Navigating Defence Procurement Dispute

Defence procurement programmes constitute investments of substantial financial value and strategic significance, with outcomes that regularly result in unsuccessful bidders expressing dissatisfaction with procurement decisions across a range of grounds. Until 2018, suppliers in Australia possessed limited avenues to contest procurement determinations, as no formal "bid challenge" mechanisms had been established within the regulatory framework.

This environment underwent fundamental transformation following the enactment of the Government Procurement (Judicial Review) Act 2018 (Cth) ('The Judicial Review Act'), which revolutionised the dispute resolution architecture and created new opportunities for industry participants seeking to challenge Defence procurement decisions. One of the key dispute resolution mechanisms now available to suppliers in disputes regarding the awarding of contracts under the Commonwealth Procurement Rules is judicial review under this Act. The Judicial Review Act provides suppliers and contractors with standing to lodge formal complaints, to seek urgent injunctive relief, and awards compensation in specific circumstances.

More broadly, dispute resolution within the defence sector—encompassing both procurement processes and project performance—presents distinctive challenges that set it apart from other commercial sectors. These unique characteristics necessitate that successful suppliers develop precisely calibrated dispute resolution strategies that acknowledge the reality of operating within a market dominated by a single customer. In light of the unique nature of dispute resolution in the sector, the Judicial Review Act serves as a useful mechanism for contractors to rely on as an alternative to other forms of litigation.

In contrast to other Western jurisdictions, disputes emanating from government procurement processes remain uncommon in Australia. To date, no reported judicial decisions have utilised the court resolution mechanisms established under the Judicial Review Act, highlighting the nascent nature of this legal framework in practice.

However, the evolving geopolitical landscape and corresponding expansion in defence spending create compelling reasons for industry participants to thoroughly understand and consider all available dispute resolution options. As defence procurement activity intensifies and contract values increase, all businesses operating in the sector should be prepared to invoke the various processes when a dispute arises, making expert legal guidance on available remedies increasingly critical.

Navigating this complex and evolving landscape requires specialised expertise in both procurement law and the unique dynamics of the defence sector. Drawing on our extensive experience advising clients on defence procurement challenges, this article examines the practical options available to suppliers and provides strategic insights on when and how to pursue different dispute resolution pathways in this high-stakes environment.

1. THE BID Challenge Framework in AUSTRALIA

The Judicial Review Act has three main functions:

It is important to note that complaints are only able to be made relating to “covered procurements” as defined in the Judicial Review Act.

In general terms, once a complaint has been made under section 18 it must be investigated and the procurement to which it relates must be suspended for that period (sections 19-20).  However, this period of suspension does not apply where an authority finds it in the public interest for a procurement to not be suspended, and it issues a Public Interest Certificate.

Defence has issued 19 Public Interest Certificates since the Judicial Review Act took effect in six years ago.

1. Empowering the Federal Court of Australia (‘Federal Court’) to order an injunction in relation to a contravention of the CPRs;
2. Empowering the Federal Court to order the payment of compensation for a contravention of the Commonwealth Procurement Rules; and
3. Provides a complaints process for contractors who wish to ventilate an issue without commencing formal litigation.

It is important to note that complaints are only able to be made relating to “covered procurements” as defined in the Judicial Review Act.

In general terms, once a complaint has been made under section 18 it must be investigated and the procurement to which it relates must be suspended for that period (sections 19-20).  However, this period of suspension does not apply where an authority finds it in the public interest for a procurement to not be suspended, and it issues a Public Interest Certificate.

Defence has issued 19 Public Interest Certificates since the Judicial Review Act took effect in six years ago.

2. The Defence Procurement Complaints Scheme

Once a supplier has submitted its complaint in writing, the Defence Procurement Complaint Service will acknowledge receipt of the complaint.

Investigating officers then classify the complaint as either a:

• complaint that does not satisfy the requirements of the Judicial Review Act (‘a general complaint’); or
• complaint under section 18 of the Act (‘a Judicial Review Act complaint’).

The officer will then investigate the substance of the complaint and prepare a report. Complainants do not receive copies of this report. As noted above, procurement may be suspended once a complaint has been submitted.

The complaints process represents a potentially valuable dispute resolution process for suppliers who wish to ventilate a grievance with the Commonwealth but who do not want to commence formal litigation against their sole customer. Suppliers can, in formulating the complaint, express that the complaint is made for the purpose of improving Commonwealth procurement rather than seeking to engage in an adversarial contest on the construction of the Commonwealth Procurement Rules.  Whether or not this type of process will provide value will depend on the specific circumstances a supplier finds itself in, and the stakeholders it is managing, but it is a process worth considering when formulating a DR strategy in the defence sector.

3. Injunctive Relief

Following a complaint being submitted, the Judicial Review Act allows for injunctions to be granted under section 9 if a Commonwealth entity has engaged in, or is engaging in, conduct that is in contravention of the Commonwealth Procurement Rules.

On the application of an affected supplier, the Federal Court may grant an injunction restraining the Commonwealth entity from engaging in future conduct. The Court can also grant performance injunctions, which would apply in circumstances where the entity’s refusal or failure to do a specific “act or thing” has breached the Commonwealth Procurement Rules, requiring performance of that “act or thing.”

The Judicial Review Act does place limits on the Federal Court’s power to grant an injunction. These include:

• That a complaint has first been made to an accountable authority of the Commonwealth entity that has contravened the Commonwealth Procurement Rules (see ‘Defence Procurement Complaints Scheme’ below); and
• That the Federal Court is satisfied that the supplier has made a reasonable attempt to resolve the complaint.

Moreover, time limits apply under section 11. Applications for an injunction need to be made within 10 days of a contravention of the Commonwealth Procurement Rules, or when an applicant becomes aware of a contravention. This is a very short limitation period, so contractors need to move quickly if they wish to apply for an injunction.

However, if the supplier’s application falls outside of the 10-day period, the Federal Court can exercise its discretion to allow it if the delay was attributable to the supplier’s reasonable attempt to resolve the complaint, or if other special circumstances have arisen. Like all limitation period issues, it is always better to avoid needing to seek an extension so suppliers should be prepared to make the injunction application urgently once they become aware of a contravention.

4. Compensation

Another process under the Judicial Review Act is that the Federal Court may order the payment of compensation for a contravention of the Commonwealth Procurement Rules (sections 15-16).

The compensation which can be awarded has to reflect the reasonable expenditure incurred by suppliers in preparing a tender for procurement, or in connection with making or attempting to resolve a complaint.

The quantum of compensation available under this section is similar to the damages that a plaintiff may expect on a compensatory basis at common law.  However, a supplier can also seek compensation for reasonable expenditure involved in making a complaint under section 18, or those costs incurred in connection with attempting to resolve the complaint. These two heads of compensation are potentially broader than what would be available at common law – making it a compelling process for affected suppliers to consider.

5. Key Takeaways

Operating in the defence sector poses exceptional opportunities to conduct business in one of Australia’s most significant and important industries. It also poses unique challenges given that suppliers are competing for contracts from a single source.

The nature of the sector means that a successful approach to dispute resolution will often involve alternatives to traditional litigation. The three processes under the Judicial Review Act – ranging from non-litigious complaints to injunctions and applications for compensation – represent a spectrum of DR options available to defence suppliers. Timing is critical – and one of the practical things that businesses can do while involved in the procurement process is reach out to our experts to discuss.

Refining a DR strategy for disputes with the Commonwealth in defence matters requires expertise in both the sector and the various litigious and non-litigious processes available.  Our sector experts regularly work with clients to successfully navigate procurement disputes – and we consistently find that businesses who are prepared before disputes arise can get better outcomes. 

Anyone responsible for managing a DR strategy on behalf of a defence sector business is more than welcome to get in touch for a confidential discussion on what you can do now to prepare for future disputes.