Financial assessments are part of the due diligence process in awarding NSW public sector contracts, used to check the capacity of the contractor to complete works or supply goods.

Assessments are also used in the selection process for procurement pre-qualification schemes and undertaken during a contract to identify and assess any changes in the financial position and risks associated with the potential insolvency of the contractor.

Under the Financial Services Pre-qualification Scheme (the Scheme), agencies can engage a service provider with demonstrated expertise in providing financial assessment services, to assess the capacity and financial health of prospective or existing contractors.

Agencies now required to use the Scheme to procure financial assessment reports

Pre-qualified service providers are required under the Scheme rules to provide a copy of each assessment prepared for an agency, to Treasury. To ensure that the repository captures all available financial information, agencies may only engage pre-qualified service providers under the Scheme.

In mandating the use of the Scheme, agencies are to ensure that tender (and relevant contract) documentation includes appropriate reference to the sharing and use of financial assessment reports.

Agencies that currently undertake their own financial assessment reports may continue to do so pending the implementation of an accreditation process to be developed by Treasury. Accreditation will be subject to satisfying key areas of expertise and the submission of all financial assessment reports to Treasury for inclusion in the central repository.

Central repository of financial assessment reports

The objective of a central repository of financial assessments is to facilitate a more effective and proactive approach to managing risks to Government associated with changes to the financial position of a company contracted to undertake construction work, through the sharing of assessment reports across agencies.

The creation of a central repository of financial assessments also reduces the red tape burden on contractors, by eliminating the need to provide the same or similar information to different agencies.

Treasury will:

• Administer the central repository;

• Publish advice on accessing and submitting information to the repository and

• Compile and distribute any reports sourced from data contained in the repository.

Agency responsibilities

Agencies may submit a request to Treasury at any time for financial assessment reports held on specific contractors. Agencies however must submit a request for information from the repository:

• Prior to the awarding of a contract for construction work

• During the life of a construction contract consistent with the requirements for rolling financial assessments.

Rolling financial assessments

The objective of rolling financial assessments is to ensure that agencies pro-actively test, monitor and address issues relating to changes to a contractor’s financial position and capacity to deliver the contracted works.

To ensure that the frequency of assessment is commensurate with the scale, scope and duration of the project, the following principles are to apply:

1. A financial assessment on the preferred contractor must be obtained prior to a construction contract being awarded for work valued at more than $1 million

2. Agencies must undertake regular analysis of financial statements throughout the course of a construction contract

3. Financial assessments obtained by an agency in accordance with the principles set out in this Direction, must be no more than six months old for contracts valued between $1 million and $10 million and no more than three months old for contracts valued at more than $10 million

4. Agencies must as part of the ongoing contract management of a construction project, take steps to verify the claims of a head contractor with respect to payments made to subcontractors

5. Identified risks and recommended actions contained in a financial assessment report are addressed through appropriate strategies through the life of the contract

6. It is the responsibility of agencies to determine what level and timing of financial assessment is required for a specific construction project or contractor.

In relation to (6), unless an agency considers reasons exist for setting other time periods:

• for contracts valued at more than $1 million and less than $10 million, agencies should obtain a financial assessment report at no less frequently than six monthly intervals from the commencement of the contract and

• for contracts valued at more than $10 million, agencies should obtain a financial assessment report at no less frequently than three monthly intervals from the commencement of the contract.

This Direction is issued by the NSW Procurement Board on 13 November 2013 and takes effect from 1 January 2014 for a period of two years. On 30 March 2016, the NSW Procurement Board approved this Direction continuing to apply until withdrawn.