Chapter 2

Views on the bill

2.1 This chapter presents submitters' views on the Exposure Draft bill. It identifies broad-based support for the underlying intent of the proposed legislation. It also canvasses the areas of concern for some submitters. Prime among these issues is the claim that the bill, if enacted, would add to companies' regulatory requirements.

In-principle support for the bill

2.2 Submitters to this inquiry endorsed the Government's efforts to promote Australian industry participation in major projects. The following section gives a sense of this support.

2.3 The Industry Capability Network (ICN), an independent business network that helps Australian and New Zealand suppliers find contract opportunities, emphasised that it is in favour of strengthening the rules for Australian Industry Participation.[1]

2.4 The Ai Group, a peak industry association representing the interests of more than 60,000 businesses across sectors including manufacturing, engineering and construction, 'strongly supports the broad intent of the Australian Jobs Bill.'[2] The Chamber of Minerals and Energy of Western Australia expressed a similar view when it stated that 'CME supports the main objective of the bill to create and retain Australian jobs.'[3]

2.5 The Chamber of Commerce and Industry Western Australia (CCI WA), which describes itself as the leading business association in Western Australia and the second largest organisation of its kind in Australia, also expressed its support for the Government's focus on maximising Australia industry participation. CCI's submission stated:

It is positive to see that the Federal Government has recognised the important role Australian industry participation in major resources projects can play in building a diverse Australian economy. CCI has long held the view that Australian companies should be given full, fair and reasonable opportunities to be involved in the supply chain of major projects —particularly as many of these projects are based in Western Australia.^{^[4]}

2.6 Chevron stated that it shares the Government's interest in maximising local content. Its submission noted that through the Gorgon and Wheatstone projects, Chevron has already committed over $20 billion and over $8 billion respectively to Australian companies.^{^[5]}

2.7 The Australian Steel Institute wrote in its submission to the inquiry that 'a stronger policy framework to soften the effect of the patchwork economy is urgently needed.' [6] It argued that government leadership and decisive policy action are required to stimulate Australian steel demand in major projects; adding:

The ASI is supportive of the Australian Government's decision to establish a stronger and extended Australian Industry Participation Framework through the Australian Jobs Bill 2013...It is in the nation's interest that we maximise local content from major projects and the jobs and skills development that flow from these activities...We look forward to the passing of the Australian Jobs Bill 2013 and the speedy implementation of the Authority and the new AIP Process.[7]

2.8 The bill also received strong in-principle support from the unions. The Australian Manufacturers Workers' Union (AMWU) and the Australian Workers' Union (AWU) described the proposed legislation as 'absolutely fundamental to the entire agenda...for Australian Manufacturing'.[8] The AMWU and the AWU argued that the legislation needs to be passed 'immediately' as it is 'essential' for the future of Australian manufacturing.[9]

Concerns with the Exposure Draft bill

2.9 The following section outlines the concerns that the committee has received in submissions from stakeholders in regard to the following issues:

the added regulatory and compliance burden on business;
the $500 million threshold proposed to define a 'major project';
the definition of a 'trigger date'
the draft bill's reporting periods;
the complexity of the draft bill; and
the governance arrangements proposed in the draft bill.

Red tape and the financial cost to business and government

2.10 Some submitters posited their opposition to the proposed bill primarily in terms of the likely regulatory impost on the project proponents. The Business Council of Australia (BCA) put this position most forcefully. It described the proposed legislation as 'excessive' and 'unnecessary' and claimed that it establishes a 'worrying precedent that government should intervene in the procurement processes of private businesses'. In this vein, the BCA put the following range of arguments:

the bill establishes new compliance requirements that would be damaging to private initiative and to innovation in procurement;
the bill adds to red tape for new investment projects at a time when major projects are 'already overloaded with regulation';
the bill establishes a costly new regulatory authority at time when Australia has numerous other regulatory agencies engaging with projects and when the budget is in deficit;
a new regulatory authority with powers to approve or disapprove of company procurement processes and to gather information from companies is 'likely to lead to an antagonistic relationship between business and government';
legislating AIPPs is unlikely to have any meaningful positive effect on local procurement given the presence of other government policies and company initiatives to promote local project involvement;
if the legislation is introduced, future governments will be tempted to extend its application to more projects in future or to contemplate mandating local content;
the proposals would add to federal and state duplication in industry policy, with state governments also requiring these types of plans for government tenders and also running similar local supplier programs for major projects; and
the timing of this proposal is 'especially poor' as it comes at a period where the peak in resources investment is expected later in 2013 and when investors are openly expressing doubts about the cost and risk of investing in new large-scale greenfield projects in Australia.[10]

2.11 Moreover, the BCA claimed that the Exposure Draft bill fails the Council's 'Standards for Rule Making'. Specifically:

(i) the policy problem is poorly described in the Regulatory Impact Statement (RIS) and the RIS does not explain why recent policy initiatives are failing to the extent that new regulation is required;

(ii) a rigorous and independent cost-benefit analysis has not been undertaken, with the RIS understating the costs and risks of the bill and overstating the benefits; and

(iii) alternative policy options that are lower cost 'and likely to be more effective have been rejected in favour of a legislated approach.[11]

2.12 Xstrata Coal put a similar view. It argued that the bill would introduce an additional layer of regulation and compliance costs onto projects which would further undermine Australia's attractiveness as a place to invest. It shared the BCA's concerns that government intervention in the procurement activities of private Australian investments creates 'a concerning precedent', and that creating further bureaucracy 'will add significant cost at a time when Australian Governments are running increasingly large deficits'.[12]

2.13 The Queensland Resources Council (QRC) rejected what it saw as the bill's premise that government intervention, 'more red tape' and consequences for non-compliance are needed to improve how the resources sector engages with local industry. Moreover, it rejected the notion that 'that the resources sector needs significant government intervention to create and retain jobs'.[13]

2.14 The QRC argued in its submission that it currently operates under a voluntary code: the Resources and Energy Sector Code of Practice for Local Content. It noted that the Code is supported by the Queensland Government and is an 'outcomes-based, flexible policy model for encouraging local industry participation in major projects that, inter alia, will allow companies to tailor their approaches based on their individual circumstances'.[14] QRC's submission stated:

Of significance is that the code framework and supporting governance structure is generally consistent with the primary obligations of project proponents under the exposure draft. In effect, government is allocating significant funding and imposing more costs onto industry (at a time when competitiveness is being compromised by other factors) to achieve a policy objective that Queensland resource companies already support and are prepared to achieve - with some practical assistance - voluntarily.[15]

Committee view on the regulatory impact

2.15 The committee believes that the BCA's concerns regarding the regulatory and financial possible impact of the draft bill are overstated. The cost and deterrence to industry, the cost of the new Authority and the claim that the bill's measures will antagonise government-business relations are all exaggerated and at odds with the detail provided in the RIS. In this context, the committee also takes issue with the BCA's characterisation of the proposed AIP Authority either approving or disapproving of company procurement processes. As the RIS states:

There is a concern that completing an AIP Plan means that a proponent is required to buy from Australian companies even where this incurs an additional cost, however this is not the case. AIP Plans operate alongside procurement principles of value for money and leaves the decision of who to purchase from with the proponent. As such it does not add to costs for a project by influencing specific purchasing decisions.[16]

2.16 Moreover, the BCA understates the benefit of having a mandatory system that monitors and maximises Australian industry involvement in major projects conducted in Australia. For example, there is no consideration given in the BCA's submission of the opportunity costs associated with Australian businesses missing out on involvement in large projects. The RIS, on the other hand, presents both qualitative and quantitative data on the benefits of legislating AIP Plans to Australian industry, suppliers and projects.[17]

2.17 The committee does not believe that the timing of the proposed legislation is 'poor'. On the contrary, it believes that it is the appropriate time to legislate AIP Plans given:

(a) the number and scale of major Australian-based projects that are either proposed or in train (see Tables 1 and 2); and

(b) the pressing need to involve Australia's manufacturing sector in these projects given the adverse conditions that have faced the sector in recent years.

2.18 The committee acknowledges that any new requirements that governments place on businesses are unlikely to be popular. However, the proposed legislation should be viewed in its proper context: it is the extension of processes—that have been in train for over a decade—to ensure that the opportunities for Australian businesses to have access and support in winning business from major projects are clearly identified and recognised.

2.19 The Government's proposed threshold of $500 million in capital expenditure has not been lowered, as some stakeholders have wanted, in recognition of the fact that:

there are compliance costs associated with the AIP Plan on businesses; and
these costs should be borne by project proponents with the greatest capacity to bear these costs, with a higher return often likely given the scale of investment.

2.20 The committee believes that the RIS estimate of full AIP costs for a large project in the range of $50 000 to $150 000 appears logical and accurate.[18] It is also reasonable, given the scale of capital investment in a 'major project' and the wider benefits of this investment to Australian industry and Australian workers. For example, where a major project with capital expenditure of $500 million is required to produce an AIP Plan costing $50 000, this cost represents just .01 per cent of total capital expenditure. Even where the AIP Plan costs $150 000, this cost as a proportion of total capital expenditure is still only .03 per cent. The committee does recognise that the costs of preparing an AIP Plan will increase with larger projects. As the RIS rightly points out:

It is not surprising that some very large projects will spend more on the AIP Plan, as the effort required to communicate with Australian industry, the key element of an AIP Plan, should be commensurate with the opportunities available in the project.[19]

The $500 million capital expenditure threshold

2.21 Several submitters commented on the proposed $500 million capital expenditure threshold set in the Exposure Draft bill. While some submitters claimed the threshold should be lowered, others argued that it should be increased.

2.22 The RIS states that a variety of threshold amounts were canvassed during the consultation process. It observed that some organisations, such as BlueScope and the Australian Industry Group, suggested that a lower threshold amount should be set.[20]

2.23 This inquiry has received similar comment. The Australian Steel Institute (ASI) argued in its submission that the threshold should be lowered to a minimum of $300 million.[21] It noted that many CleanTech projects—which are highly steel intensive and within the manufacturing capability of local suppliers—are likely to fall below the $500 million threshold. While supporting a lower threshold, the ASI believes that a separate scheme should be established for CleanTech projects given that they are ultimately being subsidised through Renewable Energy Certificates and the Renewable Energy Target.[22]

2.24 ICN wrote in its submission that the $500 million threshold is too high, noting that 'ICN offices around Australia work on many projects that would not meet this trigger point'. ICN proposed lowering the threshold to $200 million. It claimed that this threshold would also assist in the prevention of avoidance of compliance by 'project splitting'. [23]

2.25 The AMWU-AWU submission argued that the threshold should be reduced to $250 million without indexation for the remainder of the decade. In addition, the unions proposed the following amendments to section 8 of the bill:

a new section 8 (11) enabling the Government, in special and extraordinary circumstances, to designate a project below the $250million threshold as a major project subject to an AIP plan and other conditions as may be specified by Cabinet in a direction to the Authority;
a new Section 8 (12) allowing a firm or project developer with a project over a threshold of $50 million to voluntarily request the AIP Authority accept their project as a major project and be covered by the provisions of the legislation through an approved AIP Plan.

2.26 The unions claimed that on their analysis, a threshold of $250 million 'would increase the number of projects by 25 to 30 and the value of projects subject to AIP's by more then [sic] $12 billion'. Further, they claimed that a threshold of $250 million would provide a 'manageable expansion of projects for AIP Authority consideration'.[24]

2.27 On the other hand, CCI suggested that the threshold of $500 million was too low. In its submission, CCI WA noted that $500 million is:

...materially lower than the current threshold of $2 billion, and will mean that many projects that have not been required to submit an AIPP under the current regime will now be required to. In addition, the definition of a 'major project' is proposed to be broadened to the point where a large number of capital spending projects, beyond the resources sector, will be required to develop, maintain, implement and report on the progress of AIPPs. This appears to be an unintended consequence of this Bill. Based on the application of the new definitions of a major project, the share of investment projects that must develop, maintain, implement and report on AIPPs will rise from approximately six per cent of total major projects to 26.2 per cent.[25]

Committee view on the $500 million threshold

2.28 In terms of the level at which the proposed capital expenditure threshold is set, the committee supports the logic set out in the RIS. As chapter 1 noted, the RIS argues that $500 million strikes a balance between:

(a) capturing the projects undertaken by large Engineering, Procurement and Construction Management firms with global supply chains;

(b) the compliance burden on project proponents; and

2.29 The committee believes that lowering the threshold to $300 million or $250 million, as some have proposed, would reduce the effectiveness of the AIP Authority to monitor these projects properly. This consideration is important, particularly given the concerns of some stakeholders about the cost and the effectiveness of the new Authority.

The definition of a 'trigger date' (subsection 17(1))

2.30 Another issue of some concern in the Exposure Draft bill is the definition of a 'trigger date' in subsection 17(1). ICN argued that it is 'unreasonable' to require a project owner to provide a AIPP 90 days before the project concept design begins given it is unlikely that the precise project specifications will be known at this point in the process.[27] CCI WA also argued that the current definition was 'unreasonable.' [28]

2.31 The BCA recommended that the multiple definitions of 'trigger date' needed to be 'practically tested.'[29] The Australian Petroleum Production and Exploration Association (APPEA) was of a similar position noting that 'the notion of a 'Trigger Date' needs to be carefully considered as a number of the milestones that have been proposed as triggers are very early in a projects' (sic) planning cycle.'[30]

2.32 The Chamber of Minerals and Energy of Western Australia argued that the current 'trigger date' 'is an unworkably early deadline' and that 'the bill needs to provide more certainty about the point in the planning process at which the trigger date would be initiated.'[31]

2.33 The Australian Steel Industry however:

...strongly agree that early engagement with a project proponent is highly desirable and that the events that are outlined in this section of the Act are concise.[32]

2.34 This position was echoed by the AMWU:

Only experience will tell as to whether these early trigger mechanisms work. In exercising persuasion to encourage early reporting the Authority should seek to ensure the trigger point occurs at a time when a project developer is entering into an agreement with a process-engineering group to scope the process and its requirements.[33]

Committee view on the 'trigger date'

It is the committee's view that the extensive definition of a 'trigger date' is a reasonable approach by government to make as clear as possible when an AIPP is required to be developed. The committee is, however, also aware that the definitions need to be as practical as possible and agrees that it would be helpful if the definitions were checked for 'real world' usefulness.

The reporting periods (sections 25 and 26)

2.35 ICN expressed its concern with the six month reporting periods (with reports due within six months of the close of the period) set out in sections 25 and 26 of the bill. It argued that under these timeframes, there is the potential 'for nine months to have expired before any official notification that the AIP proposals in the approved plan are not being met'. ICN feared that in consequence, Australian companies might miss opportunities.[34]

2.36 Instead, ICN proposed that under any approved plan the Authority should require the plan owner to publish all available and open contracts on a public, online web portal together with a statement detailing the successful tenderer once the contract has been awarded. It argued that the Authority should be charged with the requirement to observe, during the reporting period, the publication of these contracts and winning tenderers and to use these observations to ensure plan owners are in compliance with their approved AIP plans.[35] This position was endorsed by the AWU-AMWU in its submission.[36]

2.37 In a similar vein, the Australian Steel Institute argued that:

We would prefer if compliance reporting was at minimum every three months. This would allow for the updates on engineering, design, methodology etc and provide a better chance for local industry to be aware of the relevant information and participate in the project.[37]

Complexity of the Exposure draft bill

2.38 Several submitters expressed concern at the complexity of the Exposure Draft bill. CCI WA, for example, noted that there are 'a number of passages that are complex and potentially onerous for business to implement'. It identified the rules governing the primary and secondary obligations under the AIP plan rules (sections 35, 36, 38 and 39) and the requirements to report on compliance with the AIPP (sections 24–28) as requiring significant additional work and capital investment by project proponents.[38]

Governance arrangements

2.39 There were some concerns raised by submitters with the specific governance arrangements proposed in the Exposure Draft. ICN, for example, argued that the proposed Advisory Board, under section 85 of the bill, has 'significant limitations'. Specifically, ICN claimed that the Advisory Board's proposed role of advising the AIP Authority on performance, if requested, is inadequate.

Rather:

A strong governance model which monitors performance, sets strategies and ensures best practice outcomes would be instrumental in achieving the purpose of the proposed Legislation. The governance model as proposed is unlikely to achieve those aims. ICN recommends a formal board structure with overall responsibility for the performance of the Authority. Should this be not an available option within an Authority structure then ICN recommends that a structure be adopted which does provide for an independent and accountable board.[39]

2.40 The AMWU-AWU submission proposed changes to 'the composition of the board so that it consists of at least five members and not more than seven (as opposed to the current draft legislation where a minimum of two and maximum of four members is proposed).'[40]

Committee view

2.41 It is the committee's view that the draft Australian Jobs Bill 2013 will be good for Australian businesses, helping them access Australia's strong pipeline of major projects. The legislation will help ensure Australian manufacturing, construction and service businesses are fairly considered for all projects. The combination of a requirement to develop Australian Industry Participation Plans for all projects with a capital expenditure of $500 million or more, and the establishment of the new Australian Industry Participation Authority to ensure compliance with the new legislation, represents an effective way to help Australian businesses win work on large domestic projects and in global supply chains.

2.42 The concerns of the handful of submitters about elements of the draft legislation have been noted by the committee. The committee, however, is convinced that the consultation process outlined in the Decision Regulation Impact Statement was robust and that the legislation as drafted reflects those consultations.

Recommendation 1

2.43 The committee recommends that the Australian Jobs Bill 2013 be introduced into the parliament.

Senator Mark Bishop
Chair

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