Chapter 2Policy settings for tech procurement
2.1Government procurement is big business. In 2022–23, the Commonwealth spent $74.8 billion on goods and services across 83 625 contracts.
2.2Procurement is one of the most important economic levers available to the Australian Government, allowing it to use its significant purchasing power to support businesses to deliver better value for money, grow the local economy and strengthen our domestic industry and manufacturing capability.
2.3While tech procurement is not restricted to a single procurement category currently used by the government, the Department of Finance estimates it accounts for around 20 per cent of total Commonwealth expenditure reported on AusTender, including annual expenditure of more than:
$4.9 billion on computing services;
$2.8 billion on aerospace systems and components and equipment;
$2.1 billion on components for information technology or broadcasting or telecommunications;
$1.2 billion on software; and
$1.1 billion on communications devices and accessories.
2.4Further, there are indirect tech intensive inputs across the majority key procurement categories through the significant use of and reliance on technology to support their development and functioning.
2.5This chapter provides an overview of the current procurement policy settings across the Australian Government and examines their effectiveness in supporting Australian tech companies that supply the government with tech goods and services.
Commonwealth Procurement Framework
2.6The Commonwealth Resource Management Framework (RMF) consists of the legislation and policy governing the management of the Commonwealth's resources. Under the RMF is the Commonwealth Procurement Framework (CPF) which outlines the principles and rules guiding officials' use of public funds related to the procurement of goods and services.
2.7The Commonwealth Procurement Rules (CPRs) are the core of the CPF and are issued by the Minister for Finance under section 105B(1) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act).
2.8The Department of Finance is the agency that has stewardship of the CPF. However, the devolved framework delegates responsibility to undertake due diligence activities to the procuring agency. The department provides an advisory function but does not conduct compliance activities with respect to the CPRs.
2.9The CPRs set out the rules that officials must comply with when they procure goods and services, including the need for procurements to achieve value for money, encourage competition, ensure proper use and management of public resources, and ensure accountability and transparency in procurement activities.
2.10Achieving value for money is at the core of the CPRs as it is critical in ensuring that public funds are used most efficiently, effectively, ethically and economically. Price is not the only factor when assessing value for money, and the CPRs require officials to consider a range of other relevant financial and non-financial costs and benefits.
2.11In addition to the CPRs, the CPF also includes web-based guidance to support implementation, such as Resource Management Guides advising of updates and templates to create uniformity across Commonwealth contracts.
2.12The CPRs are non-discriminatory and operate within the context of relevant national and international agreements and procurement policies to which Australia is a signatory, including free trade agreements. As such, potential suppliers are required to be treated equitably based on their commercial, legal, technical and financial abilities and not be discriminated against due to their size, degree of foreign affiliation or ownership, location, or the origin of their goods and services.
2.13The CPRs contain some exemptions to directly engage a small and medium enterprise (SME) for procurements valued between $80 000 and $200 000 for government organisations, or between $80 000 and $500 000 for the Department of Defence specifically, provided value for money can be demonstrated.
2.14The CPRs also include targets for non-corporate Commonwealth entities to source at least:
20 per cent of procurement by value from SMEs; and
35 per cent of contracts, by value, with a value of up to $20 million from SMEs.
2.15In 2022–23, SMEs were awarded 27.3 per cent by value of all procurement contracts and 40.8 per cent by value of all contracts up to $20 million – exceeding both targets.
2.16At the public hearing, the Department of Finance advised the committee that it is currently undertaking a review of confidentiality and conflict of interest procedures across government procurements, grants and other financial arrangements. This review was announced on 6 August 2023, in response to the PwC tax leaks scandal, as part of a broader a package of reforms intended to address supplier misconduct.
2.17The committee received a range of evidence relating to the management of conflicts of interest in Commonwealth procurement as part of the inquiry into management and assurance of integrity by consulting services, and has recently made recommendations that the Department of Finance:
review its guidance on the management of conflicts of interest; and
develop a central register for conflicts of interest breaches for use by government entities.
A 'conga line' of reports on procurement
2.18There is no shortage of commentary on the shortcomings of Commonwealth procurement generally. A range of Parliamentary inquiries and Australian National Audit Office (ANAO) audits have highlighted a variety of issues and deficiencies relating to the design and implementation of Australia's procurement framework.
2.19In general, inquiries into Commonwealth procurement have followed the broad observation that there is:
a lack of procurement capability in the Australian Public Service (APS);
widespread non-compliance;
a general misinterpretation of value for money as lowest cost; and
inconsistent record keeping and AusTender reporting.
2.20The extent of these issues are far beyond the scope of this inquiry, but well documented elsewhere.
2.21Most recently, in the foreword to the Parliamentary Joint Committee of Public Accounts and Audit's report for the inquiry into Commonwealth procurement (the PJC inquiry) the Chair, Mr Julian Hill MP, signalled that:
This report is the latest in a conga line of reports addressing aspects of procurement but this time recommendations for systemic change are made.
2.22Though several of the 19 recommendations made in the PJC inquiry report appear to relate to work underway across the Commonwealth, including the Buy Australia Plan (BAP), to improve capability, transparency and compliance in procurement, it may be premature to suggest that the 'conga line' will not continue on.
2.23The BAP, which aims to build domestic industry and manufacturing capability by leveraging the Commonwealth's purchasing power, is discussed later in this chapter.
The Digital Transformation Agency
2.24The Digital Transformation Agency (DTA) is responsible for providing strategic and policy leadership on whole-of-government and shared information and communications technology (ICT) investments, and digital service delivery.
2.25The DTA was first established as an executive agency in 2015 as the Digital Transformation Office. As of July 2022, the DTA sits within the Finance portfolio.
2.26The DTA's Corporate Plan 2023–24 covers the period 2023–27 and outlines four strategic objectives, including to:
lead Government's digital transformation strategy through our co-delivery of the Data and Digital Government Strategy and Implementation Plan, as well as leadership in policy design, strategy, advice and alignment to whole-of-government architecture;
oversee the short, medium, and long-term whole-of-government digital and ICT investment portfolio;
manage whole-of-government digital and ICT strategic sourcing and contracts; and
be a valued employer with the expertise to achieve our purpose.
2.27The DTA is a non-corporate Commonwealth entity and is subject to the CPRs and the PGPA Act.
The BuyICT platform
2.28The DTA is responsible for administering the BuyICT.gov.au (BuyICT) platform, formerly the Digital Marketplace, which aims to provide Commonwealth, state, territory and local government buyers with streamlined access to marketplaces and panels to buy digital products or services via a single digital platform.
2.29BuyICT is an initiative under the National Innovation and Science Agenda, with the intended purpose of making it easier for SMEs and indigenous businesses (IB) to compete for the Australian Government's ICT products and services.
2.30Currently, the BuyICT platform includes six marketplace panels:
Cloud Marketplace
Data Centre
Digital Marketplace
Hardware Marketplace
Software Marketplace
Telecommunications Marketplace
2.31In March 2024, a second Digital Marketplace Panel was announced, which aims to provide improved access to ICT labour hire and ICT professional and consulting services vendors. The forthcoming second Digital Marketplace Panel will be available to all federal, state, territory and local government agencies, including government universities and government-owned corporations.
2.32In 2023, the DTA's panels supported:
3678 sellers across all DTA marketplace panels, of which over 2950 are SMEs and 73 are IBs;
36 942 invitations to sellers to quote, with 67.4 per cent of these invitations sent to an SME, and 9.5 per cent sent to an IB; and
$3.7 billion in contracts, of which $1.6 billion (or 43.76 per cent) went to SMEs and $99.4 million (or 2.66 per cent) went to IBs.
Digital Sourcing Framework
2.33The Digital Sourcing Framework (DSF) sets the foundation of how the Australian Government buys digital products and services. The DSF is a set of principles, policies and guidance that aims to support effective procurement of digital products and services. The DSF is comprised of four policies set out below:
Consider First Policy;
Panels Policy;
Fair Criteria Policy; and
Digital Sourcing Contract Limits and Reviews Policy.
2.34The Consider First Policy guides agencies through early consideration of important factors that help investments meet their intended outcomes. Anassessment tool is provided to help agencies focus on these factors early in a digital investment. This policy supports Australian tech companies by ensuring procurement approaches to market released by the Australian Government are clearly articulated in terms of the outcomes sought, allowing a wider range of vendors to respond to clear criteria. It also encourages agencies to engage early and consult widely on their technology needs, including with industry.
2.35The Panels Policy aims to encourage competition and make using panels easier and clearer for buyers and sellers. It helps Australian Government buyers use digital panels and enables new sellers to join panels more often. As outlined above, the DTA has established six marketplace panels for the purchase of hardware, telecommunications, software, cloud, digital services, and data centres; as well as seven arrangements that coordinate Australian Government purchases for technology and software that is widely used across the Australian Public Service (APS). Marketplace panels and arrangements are accessible through BuyICT and enable government buyers to procure sovereign capability from the Australian tech sector.
2.36The Fair Criteria Policy is designed to give agencies access to a competitive, vibrant, and diverse market of sellers. This policy is aimed at ensuring Australian Government procurement is conducted with competition and flexibility in mind, particularly for vendors of all sizes, including Australian SMEs.
2.37The Digital Sourcing Contract Limits and Reviews Policy provides agencies with a modern approach to structuring contracts that reduces risk, drives competitive outcomes and increases flexibility. This helps improve sourcing outcomes through responsible monitoring of contract performance, greater access to a diverse range of sellers and the flexibility to invest in emerging solutions.
2.38Beyond these policies, the DTA also established the Digital Sourcing Network (DSN) in 2019. The network connects industry experts, sellers, and government entities and promotes collaboration, and the adoption of procurement best practice through events, working groups, newsletters, and other engagement activities. The network reaches 7652 industry professionals and 2962 government buyers.
Australian National Audit Office audit of DTA procurement of ICT
2.39In 2022–23, the Auditor-Generalexamined a sample of nine procurements undertaken between 1 July 2019 and 30 June 2021, including seven of the DTA's nine highest value procurements over this period. The objective of the audit was to assess the effectiveness of the DTA's procurement of ICT-related services.
2.40The audit found that none of the nine procurements examined were effective. The DTA's implementation and oversight of its procurement framework was found to be weak, the agency did not follow its internal policies and procedures, and there were weaknesses in its governance, oversight and probity arrangements.
2.41Moreover, none of the nine procurements complied fully with the CPRs. Approach to market and tender evaluation processes were not conducted effectively, and the DTA's contract management performance was not effective and fell short of ethical requirements.
2.42Notably, these included:
Recommendation 4: The Digital Transformation Agency align its approach to market processes with the Commonwealth Procurement Rules, with a focus on:
(a)estimating the expected value of a procurement before a decision on the procurement method is made;
(b)establishing processes to identify, analyse, allocate and treat risk; and
(c)maintaining a level of documentation commensurate with the scale, scope and risk of the procurement.
Recommendation 9: The Digital Transformation Agency strengthen its internal guidance and controls to ensure officials do not vary contracts to avoid competition or obligations and ethical requirements under the Commonwealth Procurement Rules.
2.43The ANAO made nine recommendations, eight of which were addressed to the DTA and one of which was addressed to the Australian Government. The DTA agreed to all eight recommendations.
2.44In accepting the recommendations, the DTA noted that three of the nine procurements examined by the ANAO related to the COVID-19 pandemic response, and as such involved shortened timeframes which increased the risks involved in these procurements.
The Buy Australian Plan and the Future Made in Australia agenda
2.45BAP was first announced as a budget neutral measure in the 2022–23 Budget, with the stated objective of supporting Australian businesses to compete more effectively, increase employment and build resilience in supply chains. The Future Made in Australia Office, within the Department of Finance, was established to coordinate the delivery of commitments under the BAP across the APS.
2.46In 2024, the Future Made in Australia Office was renamed the Procurement Capability Branch in an effort to reduce confusion with the Australian Government's broader Future Made in Australia agenda. This includes:
the $1.7 billion Future Made in Australia Innovation Fund administered by the Australian Renewable Energy Agency (ARENA);
the Future Made in Australia National InterestFramework operating within Treasury as of May 2024; and
a forthcoming Future Made in Australia Act.
2.47The Procurement Capability Branch has a mandate to:
coordinate implementation of the BAP across the APS;
strengthen engagement with states and territories to deliver economic, social and environmental benefits to regions, industry sectors and communities;
build the procurement and contracting capabilities of the APS; and
engage directly with businesses and industry sectors to help lift their competitive capabilities.
2.48In the 2023–24 Budget, the Australian Government committed $18.1 million over the forward estimates from 2023–24 (and $1.5 million per year beyond this) to the Department of Finance to support the BAP.
2.49The recent Future Made in Australia National Interest Framework: Supporting paper released on 14 May 2024 situates the framework within other complementary Commonwealth industry policy and national resilience frameworks, including:
the Critical Technologies Statement;
the 2024 National Defence Strategy;
the Defence Industry Development Strategy;
the National Reconstruction Fund; and
the Northern Australia Infrastructure Facility.
2.50However, this paper does not mention the BAP or the Procurement Capability Branch and it is unclear as to whether these efforts are connected.
The Australian tech sector
2.51Australia has a thriving domestic tech sector, contributing $167 billion to our gross domestic product (GDP) and growing at a rate four times faster than the broader economy.
2.52As a fast-growing and highly dynamic sector, the tech sector is not straightforward to define. The Tech Council of Australia (TCA), the peak industry body for Australia's tech sector, broadly categorises the tech sector into two components:
the direct tech industry, which includes firms that develop or sell technology as their core business, as well as investors that primarily or exclusively operate in tech; and
the indirect tech industry, which includes those firms and their employees that are tech intensive through being both significant users and developers of technology to support their core business.
2.53As a whole, the tech sector is equivalent to Australia's third largest industry and seventh largest employer, with 935 000 people working in the sector in 2023. This figure is forecast to reach 1.2 million people working in the sector by 2030.
2.54The domestic tech sector consists of both Australian owned and controlled firms, as well as subsidiaries of foreign owned and controlled firms operating in Australia, including some of the largest global tech companies such as Google and Microsoft.
2.55The increasingly globalised nature of the tech sector increases the risk of economic disruptions resulting from geopolitical tensions, natural disasters, pandemics, supply chain volatility, raw material shortages, and overseas regulations and policies. These risks necessitate a need for Australia to balance advantageous participation in the global tech market with ensuring adequate sovereign capabilities to mitigate these risks.
Defining sovereignty
2.56In considering developing sovereign capability in the tech sector and associated policy frameworks, it is important to define exactly what is meant by sovereign capability.
2.57Sovereignty is an unsettled political concept that has transformed significantly over time. In the Westphalian system of international relations, sovereignty refers to the political and legal authority of a state within its own borders. Inpractice, sovereignty has generally come to refer to the independence and self-sufficiency of a state.
2.58Concerns around technological sovereignty are not new and can be traced back to the 1960s when the United States first demonstrated a propensity for technological dominance. Similarly, in the 1980s, the rise of Japan as a key microelectronics innovator spurred similar international discourse.
2.59However, in an era marked by globalisation and the digital transformation, the concept of sovereignty has been challenged by the increasingly interconnected nature of global technological infrastructure, labour markets, supply chains, ownership structures, and economic activity. As such, complete sovereign capability in tech is unlikely to be a realistic strategy for any country, including the United States and China, much less Australia.
2.60The Australian Government does not have a settled definition of sovereignty or sovereign capability. When asked to define sovereignty, Ms Donna Looney, Head of the Sovereign Capability and Supply Chains Division within the Department of Industry, Science and Resources, advised 'there are many interpretations of the word 'sovereign' and not necessarily a definition across government'.
2.61The Defence Industry Development Strategy, released on 29 February 2024, defines Australia's sovereign industrial base as:
Australian defence industry is comprised of businesses with an Australian-based industrial capability and an Australian Business Number (ABN), providing products or services used in, or which can be adapted to be used in, the Australian Department of Defence supply chain and/or an international defence force supply chain.
2.62In answers to Questions on Notice, Defence advised that 'only in limited circumstances is Australian ownership critical to sovereignty'.
2.63A number of submitters raised concerns with the broad application of an Australian Business Number (ABN) as the primary indicator of sovereignty and argued that more rigorous approach is needed. This matter, and evidence advancing the case for a clear and operational definition of sovereign capability is discussed further in the following chapter of this report.
The global tech market and the United States–China tech war
2.64Global dominance in the tech sector is a contested space, with the United States having long enjoyed dominance and China's influence rapidly outpacing the West. Some commentators have argued that the current 'tech war' between the United States–China is expected to escalate to an eventual decoupling of the global tech market. This could see an environment where different technologies and platforms would not necessarily be interoperable across jurisdictions, which by some accounts is already well underway, as discussed below.
2.65For example, Professor Anu Bradford, Professor of Law and International Organization at the Columbia Law School, states:
The US–China tech war is casting a lengthening shadow over the global digital economy. This unfolding rivalry between the two economic and geopolitical superpowers is unravelling global supply chains, battering tech companies, frightening financial markets, and unsettling international relations far beyond the bilateral US–China relationship.
2.66Currently, all 'Big Five' tech firms: Alphabet (Google); Apple; Meta (formerly Facebook); Amazon; and Microsoft, are United States-owned and based. In 2022, the combined market capitalisation of these firms surpassed USD $9.3 trillion. In addition to being economically dominant actors in the global tech market, these companies exert significant influence across both legislation and regulation, and by extension the social and economic organisation of global society.
2.67However, over the past two decades, China has significantly increased its gross domestic expenditure on tech-related research and development at a rate that has outpaced, though not yet overtaken, the United States. Today, Chinese company Xiaomi is selling more smartphones globally than Apple, and the social media app TikTok, owned by Chinese company ByteDance, has surpassed Facebook in popularity among United States users.
2.68The Australian Strategic Policy Institute's (ASPI) Critical Technology Tracker website publishes data and analysis identifying the countries that are leading the effort to progress scientific and research innovation, including breakthroughs, in 44 critical technologies that have been identified as foundational to our economy, society, national security, energy production, health, and climate security.
2.69These critical technologies fall into the seven broad categories of:
Advanced materials and manufacturing;
Artificial intelligence, computing and communications;
Energy and environment;
Quantum;
Biotechnology, gene technology and vaccines;
Sensing, timing and navigation; and
Defence, space, robotics and transportation.
2.70China is the leading country in 37 of the 44 technologies evaluated, with the United States leading for the remaining 7 technologies. For a number of critical technologies, China is producing more than three times as much high-impact research as its closest competitor and APSI has rated the risk of technological monopolisation by China as high.
2.71Although Australia's tech sector is a significant and fast-growing part of the domestic economy, its share of the global tech market is relatively modest when compared to the dominant tech sectors of the United States and China. As such, there is a need for Australia, and other second-tier tech economies, to strike a balance between maintaining cordial trade and diplomatic relations with both the world's largest economy and close military ally in the United States and our largest trading partner and the world's soon-to-be-largest economy in China.
2.72These tensions are not new, and were visible when the Australian Government banned Chinese-owned tech giant Huawei from taking part in the rollout of the National Broadband Network in 2012 and later 5G mobile infrastructure in 2018, citing national security concerns on both occasions.
2.73Similar concerns were cited in 2023 when the Australian Government banned TikTok on government devices, following similar decisions by each of the Five Eyes intelligence alliance members: the United States, Canada, the United Kingdom and New Zealand. In 2024, the United States government introduced legislation to force TikTok's parent company ByteDance to sell the company or risk being banned from app stores in the United States.
2.74Similarly, China has also blocked a number of major United States-owned websites and social media platforms, including:
Facebook;
WhatsApp;
X (formerly Twitter);
Instagram;
Google;
Gmail;
Snapchat;
Spotify; and
YouTube.
2.75The following chapter sets out the key issues and options that submitters put to the committee for reform, as well as the committee's views and recommendations.