP Act, the PWP Regulation and all relevant NSW procurement policies, including the NSW Government Procurement Policy Framework.

Furthermore, under section 176(1) of the PWP Act, Government agencies must conduct their procurement activities in accordance with:

• any policies and directions of the NSW Procurement Board that apply;
• the terms of its accreditation (if any) by the Board; and
• the principles of probity and fairness.

Under section 176(2), Government agencies must also ensure that they obtain value for money in their procurement activities.

Under clause 4 of the PWP Regulation, Government agencies do not have to comply with section 176 in the case of an "emergency". However, if Government agencies rely on the emergency procurement provisions under the PWP Regulation they must satisfy certain conditions: firstly, Government agencies must report the decision to the Board as soon as possible. Secondly, Government agencies must not authorise the procurement of goods and services in excess of those necessary to meet the immediate needs of the emergency.

What is an emergency?

The term "emergency" is not defined in the PWP Regulation.

In response to the COVID-19 pandemic, the Board issued guidance on the emergency procurement provisions under the PWP Regulation. Relevantly, the guidance provides that:

• if the situation is unforeseen or sudden and requires an urgent response, an emergency may be established;
• Government agencies should procure only what is necessary to meet the immediate needs of the emergency;
• Government agencies should keep appropriate records of all decisions and approvals, including the justification for the emergency procurement; and
• Government agencies must report every emergency procurement to the Board in accordance with the PWP Regulation.

The NSW Independent Commission Against Corruption (ICAC) publication "Direct Negotiations: Guidelines for Managing Risks" released in August 2018, states: "Poor planning or looming deadlines do not constitute emergency circumstances". The ICAC publication "Managing Corrupt Conduct during the COVID-19 Outbreak" released in April 2020 provides additional guidance for Government agencies with respect to emergency procurements and notes (among other things) that, if an agency needs to perform an emergency procurement, it should involve at least two people in the process, rather than providing one official end-to-end control.

Recent insights from the NSW Ombudsman

In its special report to Parliament under section 31 of the Ombudsman Act 1974 (NSW) dated 19 October 2021, the NSW Ombudsman found that the Department had breached its procurement obligations in connection with the engagement of the services of a contractor (through a company associated with the contractor) after a vacancy arose in a "Band 2" senior executive role. Initially, the Department engaged the contractor's services for around 12 weeks under the "emergency" procurement provisions under the PWP Regulation. The initial engagement was extended such that the "emergency" lasted a total period of around six months. The engagement of the contractor was further extended in 2018 when the Department entered into a contract with a contingent labour hire firm which entered into a contract with the company that employed the relevant contractor (however, this further 2018 extension was not under the emergency procurement provisions).

By utilising the "emergency" provisions, the Department did not comply with certain NSW procurement laws and policies which would have otherwise applied. In doing so, the Department was able to enter into an initial contract over three times the limit for base level suppliers and a further "flow-on engagement" that was over two times the limit for base level suppliers. Further, the Department failed to notify the Board that an emergency procurement had been authorised, despite being compelled to do so under clause 4 of the PWP Regulation.

The Department undertook the procurement in circumstances where it was undertaking an organisational assessment and it was not clear whether the role would continue to exist. Accordingly, it was seeking an interim contractual arrangement. According to the Report, the Department allegedly did not make a decision to apply the emergency procurement provisions, rather the Department advised that: "…this designation occurred… either as a result of the operation of the automated procurement system, or through an administrative error."

The NSW Ombudsman found that there was no emergency case as:

• there was no evidence that the departure of the incumbent was sudden or unforeseen. Further, at the relevant time of the procurement, there was no threat to public health and safety or serious financial or legal risk; and
• even if there had been an emergency, any "immediate needs" of the emergency had passed when the engagement of the contractor was extended for a further three months. Therefore, there was no justification for using the emergency provisions to extend the engagement.

The NSW Ombudsman also found that the Department breached the PWP Regulation and NSW procurement record keeping policies because (among other reasons) it did not notify the emergency procurement to the Board and failed to keep adequate records of its decision-making around the procurement.