Allens

Construction & Major Projects

Focus: Greater transparency in contracts between NSW Government and private sector

4 April 2007

In brief: In response to recommendations made by the Auditor-General and recent public concerns about the efficacy of certain contracts entered into by the NSW Government, the Freedom of Information Amendment (Open Government – Disclosure of Contracts) Act 2006 (NSW) came into force on 1 January 2007. The purpose of the Act is to promote greater transparency in all contractual dealings between NSW government agencies and the private sector. Partner Leighton O'Brien (view CV) and Lawyer Joel Sturgeon report. 

How does it affect you?

  • A reversal of the onus of disclosure that exists under the Freedom of Information Act 1989 (NSW) by imposing a positive obligation for disclosure.
  • Increased detail of all contracts entered into between private sector entities and NSW government agencies from 1 January 2007 onwards in excess of $150,000 must now be disclosed to the public.
  • Subject to certain exceptions, if the value of the contract exceeds $5 million the entirety of the contract must be disclosed.
  • The main exceptions to disclosure relate to commercial-in-confidence information and information that could reasonably be expected to affect public safety or security.
  • A narrowing of the commercial-in-confidence exception to disclosure that exists under the Freedom of Information Act.
  • When bidding for or entering into contracts governed by the Freedom of Information Amendment (Open Government – Disclosure of Contracts) Act 2006 (NSW), there is now an enhanced need to positively assert any claims for confidentiality and obtain an undertaking from the relevant government agency as to the confidential status of this information.

Contracts covered by the Act

All 'government contracts' entered into on or after 1 January 2007 are covered by the Freedom of Information Amendment (Open Government – Disclosure of Contracts) Act 2006 (NSW) (the Act). A 'government contract' is:

  • a contract between a government agency and a private sector entity under which either agrees to undertake a specific project, provide specific goods or services, or transfer real property to the other party; or
  • a lease of real property where the parties are a government agency and a private sector entity.

For the purposes of the Act, a 'government agency' does not include a State-owned corporation (or its subsidiaries) as defined in the State Owned Corporations Act 1989 (NSW) or a local authority. However, the regulations may apply all or some of the Act to a local authority and the Freedom of Information Act 1989 (NSW) (the FOI Act) itself applies to local authorities and State-owned corporations. 

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Classes of government contracts

The extent of disclosure required under the Act depends upon the nature and value of the government contract in question. In this regard, the Act divides government contracts into three classes:

  • Class 1 Contracts: government contracts under which the total estimated value of the project, goods or services over the term, value of the real property transferred, or rent for the term of the lease is likely to be more than $150,000.
  • Class 2 Contracts: Class 1 Contracts in respect of which:
    • there has not been a tender process, the contract has not been publicly available and the contract has been negotiated directly with the contractor;
    • there has been a tender process and the terms of the contract have been substantially negotiated with the successful tenderer;
    • the obligations of a party under the contract to operate or maintain infrastructure or assets could continue for 10 years or more;
    • the contract involves a privately financed project as defined by the guidelines published by the Treasury; or
    • the contract involves a transfer of a significant asset of the agency concerned to another party in exchange for the transfer of an asset to the agency.
  • Class 3 Contracts: Class 2 Contracts where the total estimated value of the project, goods or services over the term, value of the real property transferred, or rent for the term of the lease is likely to be more $5 million.

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Extent of disclosure

Class 1 Contracts

The following particulars must be published for a Class 1 Contract:

  • name and business address of the contractor, any related body corporate (within the meaning of the Corporations Act 2001 (Cth)) and any other related private sector entity involved in carrying out the contractor's obligations or who will gain a benefit under the contract;
  • commencement date and duration of the contract;
  • nature of the project, goods or services to be provided or real property to be leased or transferred;
  • estimated amount payable under the contract and any provision for variation or renegotiation;
  • where the contract arose from a tender, the method of tender and the criteria used; and
  • provisions under which the contractor is to receive payment for providing operational or maintenance services.
Class 2 Contracts

In addition to the requirements for a Class 1 Contract, the following particulars must be published for a Class 2 Contract:

  • future transfers to the State at zero or nominal cost, including the date of the transfer;
  • future transfers of significant assets to the contractor, including the date of the transfer;
  • the results of any cost-benefit analysis conducted by the agency, as well as the components and quantum of the public sector comparator if used;
  • if relevant, a summary of information used in the contractor's base case financial model;
  • if relevant, particulars of how risk during the construction and operational phases is to be apportioned and quantified in net present value terms as well as the major assumptions used;
  • any significant guarantees, undertakings or loan agreements; and
  • key elements of the contract.
Class 3 Contracts

The starting point for a Class 3 Contract is that the entirety of the contract must be published. If, however, the agency does not publish the contract or publishes only part of the contract, in addition to the requirements for a Class 2 Contract, the following particulars must be published for a Class 3 Contract:

  • the reasons why the contract has not been published, whether it will be published at a later date and, if so, when it is likely to be published; and
  • a general description of the types of provisions not published.

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Time and duration of disclosure

Regardless of the extent of disclosure required, the particulars to be published in accordance with the Act must be posted on the Internet and in such other manner as the responsible Minister may approve within 60 days of the contract becoming effective. Once posted on the Internet, these particulars must remain there for at least 30 days or until the project to which they relate is complete, the goods and services concerned have been provided, the lease has expired or the real property has been transferred (whichever is longer).

If a material variation is made to a contract covered by the Act, a copy of that variation or the particulars required to be published for that class of contract must be amended to reflect the variation within 60 days of the variation coming into effect.

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Exceptions to disclosure

In addition to contracts entered into before the commencement of the Act and contracts entered into by the Department of State and Regional Development that involve the provision of industry support, the following types of information are exempted from disclosure:

  • information that is not in the possession of the agency in question and it is not reasonably practical for it to be obtained;
  • commercial-in-confidence provisions of a contract;
  • any information that would cause the document to be an 'exempt document' under the FOI Act;
  • details of any unsuccessful tender; or
  • any matter that could reasonably be expected to affect public safety or security.

Under the Act, for the purposes of disclosure a 'commercial-in-confidence' provision of a contract is a provision that discloses:

  • the contractor's financing arrangements;
  • the contractor's cost structure or profit margins;
  • the contractor's full base case financial model;
  • any intellectual property in which the contractor has an interest; or
  • any matter whose disclosure would place the contractor at a substantial commercial disadvantage in relation to other contractors or potential contractors, now or in the future.

The traditional and broader exception to disclosure for documents containing 'confidential material' where someone applies for such documents under the FOI Act (eg for a departmental file) is unchanged.

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Practical implications

At a practical level, the Act has four main implications for parties to contracts affected by the Act:

  • it reverses the onus of disclosure that exists under the FOI Act by imposing a positive obligation for disclosure on the relevant government agency;
  • when compared with the existing provisions of the FOI Act, the Act narrows the commercial-in-confidence exceptions to disclosure;
  • by providing unsuccessful bidders with greater access to effected contracts, the Act increases the risk of such bidders bringing claims in relation to those contracts; and
  • as a consequence of the factors above, the Act increases the risk of adverse publicity in relation to effected contracts.

In view of these implications, when bidding for or entering into contracts governed by the Act, bidders should positively assert any claims for confidentiality and obtain an undertaking from the relevant government agency as to the confidential status of this information.

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Conclusion

While the Act provides much needed transparency to NSW Government contracts, it also means that information that would not have previously been made public must now be disclosed. In this regard, anyone entering into or tendering for a government contract must now take more care in doing so, as the information they disclose may be made public.

For further information, please contact:

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