DMI (PROC) 13-0-003 Printed 29/11/2010 MANDATORY PROCUREMENT POLICY REQUIREMENTS FOR THE ENGAGEMENT OF THE COMMERCIAL GROUP IN DMO CONTRACT MANAGEMENT ACTIVITIES References: A. Financial Management and Accountability Act 1997 B. Financial Management and Accountability Regulations 1997 C. Commonwealth Procurement Guidelines December 2008 D. DMO Chief Executive s Instructions E. Defence Procurement Policy Manual (DPPM) and relevant Departmental Procurement Policy Instructions (DPPIs) F. DPPI 22/2010 Requesting Professional Services From The Office Of Special Counsel, Defence Materiel Organisation G. DMH (PROC) 13-0-001 Engagement of Financial Investigation Services (FIS) H. Quality and Environmental Management System (QEMS) Key Policy Components 1. Procurement is conducted in accordance with legislative and regulatory requirements articulated in the Financial Management and Accountability Act (FMAA), Financial Management and Accountability Regulations (FMAR), the Commonwealth Procurement Guidelines (CPG), the Defence Materiel Organisation Chief Executive s Instructions (DMO CEIs) as well as key overarching policy documents, including the Defence Procurement Policy Manual (DPPM), Departmental Procurement Policy Instructions (DPPIs) and Defence Materiel Instructions (DMIs). 2. The Commercial Group assists Defence and DMO to manage legal and commercial risk in the capability and procurement life cycle, through the provision of strategic commercial legal and legal policy advice, procurement policy advice, financial advice, industry advice pertaining to both domestic and international engagement and procurement and contracting advice and assistance. 3. The Commercial Group comprises: Introduction a. the Office of Special Counsel (OSC) which includes DMO Legal Branch and Commercial Policy and Practice Branch; b. Commercial Enabling Services (CES) which includes Contracting Support Branch and Capability Delivery Support Branch as well as CONDMAT London and DEFMAT Washington; and c. Commercial and Industry Programs which includes Export Programs and Industry Engagement Branch and Economic and Commercial Analysis Branch. 4. The purpose of this DMI is to establish the mandatory engagement points where the Acquisition Team must seek specialist advice from OSC and CES for contract management activities (as appropriate). The Acquisition Team must determine whether to engage with these areas for assistance by reviewing the Contract Management Engagement Process at Annex A to this DMI. For any contract management activity not expressly detailed in Annex A, the Acquisition Team must refer to the Contract Management Risk Matrix in Annex B to categorise the activity. 5. The Contract Management Risk Matrix in Annex B is structured in accordance with the Standard Defence Risk Management Matrix. The contract management activities described in this DMI may not apply to every contract. Scope 6. The requirements of this DMI apply to all Personnel in the DMO who are involved in Simple, Complex and Strategic procurement activities. 7. The contract management activities described in the Contract Management Engagement Process in BPO: GM COM Version: 1.2 Page 2 of 11
DMI (PROC) 13-0-003 Printed 29/11/2010 Annex A are not sequential and may not apply to all contracts. The Acquisition Team must review this annex periodically to ensure that they are managing contractual risk. Personnel must obtain specialist advice in accordance with this DMI and other relevant DMIs, such as DMI(PROC) 13-0-002. Definitions 8. The Definitions applicable to this DMI are contained in Annex C. Policy Statement 9. Procurement conducted within DMO is governed by a legislative and policy framework comprising: a. the FMAA; b. the FMAR; c. the CPGs and related DOFD Finance Circulars; d. the DMO CEIs; e. the DPPM and DPPIs; and f. other relevant Defence and DMO instructions, for example the DMI(FIN) or DMI(PROC) series. 10. Additional requirements may be imposed by local business unit standard operating procedures, instructions or other Quality Management System (QMS) documents and which must also be followed by those affected areas. This DMI represents a minimum standard and takes precedence over local business rules imposing less stringent requirements. 11. The Acquisition Team retains responsibility for the outcome of the procurement activity and the Acquisition Team is responsible for reviewing and accepting deliverables and monitoring progress in accordance with the contract. Contracting Officers, if allocated, may assist during contract management activities, in accordance with this DMI. Policy Directive 1 All Personnel must comply with relevant legislation and policy and must determine the risk level associated with their particular contract management activity. Personnel must seek specialist advice from the relevant area within the Commercial Group as early as possible when the need arises. 12. Compliance with the legislative and policy framework outlined in paragraph 9 above is mandatory for all DMO contract management activities. In accordance with the CPGs, value for money should inform all decisions made throughout the procurement process. 13. The Commercial Group provides a range of specialist advice and services to DMO under the following key positions: a. Special Counsel to the CEO DMO (SCCEO) presides over: (1) DMO Legal Branch providing strategic commercial legal and legal policy advice; and (2) Commercial Policy and Practice Branch providing commercial policy advice, development and maintenance of commercial tools and templates (including DMOSS panel, ASDEFCON templates, Defence Materiel Instructions (Procurement) and process templates) and implementation of professionalisation initiatives on behalf of the Procurement and Contracting job family. BPO: GM COM Version: 1.2 Page 3 of 11
DMI (PROC) 13-0-003 Printed 29/11/2010 b. Head Commercial Enabling Services (HCES) presides over: (1) Contracting Support Branch providing strategic commercial, procurement and contracting advice as well as financial and cost investigation advice; (2) Capability Delivery Support Branch coordinating the development of DMO acquisition and support strategies, ensuring the injection of increased consideration of cost and industrial realities throughout the capability lifecycle and providing specialist input into, the CEO DMO s independent advice to Government for all Major Equipment Capability Submissions; and (3) the offices of Counsellor Defence Materiel London (CONDMAT) and Defence Materiel Branch Washington (DEFMAT). c. Head Commercial and Industry Programs (HCIP) presides over: (1) Export Programs and Industry Engagement Branch providing export and industry programs to enhance the long term viability of industry to support the Australian Defence Force and engagement with Defence industry focussed on capability acquisition and sustainment; and (2) Economic and Commercial Analysis Branch providing economic modelling, intelligence and analysis of defence industry domestically and internationally to benchmark industry capabilities, performance, profitability and future capacity. 14. OSC and CES allocates resources and Contracting Officers based on the risk level associated with the activity. Acquisitions for capital equipment, through life support and sustainment requirements stem from acquisitions funded either under the Defence Capability Plan (DCP) or the Minor Capital Projects (with the exception of Rapid Acquisitions), though the acquisitions are often conducted as a series of discrete procurements. For all future acquisitions, the Acquisition Team and the Executive Director Contracting (EDCON) must work together during the initial planning stages (normally 12-24 months prior to First Pass Approval for DCP acquisitions) to identify the Full Time Equivalent (FTE) staff positions for Contracting Officers required to support the acquisition. Contracting Services is only able to provide Contracting Officers in support of procurements that form part of the acquisition where the resources have been allocated in the DMO FTE guidance as a result of DMO being allocated funding post first pass.. 15. Contracting Officers are not allocated to Simple Procurements however, if required, the Acquisition Team can request assistance from Contracting Services. 16. Contracting Officers provide a range of assistance including: a. advising the Acquisition Team of any contractual remedies, rights or obligations; b. drafting and reviewing correspondence relating to the exercise of the Acquisition Team s contractual rights or obligations; c. reviewing documentation or correspondence from the contractor; d. advising whether additional specialist advice is required from DMO Legal, an external legal services provider (LSP) or Financial Investigation Services (FIS). If legal advice is required, the Contracting Officer will use the Professional Services Request system to engage external legal advisers or internal legal advice from DMO Legal (this includes engagement of independent legal process and probity advisors or auditors). If a DMO Legal Deputy Counsel has been assigned to a procurement activity (whether Complex or Strategic) the DMO Legal Deputy Counsel will review and clear all Requests for Legal Services for external legal service providers and any subsequent instructions to the external legal service providers; BPO: GM COM Version: 1.2 Page 4 of 11
DMI (PROC) 13-0-003 Printed 29/11/2010 e. provision of advice on any proposed resolution mechanism (eg. Deed of Settlement, Deed of Novation or contract change) and if required, advise whether additional specialist advice should be sought; and f. assistance with processing any change to the contract in accordance DMI(PROC) 13-0- 002. 17. The risk level associated with the contract management activity is based on the Standard Defence Risk Management Matrix. The risk associated with any contract management activity is calculated based on the consequence of any given event and the likelihood of its occurrence. Refer to figure 1 below. Standard Defence Risk Management Matrix Likelihood Consequence Insignificant Minor Moderate Major Severe Almost Certain Medium Medium High High Extreme Likely Medium Medium Medium High Extreme Possible Low Medium Medium High High Unlikely Low Low Medium Medium High Rare Low Low Low Medium Medium Figure 1: Standard Defence Risk Management Matrix 18. Contract management activities are divided into four corresponding risk levels: a. Risk Level 4 - Extreme. A Contracting Officer must be allocated consistent with the risk of the activity however the Contracting Officer will determine the nature and extent of the assistance that will be provided in support of the contract management activity; or b. Risk Level 3 - High. The Acquisition Team must seek specialist advice and a Contracting Officer should be allocated however the Contracting Officer will determine the nature and extent of the assistance that will be provided in support of the contract management activity; or c. Risk Level 2 - Medium. The Acquisition Team should seek specialist advice and a Contracting Officer may be allocated however the Contracting Officer will determine the nature and extent of the assistance that will be provided in support of the contract management activity; or d. Risk Level 1 - Low. The Acquisition Team may seek specialist advice however, a Contracting Officer will only provide assistance if resources are available. Often the assistance will be limited to verbal directions and the Acquisition Team will complete the activity themselves. 19. The Acquisition Team must proactively manage their contracts and where it is possible to anticipate that issues will arise, they must notify their Contracting Officer, if allocated, as soon as possible. The Acquisition Team must engage specialist services accordance with the risk level of the activity using the BPO: GM COM Version: 1.2 Page 5 of 11
DMI (PROC) 13-0-003 Printed 29/11/2010 Contract Management Engagement Process at Annex A. Policy Directive 2 The Acquisition Team must determine the risk level of the contract management activity and ensure all key information is provided when seeking assistance. 20. The Acquisition Team must determine the risk level associated with their particular contract management activity based on the guidance at Annex A. For any activity not expressly detailed in Annex A, the Acquisition Team must determine the risk level of the contract management activity by reviewing the consequence and likelihood of all identified risks in accordance with Annex B. 21. The Acquisition Team is solely responsible for ensuring that advice is sought in a timely and appropriate manner, providing full disclosure of the Commonwealth s conduct. 22. If the advice of the Contracting Officer is not adhered to the Advise and Report Process will be invoked. Responsibilities 23. All DMO Personnel who are involved in contract management activities must comply with this DMI. 24. General Manager Commercial as the incumbent of the Chair Procurement Council, is the DMO Business Process Owner for Procurement and Contracting and the Commercial Innovation and Practice Directorate is responsible for maintaining and updating this instruction. Monitor and Review 25. The content of this instruction will be reviewed whenever any of the identified References are updated or amended. In the event that these documents remain unaltered for a period of two years or more, this instruction shall be reviewed every two years. Point of Contact 26. Acting Director ASDEFCON, Commercial Innovation and Practice Directorate. Related Instructions and Material 27. DMI(PROC) 13-0-001 Mandatory Procurement Policy Requirements for all DMO Acquisitions (including Sustainment Procurements) to Contract Signature. 28. DMI(PROC) 13-0-002 Mandatory Procurement Policy Requirements for Contract Changes. ANNEXES A. Contract Management Engagement Process B. Contract Management Risk Matrix C. Definitions ATTACHMENTS 1. Nil. BPO: GM COM Version: 1.2 Page 6 of 11
DMI (PROC) 13-0-003 Printed 29/11/2010 ANNEX A CONTRACT MANAGEMENT ENGAGEMENT PROCESS START The Acquisition Team must determine the risk level of the contract management activity. For any activities not expressly included in this table the Acquisition Team must refer to the Contract Management Risk Matrix to assist them with categorising Risk Level. The Acquisition Team must submit a request to their EDCON if there is no Contracting Officer allocated. Is the consequence SEVERE? Do any of the following descriptions apply?: 1. The contracted output as detailed in the MSA or MAA will not be achieved. AND/OR 2. The Acquisition Team has a contract management activity that relates to one or more of the following issues: a) Liquidated Damages; b) Payments linked to contractual remedies including Stop Payment Milestones or Milestone Payments; c) Notices of termination for breach or convenience; d) Limitation of Liability. For example, the cap or caps limiting the liability of the Contractor to the Commonwealth have been reached; e) Warranty or Latent Defects; f) Postponement; or g) Assignment and Novation where the contractor proposes to enter into any arrangement which assigns rights or will require novation of the contract, including where they are seeking to use the Deed of Substitution and Indemnity; or h) Final Acceptance. No Is the consequence MAJOR? Do any of the following descriptions apply?: 1.The contracted output as detailed in the MSA or MAA will be impacted. AND/OR 2. The Acquisition Team has a contract management activity that relates to one or more of the following issues: a) Transition or Phase-In activities required under contract; b) Operative Date requirements; c) Intellectual Property. For example, any escrow arrangements under the contract, completion of schedules or technical data; d) GFF licences; e) Export approvals or licenses required under the contract; f) Acceptance excluding Final Acceptance; g) Performance Guarantees or Securities (release or return securities and bank guarantees); or h) Payments, including Mobilisation Payments, Incentive Payments or payments related to Earned Value Management. No Is the consequence MODERATE? Do any of the following descriptions apply?: 1. The contracted output as detailed in the MSA or MAA will not be impacted. AND/OR 2.The Acquisition Team has a contract management activity that relates to one or more of the following issues: a) GFM delivery, ownership or stocktaking; b) Requests for an extension of time or change to the delivery schedule; c) Deeds of Confidentiality; d) Extraordinary meetings not linked to contract management activities listed under those activities that are deemed either SEVERE or MAJOR; or e) Commercial-in-Confidence. No Is the consequence MINOR or INSIGNIFICANT? If none of the previous descriptions apply the contract management activity should be consistent with one of the following descriptions however, if it does not then the Acquisition Team must refer to the Contract Management Risk Matrix to categorise the activity: 1. The Acquisition Team has a contract management activity that relates to one or more of the following issues: a) Scheduled progress meetings; b) Insurance, routine management issues including reviewing certificates of currency relating to insurances required under the contract; or c) Company Scorecard reporting; d) disputes regarding the daily operation of contract at the business level; or e) minor issues regarding contractor performance. The Acquisition Team provides relevant documentation to the Contracting Officer. The Contracting Officer can request additional information if necessary. RISK LEVEL: EXTREME RISK LEVEL: HIGH RISK LEVEL: MEDIUM. RISK LEVEL: LOW. Must be referred to a Contracting Officer. Consider the likelihood of the event in accordance with Annex B Contract Management Risk Matrix. Must be referred to a Contracting Officer. Should be referred to a Contracting Officer. May be referred to a Contracting Officer. END The Contracting Officer provides advice. Response: A Contracting Officer must be allocated consistent with the risk of the activity however the Contracting Officer will determine the nature and extent of the assistance that will be provided in support of the contract management activity. Response: A Contracting Officer should be allocated however the Contracting Officer will determine the nature and extent of the assistance that will be provided in support of the contract management activity. Response: A Contracting Officer may be allocated however the Contracting Officer will determine the nature and extent of the assistance that will be provided in support of the contract management activity. The Acquisition Team must make a record if they decide not to engage OSC or CES as a result of the categorisation of the task. Response: A Contracting Officer will only provide assistance if resources are available. Often the assistance will be limited to verbal directions and the Acquisition Team will complete the activity themselves. BPO: GM COM Version: 1.2 Page 7 of 11
DMI (PROC) 13-0-003 Printed 29/11/2010 ANNEX B CONTRACT MANAGEMENT RISK MATRIX Contract Management Risk Matrix Likelihood Consequence Insignificant Minor Moderate Major Severe Almost Certain Medium Medium High High Extreme Likely Medium Medium Medium High Extreme Possible Low Medium Medium High High Unlikely Low Low Medium Medium High Rare Low Low Low Medium Medium Categorisation Guidance: Term Guidance Almost Certain The Acquisition Team knows or believes that there is an extremely high likelihood that the event will occur. Likely The Acquisition Team knows or believes that there is a high likelihood that the event will occur. Possible The Acquisition Team knows or believes that there is a likelihood that the event will occur. Unlikely The Acquisition Team believes that there might be a slim likelihood that the event will occur. Rare The Acquisition Team believes that there is extremely unlikely that the event will occur. Insignificant Minor Moderate Major Severe The event does not impact on the successful completion of the contract. The event impacts on the successful completion of the contact to a minor degree. The event impacts on the successful completion of the contract to a moderate degree. The event impacts on the successful completion of the contract to a major degree. The event impacts on the successful completion of the contract to a significant or severe degree. BPO: GM COM Version: 1.2 Page 8 of 11
DMI (PROC) 13-0-003 Printed 29/11/2010 ANNEX C DEFINITIONS Term Acquisition Acquisition Team Advise and Report Process Complex Procurement Contract Dispute Contract Management Engagement Process Contract Management Risk Matrix Contracting Officer Contracting Services Financial Investigation Service (FIS) Personnel Professional Services Request Definition means any procurement of supplies (goods and/or services). For the purposes of this DMI, Acquisition is a blanket term which encompasses those procurements which are broadly referred to in the DMO as either acquisition or sustainment procurements. Consideration must also be given to the disposal requirements throughout the acquisition. means for the purposes of this DMI, the person or group directly responsible for managing the Acquisition. where the advice of a Contracting Officer is not adhered to and the issue is not resolved the Contracting Officer will provide a report to the delegate outlining their objections to the decision or conduct of the Acquisition Team. This report will be provided to the immediate supervisor of the Contracting Officer who will provide it to the CCO or EDCON, as appropriate. A copy of the report must be supplied to the relevant EDCON who will retain a copy on file. SCCEO will be advised by the EDCON where appropriate. means a procurement category which entails greater complexity, risk and more advanced technical requirements than a Simple Procurement. All procurements involving design, development, integration or liability caps must always be treated as at least a Complex Procurement. For further guidance refer to the DPPM. means a situation where the contractor and the Commonwealth are in dispute over the terms of the contract, deliverables or payment. means the process at Annex A to this DMI. means the matrix at Annex B to this DMI. for the purposes of this DMI means the person appointed by the relevant Chief Contracting Officer or Executive Director of Contracting (EDCON), Commercial Support Branch, to provide contracting assistance. means the directorates within Contracting Support Branch that provides contracting expertise for procurement activities conducted by DMO. The Contracting Supoprt Branch consists of Contracting Services Directorates supporting the divisions which are led up by EDCONs assisted by Chief Contracting Officers, Senior Contracting Officers, Contracting Officers and Assistant Contracting Officers. means the directorate of Contracting Support Branch that provides financial and cost investigation expertise for procurement activities conducted by both Defence and DMO. means all staff involved in the procurement, including Commonwealth Officers (Australian Public Servants and Australian Defence Force personnel from Army, Navy and Airforce) as well as External Service Providers encompassing consultants, contractors, Professional Service Providers and Legal Service Providers. means webform AD553. BPO: GM COM Version: 1.2 Page 9 of 11
DMI (PROC) 13-0-003 Printed 29/11/2010 ANNEX C DEFINITIONS Term Simple Procurement Strategic Procurement Definition means a procurement category where the overall level of risk and complexity is assessed as low after a suitable risk assessment has been conducted. This risk assessment may be in the format of an Acquisition Category Risk Assessment. For further guidance refer to the DPPM. Note: Any procurement with a limitation of liability clause is at minimum a Complex Procurement. means a procurement category where the value and risk is assessed as high to extreme. A more detailed definition is provided by the DPPM. BPO: GM COM Version: 1.2 Page 10 of 11