This page is about the requirements for granting indemnities, guarantees and warranties on behalf of the Commonwealth. Show It is relevant to accountable authorities and officials of non-corporate Commonwealth entities. RMG-414 Indemnities, guarantees or warranties granted by the Commonwealth provides additional guidance and is available under Tools and templates. What are indemnities?Indemnities, guarantees and warranties (indemnities) granted by the Commonwealth create contingent liabilities for the Commonwealth. Contingent liabilities are commitments that may arise depending on the outcome of a specific event. Indemnities allocate the risk of the contingent liability between parties to an arrangement.
If an arrangement does not explicitly allocate liability between the parties, each party’s liability may be determined at general law. What are NOT indemnities?The following examples are NOT indemnities:
Are liability caps indemnities?A liability cap is an arrangement where an entity agrees to limit the liability of another party (e.g. a supplier). A liability cap may result in the creation of a contingent liability, if:
A liability cap does not create a contingent liability, if it:
Who can enter into an indemnity arrangement?The Finance Minister has the power to grant indemnities on behalf of the Commonwealth. The Finance Minister has delegated this power to accountable authorities of non-corporate Commonwealth entities for routine indemnities necessary for the day-to-day running of their entities. *A delegate cannot grant a guarantee for the payment of any amount of principal or interest due on a loan, or grant an indemnity that would expressly meet the costs of civil or criminal penalties of the indemnified party. What must you consider before granting an indemnity?Officials must consider two overarching principles before entering into an indemnity arrangement:
Officials must make reasonable inquiries to be satisfied that:
*Insurance must not be taken into account when determining this figure. Officials must also ensure that:
Entities need to follow the terms and conditions outlined in the Comcover Statement of Cover. Officials should discuss with Comcover if they are considering entering into an arrangement above any liability cap in the Comcover Statement of Cover. What if the indemnity arrangement is beyond the scope of the delegation?Indemnity arrangements beyond the scope of the Finance Minister’s delegation require either:
Finance has developed a model Indemnity Grant Request Form to assist entities requiring a written determination of the Finance Minister’s. Managing and reporting contingent liabilitiesThe Commonwealth Risk Management Policy requires accountable authorities of entities to establish and maintain systems and appropriate internal controls for the oversight and management of risk. Legislative requirements for reporting contingent liabilities are contained in the Charter of Budget Honesty Act 1998. Contingent liabilities with a possible impact on the forward estimates greater than $20 million in any one year, or $50 million over the forward estimates period are disclosed in Budget Paper 1 – Budget Strategy and Outlook. Non-corporate Commonwealth entities are required to report contingent liabilities in their annual financial statements in accordance with the PGPA Financial Reporting Rule 2015. |