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1 Department of Treasury and Finance GUIDELINES FOR THE LIMITATION OF LIABILITY OF SUPPLIERS, CONSULTANTS AND CONTRACTORS Document summary Status Agency responsible Applicable to Scope Administrative instruction approved by Cabinet Department of Treasury and Finance All public authorities as defined in the Public Finance and Audit Act Applicable to all arrangements between public authorities and suppliers of goods and services, including professional services, and consultants and contractors engaged in construction contracts. Effective Date 1 February 2014 Revision Version 3 - approved by Cabinet on 16 December Page 1 of 9

2 PURPOSE To provide public authorities with general guidance for establishing limits on the liability of suppliers of goods and services, including professional services, and of consultants and contractors engaged in construction contracts. SCOPE Applicable to all public authorities as defined in the Public Finance and Audit Act INTRODUCTION The general principle governing the liability of suppliers, consultants and contractors is that each party to the arrangements should be responsible for the financial consequences of their actions. These guidelines, however, recognise that there are practical limits to the extent that this principle can be applied. These guidelines provide a framework for public authorities to determine and apply appropriate liability caps on contracts with suppliers. In capping liabilities, it is critical that public authorities undertake a thorough risk assessment process and that any cap is sufficient to meet foreseeable losses that could occur under the contract. Unless otherwise stated in these guidelines, suppliers, consultants and contractors are hereinafter referred to as suppliers. PROFESSIONAL STANDARDS ACT 2004 These guidelines do not apply to arrangements to which a scheme approved under the Professional Standards Act 2004 applies. The South Australian Professional Standards Act 2004 enables occupational groups (including a professional group or a trade group) to apply under the Act for registration of a scheme for limiting the occupational liability of members of an occupational association occupational liability meaning civil liability arising (in tort, contract or under statute) directly or vicariously from anything done or omitted to be done by a member of the occupational association acting in the performance of his or her occupation. Where a scheme is approved under the Act, then to the extent provided by the Act and the provisions of the scheme, the scheme will limit the occupational liability, in respect of the cause of action founded on an act or omission occurring during the period when the scheme is enforced, of any person to whom the scheme applied at the time when the act or omission occurred. The amount of any limitation under a scheme affecting a liability for damages arising from a single claim will be such amount (but not less than $500,000) as is specified in the scheme. Where the Government intends to contract with a person or body where a scheme applies under the Act the provisions of that scheme limiting the occupational liability of that person or body will apply as between Government and that person or body (Section 54). Details of schemes approved under the Act can be found at

3 CABINET APPROVED DEFAULT LIABILITY LIMITS Cabinet will from time to time approve default liability caps for specific contract categories. These guidelines do not apply to default liability caps separately approved by Cabinet. Cabinet expects public authorities to take advantage of the default liability caps as they will usually be linked to other Government policy initiatives. Cabinet has approved the following default liability caps: Low risk contracts up to $1 million Low risk contracts are considered to be contracts that have been assessed as having a low risk (after risk treatments) as determined by the public authority s risk management rating matrix. The default liability cap for low risk contracts with a contract value up to $1 million is five times the contract value. Except in relation to the prescribed heads of liability, the supplier s liability to the public authority in contract (excluding under an indemnity), unintentional torts (including negligence), breach of statutory duty or otherwise in respect of any loss damage or expense shall not exceed the default liability cap. The prescribed heads of liability must not be limited. The prescribed heads of liability are liabilities: 1. for personal injury including sickness and death; 2. for loss of or damage to tangible property; 3. for infringement of intellectual property rights; 4. for any liability to a third party arising from any negligent or wrongful act or omission of the supplier, its employees, agents or subcontractors, or arising from any breach of the supplier s contractual obligations to the public authority; 5. for an intentional tort; 6. for a breach of trust; and 7. for fraud or dishonesty. For contracts that fall under a Cabinet approved default liability cap, the default liability limits should be reflected in tender documents. If a Cabinet approved default liability cap does not apply to the contract or if a supplier requests a cap for a prescribed head of liability, the public authority must comply with the guidelines. Page 3 of 9

4 SUMMARY OF LIABILITY LIMIT CAPPING FRAMEWORK These guidelines have been developed based on the following broad framework of roles and responsibilities. Cabinet approves the limitation of liability guidelines, which document the framework, roles and responsibilities and reporting requirements. The Liability Limit Review Committee (LLRC) approves the capping framework for each public authority and also across government frameworks. Each public authority undertakes the risk assessment and negotiates and approves any caps, including caps on prescribed heads of liability. If the cap is consistent with an LLRC approved framework then the public authority delegate can approve the cap in accordance with their own financial delegations and procurement policies. If there is no LLRC approved framework, or if the cap is not consistent with the LLRC approved framework or any of the prescribed heads of liability are capped then the public authority chief executive must approve the cap. This responsibility cannot be delegated. Each public authority must report to the LLRC details of caps approved by the public authority chief executive. Where a cap is approved on any contract with a value of $5 million or more, then the public authority must forward a copy of the business case and risk assessment supporting the cap to the LLRC. The LLRC will report on a six monthly basis to the Minister for Finance on: o capping frameworks approved by the LLRC; o caps approved by public authorities outside of LLRC frameworks or caps on prescribed heads of liability; and o assessment on the level of compliance with the guidelines and the quality of contract risk assessment used by public authorities to justify capping arrangements. The LLRC will provide feedback to public authorities on their individual level of compliance with the guidelines, based on the above report. A flowchart showing the approval process for capping liabilities is included as Attachment 1. LIABILITY LIMIT REVIEW COMMITTEE These guidelines establish the Liability Limit Review Committee (LLRC), which comprises the Chief Executive of the Department of Planning, Transport and Infrastructure, the Chief Executive of SA Water and the Under Treasurer or their delegates. The purpose of the Committee is to ensure as much as possible consistency in liability limits established across Government. The LLRC will achieve this purpose by approving capping frameworks for individual public authorities and across government frameworks. The LLRC will also monitor the level of compliance with these guidelines and the quality of contract risk assessment used by public authorities to justify liability capping arrangements. Page 4 of 9

5 PUBLIC AUTHORITY CHIEF EXECUTIVES Chief executives of public authorities are responsible and accountable for compliance with these guidelines and ensuring a rigorous risk assessment process is undertaken for any limitation of liability, including preparation of a documented business case. The risk assessment process should be consistent with the Government s Risk Management Policy Statement, which reflects the principles and process outlined in the international risk management standard, AS/NZS ISO Chief executives must approve any limitation of liability outside an LLRC approved capping framework or where a prescribed head of liability is limited. This responsibility cannot be delegated. ACROSS GOVERNMENT CAPPING FRAMEWORKS There are some supplier arrangements that apply across government and in these circumstances the LLRC will approve Across Government Capping Frameworks for specific contract types. The LLRC will not approve any Across Government Capping Framework that includes a limitation of any of the prescribed heads of liability. If a contract fits within an approved Across Government Capping Framework and the proposed limitation is in accordance with the framework, the limitation may be approved by the public authority delegate in accordance with their own financial delegations and procurement policies. Details of approved Across Government Capping Frameworks will be published by the LLRC. CAPPING FRAMEWORKS FOR INDIVIDUAL AGENCIES - CONTRACT CATEGORIES AND STANDARD LIABILITY LIMITS The recommended approach for managing capping frameworks is for public authorities to identify contracts of a similar type and group these contracts into generic categories. Examples of generic categories may be provision of accounting services, provision of information technology and telecommunications services, minor/major road works, building refurbishments, routine or programmed asset maintenance or minor/major construction works contracts. The assumption is that these categories will encompass contracts that have common risk characteristics. Public authorities will undertake a risk assessment of each category and then establish a limit on the liability of potential suppliers for that category. The limit of the liability should initially be determined in dollar amount(s) for each single occurrence or a series of related occurrences arising from a single cause of action, or in the aggregate for all claims arising out of the operation of the contract. The limit may however be reflected in the final contract as a multiple of the contract value. The level of the liability limit for each category is a matter of judgement for the public authority. Public authorities must submit the contract categories and their proposed liability limits to the LLRC. The LLRC will review contract categories to ensure consistency between contract categories and public authorities and to ensure that unusual or uncommon risk characteristics have been adequately identified. The LLRC will not approve any individual public authority capping framework that includes a limitation of any of the prescribed heads of liability. Following the approval of the contract categories and standard liability limits, public authorities shall apply these limits for all future contracts falling within the specified categories. If a Page 5 of 9

6 limitation is consistent with an LLRC approved framework it may be approved by the agency delegate in accordance with their own financial delegations and procurement policies. It is recognised that some contracts may carry significant risks despite their relatively low value. When considering a contract, public authorities must undertake an initial risk assessment of the contract before assigning it to a particular category. If it is evident that a contract carries risks that are not common with contracts in a particular category, or that the contract by its nature cannot be assigned to a particular category, the limit of the liability of the supplier must be negotiated specifically for that contract. Details of capping frameworks for individual public authorities will be published by the LLRC. CONTRACTS NOT COVERED BY APPROVED FRAMEWORKS If there is no LLRC approved framework, or if the cap is not consistent with the LLRC approved framework or any of the prescribed heads of liability are to be limited then the agency chief executive must approve the cap. This responsibility cannot be delegated. The prescribed heads of liability are liabilities: 1. for personal injury including sickness and death; 2. for loss of or damage to tangible property; 3. for infringement of intellectual property rights; 4. for any liability to a third party arising from any negligent or wrongful act or omission of the supplier, its employees, agents or subcontractors, or arising from any breach of the supplier s contractual obligations to the public authority; 5. for an intentional tort; 6. for a breach of trust; and 7. for fraud or dishonesty. Wherever possible, these heads of liability should not be limited. Where a preferred respondent is not prepared to contract with Government unless some form of liability on its part is excluded, or a head of liability is capped, a public authority should give consideration to whether there is an alternative, acceptable supplier. Where a preferred respondent is not prepared to contract with the Government unless one or more of the above heads of liability is limited, and there is no acceptable alternate supplier, a public authority should only concede the limitation if it is justified on the basis of a formal, documented risk assessment of the particular risks being limited and the supplier is clearly the public authority s preferred respondent. Although an earlier risk assessment may have been completed in respect of the project/contract, a further assessment specific to the liabilities being limited and therefore accepted by the public authority should be undertaken. Wherever possible the identified risks should be quantified. Any limitation should be justified and consistent with the assessed risk(s). Exclusion of liability for any loss of income, profit or savings or for any indirect, incidental, consequential, special, or exemplary or punitive damages of any party, including third parties, is often sought by suppliers. Such exclusions should only be conceded if they are justified on the basis of the formal, documented risk assessment of the particular risks being excluded and the supplier is clearly the public authority s preferred respondent and the contract cannot otherwise be completed. In such situations, the contract should define as precisely as possible the particular form or forms of loss for which it is agreed the supplier will not be liable. Page 6 of 9

7 Public authorities negotiating capping of liability may seek advice from SAFA s insurance division, SAICORP, on indemnity, insurance and risk management issues. FORM OF TENDERING For contracts that fall within specified categories for which standard liability limits have been approved under an across government or individual public authority framework, the liability limits should be reflected in tender documents. For all other contracts, the recommended approach is that requests for tender should: state that Government expects that there will be no limitation in any contract which results from the tender process, except where the respondent is a person or body to whom a scheme approved under the Professional Standards Act applies for the arrangements being entered into; require respondents to state whether they are prepared to accept the Government s position; and require respondents who are not prepared to accept the Government s position, to include in their tender response full details of the position on limitation of liability that they propose, so that this may be taken into account (together with the price bid and other aspects of the tender response) in the evaluation of the tender. REPORTING Public authorities must report to the LLRC details of limitations approved by the agency chief executive. Where a limitation is approved on any contract with a value of $5 million or more then the agency must forward a copy of the limitation clause, the business case and risk assessment to the LLRC. The required reports should be forwarded to the LLRC Secretariat for compilation and distribution to the LLRC. The LLRC will report to the Minister for Finance on a six monthly basis on: capping frameworks approved by the LLRC; caps approved by agencies outside of the LLRC approved frameworks or caps on prescribed heads of liability; and the level of compliance with these guidelines and the quality of contract risk assessment used by agencies to justify capping arrangements. Feedback will be provided to agencies on their individual level of compliance with the guidelines, based on the report to the Minister for Finance. GUIDANCE NOTES The LLRC may issue from time to time Guidance Notes to assist public authorities to interpret these guidelines; to assist in developing across government and individual public authority frameworks; and to assist in determining the acceptability (or otherwise) of capping prescribed heads of liability. Page 7 of 9

8 APPROVAL PROCESS FOR LIMITATION OF LIABILITY ATTACHMENT 1 Contract contains a limitation of liability Is the supplier a member of an approved Scheme under the Professional Standards Act 2004? No Guidelines do not apply. Use limits in Professional Standards Act 2004 Does the contract meet a Cabinet approved default liability cap Guidelines do not apply. Use limit caps approved by Cabinet No Undertake formal risk assessment to determine maximum foreseeable loss Is the limitation consistent with an approved Agency or Across Government framework? Limitation may be approved by public authority delegate in accordance with financial delegations and procurement policies. Ensure liability cap from approved framework is appropriate for risk identified. No Are any of the "prescribed heads of liability" being limited? No Limitation must be approved by public authority chief executive Formal documented risk assessment of prescribed heads being limited Details of limitation to be reported to LLRC. Details of limitation to be supplied to LLRC together with copy of limitation clause, risk assessment and business case. Is contract value greater than $5 million?

9 Version and Approval History Version No Background Approval detail 1 First version of the Guidelines that replaced Treasurer s Instruction 26 Limitation of Supplier Liability in Information Technology and Telecommunication (IT&T) Contracts 2 Review of the Guidelines and the role of the LLRC undertaken based on operational experience since the Guidelines were approved in Treasurer transferred responsibility for the Guidelines to the Minister for Finance. Guidelines updated to reflect transfer of responsibility 3 Guidelines updated to reflect decision by Cabinet on 2 September 2013 to establish a default liability cap on low risk contracts up to $1 million Approved by Cabinet on 15 May 2006 Approved by Cabinet on 12 June 2012 Approved by Treasurer on 30 July Noted by Cabinet on 5 August 2013 Approved by Cabinet on 16 December 2013 Page 9 of 9

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