Government procurement and free trade agreements

Philip Hamilton, Politics and Public Administration

Key issue
Calls for a ‘buy Australian’ preference in Australian government procurement could fall foul of free trade agreements.

Commonwealth Procurement Rules

Procurement by public sector entities is governed by the Commonwealth Procurement Rules—July 2014 (CPRs). A legislative instrument exempted from disallowance, the CPRs are issued under section 105B of the Public Governance, Performance and Accountability Act 2013. Compliance with the CPRs is mandatory for all non-corporate Commonwealth entities (such as departments) and corporate Commonwealth entities prescribed by section 30 of the Public Governance, Performance and Accountability Rule 2014. Currently, twenty corporate Commonwealth entities are prescribed.

The ‘core rule’ of the CPRs is the achievement of Value for Money. For each submission to a procurement process, ‘relevant financial and non-financial costs and benefits’ must be taken into consideration, including whole-of-life costs, rather than simply the initial purchase price.

In general, an open tender must be undertaken for all procurements greater than $80,000 ($7.5 million for construction). There are also requirements to report procurement information on AusTender and elsewhere.

Under the Indigenous Procurement Policy, non-corporate Commonwealth entities subject to the CPRs ‘can purchase directly from Indigenous small to medium enterprises (SMEs) for contracts of any size and value’. The aim is that 0.5 per cent of domestic contracts will be awarded to Indigenous businesses by 2015‒16, 2.5 per cent by 2018‒19, and 3.0 per cent in 2019‒20.

Further information about the operation of the CPRs and other aspects of the procurement framework is provided on the Department of Finance's procurement website and in Volume 2 of the 2015 Belcher Independent Review of Whole-of-Government Internal Regulation report.

Procurement and free trade agreements

Since December 2004, successive versions of the procurement rules (or guidelines as they were previously known) have given effect to compliance with provisions in free trade agreements (FTAs) to which Australia is a signatory.

Typically, a country will specify in an FTA the scope of government procurement open to partner countries. Specifics include government entities covered or not covered; goods and services in or out of scope; threshold values of in-scope procurements; and exemptions such as the retention of preference for particular categories of domestic suppliers.

These specifics are then incorporated into the CPRs which advise that ‘an official undertaking a procurement is not required to refer directly to international agreements’.

Proposals for an Australian focus in government procurement

During the 44th Parliament, crossbenchers proposed that government procurement arrangements should be revised to include:

a ‘buy Australian’ preference, particularly in relation to steel products
the redefinition of the ‘value for money’ principle to include ‘secondary and social benefits to communities’ and
the assessment of future FTAs in terms of the ‘impact on [Australian] manufacturing jobs’.

A central issue is how such proposals might contend with Australia’s obligations under existing FTAs. A Senate committee inquired into procurement policies and procedures in 2014, and sought through its recommendations ‘a detailed explanation of the barriers to developing a preferencing scheme, which takes into account Australia’s free trade obligations’.

The Government’s response to the Senate committee’s report stated that ‘international agreements limit the extent to which the Government can preference local suppliers’. Similarly, a submission to the inquiry by a legal expert concluded that ‘the Commonwealth is not free to pursue a buy Australian policy unless an exemption applies’.

If this view is correct, there could be two avenues for the implementation of a ‘buy Australian’ policy in government procurement:

re-negotiation of existing FTAs to include broader ‘buy Australian’ exemptions and
ensuring that future agreements include broader ‘buy Australian’ exemptions.

However, both avenues have the potential to result in a patchwork of agreements that differ in their exemption provisions—the opposite of the more uniform, non-discriminatory treatment sought by current FTAs.

Possible future agreements

Australia has taken steps to participate in two more agreements, one of which focuses exclusively on government procurement.

In June 2015 the Government announced Australia’s intention to join the World Trade Organization Agreement on Government Procurement. In February 2016 Australia was among 12 signatories to the Trans-Pacific Partnership (TPP), which includes a chapter on government procurement.

The Australian Government has moved to ensure compliance with TPP provisions, with the 2016–17 Budget including:

$12.4 million to upgrade ICT systems to ‘support greater transparency’ in the reporting of limited tender procurements and
$2.9 million for the Federal Court of Australia to ‘provide a mechanism to deal with disputes about procurement decisions’.

Government procurement and free trade agreements

Commonwealth Procurement Rules

Procurement and free trade agreements

Proposals for an Australian focus in government procurement

Possible future agreements

Further reading