Commonwealth Contracts? If you are about to enter into a contract with the Commonwealth then you should look at this. This is our real-life experience from having acted for the Commonwealth.
Well, you should limit your liability but don’t push the indemnities. Stand by and I’ll tell you why.
Hey everyone, it’s Simon here from the Contract Company. Contracts, that’s what we do, all day, every day, and sometimes overnight, lucky us.
What to Remember with Commonwealth Contracts
So, you’re looking to enter into a contract with the Commonwealth. Well, step one is you should always limit your liability. In fact, if you’re supplying goods or services you should always, as a matter of course, look to limit your liability.
Why? Well, what’s the point in entering into a contract where, say you generate, I don’t know, $100,000 in profit, yet your potential risk exposure is unlimited?
In other words, the benefit of the contract would be severely outweighed by the potential downside of the potential loss.
So, at the very worst, you should always limit your liability to potentially what you stand to gain under the contract.
Limit Your Liability with RMG414
You should always do that with the Commonwealth. There’s no reason why you can’t do that with the Commonwealth RMG 414.
So the Resource Management Guide 414 issued by the Department of Finance basically says. Where a supply limits their liability that does not create a contingent liability, the creation of contingent liabilities can be problematic for the Commonwealth. So I’ll talk about that next with indemnities.
But as it relates to limitations of liability, the limiting of your liability under a contract with the Commonwealth does not create a contingent liability. Therefore there’s no reason why the Commonwealth shouldn’t accept that.
The next issue is, do you want to seek any sort of indemnities from the Commonwealth? Now, indemnities are problematic. This is because the mere granting of an indemnity by the Commonwealth in favor of you exposes the Commonwealth to what is a contingent liability. Meaning that the liability to pay an amount is contingent upon the occurrence of an event.
So, indemnity is granted by the Commonwealth or frowned upon. They need special approval under Section 60 of the PGPA Act.
However, that approval can be delegated down to the right person in the organization that you’re dealing with. That person will be able to give an indemnity in your favor if the occurrence or all the likelihood of an event occurring that triggers the indemnity is less than 5% and the amount of potential exposure to the commonwealth could suffer in terms of loss is less than 30 million.
So, if you really need an indemnity and you just can’t survive without one and you wanna push for one from the Commonwealth, then you need to make the case that the odds of it occurring are less than 5% and any potential loss of the Commonwealth would suffer will be less than 30 million.
If you can do that, then the Commonwealth can sign off on it, it’s just a question of whether they will.
Hope that’s been useful. If you know anyone who needs to hear this information or could benefit from it, please share it. If you have any questions, please get in touch with us, Simon@contractcompany.com.au, one 800 355 455. Thank you.