Posted on February 27, 2012 by

Court considers scope of exceptions to tendering requirements

The Land and Environment Court of NSW has recently handed down a decision in SOCARES Support Group Inc v Cessnock City Council [2012] NSWLEC 23 in which the Court considered the “extenuating circumstances” and “unavailability of competitive or reliable tenders” exceptions to the general requirement to tender for contracts under s55(1) of the Local Government Act 1993 (LGA).

Background

Section 55(1) provides that a council must invite tenders before entering into specified kinds of contracts. Section 55(1)(c) specifies a contract ‘to perform a service or provide facilities that, by or under any Act, is directed or authorised to be performed or provided by the council.’

Section 55(3) of the LGA sets out circumstances in which the requirement under s55(1) to invite tenders does not apply. Section 55(3)(i) provides that a council is not required to call for tenders for a contract where ‘because of extenuating circumstances, remoteness of locality or the unavailability of competitive or reliable tenderers, a council decides by resolution (which states the reasons for the decision) that a satisfactory result would not be achieved by inviting tenders.’

Cessnock City Council operated an animal pound at the Kurri Kurri Animal Shelter. However, difficulties had emerged with the continued use of that shelter and for a number of years Council had been investigating other options. This included assessing the feasibility of utilising the RSPCA Establishment and investigating the arrangements that other councils had in place. Council officers had also visited a local commercial dog and cat boarding facility and had discussions with the owners.

On 15 June 2011, the Council resolved to enter into an agreement with the RSPCA for the provision of pound services in the local government area. The Council decided that it would not invite tenders, relying on extenuating circumstances and the unavailability of competitive or reliable tenders.

The reasons given by Council included that the RSPCA was the only organisation within the area that had an industry best practice shelter meeting the necessary legislative requirements, part of the core business of the RSPCA was to provide animal management services to Councils and that the Council had ‘an immediate and critical need to address operational requirements and occupational health and safety concerns’ of employees at the existing pound.

The legal challenge

The Applicant commenced proceedings in the Land and Environment Court of NSW seeking, amongst other things, a declaration that the Council’s resolution of 15 June 2011 was invalid. It was common ground that the contract for provision of pound services was a contract falling within s55(1)(c) of the LGA. The Applicant’s case was directed at whether the Council had properly satisfied itself that an exception in s55(3)(i) of the LGA applied. Amongst the contentions put forward by the Applicant were:

• the Council failed to consider whether there were ‘competitive and reliable’ alternatives to the RSPCA
• there were no ‘extenuating circumstances’ within the meaning of s55(3)(i) of the LGA.

Pain J did not accept any of the Applicant’s contentions, and upheld the validity of the Council’s resolution.

‘Competitive and reliable alternatives’

In rejecting the Applicant’s submissions on this point, Pain J held that the Council’s decision making process needed to be viewed in its entirety. The evidence disclosed that since 2003, the Council had been considering how it might best deal with its animal welfare obligations. By the time the Councillors made their decision in 2011, they were well informed and had turned their mind to the existence or otherwise of competitive and reliable alternatives to the RSPCA. Pain J held that there was no requirement under s55(3)(i) of the LGA for Council to identify the unavailability of competitive tenderers, only to be satisfied that this was the case. Her Honour held that the Applicant was in effect seeking to challenge the merits of Council’s satisfaction about the availability of competitors and this was not permissible.

‘Extenuating circumstances’

Pain J also accepted the contention of the Council that under s55(3) of the LGA ‘extenuating’ meant “circumstances which are sufficiently different to justify not calling tenders in order to comply with s55(3)(i).”

In relation to one of the ‘extenuating circumstances’ cited in Council’s reasons, namely, that there was an ‘immediate and critical need to address operational requirements and occupational health and safety concerns’ Pain J noted that the evidence demonstrated:

• unsatisfactory working conditions at the existing pound
• that the site of the pound was subject to contamination
• there was no development consent to use the site as a pound
• that the land was not owned by the Council and the owner would not permit an upgrade of facilities on the land
• that the existing pound did not meet the statutory obligations of the Council.

Pain J held that all of these factors suggested that it was ‘reasonable for the Council to be
satisfied that extenuating circumstances existed’.

Commentary

The reasoning adopted by Pain J is difficult to follow and apply.

Her Honour’s reasoning as to why extenuating, in the context of s55(3)(i), should mean ‘circumstances which are sufficiently different’ borders on perverse. The adopted definition was said to be ‘extrapolated from the Concise Oxford dictionary definition meaning of acting in mitigation to lessen the seriousness of guilt…’. However, Pain J herself acknowledged that there did ‘not appear to be an immediate correlation between the Concise Oxford dictionary definition’ but ‘no other definition, dictionary or other, recommended itself either’.

It is also very difficult to apply the test. Council must be satisfied that there are ‘circumstances which are sufficiently different’ to justify not calling for tenders. But there is no indication as to what the extenuating circumstances must be sufficiently different to. Characterisation of extenuating circumstances on the basis that they are ‘sufficiently different’ invites a comparison between the circumstances relied upon and some other circumstances. It may be that Her Honour contemplated that the extenuating circumstances were ones ‘sufficiently different to’ the ordinary circumstances in which a tender would be required. But that does not advance the matter because the ordinary circumstances in which a tender is required are those set out in s 55(1) of the LGA itself.

Pain J’s approach focused primarily on the state of satisfaction reached by the Council as to the extenuating circumstances. So long as there was some evidence reasonably supporting the Council’s state of satisfaction then the exception appears to apply. This potentially gives s55(3)(i) a very wide scope. However, as other judges may take a different approach, it would be prudent for Councils to proceed on the basis that s55(3)(i) of the LGA is much narrower in scope and should still be applied with the apparent objectives
of the tendering regime in mind. These are:

• to expose for public scrutiny the process by which the Council enters into contracts;
• to achieve the best value for money in relation to contracts involving the Council, by promoting competitive bidding between persons seeking the right to enter into the contract with the Council; and
• to promote a fair, equitable and accessible bidding process.

An alternative approach, and one that promotes the objectives identified above, is that ‘extenuating circumstances’ are those that make the fault of non-compliance with
s55(1) ‘seem less serious.’ At the very least, the test set out by Pain J should be modified to read ‘sufficiently different so as to excuse non-compliance.’

On the facts of this case, it is difficult to see how the circumstances identified by the Council, that there was ‘immediate and critical need to address operational requirements and occupational health and safety concerns’ were ‘extenuating circumstances’ within the meaning of s55(3)(i). The evidence demonstrated that the Council had been aware for some time of the need to address operational requirements and other concerns.

Pain J’s decision represents the law on these matters unless a superior court decides otherwise. However, as discussed above, there are a number of unsatisfactory aspects about Her Honour’s approach to the operation of the ‘extenuating circumstances’ exception under s55(3)(i) of the LGA. It remains to be seen whether the decision is applied in future cases.