Preparing for Potential MOG Changes

Corporate Update

By:
  • Daniella Hammond

As we all keenly await the outcome of the election, this is a good time for in house counsel to consider how their agency's new contracts and other arrangements may be affected by potential machinery of government and other changes which may occur as a result of the election outcome.

In particular, it is worthwhile ensuring your agency's contracts contain appropriate provisions which will facilitate seamless and efficient implementation of any such changes or developments.

Pre-planning for possible machinery of government changes, and negotiating a process for dealing with these changes in the contract at the outset, can avoid or at least significantly reduce the risk of having to re-negotiate your existing contracts.

For example:

Machinery of government provisions

A machinery of government provision should ideally be included in all Commonwealth contracts to set out a process for how the parties agree to manage such a change if or when it occurs. Including such a clause will ensure that, if there is a machinery of government change, the Commonwealth is still able to receive the full benefit of the services or deliverables being provided under the contract and will also ensure that vendors do not use the change as an excuse to renegotiate the contract terms.

Termination and reduction in scope for convenience

It is important for all Commonwealth contracts to contain appropriate rights for the agency to terminate or reduce the scope of the contract for convenience at any time and for any reason, including for a machinery of government change. Without such a provision, the agency will be bound by the contract even if it no longer requires the whole of or any part of the services or deliverables (for example, because a machinery of government change means it is no longer responsible for administering a particular function). The contract should include a clear description of any compensation payable if there is a termination or reduction in scope for convenience, to avoid later arguments. 

We have also negotiated for some of our clients a provision which clarifies that the agency will not be liable to pay any compensation if, as a result of a machinery of government change, the scope is transferred to another agency and the vendor is the provider of services or deliverables to that other agency - meaning the Commonwealth will not incur any unnecessary expenditure when the vendor still retains the benefit of the contract (albeit through a different agency).

Novation rights

It is also important to check whether your agency's contracts contain appropriate novation provisions, which allow your agency to efficiently and easily transfer its rights and obligations to another legal entity which has assumed its responsibilities due to a machinery of government change. A novation clause can save your agency (and the alternative legal entity) a significant amount of time and effort, because without such rights the agency would need to terminate the contract and the other entity would need to either re-engage the vendor or carry out a new procurement process.

Alternative service delivery models

As you are probably aware, there is increasing pressure on agencies to reduce their expenses and achieve greater efficiencies, particularly through alternative service delivery models such as shared services (for example by aggregating the procurement of services for agencies or requiring a lead agency to provide services to other agencies).

Therefore, it is important to include in your agency's contracts a provision which will ensure that alternative service delivery models such as shared services are able to be used. For example, such a provision could allow your agency to procure additional volumes of services or deliverables (including IT licences as relevant), ideally at pre-agreed prices, in order to use them for the provision of services to other agencies, including relevant access rights for personnel of other agencies to obtain the benefit of the services or deliverables.

How we can help

We have a range of standard clauses and subject-matter experts available to address the issues discussed above. Please let us know if you would like to discuss anything raised in this update, or if we can help in any way.