What’s the difference between engaging contractors and consultants?

Author: 
John Sheridan - CIO & CISO

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The Commonwealth Procurement Rules (CPRs) apply a little differently when undertaking a procurement for a consultant compared with arranging a contract for labour hire. With that in mind, I thought it might be useful to provide some information on how to categorise these differing arrangements. 

Generally, an open tender must be undertaken when a procurement is valued at or above the relevant procurement threshold (usually $80,000). In certain circumstances, entities may instead conduct a limited tender, noting value for money still needs to be achieved. These circumstances are outlined in conditions for limited tender here (paragraph 10.3 of the CPRs) and the Appendix A exemptions to the CPRs here. Exemption 15 provides that one such circumstance is in relation to entering a contract for labour hire. The CPRs define a contract for labour hire to be:

a contract under which a relevant entity engages an individual to provide labour, when the individual is engaged either directly or through a firm which primarily exists to provide the services of only(1that individual. This includes the appointment of an eminent individual to a special role by an Accountable Authority, or the appointment of a person or persons by an Accountable Authority to a governance committee (for example, an audit committee, ethics committee or steering committee), but does not include the engagement of consultants.

Importantly, this exemption does not apply to contracting with an intermediary, for example, a personnel firm, for the provision of an individual to supply labour (other than where that intermediary is a firm which primarily exists to provide the services of only that specific individual). The procurement of the services of intermediaries such as personnel firms are subject to the Division 2 – Additional rules for procurements at or above the relevant procurement threshold.

Guidance on distinguishing contracts (including contracts for labour hire) from consultancies is available here. The guidance provides a decision tree and various tests to assist in the categorisation of these arrangements.

If you have any comments on this blog, please let me know either below, or by email at haveyoursay.procurement@finance.gov.au.

Regards

John



(1) My emphasis

Comments (5)

You say that there is a decision tree to help guide the difference between the contractor and consultant - the link provided above doesn't take you there.

I don't understand how you can say on one hand that when engaging contractors ' through a firm' this is exempted but then say if you do it through an 'intermediary' and use the example of a firm it is not exempted - there appears to be a conflict here of what you are saying and doesn't actually explain the difference between a consultant or contractor.

Thanks for your feedback. Here’s a direct link to the decision tree for distinguishing consultants from contractors: http://www.finance.gov.au/procurement/procurement-policy-and-guidance/bu.... The decision tree is at the bottom of the page. The purpose of my post was not to distinguish consultants from contractors. Its purpose was to outline how the Government could procure consultancy services and how it could make use of the “contracts for labour hire” exemption when procuring the services of certain contractors. I agree that an intermediary could include a firm that primarily exists to provide the services of an individual, and that was why I clarified that the exemption applies when the relevant intermediary is a firm which primarily exists to provide the services of an individual.

John

Thanks John for further clarifying the above and posting the link - this link is helpful in navigating this issue.

If the engagement of a specified individual is labour hire, and is exempt from Div 2. When value for money can be demonstrated, why is it the preferred practice of agencies to then seek to use a panel arrangement seeking quotes from multiple panellists (who then need to engage the individual) who will add on extensive on costs?

If labour hire of the required individual was conducted directly with the individual (or their firm which primarily exists to provide the services of only that specific individual) then surely the value for money would be improved as the oncosts of going via a recruitment agency/ personnel firm on any of the panels is often upwards of 20%.

If an individual with specialist skills is identified and operates through their own firm then why don't relevant entities directly engage them?

Thank you for your question.

The Commonwealth operates a devolved procurement framework, meaning each agency is responsible for undertaking their own procurement process in order to meet their business needs. This includes the decision on how to engage contractors. Depending on the requirement, an agency may choose to approach recruitment companies, or to approach a specialist directly. As mentioned in the post above, value for money would still need to be achieved.

Importantly, contractors are able to structure their commercial relationships as they see fit. Some may want to establish their own business, while others may choose to utilise the services of a recruitment firm. To restrict the number of potential suppliers that the Commonwealth could procure from could risk undermining the Commonwealth’s capacity to achieve value for money.

Regards
Libor
Acting Procurement Coordinator

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Last updated: 24 January 2018