The Royal Commission Into Productivity in the Building Industry has revealed two types of fees which have been imposed on Government building and construction contracts without the Governments consent: special fees and unsuccessful tenderers' fees (UTFs).

Special fees are monies paid by the contractor to industry associations as contributions to their revenue. These fees were imposed in lieu of Contract and Development (C and D) fees and were generally included in the contract price. Claims that special fees were payments for particular services rendered by industry associations, such as industrial relations advice, were rejected by the Royal Commissioner on the grounds that there was no evidence of a rationale for fee setting and no direct relationship between the fee agreed and the likelihood of assistance to contractors by the associations in question.

Unsuccessful tenderers' fees are sums generally included in tender prices. The successful tenderer uses these sums to pay unsuccessful tenderers. This practice is justified by contractors as a means whereby the costs of tendering are reimbursed. However the Royal Commission found, and the Government accepts, that this practice is unacceptable because it is done secretly, artificially inflates prices and undermines competition in tendering. Moreover, in many instances this activity is illegal. The practice of setting UTFs involves collusion by tenderers with the effect of passing costs on to the client without the clients knowledge. Both special fees and UTFs have resulted in substantially increased costs to the Government.

The Public Works Department has sought to recover fees on contracts for which it is responsible. The intention of this memorandum is to request all Ministers to seek recovery of special fees and UTFs relating to contracts where the Public Works Department has not acted and does not intend to act. This mainly applies to agencies which let tenders and enter contracts independently of the Public Works Department, but may apply also to 'inner budget' agencies which tendered independently of PWD prior to November 1991.

Fee recovery should be attempted wherever there is evidence that fees have been imposed upon the Government without its knowledge. In most cases, efforts will necessarily be limited to that period investigated by the Royal Commission, that is, from January 1986 to (approximately) December 1991.

The Building Industry Task Force holds the evidence collected by the Royal Commission and may be approached for information and assistance in this regard. I recommend that agencies liaise closely with the Task Force in their preliminary investigations and in any legal proceedings which may be necessary.

In the course of pursuing the recovery of a number of UTFs and special fees, the Public Works Department has developed guidelines, including standardised correspondence relating to this matter, which are available for use by other agencies.

I have sought undertakings from certain industry associations that they will agree to repay the special fees included in Government contracts to those Government agencies responsible for these contracts. I have informed these associations that affected agencies will be approaching them in the near future in order to discuss the details of repayment arrangements.

I would appreciate your co-operation in attending to this matter personally.

Yours faithfully

John Fahey
Premier

Date of Issue: 12 August 1992