Chapter 6
Case study: Commonwealth government procurement of paper
6.1
Using the procurement of paper as an example, this chapter examines
concerns around the assessment of value for money as outlined in the
Commonwealth Procurement Rules (CPRs). In particular, the discussion focuses on
the application and operation of the procurement-connected policies relevant to
the procurement of paper in determining value for money.
The Stationery and Office Supplies Panel
6.2
The procurement of stationery and office supplies by the Commonwealth
government is undertaken pursuant to a whole-of-government arrangement, the Stationery
and Office Supplies (SOS) panel. The SOS panel commenced on 7 March 2012,
with the execution of a Heads of Agreement between the Department of Finance
(Finance) and three panellists: Complete Office Supplies; Staples Australia; and
OfficeMax Australia. The SOS panel arrangement is for an initial period of
three years.[1]
6.3
In its submission, Finance noted that a number of whole-of-government procurement
arrangements have been established. The submission stated:
[W]hole-of-government procurement arrangements have been established
where efficiencies have been identified to maximise market benefits and deliver
savings for the Government. These arrangements have been established by Finance
in areas where the supply of goods and services to agencies are substantial and
are in common use by all or most agencies with minimal diversity.[2]
6.4
In the case of the SOS panel, Finance stated the whole-of-government
arrangement:
[I]s providing efficiencies and benefits through a single government
approach to market and tender evaluation process, consistent contract processes
and determination.[3]
6.5
Government agencies subject to the Financial Management and
Accountability Act 1997 (FMA Act) must procure stationery through the SOS panel.
Agencies under the Commonwealth Authorities and Companies Act 1997 (CAC
Act) are encouraged to use the SOS Panel, although this is not compulsory.[4]
How much copy paper does the Commonwealth use?
6.6
Finance estimates the government will spend $8.5m on copy paper in
2013-14, which is around nine reams per employee.[5]
This represents a substantial reduction on an aggregate use of over 6,500
tonnes of office paper per year, with an average of 18.6 reams of paper per
person per year, as determined in 2008-09 by the Australian National Audit
Office (ANAO).[6]
6.7
A number of submissions referred to the 2008-09 ANAO figures as
indicative of current Commonwealth use of copy paper.[7]
However, Finance indicated to the committee that these figures are out-of-date,
so any calculations based on them are inaccurate.[8]
Value for money
6.8
Submissions and witnesses expressed concern that the 'value for money'
criteria was being interpreted too narrowly by agencies when procuring paper,
with the result that procurement decisions are based on lowest price alone.[9]
6.9
The Australian Forest Products Association (AFPA) submitted they were
aware of contracts being awarded to overseas companies on the basis of slightly
more competitive price margins, sometimes as small as 1 per cent and argued:
Such narrow margins highlight
the many challenges faced by domestic manufacturers and the issue as to whether
the full suite of relevant non‐financial and
environmental sustainability factors have been adequately considered in
assessing 'value for money'.[10]
6.10
One specific example referred to by several witnesses and submitters was
the procurement of envelopes in 2013 by the Department of Human Services (DHS),
where the contract was awarded to an overseas supplier.[11]
The Australian Made Campaign outlined the details:
Australian manufacturer Australian Paper lost a contract for
the supply of envelopes to Centrelink during 2013 by $8,256, a margin less than
1% of the winning tender ($843,744).[12]
6.11
The Australian Made Campaign argued this small upfront saving would cost
the government far more in lost revenue over the longer term:
Australian Paper estimates the Government lost tax and excise
revenue of [approximately] $173,760 on the production of the 240 tonnes of
paper that would have gone into the envelopes had the Australian product been
selected.[13]
6.12
Mr Stuart Turnbull, Executive Director, Defence, Performance Audit
Services Group, ANAO, told the committee of the difficulty of auditing value
for money decisions made by agencies in procurement processes. Mr Turnbull
stated it can be difficult to evaluate how agencies assessed value for money in
their procurement deliberations, due to insufficient record keeping:
One of the key failings that we have identified is that
often, when [agencies] write down why something supplies the best value for
money, they have not given the range of reasons or the range of considerations.
Then it is difficult for the auditors to come along and make an assessment about
their judgements and the appropriateness.[14]
6.13
However, DHS provided the committee with the following information in
relation to the assessment of value for money used for the procurement of
envelopes:
DHS sources envelopes in accordance with established policy,
both in the context of value for money and also the use of recycled and/or
Australian sourced paper wherever it is appropriate to do so...
The tender process [for envelopes] involved the consideration
of a broad range of factors when establishing whether each supplier's proposal
represented value for money. In addition to pricing, the assessment included
risk (including risk to surety of supply), quality, flexibility to adapt
rapidly to changing requirements, fitness-for-purpose, and environmental
impacts.
DHS also applies a value for money assessment every six
months when sourcing the individual batches of envelopes.[15]
Economic and social benefits
6.14
The committee received evidence suggesting the procurement of locally produced
stationery had definite economic benefits for government, including greater
government tax revenues from individuals and companies, and the benefit of
supporting Australian jobs and skills.
6.15
Mr Travis Wacey, National Policy Research Officer, Construction,
Forestry, Mining and Energy Union (CFMEU), provided the committee with the
following estimate of job losses in the paper and forestry industries as a
result of Australian Paper not being awarded the envelopes contract in 2013 by
DHS:
We are not just talking about one or two jobs; we think that
15 to 20 direct production jobs were triggered by the loss of this contract,
and it is a situation representing literally hundreds of thousands of dollars,
if not millions of dollars in lost taxpayer revenue in the short, medium and
longer term just for the $8,000 benefit.[16]
6.16
Mr Wacey added that this action reduced government tax revenue and
potentially increased government spending on welfare.[17]
On this point, Australian Paper provided an indication of the amount their
business contributes in taxes:
Australian Paper also provides
significant revenue to all levels of government, equivalent to $1.81 for each
and every actual ream of copy paper that we make and totalling $432 million in
2012, a value that we feel can't but is being ignored by the government's
procurement decisions.[18]
6.17
Mr Craig Dunn, Senior Marketing Manager Sustainability, Australian
Paper, told the committee how the economic benefits of purchasing Australian
products also brings social benefits, particularly to regional communities:
Certainly from a social perspective it is interesting how
social benefits often link into economic benefits. We are all aware of the
social amenities created by high-quality manufacturing jobs in this country,
then when we have a situation where a manufacturing plant closes down because
the importers have won the day [and] the economic impacts of the loss of that
social amenity are often quite great for regional communities in particular.[19]
6.18
Furthermore, the CFMEU pointed out that there are potential national
security implications in sourcing certain types of paper from overseas. The
CFMEU referred to the Shoalhaven Paper Mill which is the only Australian paper
manufacturer with the capacity to make the secure paper used for Australian
passports and birth certificates.[20]
The CFMEU argued that if local capacity to manufacture secure paper is lost,
this paper will be sourced from overseas:
Not having a capacity to produce fine writing, newsprint and
especially security papers and documents [that are] as important to national
security as Australian passports is incompatible with Australia's essential
security interests.[21]
Procurement-connected policies
6.19
Concerns were raised with the committee that government agencies do not take
sufficient account of environmental sustainability in paper procurement.
Specifically, submissions and witnesses contended that procurement-connected
policies relevant to environmental sustainability were not being taken into
account in the assessment of value for money by government agencies.
6.20
As discussed in Chapter 5, there are 24 procurement-connected
policies. Finance's procurement guide, Buying for the Australian Government,
states 'officials are responsible for informing themselves of the policies that
apply to a specific procurement'.[22]
6.21
The two most relevant to the procurement of paper are the National Waste
Policy; and the ICT Sustainability Plan 2010-2015 (ICT Plan). Both policies are
administered by the Department of the Environment (Environment).[23]
6.22
The National Waste Policy sets out a policy aimed at producing less
waste for disposal, and managing waste as a resource to deliver economic,
environmental and social benefits.[24]
In particular, the policy contains a strategy to promote and embed sustainable
procurement principles in government procurement practice.
6.23
The ICT Plan requires agencies to adopt mandatory environmental
standards for information and communication technology (ICT) acquisitions.
Regarding paper, it stipulates government agencies must reduce average annual
paper use to nine reams per employee by July 2015,[25]
which, according to Finance, is on track to be fulfilled in the 2013-14
financial year.[26]
6.24
Moreover, the ICT Plan states this paper must:
...have a minimum post-consumer recycled content of 50 per cent
by July 2011, with progression to 100 per cent post-consumer recycled content
by July 2015.[27]
6.25
Additional requirements stipulate that non-recycled paper content should
come from wood that complies with Forest Stewardship Council (FSC) certified
sources, Program for the Endorsement of Forest Certification (PEFC) schemes or from
sustainably managed forests.[28]
Application of
procurement-connected policies
6.26
In its submission, the AFPA referred to the volume of imported copy
paper being used by Commonwealth agencies:
Overall, Australian Government agencies in 2011‐12 entered into
contracts for procurement of goods valued at $9.8 billion with Australian
suppliers and $8.8 billion with overseas suppliers (Department of Finance and
Deregulation, 2013), producing a ratio of 0.9 imported goods to every
domestically supplied good.
This implies that for copy paper, Australian Government
agencies are procuring 25 per cent more imported goods for every domestic good
than for the average of total goods sourced.[29]
6.27
AFPA argued:
[S]uch an outcome reflects a failure of Australian Government
agencies to fully implement the stated goal and aims of the Commonwealth
Procurement Rules, particularly with respect to assessing 'value for money' and
environmental sustainability for paper products.[30]
6.28
Mr Julian Mathers, General Manager External Affairs, Australian Paper,
argued that in interpreting the environmental sustainability of goods and
services to determine value for money in the CPRs, the application of the
relevant procurement-connected policies should be considered:
We look for guidelines under the Commonwealth Procurement
Rules regarding the types of things that should be taken into account in
environment, and we find that in other policies—sustainable procurement
policies, ICT guidelines and the rest of it. So yes, we say that there is a
direct connection, as we see it, between the Commonwealth Procurement Rules and
those other policies that guide how the procurement rules are to be
implemented.[31]
6.29
At the first public hearing, Mr Michael Stephens, Manager Strategic
Policy; Pulp and Paper, AFPA, told the committee that Commonwealth agencies generally
considered sustainable procurement too narrowly. He suggested that most
procurement officials thought they had fulfilled their obligations just by
using the SOS panel arrangements to buy paper meeting ICT Plan recycled content
requirements.[32]
6.30
Mr Dunn agreed, saying that some agencies felt meeting the ICT
guidelines was sufficient:
...the strong impression I get [from meetings with
departments] is that they feel that their task, from a sustainability
perspective, begins and ends with the ICT guidelines, which specify recycled
paper, 50 per cent post-consumer. Any additional issues about, say,
sustainability within that context are really not looked into any further.[33]
6.31
Mr Mathers told the committee this kind of limited assessment did not
consider the environmental benefits of using paper produced in Australia. He
stated:
There is just a simple proposition here, I think, which is:
you recycle product in Australia, you remove that product from landfill here
and you get all the benefits of that here—the carbon emissions and other
benefits of recycling. You bring it in from overseas and you do not get any of
those benefits.[34]
6.32
The environmental benefits were also emphasised by Mr Dunn:
Local recycled products reduce Australian landfill, but
landfill increases every time a ream of recycled paper is imported from
overseas.[35]
6.33
Mr Dunn suggested that consideration should be given in cases where the
government has provided funding to assist business to comply with relevant
procurement-connected policies. For example Australian Paper's Maryvale paper
mill was being redeveloped to comply with the ICT Plan recycling stipulations,
with a $9.5m co-investment by the government. Given government co-investment,
and the environmental and economic benefits of the mill, Mr Dunn asked why the
government was not more supportive of recycled paper produced in Australia.[36]
6.34
Mr Dunn concluded:
It is vital that the government fully applies its own
sustainability considerations as part of value-for-money procurement for copy
paper across all agencies so that the benefits of initiatives like the Maryvale
plant—which is a closed loop recycling solution, where we are taking full
responsibility for local wastepaper—can be more accurately assessed and valued.[37]
Compliance with standards in
procurement-connected policies
6.35
The committee heard assertions the sustainability of some imported paper
sold under the SOS panel arrangements could not be guaranteed, as regulatory
frameworks in Australia were more stringent than in other countries.[38]
At the first public hearing, Mr Hampton of AFPA informed the committee that his
organisation found 'time and time again that standards that are applied
rigorously in Australia are pretty much $10 stamps that you can buy in a market
in other countries'.[39]
Australian Paper gave the example that a basic term like 'recycled content' was
not defined consistently internationally, and imported products could contain
far less recycled content than Australian equivalents.[40]
6.36
The Department of Finance in its supplementary submission advised that
the SOS panel included all pertinent government environmental legislation and
policies, such as the ICT Plan. Therefore:
Agencies are able to purchase any copy paper product from the
SOS arrangement knowing it is compliant with...the ICT Sustainability Plan.[41]
Lack of tools to consider
sustainability issues
6.37
The National Waste Policy provides that:
Guidance on sustainable procurement such as standard
specifications and model contract clauses are available to procurement
officials within four years.[42]
6.38
That guidance is the Sustainable Procurement Guide, which was released
in 2013.[43]
Mr Michael Stephens, of AFPA, described the Sustainable Procurement Guide as 'very
generic, not very specific and not very practical in terms of interpretation'.[44]
6.39
Mr Ross Hampton, Chief Executive Officer of AFPA, stated there was a
lack of tools available for procurement areas to consider sustainability
issues, which also affected private sector businesses that wanted to understand
government procurement decisions:
AFPA believes there is a lack of robust risk assessment tools
and due diligence for the adequate consideration of sustainability issues. This
can have a direct impact on the way in which tenders are specified and
considered, which can also have a detrimental impact on domestic suppliers.[45]
6.40
Mr Edwards, of the Department of the Environment, provided the following
information on the Sustainable Procurement Guide:
The sustainable procurement guideline is simply a guide for
procurement officers. It is designed to help them understand the concept of
sustainable procurement. It does not require sustainable procurement, but it
helps them understand the value-for-money proposition in procurement. So the
role of that document is guidance; it is not designed to provide detailed risk,
to the level suggested, around sustainable procurement.[46]
[It] it is fair to say [the Sustainable Procurement Guide is]
not prescriptive. Sustainable procurement is very much in its infant days, and
the first step in that process was just helping to understand the concept. That
guideline goes a little bit further, which is to help them understand how you
might consider sustainable procurement principles as part of a general
procurement process. So it is very much a document to aid them to understand
that and start navigating those concepts.[47]
Conclusion
6.41
As detailed in both Chapters 5 and 6 of this report, this case study on
paper procurement has drawn out the lack of clarity about the application of procurement-connected
policies. It shows the responsible departments do not appear to have a clear
understanding of their role in monitoring the application of procurement-connected
policies and there is a lack of and whole-of-government reporting on the
application of these policies.
6.42
The committee has made a number of recommendations throughout this
report which, it believes, will address the issues detailed in this chapter. In
relation to determining value of money, the committee has recommended that the
ANAO look specifically at the application of the explanation for assessing
non-financial factors in the revised CPRs. This will determine whether the
revised guidance in the CPRs is clear and sufficient. The committee also
recommended that the ANAO look at the application of procurement-connected
policies. This will provide a clear baseline for the performance of agencies
and determine whether any further specific training and guidance is required.
The inclusion of reporting on procurement-connected policies in agencies'
annual reports will ensure lead agencies do more than just develop and publish
policies but also take an active role in monitoring and compliance. The
recommended audit of the procurement competencies of agencies will also ensure
appropriate targeting of education and information. To address the concerns
regarding the failure of imported goods to meet Australian standards, the
committee has recommended Finance provide training for agencies so they are
aware that tender documents can include a requirement that tenderers adhere to
relevant standards. Finally, the recommendation for an independent complaints
mechanism will ensure continuous improvement in procurement processes.
Senator Kate Lundy
Chair
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