Comment invited on new procurement guidelines to fight black economy

By John Greig
Government Tax

In brief 13 min read

Comment is being sought on new guidelines designed to enhance good tax behaviour and create an even playing field for businesses that comply with their tax obligations. Partner John Greig and Lawyer Patrick Broe outline the proposed guidelines, the implications for tenderers, and some matters that tenderers may wish to consider raising in their submissions, before the 21 December deadline.


As part of the 2018–19 Budget, and in response to the Black Economy Taskforce's Final Report1, the Commonwealth announced a commitment that, from 1 July 2019, Government procurement processes will exclude businesses that do not have a satisfactory tax record.

The Commonwealth sees this as enhancing the integrity of its procurement processes (ie it should not award tenders to those who do not have a good tax record), promoting good tax behaviour and (by excluding those who do not pay some or all of their legitimate tax, who may thus be able to submit lower bid prices) creating an even playing field for businesses that comply with their tax obligations.

The new policy will be:

  • compulsory for all non-corporate Commonwealth entities (eg departments);
  • optional for corporate Commonwealth entities and companies, though they are encouraged to adopt the policy2.

The policy will apply to all open (as opposed to limited) tenders that are subject to Division 2 of the Commonwealth Procurement Rules (CPRs)3, where the estimated value is more than $4 million (inclusive of GST). Appendix A of the CPRs contains a list of those categories of tenders that are exempt from Division 2 and hence will not be bound by the new policy.

Consultation invited

The principles outlined in the consultation paper have not yet received (final) Government approval and interested parties are invited to provide comments4 by 21 December 2018.

New policy in detail

The new policy, once finalised, will mandate that relevant procuring agencies:

  • require tenderers to submit a 'Statement of Tax Record' (an STR), to be procured, on application, from the ATO, as to the status of their Commonwealth tax compliance; and
  • (with limited exceptions) preclude the procuring agency awarding a tender unless a satisfactory STR is lodged with the tender.

Where a satisfactory valid STR is not available at the time of tender close, the tenderer may instead:

  • apply to the ATO for all relevant STRs, and lodge an STR receipt issued by the ATO evidencing that an application has been made; and
  • lodge a satisfactory valid STR no later than four business days from the close of the tender and before the awarding of the contract.

Further requirements apply if a tenderer knows that it will engage first-tier subcontractors, or engages first-tier subcontractors5 after the tender is awarded, to deliver goods or services with an estimated value of more than $4 million (inclusive of GST):

  • where the tenderer knows that such subcontractors will be engaged, STRs for those subcontractors must be lodged; and
  • where the subcontractors are engaged after the tender is awarded, the tenderer must 'ensure' that it holds satisfactory and valid STRs for those subcontractors.

The ATO is to issue a satisfactory STR (within four business days from application) if 6:

  • the applicant is up to date with registration requirements (which 'may' include being registered for an ABN and GST, and having a tax file number);
  • the applicant has lodged at least 90 per cent of all income tax returns, fringe benefit tax returns and business activity statements that were due in the last four years (less if the applicant's period of operation is less than four years). Reasonable delays in lodgment (presumably, previously) agreed to by the ATO are to be disregarded; and
  • as at the date of issue of the STR, the applicant has no more than $10,000 in outstanding debt owing to the ATO (excluding debt the subject of an agreed payment plan, or the subject of a taxation objection, review or appeal under Part IV C of the Taxation Administration Act 1953 (Cth)).

The consultation paper is silent on whether the ATO is to levy a fee for issuing an STR.

If the ATO is to issue an unsatisfactory STR, it is to provide supporting reasons to the applicant to enable it to verify the outcome and to assist the applicant to take corrective action as necessary.

STRs will:

  • normally be valid for 12 months;
  • be valid for six months if the applicant does not have a tax record with the ATO of at least four years;
  • be acceptable to a procuring agency only if they are valid for at least two months after the time of tender closing;
  • not be able to be used in other processes as evidence of tax compliance, nor are they evidence of the financial viability of the tenderer; and
  • include disclaimers including that the Commonwealth and its contractors should undertake their own due diligence even if the STR is satisfactory.

It is clear that potential tenderers are being encouraged by the policy to proactively seek STRs and, indeed, updated STRs, so that they are readily available as and when they are required, in order to respond to tender requests.

If an STR is no longer valid at the time of the intended contract award, the procuring agency may request a renewed STR before awarding the contract.

Given an STR will have a limited period of validity, it is optional for the procuring agency to require, as part of the final contractual arrangements, that the successful tenderer provide renewed STRs over the life of the contract. The policy does not provide any guidance on the appropriate consequences of failing to do so; it is merely noted that they will need to be set out in the contract.

If the tenderer or other relevant entity (eg a subcontractor) is:

  • a trust, STRs are required both for the trust and the trustee;
  • a joint venture (presumably, an unincorporated joint venture), each member of the joint venture is required to lodge an STR;
  • a subsidiary of a tax consolidated group, an STR is required for both the subsidiary and the head entity;
  • a member of a GST group, STRs are required for the group representative and the group member; and
  • a partnership, the procuring agency may, as part of the tender request documentation, require an STR be provided not only for the partnership, but also for every partner.

If an applicant for an STR is a new business or a foreign entity that does not have an Australian tax record of at least four years, authorised officers of the entity will need to state on behalf of the applicant that the applicant:

  • (if a foreign entity) is a non-resident with no tax record or a record of less than four years in Australia;
  • will comply and pay all their Australian tax obligations;
  • has no tax-related and/or criminal convictions in the past four years; and
  • is complying with its tax obligations outside of Australia.

Once the ATO receives these statements, it will issue an STR (which has a reduced validity period of six months) to the effect that:

  • in the case of the applicant having no Australian tax record with the ATO, it will be accepted as having a satisfactory tax record; and
  • otherwise, an STR based on the Australian tax record (necessarily of less than four years).

The policy will apply to the establishment of panel arrangements if the total value of orders under the arrangement is collectively estimated to be more than $4 million (inclusive of GST). It is unclear whether the estimate references the aggregate across the whole panel or for each panel member.

The consultation paper estimates that the annual cost to the public will be some $5.8 million. No costs have been estimated from the Commonwealth side (either the procurement entities, the ATO or otherwise).

The new policy does not require Commonwealth entities to amend existing contracts or standing offer arrangements that are in place before 1 July 2019.

The policy is intended to be reviewed on an annual basis.

Matters warranting consideration from policy and practical perspective

Alternative model: The policy places the burden on (tax compliant) tenderers to seek STRs from the ATO. Given the $4 million threshold, procuring agencies will have a sense as to likely tenderers (or, indeed, could request lodgment of a one-page expression of interest from intending participants). An alternative model would be for the procuring agencies themselves to seek directly STRs from the ATO. It is appreciated that this model would require legislative change to empower the ATO to disclose information that would otherwise be the subject of statutory confidentiality.

The policy, being designed to preclude non tax compliant tenders being awarded contracts by procuring agencies, instead seems to place the burden on tax compliant tenders, given that non-compliant tenderers who are issued unsatisfactory STRs will not lodge a tender unless they are confident they can become compliant in a timely fashion.

The alternative model allows the procuring agency to identify (with the assistance of the ATO) non tax compliant tenderers, meaning the agency (or the ATO) can notify those non tax compliant tenderers that they have an issue to deal with if they wish to be considered in the procurement process. It also has the advantage that tax compliant tenderers are not put to any additional activity.

Contracting entities not in existence: It is not uncommon for a tenderer to have not established the actual entities that will be the contractual counterparty (indeed, they may be established only once the tenderer has been successful.). In those circumstances, STRs of the contractual counterparty will not be available.

Partnerships: The application of the policy to a tenderer that is a partnership is problematic, particularly given that some professional partnerships (accountants, lawyers, architects, engineers etc) can have well in excess of 100 partners. The following points highlight the problematic nature of the policy as it applies to partnerships:

  • Why should the policy extend (even if only at the election of the procuring agency) to each of the partners in a partnership?
  • Partners are analogous to shareholders of corporate entities and yet there is no suggestion in the policy that STRs are required from the shareholders of a corporate tenderer.
  • If the requirement for STRs is to apply to each partner (as well as the partnership), then the '90% rule'7 should also apply across the aggregate of the individual partners. Otherwise, the existence of an unsatisfactory STR for a single partner will invalidate that tenderer. In contrast, if the tenderer is a corporate or sole trader, that tenderer has the benefit of the 90 per cent rule.
  • It is not unusual for partners to be added to existing partnerships both at regular times during a year and on an ad hoc basis. It is unclear what is expected of partnerships if there is a change in the composition of the partnership either during the tender assessment/award period or during the term of any contact awarded to a partnership. In contrast, there is no suggestion in the case of a change in the shareholders of a corporate that updated STRs would be required.

Joint ventures: It is worth clarifying that, in requiring an STR from each member of a 'joint venture', such references are to an unincorporated joint venture and not an incorporated joint venture, as no other corporate is required to lodge STRs for its members.

Hair trigger disqualification: The requirement of the lodgement of a satisfactory STR before close of the tenders or, alternatively, lodgment of a receipt for a request for an STR, together with the issue of an actual STR within four business days of close of the tender, warrants reconsideration. The four business day requirement (which, presumably, relates to the four business day turnaround proposed for responses from the ATO) is, arguably, not required. The majority of large Government tenders have an evaluation process that extends for weeks, if not months. It should be sufficient that a satisfactory STR is lodged before the close of evaluation of tenders (recognising that, in those circumstances, the tenderers take the risk of lodging the STR in sufficient time).

Subcontractors – $4 million threshold: The policy could make it clearer that the $4 million subcontractor threshold applies to individual subcontractors, and not to the aggregate of subcontractors that a principal may engage for a particular tender. Otherwise, STRs will be required for entities with participation valued at less than that threshold.

Subcontractors – disincentives to early engagement?: Tenderers who have first-tier subcontractors will be required to procure STRs for each of them. That may result in tenderers not engaging subcontractors until after the submission of their tender. That may make evaluation of tenders more difficult or uncertain, compared with fully formed subcontracted tenders.

Subcontractors-post award engagement: If first-tier subcontractors are engaged after the contract is awarded to the head contractor, the successful contractor must 'ensure'8 that it holds satisfactory valid STRs for its subcontractors. The policy also provides that a procuring entity may require head contractors to maintain up-to-date satisfactory STRs during the course of the head contract. In the latter case, the consultation paper states that the 'consequences of failing to do so will be detailed in the contract'.

It would be helpful to understand what the Commonwealth believes will be the consequences for the head contractor in either of these cases, as the head contractor has no control as to whether or not subcontractors will be able to obtain satisfactory valid STRs. The head contractor may contractually require subcontractors to seek to obtain and deliver STRs (for onforwarding to the procuring agency) but this does not guarantee that satisfactory valid STRs will be available from the subcontractors.

Given that it is not usually the case that a failure by a subcontractor (to perform its works; to remain solvent or, by analogy, to deliver an updated satisfactory valid STR) would give the procuring agency, as against the head contractor, a right to terminate or suspend the head contractor, it would be important to understand that a failure of the subcontractor (not the head contractor) to provide an updated STR would not give rise to such a remedy against the head contractor.

Extension of tender closing date: Given the requirement there be lodged a satisfactory STR that is valid for at least two months at the time of tender closing, the policy should make clear what happens if the procuring agency extends the tender close date in circumstances where what was otherwise a compliant 'at least two months' STR is no longer valid for that period. While the policy recognises a general right of the procuring agency to require an updated STR if it is no longer valid at the time of contract award, it should not be compulsory that the agency require further STRs.

Additional complexity/uncertainty of assessment/award of contract: The new policy will inevitably add to the complexity of the procurement process for the procuring agency and to the uncertainty for tenderers:

  • What remedies would a tenderer have if excluded from consideration in a competitive process by reason of the ATO having issued (mistakenly) an unsatisfactory STR?
  • Must a procuring agency requesting an updated STR that has gone stale give that bidder time to deal with the receipt of an unsatisfactory STR? When will it be safe for the procuring agency to rule out that preferred bidder and to proceed to award the contract to another tenderer?
  • When would it be appropriate for a procuring agency to opt to apply (or, indeed, decide not to apply) any of the optional aspects of the policy (eg requiring STRs from partners; seeking an updated STR if it has gone stale during the assessment period; applying the policy when it is not required to do so (eg when the agency is a Government-owned corporate)?

Next steps

Those likely to be bidding to Government agencies should:

  • decide by 21 December whether to provide any feedback in response to the Commonwealth's invitation; and
  • monitor whether the New Year sees the Commonwealth issue any revisions to the policy guidelines, and, if so, familiarise themselves with, and devise their own procedures to deal with, these new requirements.


  1. The final report is at
  2. A list of such entities is at

  3. A version to apply as of 1 January 2019 is at
  5. That is a subcontractor working for the tenderer. Second-tier subcontractors are those hired by the first-tier subcontractors and are not covered by the policy for the first year. That will be reviewed for subsequent years.
  6. From 1 July 2020, and subject to further consultation – including the availability of data and data sharing – the criteria may be extended.
  7. Consultation Paper clause 6(b)(ii) '…. the tenderer has lodged at least 90 per cent of all tax returns….'
  8. Emphasis added.