Chapter 3Key issues and committee view
3.1This chapter considers the matters that were raised in evidence provided to the committee in submissions and at the public hearing on 6 May 2024.
3.2The committee received evidence from a number of tech companies (ranging from small and medium enterprises [SME's] to larger firms), peak tech industry bodies, academics, individuals and relevant government agencies.
3.3Stakeholders were overwhelmingly supportive of the Australian Government's objective of bolstering the development of sovereign capability in the Australian tech sector. However, some concerns were raised, including on the following matters that this chapter will discuss in turn:
contested definitions of sovereignty;
misinterpretation of value for money;
the accessibility of procurement panels; and
procurement capability in the Australian Public Service (APS).
3.4This chapter also sets out the committee's views and recommendations.
Defining sovereignty
3.5The inquiry's focus on sovereign capability revealed a number of inconsistencies around the understanding and application of the concepts of sovereignty and sovereign capability, across both government agencies and the tech sector.
3.6Several submitters and witnesses drew the committee's attention to the absence of a clear and consistent government definition of sovereignty, despite its proliferated use across a number of strategies and frameworks, including, but not limited to the Digital Transformation Agency (DTA's) Hosting Certification Framework and The Department of Home Affairs' 2023–2030 Australian Cyber Security Strategy.
3.7In relation to the lack of a definition of 'sovereign capability', Mr Rupert Taylor-Price, Chief Executive Officer of Vault Cloud, an Australian company that provides sovereign cloud services stated:
If we haven't defined it, how can we know if we're being successful or not? If we don't measure it, how can we know if we're being successful or not as well?
3.8Some submitters appeared to use the term as a synonym for domestic or local, denoting Australian-owned or Australian-based companies and products. For example, AUCloud, an Australian cloud and cyber security service firm, submitted their definition of sovereign capability as:
…the domestic capability to undertake activities delivering outcomes independent of other nations combined with the sovereign control to direct resources to the activity by prioritising and protecting the interests of Australia.
3.9However, some stakeholders adopted more nuanced or complex definitions. For example, a joint submission made by Professor Elizabeth Thurbon, Dr Alexander Hynd, Mr Jon Bradshaw and Mr Michael McLean, argued that the sole focus on territorial aspects of sovereignty in the Australian policy discussion risks ignoring 'the ability to control'. This, they argued, is the most critical aspect of sovereignty that should not be omitted from any working definition.
3.10Professor Elizabeth Thurbon, Dr Alexander Hynd, Mr Jon Bradshaw and Mr Michael McLean elaborated that in the context of the Australian technology sector, sovereign capability should be understood as:
The existence of world-class local research, development and commercialisation (RD&C) capabilities in those technology-intensive industries deemed nationally strategic by the government.
The existence of strong local manufacturing capabilities in those technology intensive industries deemed nationally strategic (and therefore necessarily sovereign) by the government.
The existence of strong and secure local capabilities to participate in international supply chains for those technology-intensive industries deemed nationally strategic by the government.
3.11The Sovereign Australian Prime Alliance, an informal grouping of large Australian contractors to the Australian Government, proposed a definition of a sovereign supplier as:
…an Australian company that is not a foreign subsidiary, that is based in Australia, controlled by Australian shareholders, and governed by an Australian Board of Directors.
3.12A number of submitters endorsed this position, arguing that a clarified definition of what constitutes a truly sovereign Australian firm would help to ensure that government procurement policies prioritise and benefit domestic businesses over foreign and multinational firms.
3.13Other submitters offered general support for further work being undertaken by the Australian Government to clarify what is considered a sovereign Australian firm. It was noted that the current model under which an Australian Business Number (ABN) is the core requirement to be considered an Australia firm is clearly inadequate. However, it was also suggested that restrictive requirements on elements such as citizenship and location may not be practical for all firms.
3.14BSA | The Software Alliance, an advocacy body for the global software industry, cautioned that overly stringent sovereignty requirements in public procurement may risk impeding broader strategic policy goals. It submitted that this could also disadvantage the growth of Australia's domestic tech sector by limiting access to and collaboration with the best available international tech firms and their products and services.
Value for money versus retained economic benefit
3.15A number of stakeholders put forward evidence that the concept of value for money is often misinterpreted as solely defined by lowest cost, whereas other relevant financial and non-financial costs and benefits could also be part of Australian Government evaluation processes.
3.16For example, Aura Clean Energy, an Australian clean energy firm submitted:
The Commonwealth Procurement Rules focus on value for money but that is usually distilled down to lowest price, history of delivery of the supplier and commercial weight of the supplier. Unsurprisingly, Chinese manufacturers will often rise to the top under such weightings as they have the market history, market penetration through low prices, and the commercial weight of Government funding behind them. Small innovative Australian business cannot easily compete against these headwinds except by partnering and cooperating through high strength industrial prime businesses who are recognised Government suppliers and prepare to acknowledge the benefits of local manufacturing.
3.17As an alternative metric, a number of submitters proposed the concept of 'retained economic benefit' be substituted for 'value for money' within the Commonwealth Procurement Rules (CPRs), which would focus on whether a provider is:
paying corporate tax in Australia;
publicly listed on the Australian Stock Exchange (ASX);
employing Australians;
building local Intellectual Property;
investing in local infrastructure and capabilities; and
investing in local research and development.
3.18The Australian Information Industry Association, the peak body representing the information and communications technology industry, drew out the significance of 'retained economic benefit', which would consider:
…the value of enduring 'positive externalities' created from a vendor's proposal, such as job creation, local wealth creation, technology transfer and propensity to reinvest revenue domestically, especially in local Research & Development activities and Intellectual Property creation.
3.19Professor Elizabeth Thurbon, Dr Alexander Hynd, Mr Jon Bradshaw and Mr Michael McLean argued that the concept of value for money was developed for a more benign strategic environment and was no longer fit-for-purpose to support decision-makers in understanding and accounting for the strategic benefits and implications of developments in the tech sector.
3.20They further submitted:
As the development of an industry sector requires investment, and as funds are finite, it will be necessary to prioritise those parts of the tech sector that are considered to have the greatest contribution to meeting national goals.
Accessibility of procurement panels
3.21Procurement panels are designed to create efficiencies for both agencies and suppliers. However, a number of submitters raised concerns that access to, and participation in, the panel environment is overly complex, disconnected and onerous, particularly for new entrants and SMEs.
3.22Several submitters noted that the process for applying to be on a panel can be time and resource intensive, often requiring complex compliance documentation that new entrants and SMEs won't be able to provide as quickly or easily as established firms with a history of selling to government.
3.23Commenting on the complexity of the panel environment Zepto, an Australian financial tech company, submitted:
As it stands, the procurement landscape in the Commonwealth Government is fragmented and characterised by overlapping platforms which are managed by different agencies. This leads to inefficiencies in the procurement process and increased administrative burden for both Government and industry. This presents acute challenges for small businesses in the technology sector (like Zepto) who simply do not have the time and resources to navigate such complex processes and systems.
3.24Further, not all panels are regularly refreshed, leaving new entrants waiting significant periods of time – in some cases several years – for an opportunity to apply to participate on a given panel. One example was provided to the committee by the National Security Association of Australia (NSAA), which suggested that the Defence Support Service Panel had not been refreshed since 2017.
3.25Drone Shield, an Australian high-tech hardware and software company providing Artificial Intelligence-based platforms for protection against drones, argued that the closed panel model is particularly problematic for tech procurement. It perceived a risk of technological advances outpacing the process for refreshing panels, which could in effect encourage the procurement of potentially out-of-date technologies, whilst impeding Australian market access to cutting edge technologies:
The current system of panels (many of which run for multiple years, which is a significant amount of time by technology standards) reduce the amount of competition and access for companies outside of the system. They should be scrapped, and instead any company can bid on any project, subject to meeting a set compliance criteria set for each project.
3.26Some stakeholders perceived an apparent bias from government procurers towards procuring from an established seller with a history of working with government, rather than from new entrants which can be seen as inherently riskier. Ms Angie Suriyasenee, Dr Alex Caples and Mr Mike Bareja, from the Australian Strategic Policy Institute, submitted that:
Procurement panels are one of the biggest barriers for SMEs. Large and well-established businesses are often favoured, further embedding them into the procurement system. These panel biases not only lead to poor procurement practices, but can risk single-sourcing, monopolisation of the markets, and vendor lock, which is particularly harmful for government.
3.27Some submitters argued that the panel environment is anticompetitive, as it can facilitate direct or limit approaches to known providers, nurturing engrained biases for larger transnational corporations and established sellers, which have more resources to dedicate to application and tendering processes. This, in turn, can impede market access for new entrants.
3.28Ms Catherine Thompson from Hypereal, a former senior executive at the Digital Transformation Office (DTO) with several decades of procurement expertise in the private sector, estimated that only around half of the suppliers on a Digital Marketplace panel actually interact with government or secure contracts after the onboarding process is complete.
3.29The Department of Industry, Science and Resources (DISR) administers the Business Research and Innovation Initiative (BRII) which aims to support Australian SME's to access commonwealth procurement opportunities. The BRII operates by advertising public sector challenges in need of a market solution and 'incentivises businesses to invest in research and development to find solutions to these challenges, enabling SMEs to propose new ideas to policy and service delivery problems'.
3.30In their submission, DISR informed the committee that, to 31 December 2023, the BRII had delivered '$6.67 million in grant funding to 17 SMEs to test technology solutions'.
3.31The Tech Council of Australia (TCA) submitted that scaling the BRII 'could help capture and grow strategic, economically valuable emerging tech sectors and jobs in Australia and provide innovative solutions to large-scale challenges'.
3.32The TCA further submitted:
Any increase in funding should be accompanied with design improvements link the BRII (and potentially other government funding programs) with procurement processes and open pathways to government contracts. For example, for companies that are funded through the BRII, there could be a clear pathway for procurement opportunities that still ensures government due diligence and other necessary oversight.
Procurement capability in the Australian Public Service
3.33It was broadly recognised in evidence that procurement capability is critical to operationalise the CPRs and leverage public sector expenditure to support the broader policy goals of government. However, it was also suggested that there is a significant procurement capability gap in the APS, which is characterised by risk-aversion, inter-agency fragmentation and non-compliance.
3.34Drawing on her experience working on the establishment of the Digital Marketplace, Ms Catherine Thompson submitted that in part, this is attributable to the fact that 'procurement is not accorded any status as a specialist and expert function within the APS'.
3.35Ms Thompson further noted that specialist procurement expertise is particularly critical for effective tech procurement, as there is a requirement to attend to the ongoing lifecycle needs of supply relationship well beyond initial sourcing, including the maintenance of digital infrastructure, data and agency relationships.
3.36Ms Thompson's observations on procurement were discussed in greater detail in Hypereal's submission, which reflected on the 'doom loop of procurement underperformance' and the Auditor-General's audit of the DTA discussed in the previous chapter. It stated that:
In the private sector, procurement audit findings such as those surfaced by the ANAO would be managed continuously at Board level until they [are] cleared. They would not be permitted to simply slide on to the next inquiry without accountability.
3.37Commenting on the consequences of a risk-averse procurement culture in the public sector, Dr Elliot Duff, an independent consultant specialising in manufacturing, robotics and innovation, submitted that:
Procurement tends to be risk-averse as it aims to minimise disruptions, financial losses, and reputational damage associated with acquiring goods and services. This cautious approach is reinforced by the need to comply with regulations and contractual obligations, driving procurement professionals to prioritise risk mitigation strategies. This tendency is particularly evident when dealing with new technology.
3.38The Department of Finance informed the committee that training initiatives to improve public sector procurement and contract management capability have been delivered to 673 APS officials across 22 agencies over the 2023–24 period through the Centre of Procurement Excellence.
Committee view
3.39The committee would like to thank all those who contributed to the inquiry by making submissions and appearing before the committee at the public hearing.
3.40The committee recognises that evidence broadly agrees there is a need for more robust provisions and definitions for Commonwealth procurement, particularly where it relates to tech products.
Development of new frameworks
3.41The committee acknowledges that the Australian Government is currently engaged in consultation on Commonwealth procurement with a broad range of stakeholders across several industries, including the tech sector, with a view to implement the Buy Australia Plan (BAP) and introduce a Future Made in Australia (FMIA) legislative package in the near future. The core objectives of these initiatives relate to many of the issues raised by this inquiry.
3.42However, at the time of writing, the progress report on the implementation of the BAP within the Department of Finance and the FMIA legislative package being developed by the Treasury are not publicly available.
3.43Further, it is apparent to the committee that certain aspects of the BAP and FMIA agenda may be at odds with the CPRs currently in place, specifically guidance on non-discrimination, as discussed in the previous chapter.
3.44It is possible that this guidance will need to be updated to avoid confusion and empower procurement decision makers to operationalise policy guidance to support Australian suppliers in a meaningful way.
3.45Given this outlook, the committee considers it could be beneficial for the Australian Government to provide some initial clarification of the intended interaction of the BAP and FMIA, and how they will relate to the current CPRs. This would provide some certainty for business and tech providers on future reform.
Concerns raised in evidence
3.46More broadly, evidence to this committee raised concerns over several areas of procurement.
3.47A recurrent theme raised by submitters was the misunderstanding and misapplication of value for money considerations within tech procurement. Though the CPRs state value for money considerations should include both financial and non-financial costs and benefits, it is apparent to the committee that non-financial costs and benefits are not well articulated within the CPRs and therefore not well understood or readily applied by officials.
3.48Developing clear guidance on how to identify and account for non-financial costs and benefits, particularly as they relate to tech products, should be considered as a priority of the BAP.
3.49Several submitters raised concerns around the accessibility and effectiveness of panels, including via both DTA's BuyICT platform and agency specific panels, utilised for tech procurements.
3.50The committee is concerned about the APS's lack of expertise and capability when it comes to the procurement of tech, and procurement capability generally. The new frameworks of the BAP and the FMIA provide an opportunity for government to continue work to improve APS procurement capability.
3.51Issues relating to both the shortcomings of the panel environment and procurement capability in the APS are not new or unique to this inquiry and are by no means exclusive to tech procurement.
3.52The committee is aware that the DTA has accepted and is working to address the recommendations of the Auditor-General's 2022 audit. The committee lends it support to these recommendations and will monitor their implementation with interest.
Definition of 'sovereign' tech
3.53Additionally, over the course of the inquiry the committee received a range of views on the definition of sovereignty and sovereign capability. Though widely used as buzzwords, it is apparent that these terms are not well understood or consistently applied.
3.54Effective legislation, policies and guidance rely on consistent and clearly defined terms to be understood, applied and implemented successfully. There is clearly a need to develop clear and operational definitions of sovereignty and sovereign capability if these terms are to continue to be used by government to articulate its BAP and FMIA agendas.
Conclusion
3.55The committee welcomes and is supportive of measures to increase the accessibility of procurement opportunities for Australian tech businesses, and to improve tech procurement capability within the APS.
3.56The committee is encouraged by the demonstrated appetite of stakeholders in the domestic tech sector to engage constructively with government on these issues, and will monitor the development and implementation of the government's current BAP and FMIA packages.
3.57The committee recommends that the Australian Government develop a clear and operational definition of sovereign capability as part of the broader Future Made in Australia agenda that can be used to inform future procurement decisions.
3.58The committee recommends that the Australian Government consider:
increasing the procurement 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 set out in the Commonwealth Procurement Rules.
reviewing the Commonwealth Procurement Rules with a view to ensure that official procurement guidance to officials is aligned with the broader Future Made in Australia package.
3.59The committee recommends that the Australian Government scales the Business Research and Innovation Initiative to increase opportunities for emerging sovereign Australian tech companies to showcase their capabilities to government officials by solving public-sector problems in a ‘sandbox’ environment outside of standard procurement processes, with a particular focus on providing opportunities to firms with between two and 20 full-time equivalent employees.
3.60The committee recommends that the Australian Government addresses conflicts of interest in procurement by mandating that all suppliers disclose their commercial relationships with any other suppliers that are working on the same project to which the procurement is related, be it above the line or below the line.
3.61The committee recommends that the Australian Government improve the integration of grant programs with procurement processes, giving sovereign Australian small and medium enterprises that have developed products through Australian Government grants the opportunity to supply those products to the Australian Government.
Senator the Hon Richard Colbeck
Chair
Liberal Senator for Tasmania