Government senators' minority report
Introduction
1.1
The committee majority report contains recommendations that government
senators will support but others that we cannot support. The position of
government senators on each recommendation is outlined below and summarised in
the conclusion.
Commonwealth procurement framework
1.2
Government senators support the Commonwealth procurement framework which
forms part of the wider financial framework for agencies that come under the Financial
Management and Accountability Act 1997 (FMA Act) and prescribed bodies
under the Commonwealth Authority and Companies Act 1997 (CAC Act).[1]
Government procurement commitments from free trade agreements
1.3
The Commonwealth Procurement Rules (CPRs) incorporate the Australian
government procurement commitments from our Free Trade Agreements (FTAs),
including the Australia United States FTA (AUSFTA). Importantly:
These commitments provide access for Australian suppliers to
the government procurement markets of other countries, whilst also placing
obligations on the Commonwealth Government to open up access to our procurement
market. These commitments limit the extent to which the Commonwealth Government
can preference local suppliers.[2]
1.4
The Department of Finance (Finance) stressed that Australia's free trade
obligations require officials to ensure they do not discriminate on the basis
of location, among other things. Clearly, the assessment of value for money
cannot include direct consideration or comparison of the multiplier effect of
having products made in Australia and benefits such as local employment.[3]
1.5
To do so would be a very subjective exercise, prone to many contestable
assumptions and would necessarily need to factor-in retaliatory action that
would occur as a consequence. A number of firms are part of trans-national
ownership structures and therefore economic benefits that accrue to individual
firms are not always domestically contained. 'Second round effects' are seldom
accepted more generally in government policy costing processes, because of
uncertainty of their magnitude and timing – particularly as there can be strong
dispute over the choice of calculation methods or assumptions which ought to
apply. If 'multiplier' effects were used by Australia as a basis to support
trade barriers, we would have a weakened position from which to dispute
equivalent modelling by our trade competitors – even where the results derive
from highly contestable or even spurious methodology.
1.6
The conclusion that there is no latitude to discriminate based on
location was supported by Dr Nick Seddon, a lawyer and academic specialising in
government contracts, who responded to the question of whether the Australian
government is able to develop a policy of buying Australian products:
[T]here is no room to move on that because of the free trade
agreements that have been entered into by the Commonwealth government on behalf
of Australia, unless an exemption applies.[4]
1.7
Dr Seddon indicated that if the government were to develop 'buy
Australian' policies then it would risk the United States invoking the dispute
resolution procedures under the AUSFTA.[5]
It would also risk other countries that we have FTAs with from threatening to
do the same. This would lead to strains on diplomatic relations amongst our FTA
community and raise risk to future agreements that could otherwise widen
Australian market access. The greatest risk is that such policies could lead to
retaliatory action, including the revoking of certain parts of the FTA that
represent significant value to important Australian industries.
1.8
Some evidence raised US legislation which contains 'buy American'
provisions such as the Buy American Act 1933. Finance responded
We have conclusive evidence that they [buy American
provisions] do not apply to countries that are signatories of free trade
agreements with Australia, so they do not apply to Australian arrangements.[6]
1.9
In response to a discussion of these issues at recent Budget Estimates
hearings, the Minister for Finance, Senator the Hon Mathias Cormann, emphasised
the benefits of free trade and competition for Australian businesses and the
economy:
Australia's national interest to ensure that our economy can
grow as strongly as possible involves, as a trading economy, being an open
economy that is able to engage in trade with as many other economies as
possible. If we want to make certain judgements in Australia that make it
harder for us to trade with other nations around the world, then that is not in
our best interests as a nation. That would cost jobs and weaken economic growth
over time. Our interest as a government is to build a stronger, more prosperous
and more resilient economy where everyone can get ahead and where manufacturing
businesses can thrive and be competitive on an international level. The key
there is to generally reduce the cost of doing business in Australia, not to
provide artificial protections from competition.[7]
...
The Australian economy is best served in terms of
strengthening our economic prospects into the future by being an open economy,
by being engaged in international trade and by pursuing opportunities to export
goods and services from Australia by being competitive in Australia. In terms
of any domestic procurement here in Australia, we want Australian business to
be very successful, but you cannot artificially and through protectionist
measures give a leg up without breaching relevant international obligations.
That would not be justifiable.[8]
1.10
Government senators consider that there is already sufficient means in
our procurement rules to safeguard the interests of Australian suppliers and
small business, consistent with our international obligations. Additional
policies or mechanisms to give greater preference to Australian over foreign suppliers
in Commonwealth procurement can risk artificial barriers and protections
arising that stifle competition, innovation and value for taxpayers’ money.
Accordingly, the Government senators on the committee consider that
recommendation 2 is unnecessary. The Government should continue to improve
the available guidance on Australia’s agreements with our trading partners,
including our trade policy obligations and market access advantages that follow
from these agreements.
1.11
Australia’s circumstances as a resource-rich nation mean that our
standard of living is in large part based on being a free trading nation,
committed to global trade liberalisation. This is in our national interest. The
recently concluded Japan-Australia Economic Partnership Agreement (JAEPA)
strengthens ties with Australia’s second-largest trading partner and the
world’s third-largest economy. It affords Australia major concessions across a
range of areas, most notably services and agriculture, an area of traditional
sensitivity for the Japanese, as well as allowing access to the lucrative
Japanese government procurement market:
The JAEPA guarantees
Australian suppliers access to the Japanese government procurement market and
contains commitments that will ensure transparency and facilitate participation
in procurement processes.
Australian and Japanese
procuring entities have committed to not discriminate against the suppliers,
goods and services of the other Party [to the JAEPA] for procurements covered
by the Government Procurement Chapter [chapter 17 of the JAEPA][9]
1.12
It is important to adhere to our international trade agreements and
WTO. It is however also important to support local industry. As the US
example demonstrates above, it is possible to have both free trade and
processes in place to support Australian businesses.
1.13
Government senators strongly support the existing procurement guidelines
which meet Australia’s international obligations and consider that the
Government should continue to be vigilant in upholding our obligations. The
majority report did not present compelling evidence that there were systemic
failures in the application of the non-discrimination principle, as evidenced
for instance by investor disputes. Therefore Government senators also consider
recommendation 3 as unnecessary. Government senators would support an
orderly review of issues around non-discrimination, if sufficient evidence
arises of inadvertent discrimination or misapplication of the principle.
Exemptions
1.14
The Commonwealth's procurement framework includes a number of exemptions
from requirements for higher value contracts. Exemptions from the rules of
Division 2 of the CPRs contained in Appendix A enable the government to engage
directly with Australian industry, while ensuring the principle of achieving
value for money is met. The exemptions include procurements relating to:
-
property or accommodation (but not construction services);
-
motor vehicles;
-
suppliers that primarily exist to provide the services of persons
with a disability; and
-
suppliers that are SMEs with at least 50% Indigenous ownership.[10]
1.15
Other flexibilities are provided for under the AUSFTA. For example,
Finance advised that:
The Government procurement element of our international
agreements allows for policies that benefit Small and Medium Enterprises (SMEs).
The CPRs include a commitment for FMA Act Agencies sourcing at least 10% of procurement
by value from SMEs.[11]
1.16
Government senators note recommendation 5 of the committee majority
report that the CPRs be redrafted to provide an explicit exemption for practices
that benefit or preference small and medium business. Government senators
believe the current exemption for SMEs is sufficiently clear and effective, and
do not support recommendation 5.
Australian suppliers are competitive
1.17
Finance provided the committee with detailed analysis from AusTender of
the number of Australian suppliers in government procurement processes. Finance
indicated that 'Australian suppliers are competitive on their own merits in
winning contracts', and this includes our SMEs. In 2012-13:
-
67,854 contracts valued at $39.3 billion in total, were awarded;
-
of the 11,460 suppliers contracted, 10,212 (89.1%) were SMEs;
-
SME participation was 31.7% ($12.5 billion) of the total
contracts by value and 60.5% (41,032) of the total number of contracts; and
-
82.4% of goods and services by value purchased by the
Commonwealth Government are likely to have been sourced from Australian
suppliers, or in the case of services, delivered by Australian suppliers.[12]
1.18
Finance acknowledged the technical difficulty in determining whether
goods or content are sourced from 'Australian' suppliers.[13]
However, Finance stated that, despite these limitations, Australian suppliers
are competitive:
Australian suppliers... win the vast majority of Commonwealth
contracts without the need for restrictions or other mechanisms that may impact
these same businesses competing overseas. For instance, Australian and New
Zealand small to medium enterprises win more than half of government contracts,
some 60 per cent of those awarded each year.[14]
1.19
The majority report does not make clear the end to which enhanced
information on Australian content would be put. The one apparent benefit
intended would be to have better statistical information collected by the
Australian Government on the extent to which procured supplies are
Australian-made. Unfortunately, such a proposal could easily give rise to
unintended adverse consequences, particularly for small business. The proposal
would also give rise to new issues of data reliability. Further, the case has
not been well made that ABN data gives false information when it is aggregated
for statistical purposes.
1.20
Potential costs would include additional red tape imposts for business
to provide the necessary data/information and perform any necessary analysis or
IT changes to report new data (eg in invoices and in internal record-keeping).
1.21
Australian content calculations would be in many cases difficult to
hypothecate and to ensure consistency. This would arise from difficulty in tracing
business inputs through complex supply chains – this entails complexity in how
far down the production chain Australian content is looked at and how issues of
input-costs are weighed against data on ownership and control of a company.
Australian content and control can change over time within a firm, or a
contract and tracking such changes will therefore have costs.
1.22
The extra hurdles would represent a particular challenge for smaller,
less sophisticated, firms. It would also entail higher cost for small
transactions, which would be disproportionate to the benefit of greater data
collation. This could easily have the unintended consequence of shutting out
small and medium Australian suppliers by creating a difficult and costly hurdle
for them to comply with (and especially relative to their bigger and better
resourced competitors). Reporting regimes that advantage some competitors over
others can, with pressure applied over time, ratchet up and become increasingly
onerous.
1.23
There would also be issues of data integrity, as some firms may
incorrectly perceive advantages from misreporting, even though the data would
not be intended for preferencing purposes (and if it were, the incentives to
misreport would be even greater). At the Government end, procurer agencies
could easily face costs and challenges to verify, interpret, aggregate and
evaluate in-bound data.
1.24
Costs for both business and government could be resource-intensive, at a
time where resource-constraints mean that better returns on effort lie elsewhere.
Such a data-collection exercise would be better justified if it were connected
to a different purpose than a statistical one, for instance determining
business residency for tax compliance purposes.
1.25
Government senators support the use of the Australian Business Number to
determine the quantity and value of contracts awarded to Australian suppliers.
As the Department of Finance stated in evidence to the committee, to seek
further information from tenderers in order to determine the percentage of
local content of goods and services will impose an unreasonable onus on suppliers.
Further, the provision of such information is irrelevant to Commonwealth
procurement processes, given Australia's commitment to the non-discrimination
principle. Government senators therefore do not support recommendation 1,
because such additional data would have limited statistical value, while adding
compliance costs to business and putting small business at a competitive disadvantage.
1.26
Government senators agree that the evidence indicates Australian
suppliers, including our SMEs, are able to be competitive in government
procurement processes, without a need to introduce preference policies which
would harm their prospects in overseas markets.
Consideration of non-financial factors
1.27
Government senators also support value for money as the core principle
of the CPRs. However, the CPRs are clear that cost is not the sole determining
factor when assessing value for money. A number of non-financial factors to
consider are listed:
-
fitness for purpose;
-
a potential supplier’s experience and performance history;
-
flexibility (including innovation and adaptability over the
lifecycle of the procurement);
-
environmental sustainability (such as energy efficiency and
environmental impact); and
-
whole-of-life costs.[15]
1.28
Finance, which is responsible for the procurement framework, told the
committee that in its view the consideration of non-financial factors is
supported by the procurement framework:
Contrary to some of the statements made in the submissions,
in our view, while achieving value for money is the core principle of the CPRs,
the procurement framework supports the consideration of non-financial factors
and not just the price of goods and services. For example, procurement
officials are expected to consider a range of factors during a tender
evaluation. These include fitness for purpose, flexibility, environmental
impact and whole-of-life costs, rather than simply the supplier with the lowest
bid.[16]
1.29
While the intent for financial and non-financial factors to be assessed
in determining a procurement outcome is clearly included in the CPRs, the
committee heard from the ANAO of the difficulties faced by officers in making
such assessments:
They [non-financial factors] are weighted as part of the
procurement process. Each procurement process would be different and would
establish criteria before going out to the market to determine what is most
important in the value-for-money considerations. But there are broad guidelines
in the CPRs about what considerations need to be made.
...
I think it would be different in every case [to assess value
for money over the whole life of a procurement] but there are broad parameters
that should be considered. What attains the greatest weight in the decision
process depends on the circumstances and the need.[17]
1.30
Government senators note the National Commission of Audit suggested a
more sophisticated approach to determining value for money:
A more strategic approach to procurement is also needed to
provide value for money. The interpretation of value for money should reflect a
more rigorous and sophisticated approach that looks beyond simple cost per day
or cost per unit. A better approach would take into account outcomes, benefit
and importantly risk relative to price.[18]
1.31
The committee heard that the CPRs were in the process of being revised
to reflect the commencement of the Public Governance, Performance and
accountability Act 2013 (PGPA ACT) on 1 July 2014. The opportunity is also
being taken to address concerns raised by the ANAO during its audits in
relation to assessing value for money and record keeping. It is proposed that
'the quality of goods and services' be included in the list of financial and
non-financial costs and benefits used to assess a procurement. There is also an
expansion to the explanation of the concept 'whole of life costs' (inclusive of
licensing costs, after-market modules and consumables).[19]
1.32
The recently revised Commonwealth Procurement Guidelines provide extra
guidance around assessing whole of life costs (including a list of factors or
criteria to consider). It would be appropriate to allow the opportunity for
agencies to apply this guidance in practice, before presuming that a more
specific and rigid methodology for application in whole-of-govt procurement
would be a better approach. Whole of life costs are highly dependent on facts
and circumstances that can vary widely between different product types and
purchasing contexts. For instance, capital acquisitions versus contracts for
labour services have very different accounting treatments and there can be
complex legal questions about attribution of costs for tax and accounting
purposes.
1.33
Government senators consider that resources would be put to better use
by continuing to improve guidance, training staff and sharing insights and
experiences that help agencies in their often unique circumstances.
1.34
Government senators agree that 'each procurement process is different'.[20]
Agencies need to be able to respond to the different circumstances in place and
weight the various value-for-money considerations, depending on the context of
the procurement. Therefore, Government senators believe that procurement
processes and the assessment of tenders needs to be flexible and adaptable. It
would be unwise to constrain the assessment of tenders by adopting, what would
appear to be, a one-size-fits all methodology for quantifying the factors to
assess whole-of-life costs. Accordingly, Government senators consider that recommendation
7 is unnecessary.
1.35
However, Government senators are cognisant that the Australian
government has a responsibility to Australian taxpayers to ensure that all
procurement delivers the best possible value to taxpayers. Government senators
support the revisions to the CPRs to provide further guidance and clarity for
the assessment of financial and non-financial factors in procurement decisions.
Government senators therefore support recommendation 8 of the committee
majority report for the ANAO to assess the operation of the revised CPRs.
Procurement capabilities
1.36
Questions were raised about the training and technical capabilities of
procurement officers.[21]
While saying there are very good examples of procurement occurring in a
professional way, the ANAO also conceded there are examples which point to a
lack of expertise.[22]
1.37
The Commission of Audit also highlighted the need to improve
competencies in this area:
Associated with this reform is a need to build the skills and
capabilities of the public sector to enhance competencies around good
contracting.[23]
1.38
The inquiry received significant evidence that indicates there are
issues with the process of procurement; application of existing CPRs; culture
within departments; capacity within some sections of government; and
consistency of application across government.
1.39
It was identified by Lynne Wilkinson, CEO, the Australian Companies
Institute Limited (AUSBY) that:
...the process of
making application can be quite difficult for businesses. It is
overcomplicated when it comes to even making the application. These businesses
are oftentimes hands-on businesses. They do not have someone they are paying
$300,000 a year to fill out government procurement legalese paperwork.[24]
1.40
During the hearing concerns were raised that the process of making and
application in a procurement exercise is overcomplicated and lengthy;[25]
and requires a more simplified and straightforward procurement, 'a low cost of
compliance type process and activity where businesses can have an opportunity
to put forward their best case in a reasonably low-cost arrangement'.[26]
The Government Senators acknowledge that the Government has released a
Commonwealth Contracting Suite of simpler and standardised documents for
procurement under $200,000.
1.41
Throughout the inquiry, some departments struggled to explain how their
purchasing decisions are judged as valuable beyond a value-for-money
assessment. The ANAO has observed that the documentation kept to support
decisions can sometimes fail to explain how factors were weighed:
One of the key
failings that we have identified is that often, when they 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.[27]
1.42
There is an over-complicated process. Across different procuring
agencies, there are different styles and requirements for the application,
which makes it frustrating and difficult for those outside the process,
applying for assistance:
Each procurement is
done on the basis of essentially a statement of requirements against which the
potential tenderers produce a response. An evaluation is made of those things
and a delegate essentially is presented with an evaluation of one sort or
another that says that this is the relative performance of those people
tendering and this is the one that presents the best value for money. The
criterion for value for money would quite clearly vary between different sorts
of procurements, but those things are made each time and tenderers are given
feedback as to why they were not successful.[28]
1.43
Government senators therefore support recommendation 15 in the
committee majority report for the ANAO to conduct an assessment of the
competencies of agencies' procurement officers to determine whether additional
training is required. This however need not necessarily be via an ANAO exercise
and could be done by another competent assessor – provided the assessment is
independent and a consistent methodology is applied. The related ANAO review
proposed at recommendation 13 is one that we consider is potentially premature
(see paragraph 1.69).
Ensuring standards
1.44
Government senators acknowledge the concerns raised about ensuring
overseas goods meet Australian standards. A relatively simple solution to this
was suggested by Dr Nick Seddon who advised the committee that it would be
possible to include in tender documents a requirement that tenderers adhere to relevant
standards. Dr Seddon indicated that he did not believe this was occurring on a
regular basis:
I know that it is done sometimes, but I do not think it is
systematic. It is a bit sporadic. It depends on the type of purchase,
obviously. But it would be possible to, in a sense, raise the standard so that
you as a tenderer must conform to these standards. Australian companies then
would not be disadvantaged.[29]
1.45
Dr Seddon discussed with the committee whether overseas tenderers would
have a legitimate complaint if such specifications were included in tender
documentation:
There would be a remote possibility that a foreign company
could then say, 'You are now erecting a form of barrier to trade.' This has
happened in the past with lots of imported products. They claim that it is not
a fair competition because Australia erects a barrier based on health... It is
a possibility that if Commonwealth agencies insisted on certain standards
somebody could complain. They would have to complain in the international forum...
But my view about that is that if the Australian government
wants to set a high standard then it is perfectly free to do so. The chance of
a challenge occurring under the processes of the free trade agreement is
extremely low, I would think. Secondly, I think Australia could stand up and
say, 'This is legitimate standard setting. It is not discriminating against
foreign companies. All they have to do is meet the standard.'[30]
1.46
In response to this issue, Finance responded:
It is inaccurate to say that overseas suppliers are not
required to meet the same policies, regulations and standards as Australian
manufacturers. Procurement contracts can only be awarded to suppliers who
satisfy any relevant Commonwealth policies, including regulations. In
prescribing standards, Commonwealth agencies must do this in a
non-discriminatory manner and may use Australian standards. These requirements
are captured in the Commonwealth Procurement Rules and reflect the Financial
Management and Accountability Regulations 1997 that the spending of public
money cannot be approved where it is inconsistent with Commonwealth policy.
Hence, if an overseas supplier is not compliant with a particular standard as
specified in tender documents, the agency is not required to award a contract.[31]
1.47
Mr John Sheridan, First Assistant Secretary, Technology and Procurement
Division, Business, Procurement and Asset Management Group, Department of
Finance, confirmed:
[A] procuring agency can apply the qualifications or the
requirements that they might have for a particular procurement of any
reasonable amount. So they might say not ‘that you have to have an Australian
certification because that may well discriminate against an overseas supplier’,
but it would be quite legitimate to say ‘you should have an Australian
certification or the equivalent or prove the equivalent.’ That would be
reasonable in those circumstances and meet our Commonwealth procurement
requirements and of course free trade agreement requirements.[32]
1.48
Government senators support, where relevant, including qualifications or
requirements for particular procurements where appropriate and necessary to the
needs of the Australian Government as a purchaser. Given the importance of
ensuring that standards are appropriately incorporated in procurement, we support
recommendation 6 of the committee majority report. That said, we must
remain vigilant against requiring standards that, in a back-door way, have the
underlying objective of erecting unnecessary barriers to potential foreign
supply, competition and innovations.
Addressing complexity
1.49
The committee heard that reducing the complexity of procurement
documentation is a continuing focus for Finance.
CPRs
1.50
Mr Sheridan addressed the issues raised about complexity of the CPRs:
My point would be that the Commonwealth Procurement Rules are
only 33 pages or so in length. They are not particularly long. The
language is quite clear and was rewritten in 2012 to make it more so. I do not
think that they are as difficult as, perhaps, some people suggest.[33]
1.51
Mr Sheridan informed the committee about the 2012 review of the CPRs
which focused on clarification:
The most recent review of the CPRs was conducted in 2012. The
review was a collaborative process with senior procurement officials, CFO areas
from agencies and the Audit Office. The 2012 CPRs update included clarification
of mandatory requirements for all procurements to ensure consistency, clarify
certain terminology and redefine the procurement methods as recommended by the [Australian
National Audit Office (ANAO)] in their 2011 audit on direct source procurement.
Through our engagement with senior agency procurement officials, we regularly
review the content and readability of procurement related materials and improve
them as required.[34]
1.52
Mr Sheridan emphasised that the intended audience for CPRs are
government officials engaged in procurement:
It is worth noting that the primary audience for the CPRs is
government procuring officials. Because of this, the CPRs are transactionally
focused and balance the need for clarity of rules whilst maintaining a level of
flexibility for agencies to support the CPRs with their own internal
procedures. This allows agencies to undertake processes that are commensurate
with the scale, scope and risk of the procurements involved.[35]
1.53
Mr Sheridan also referred to the 'wide range of web guidance to assist
agencies to implement the procurement framework', as well as a procurement
training program for agency staff. Further, Mr Sheridan also noted that advice
for potential suppliers is available on the web in Selling to the Australian
government – a guide for business[36]
which 'provides practical advice for potential suppliers, such as how to find opportunities
and submit competitive tenders'.[37]
1.54
Government senators note that Finance recently issued revised and
updated CPRs to reflect the commencement of the PGPA Act from
1 July 2014 which also provided some further guidance and clarity to
the rules.
Contract documentation
1.55
Finance indicated that work has also been undertaken to simplify
contract documentation. In 2011, following requests from industry and
government agencies, a 'simple standardised contract for low-risk, low-value
procurements (under $80, 000)' was developed by Finance.[38]
1.56
Mr Sheridan also referred the committee to the Commonwealth's recently
released contract suite of standard terms and conditions:
In regard to the Commonwealth contracts suite, [the
Department of] Finance has developed a set of standard terms and conditions for
low-risk procurements under $200,000. It was launched by the Minister for
Finance and the Minister for Small Business [on 19 March 2014] as part of the
red-tape repeal day announcements. The new Commonwealth contracts suite
replaces the old basic contract suite and increases the threshold for eligible
contracts to $200,000. In 2012-13, 84 per cent of the contracts reported
on AusTender were below $200,000. The vast bulk of government contracts thus
will now be able to go through this new simplified process.
The new contracts suite is much more user friendly, with
easy, intuitive online templates that will remove the need for legal advice
every time one tenders. It is a maximum of 14 pages long and the standard terms
and conditions fit on five pages...
A key feature of the suite is the standard liability,
indemnity and insurance clauses, which have been significantly simplified. The
contract suite is currently being rolled out across Australia to agencies and
businesses and will be operational from 1 July this year.[39]
1.57
Government senators acknowledge the work undertaken by Finance to
address complexity by simplifying documentation where possible and ensuring
information is targeted to particular audiences. Government senators welcome
the new contracting suite for low-risk procurements under $200,000. This offers
a significant red tape saving. Government senators support recommendation 9
of the committee majority report, for any necessary adjustments which become
evident in the early stages of implementation to be made to the contracting
suite.
1.58
Government senators also note the government's commitment to reduce the
regulatory burden on Australian industry:
The Commonwealth is also seeking to minimise any unnecessary
burden on suppliers created by procurement connected policies. A recent example
of this is the Government's announcement on 19 March 2014 to repeal the Fair
Work Principles.[40]
1.59
Government senators support recommendation 10 in principle, in
the sense that government should continually strive to use best practice in its
processes. However, government senators can only support this recommendation in
principle rather than in full, because the recommendation does not specify
exactly which jurisdictions the government should use as examples nor does it
provide further details of proposals to streamline the tender process.
Complaints processes
1.60
Finance told the committee about the avenues available to business to
complain about a procurement process. The committee heard that in the first
instance complaints should be raised by approaching the agency involved in a
tender.[41]
Principles agencies are required to apply when dealing with tenderers'
complaints are available on the Finance website.[42]
Complaints can also be made to the Australian Government Procurement
Coordinator:
First of all, we would recommend that people with a concern
speak to the agency involved, but as the procurement coordinator I am tasked
with addressing issues for people who have complaints. Also, if they are not
satisfied with that particular avenue, they can pursue other avenues such as
the Ombudsman and things like that.[43]
1.61
Mr Sheridan noted the infrequency with which complaints are brought to
the procurement coordinator:
I note that since August 2011, the Australian government
procurement complaints function has only been utilised nine times. In providing
assistance to business [in my procurement coordinator and the Australian
Government Chief Technology Officer] roles, I meet regularly with vendors,
three to four times a week, to discuss general procurement issues as well as [Information
and Communications Technology]-specific issues. These vendors range in size
from small and medium-sized enterprises right through to large corporations.
Vendors rarely use such opportunities to raise concerns about the procurement
process.[44]
1.62
The committee was informed that any complaints about
procurement-connected policies should be directed to the lead
agency.[45]
1.63
Given the number of avenues and opportunities open to people with
complaints, and the very low number of complaints received, government senators
are perplexed as to what evidence the committee majority is relying on that
demonstrates the urgent need for a new complaints mechanism to be developed.
Government senators therefore do not support recommendation 11 in the
committee majority report.
1.64
Prior to the last election, the Liberal party pledged a 'root and
branch' review of competition policy. Following the election, the government
established an independent review, chaired by Professor Ian Harper, which is
due to provide its final report to government within 12 months.[46]
Government senators believe that until the outcome of that independent review
is made public there is little value in debating the operation of the Competition
and Consumer Act 2010. Therefore, Government senators are unable
to support recommendation 12, pending the outcome of the independent
competition policy review.
Evaluation of programs and policies to assist industry
1.65
The Commission of Audit recommended the abolition of all
procurement-connected policies:
There are currently 24 procurement [connected] policies in
operation. They range from Coordinated Procurement to Australian Industry
Participation Plans and include various environmental policies, such as the
National Waste Policy.
While some are directly [connected] to procurement
activities, others have no connection with procurement and seek to put into
effect other policy objectives (including equal opportunity employment
objectives). These policies contribute a significant amount of red tape for
both business and government, are often of questionable benefit and can run
counter to the principle of value for money.
The Commission considers Procurement Connected Policies
should be abolished as procurement practices are already subject to the normal
laws of Australia. They also represent unnecessary red tape and can be an
inefficient means of meeting broader policy objectives at high cost to
business.[47]
1.66
Finally, some on the Committee were concerned for the future of the
Australian Industry Participation (AIP) programs and policies – which include
AIP Plans in government procurement, Enterprise Solutions Program, Supplier
Advocates and the Buy Australia at Home and Abroad Initiative. These
programs are to be discontinued, with focus shifting to supporting the
commercialisation of innovation, job creation and lifting the capability of
small business, delivered through a single agency to achieve efficiencies and
reduce red tape. The discontinuation of these programs will not act as a
brake on Australia’s economic growth and diversity.
1.67
The 2014-15 Budget included termination of a number of industry
assistance programs to repair the Budget and fund policy priorities. Industry
assistance by its nature can create distortions and unfairness between
businesses which enjoy assistance and the majority who do not. AIP programs
which are under review are being examined to determine the costs, benefits
appropriateness and effectiveness of those initiatives. Government senators
consider that such an assessment is appropriate, particularly in light of the
Commonwealth Budget debt and deficit challenges.
1.68
Reducing regulatory burden for business is the key to increasing
competitiveness. Many domestic businesses are subject to not only
regulation surrounding federal legislative requirements, but local by-laws and
State government regulation as well as environmental standards, labour laws and
planning regulations. These laws and regulations all inhibit the capacity of
business to compete internationally.
1.69
Government senators note that the government is undertaking an
evaluation of the 'costs, benefits, appropriateness and effectiveness of
existing [Australian Industry Participation] policies and programs'[48]
and believes that it is a sensible course of action to review the current
plethora of policies and programs designed to support Australian industry to
engage with government. We must ensure programs and policies are well-targeted,
efficient and cost effective. Government senators therefore do not support
recommendation 4 of the committee majority report. Until the evaluation of industry
participation policies and programs has been completed, government senators are
unable to support recommendations 13 and 14.
Procurement of paper
1.70
Government senators note that the assertions made by the CFMEU around
the procurement of paper have been addressed by Finance in its supplementary
submission[49]
as well as in submissions from the Department of Human Services,[50]
IP Australia,[51]
Complete Office Supplies,[52]
and Office Max.[53]
Government senators note the effectiveness of a whole of government arrangement
with the Stationery and Office Supplies (SOS) Panel. Finance advised:
[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.[54]
1.71
Finance explained the benefits of this arrangement:
The SOS arrangement is providing efficiencies and benefits
through a single government approach to market and tender evaluation process,
consistent contract processes and determination.[55]
1.72
Finance confirmed what factors were taken into account during its
assessment of value for money:
In establishing the SOS arrangement, Finance conducted a
value for money assessment, in accordance with the Commonwealth Procurement
Guidelines 2008, to determine if Tenderers offered value for money. The
assessment took into account factors such as the Tenderers’ capabilities,
price, ability to comply with government policy and capability to provide the
range of goods and services requested.[56]
1.73
Finance also confirmed that agencies can purchase copy paper product
from the SOS arrangement knowing it is compliant with all relevant government
environmental legislation and policies, such as the ICT Sustainability Plan:
The SOS arrangement has 84 copy paper products that are used
by agencies for day-to-day copying, which includes a range of A3 paper and
paper used in agency print rooms. Each of these 84 products has recognised
environmental chain of custody certification, such as the Forest Stewardship
Council (FSC), the Program for the Endorsement of Forest Certification (PEFC)
or the Australian Forestry Standard (AFS). Agencies are able to purchase any
copy paper product from the SOS arrangement knowing it is compliant with Environmental
Standard 4 (ES4) of the ICT Sustainability Plan. Further, Copy paper
environmental compliance is audited annually.[57]
Conclusion
1.74
Our free trade agreements such as the AUSTFA provide Australian
companies with access to international markets and opportunities to export
Australian goods and services. This access comes with obligations including
non-discrimination on the basis of location. Government senators support this
mechanism to encourage competitiveness on an international level over putting
in place artificial protections.
1.75
Government senators consider that the application of the
non-discrimination principle is not harmful to Australian interests, but
recognise that there may have been failure in some areas to fully capitalise on
the exemptions provided for within Australia's free trade agreements. In
particular, government senators note our international agreements allow for
policies that benefit SMEs and the CPRs contain a commitment for agencies to
source at least 10 per cent of procurement by value from SMEs.
1.76
The committee majority report appears to ignore the evidence that
Australian suppliers, including our SMEs, are competitive in winning government
contracts. Nearly 90 per cent of the suppliers contracted in 2012-13 were SMEs
and over 80 per cent of those goods and services procured were (likely to have
been) sourced from, or delivered by Australian suppliers. This is not evidence
indicating a systemic problem that Australian suppliers are not winning
government contracts.
1.77
Government senators support the ANAO assessing whether any further
improvements in guidance for agencies is required in relation to ensuring
financial and non-financial factors are taken into consideration. However, it
is evident that Finance already has in place mechanisms to respond to issues
highlighted in ANAO reports. The latest revision of the CPRs to reflect the
commencement of the PGPA Act from 1 July 2014 was also used to incorporate
revisions suggested by the ANAO. These revisions were the subject of consultation
with industry.
1.78
Government senators also support the ANAO or another competent authority
assessing the competencies of agencies' procurement officers.
1.79
However, government senators struggle to see how the committee majority
report can reach some of the conclusions it does based on the evidence provided
to the committee, particularly in relation to procurement complaints. The
committee heard of the low level of complaints to the procurement coordinator
and, despite this evidence, is recommending a new independent complaints
mechanism. Government senators do not believe the evidence presented to the
committee on the level of complaints warrants the establishment of a new and
costly complaints handling mechanism.
1.80
Government senators note the review of procurement-connected policies
underway. This is a sensible approach to ensuring assistance to industry is
targeted and efficient as well as cost effective.
Summary of positions on committee majority recommendations:
|
Recommendation 1
|
Do not support, because additional data would have limited
statistical value, while adding compliance costs to business and putting
small business at a competitive disadvantage
|
|
Recommendation 2
|
Consider the recommendation unnecessary
|
|
Recommendation 3
|
Consider the recommendation unnecessary
|
|
Recommendation 4
|
Do not support
|
|
Recommendation 5
|
Do not support
|
|
Recommendation 6
|
Support
|
|
Recommendation 7
|
Consider the recommendation unnecessary
|
|
Recommendation 8
|
Support
|
|
Recommendation 9
|
Support
|
|
Recommendation 10
|
Support in principle, given that the recommendation does
not specify exactly which jurisdictions the government should use as examples
nor does it provide further details of proposals to streamline the tender
process
|
|
Recommendation 11
|
Do not support
|
|
Recommendation 12
|
Unable to support, pending the outcome of the independent
competition policy review
|
|
Recommendation 13
|
Unable to support, pending outcome of evaluation of industry
participation policies and programs
|
|
Recommendation 14
|
Unable to support, pending outcome of evaluation of industry
participation policies and programs
|
|
Recommendation 15
|
Support, noting however that this assessment need not
necessarily be conducted through the ANAO.
|
Senator Cory Bernardi Senator
Dean Smith
Deputy Chair Senator
for WA
Senator Bridget McKenzie
Senator for Victoria
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