Introduction
5.1
The Committee received a range of suggestions on how to efficiently implement the Commonwealth Procurement Rules (CPRs). This chapter discusses suggested revisions to the new clauses before focusing on the guidelines and training required to address some of the issues raised in the previous chapter. Finally it examines suggestions to reinstate a number of procurement connected policies.
Refining or expanding new clauses
5.2
A number of witnesses expressed concerns with the wording of some of the new clauses, suggesting clarification, refining or expansion of the terms. The Textile Clothing and Footwear Union of Australia (TCFUA) maintained that the new rules are ‘not tight enough’, ‘not specific enough’ and ‘not prescriptive’. Overall, the Australian Manufacturing Workers’ Union (AMWU) concurs and suggests that the CPRs should provide greater detail of requirements:
The AMWU believes that the CPRs would be improved by setting out specifically what purchasing officials must do in order to deliver an outcome which provides best value to the Australian government, economy and community.
Clause 10.10
5.3
With regard to the use of Australian standards, there is concern that clause 10.10 is not rigorous enough and that, to avoid a ‘tick and flick’ attitude, the clause should specifically state that a third-party audit is required. The Welding Technology Institute of Australia (WTIA) recommends the following wording to address this issue:
Where an Australian standard is applicable for goods or services being procured, tender response must demonstrate, through third party certification to the relevant Australian standard, and contracts must bind tenderers to compliance with the applicable standards.
5.4
Considerable concern was also expressed over perceived conflict between the new clause 10.10 and existing clause 10.9(c) which requires technical specifications to be based on international standards:
In prescribing specifications for goods and services, a relevant entity must:
base technical specifications on international standards, when they exist and apply to the relevant procurement, except when the use of international standards would fail to meet the relevant entity’s requirements or would impose greater burdens than the use of recognised Australian standards.
5.5
The Australian Steel Institute (ASI) recommends that clause 10.9(c) be ‘rephrased to require that goods to be procured must meet all relevant and applicable Australian standards, as is the case with procurements covered by the Building Code’. The Building Products Innovation Council suggest that the following qualification be added to clause 10.9(c) to clarify the relationship with clause 10.10:
c.
base technical specifications on Australian or international standards, when they exist and apply to the relevant procurement, except when the use of international standards would:
fail to meet the relevant entity’s requirements; or
impose greater burdens than the use of recognised Australian standards; or
not deliver equivalent performance to that required by the Australian standards.
Clause 10.18
5.6
Clause 10.18 is also considered to be unclear and open to interpretation. It provides that:
Officials must make reasonable enquiries that the procurement is carried out considering relevant regulations and/or regulatory frameworks, including but not limited to tenderers’ practices regarding:
labour regulations, including ethical employment practices;
occupational, health and safety; and
5.7
There is concern that the wording of the clause is ambiguous. ASI claims that the phrase ‘relevant regulations and/or regulatory frameworks’ could be read as referring to the ‘law in force in the jurisdiction in which the tenderer operates’, defeating the purpose of the new clause. The Printing Industries Association of Australia (PIAA) considers that the same phrase could be too broadly interpreted, leading procurement officers to ‘feel compelled to delve into consideration of regulations and regulatory frameworks which are irrelevant to the procurement at hand’.
5.8
To clarify the intention of clause 10.18, the PIAA suggests that it be amended to provide an exhaustive list of the ‘nature of regulations and/regulatory frameworks to be considered by an official’ assessing a tender. ASI advocates that the clause be rephrased to provide a list of the environmental, social and labour law provisions that must be satisfied by a tender along the lines of sub-regulation 56(2) of the Public Contract Regulations 2015 (UK). That sub-regulation reads:
(2) Contracting authorities may decide not to award a contract to the tenderer submitting the most economically advantageous tender where they have established that the tender does not comply with applicable obligations in the fields of environmental, social and labour law established by EU law, national law, collective agreements or by the international environmental, social and labour law provisions listed in Annex X to the Public Contracts Directive as amended from time to time.
5.9
A number of submitters also promoted changes to clause 10.18 to reflect Australia’s international obligations regarding human rights, particularly with regard to human trafficking and slavery. The Human Rights Commission considers that the ‘scope of the clause is inadequate in terms of the human rights protected’. There was widespread agreement that the CPRs should be aligned with and mirror the United Nations Guiding Principles on Business and Human Rights (UNGPs).
5.10
Anti-Slavery Australia pointed out that Australia has incorporated its international obligations regarding human rights into the Criminal Code Act 1995 and that clause 10.18 should be amended to specifically reference ‘human rights abuses, including trafficking, slavery and slavery-like practices in the supply chain’, a position echoed by other submitters.
5.11
The Green Building Council of Australia (GBCA) proposed that, in line with the requirements of clause 4.5 (e) of the CPRs, clause 10.18 (c) be expanded to include both ‘environmental impacts’ and ‘environmental sustainability’.
Clause 10.30 and 10.31
5.12
Clause 10.30 was singled out for particular criticism. Expressing the concerns of many, the AMWU calls the clause ‘too vague’. While procurement officers are ‘required to consider the economic benefit of the procurement to the Australian economy’, the clause contains no definition of ‘economic benefit’. The Council of Textile & Fashion called for the clause to be more prescriptive and ASI suggested that the clause be amended so that ‘economic benefit’ is given an internal definition to mean:
the broad social impacts that has on the economy (including impact on skill formation, investment (including R&D)), employment levels and the community generally; and
the way in which the procurement decision will impact on an Australian industry capable of providing competitive pressure on the price and quality of imported goods.
5.13
Additionally, the PIAA recommends that the clause should ‘refer to the benefits of a procurement to a state and/or regional economy, as well as the Australian economy’. Professionals Australia suggests that the clause should provide ‘some additional accountability’ and ‘reporting requirements’ as well.
5.14
Clause 10.31 has also been questioned. The AMWU claim that it undermines clause 10.30 and go so far as to state that it should be deleted. However while the ASI finds the clause ‘vague’ and ‘somewhat broad’ it recommends that the ‘terms of international agreements to which procurement officers are to have regard should be expressly identified’ in the clause, eliminating uncertainty and confusion.
Clause 10.37
5.15
WTIA suggests that, while this clause is ‘reasonably clear’, it should be strengthened. They would like to see the phrase ‘make reasonable enquiries to determine’ replaced with ‘ensure’:
Where applying a standard (Australian, or in its absence, international) for goods or services, relevant entities must ensure compliance with that standard:
this includes gathering evidence of relevant certifications; and
periodic auditing of compliance by an independent assessor.
Extra clause
5.16
To further improve the CPRs, there were calls for an extra clause specifically addressing anti-dumping.
5.17
Despite having an anti-dumping and anti-countervailing (anti-subsidy) system in place, the Australian government continues to have difficulty controlling the import of dumped goods to fulfil procurement demands. To strengthen the existing regime and ensure that the risk of importing dumped goods is minimised, Australian Paper recommends that a specific clause be inserted into the CPRs:
The Commonwealth Procurement Rules should contain a requirement that the risk of both potential damage to Australian industry and the reputation of the Australian Government from purchasing goods that are suspected to be dumped should be fully factored into procurement tenders and contracts.
Guidelines
5.18
Submitters emphasised the need for adequate guidance to departments to ensure that the implementation of the new clauses is effective. There was some criticism of the guidelines provided by the Department of Finance (Finance) prior to the implementation of the amended CPRs. There was wide agreement on the need for comprehensive, detailed guidelines to address specific issues including assessing the matter of human rights within the supply chain. The role of procurement connected policies to provide guidance was also raised.
Criticism of existing guidelines
5.19
In February 2017, Finance provided three sets of guidelines to departments:
Application and verification of standards;
Consideration of relevant regulations and/or frameworks; and
Consideration of broader economic benefits in procurement.
5.20
The criticism of the guidelines provided by Finance highlights two areas of concern: the discretion provided to procurement officials during implementation and comprehensive definitions of economic benefit. The fear is that without more prescriptive and detailed guidelines the intent of the new clauses will not be achieved:
What we would like to see is if we are going to provide these procurement rules that they provide additional guidelines as to how this might actually achieve anything. There would be plenty of scope for an item like clause 10.30 to exist and achieve nothing if there are no specifics as to what procurement officers might actually have to look at.
5.21
In their joint submission, the Construction Forestry Mining and Energy Union (CFMEU) and the Textile Clothing and Footwear Union of Australia (TCFUA) point out that the guidelines issued by Finance leave significant choices to the procurement officer with regard to clauses 10.30, 10.37 and 10.18. The optional nature of many of the decisions and the lack of concrete guidance is seen as weakening the aim of the new clauses.
5.22
The limited definition of ‘economic benefit’ provided in the Finance guidelines for the implementation of clause 10.30 is considered inadequate. The guidelines state:
In general terms, benefits to the Australian economy result when the procured supply:
makes better use of Australian resources that would be otherwise under-utilised (e.g. employing persons who would be otherwise under- or unemployed, spare industrial capacity, or freeing government funds for other spending); or
otherwise increases productivity (e.g. adopting new know-how or innovation, or more people acquiring in-demand skills, or allowing resources to be allocated to sectors in which Australia has a comparative advantage).
5.23
As well, the guidelines identify an ‘increase in productivity-enhancing technology development and adoption’ as relevant to economic benefit. However, the guidelines specifically rule out consideration of any ‘second round effects’.
5.24
Witnesses maintain that the narrow guidelines do not encourage consideration of broader social and economic impacts. For example, the CFMEU and TCFUA acknowledge the emphasis on ‘employing unemployed and under employed people’ but question why the guidelines did not include the benefits of ‘retaining existing jobs which might otherwise be foregone if a contract goes overseas’.
5.25
There is particular concern over the exclusion of consideration of possible beneficial flow-on effects from an individual procurement. Ethical Clothing Australia (ECA), among others, list a wide range of positive outcomes if procurement tenders are won by domestic businesses:
There is the money that actually stays in the country through the payment of tax. There is the economy of scale. Companies can reinvest in technology, making them go forward and more able to compete. It is a question of upskilling. There is any number of reasons you can look at as to why awarding contracts to local manufacturers is value-for-money, and those elements should be taken into consideration.
5.26
The AMWU stressed the overall gains to the government and the economy of domestic versus off-shore procurement:
The economic benefits that flow directly to government through higher taxes and lower welfare spending, and indirectly through higher skills, improved labour and capital productivity and the spill over effects for the wider economy, should form part of any government decision on which proposal provides ‘best value’.
5.27
Disquiet over the definition of ‘economic benefit’ reflects the ongoing concerns over a clear definition of value-for-money in the CPRs. Witnesses consider that, without detailed direction, the inclination to revert to the practice of making decisions based on the lowest-cost will continue:
What we generally find is that where there are not really specific guidelines in place, procurement officers tend to default to price.
5.28
The Council of Textiles & Fashion Industries of Australia reiterated the need for clarity:
The rules around the broader economic benefit need to be clarified more. The point I made a few times in my preamble was that, from our experience and from the people I talk to, the tender committees do fall back to the lowest price bid.
5.29
Professionals Australia stress the need for quantifiable standards to counteract the focus on cost:
… but unless we create alternative criteria that can be measured and are able to be assessed by the public servants, it will carry on down the current path.
Comprehensive guidelines
5.30
Comprehensive guidance is considered essential if the new clauses are to be implemented successfully. There is recognition that procurement decisions can be complex and assessing economic benefit presents a challenge. Supporting its argument for clear guidelines, the Australian Chamber of Commerce and Industry (ACCI) provided the following example of the type of decisions facing procurement officers:
… there are two competitors shortlisted to build a community centre. Both offer the same price and the same project outcome but for the purposes of the project one offers to hire and train workers in the local community including offering apprenticeships. At first glance, the business that will hire and upskill local workers would add more benefit to the economy. On the other hand, the other business may actually be a well-known provider of apprenticeships and opportunities but may not be putting forward that this is project-specific. This business is already contributing an economic benefit and is expected to do in the future because of its reputation. In the end, what decision does the government procurement officer make based on economic benefit? It is not clear what they will do.
5.31
Noting the extent of factors that would need to be considered, Professionals Australia pointed out that decision makers cannot be expected to have the expertise to ascertain broad economic benefit and therefore require guidance:
Where one item is being assessed for wider economic benefits we are obviously forgoing economic benefits on potential competing items of procurement. So we would like to see at least some guidelines given to procurement officers. I do not think we can just assume that every person responsible for procurement is going to immediately know what items they should be looking at.
5.32
In general the CFMEU and the TCFUA recommend that the existing guidelines need to be tightened, removing the discretionary nature of decision making and replacing it with specific standards that must be met and mandating evidence required from tenderers.
Clause 10.18
5.33
ECA explained the difficulty of determining if manufacturers in the textile clothing and footwear industry are complying with the requirements of clause 10.18. Companies accredited by the ECA are put through a rigorous ongoing process and procurement officers can have confidence that such companies have met those requirements. Therefore procurement officers can rely on that accreditation:
Government officials considering tenders for TCF related procurement contracts prioritise ECA-accredited products as a reliable and efficient way of meeting their obligations under clause 10.18.
5.34
To ensure that overseas suppliers are complying with clause 10.18, CFMEU and TCFUA suggest that procurement officers should be advised to place the onus on the suppliers to provide evidence that they are complying with all relevant standards and ethical obligations:
Potential overseas suppliers are required to bear a reverse onus of proof, making them responsible to prove to Australian procurement officials that the claims made about their product are correct. Domestic tenderers with an overseas supply chain bear this same onus of proof to Australian procurement officials.
5.35
The PIAA also suggests clarification of the guidelines for clause 10.18, particularly with regard to paragraph 7 and the tools and options available to procurement officers:
that, for the purposes of 7 (b), ‘an audit report from an appropriate industry organisation will qualify as an “independent audit report”’;
that, for the purposes of 7 (c), limits be specified on the extent of the investigation of breaches of regulations and/or regulatory frameworks;
that, for the purposes of 7 (d), the meaning of ‘sustainability credentials’ be defined.
5.36
GBCA, following on from its recommendation to expand clause 10.18 (c) to include ‘environmental sustainability’, suggests that additional guidance be provided to assist in evaluating the environmental and sustainability benefits to be derived from a particular procurement:
Environmental sustainability of the proposed goods and services (such as energy efficiency and environmental impact), may be demonstrated through:
evidence that, wherever possible, providers of both goods and services are increasing their energy efficiency in a manner consistent with the Government’s emissions reduction and energy productivity targets;
providers evidencing support for the delivery of environmental sustainability through their own supply chains; and
the use of rating tools like Green Star and NABERS for a provider’s own office accommodation and other facilities (warehousing, data centres etc.).
Clause 10.30
5.37
Overall, witnesses strongly suggest that more detailed guidelines are required on how to determine economic benefit:
[The Australian Small Business and Family Enterprise Ombudsman] recommends that additional and more specific guidance on the consideration and measurement of economic benefits (particularly social benefits) be developed and promulgated. This would assist procurement officers to achieve the best value for money with a clearer understanding of what clause 10.30 is expecting them to consider. In addition having to document how value for money is achieved through economic, social and environmental criteria would sharpen the implementation approach used.
5.38
CFMEU and TCFUA suggest that the guidance on determining economic benefit should include:
Economic benefit to the Australian economy is demonstrated through an outline of:
Employment for citizens of Australia
Investment and capital expenditure that builds capacity in the Australian economy and
Use of businesses and supply chains that employ Australian citizens and invest in Australia
Economic development can also take the form of new investment, increased industry capability and expansion of economic sectors in the State which are likely to generate innovation and growth. These are often high value-add industries. It can also take the form of economic development for disadvantaged and socially and economically excluded groups and regions.
5.39
Another factor that could be included in the consideration of economic benefits is gender equality. While potential contractors are currently required to provide evidence that they are compliant with the reporting process for the Workplace Gender Equality Procurement Principles under the Workplace Gender Equality Act 2012, they are not required to provide details on the extent of their compliance. The Workplace Gender Equality Agency (WGEA) which was created under the Act, identifies Employers of Choice for Gender Equality and the Equality Rights Alliance suggests that procurement officers should seek this information to assist in their decision making:
We suggest that tenderers for Commonwealth contracts who have been named as WGEA Employers of Choice should be invited to include this information in their tender documents and decision makers should be directed to include this information in their overall analysis of benefit to the Australian economy. Utilizing the existing WGEA Employer of Choice program will ensure that the requirement to consider gender does not introduce excessive red tape or cost for tenderers, as the necessary assessment and certification will have been provided by WGEA in the course of their normal reporting cycle.
5.40
To maximise the advantage of economies of scale, guidance should be provided clarifying that the $4 million threshold in clause 10.30 can apply to an aggregated total procurement across government:
The Department of Finance should provide guidance to Departments by identifying product and service categories (eg internal use copy paper) that are procured under a Whole of Government panel arrangement, meet or exceed the $4 million threshold across Whole of Government and therefore should be considered under clause 10.30.
Human rights
5.41
Procurement officers will need assistance to negotiate the complex area of human rights. The Human Rights Commission recommends that guidance be developed to ensure that the requirements established in the UNGPs are adhered to during the implementation of the CPRs.
5.42
Anti-Slavery Australia stresses the need to inform procurement officers of Australia’s human rights obligations and the relationship between these obligations and the CPRs:
Anti-Slavery Australia recommends that the Australian government create guidelines to assist procurement officers in the identification, prevention and mitigation of potential human rights abuses, including human trafficking and slavery, in government supply chains. These guidelines should be integrated into the existing materials that relate to ‘Whole-of Government procurement’ contracts, arrangements and initiatives. These guidelines should have a clear link to the Commonwealth Procurement Rules.
5.43
The Joint Academic and Civil Society Group proposes ‘detailed and practical guidance’ that sets out ‘human rights risks in specific sectors and/or in relation to specific rights’. The International Learning Lab on Public Procurement and Human Rights suggests a range of useful devices that could support this area:
Knowledge and capacity development of public sector procurement professionals on human rights risks and measures to address them should be supported, e.g. through the development of online tools to identify higher risk product categories and countries of origin; e-learning courses; and/or an online hub or portal for Australian public buyers to share good practices and experiences on human rights.
Procurement connected policies
5.44
As well as strengthening the guidelines provided for the CPRs, there were repeated calls for the reinstatement of procurement connected policies that are seen as providing valuable guidance for procurement officers. As discussed in Chapter two, until 2014 there were 24 procurement policies administered across 11 government departments. The majority of these policies were abolished in recent years and now there are currently only four:
Indigenous Procurement Policy;
Workplace Gender Equality Procurement Principles;
Australian Industry Participation Plans for Government Procurement; and
The Code for the Tendering and Performance of Building Work 2016.
5.45
As noted in Chapter two, there are some concerns over the implementation of two of these existing procurement policies. Recent changes to the policy on Australian Industry Participation (AIP) plans may have had a negative impact on the aim of the policy. To enhance the positive affect of the AIP plans, the AMWU suggests that the threshold for major projects for should be reduced from $500 million to $50 million to encourage more businesses to consider engaging local suppliers:
This will ensure that a greater number of proponents will need to demonstrate how Australian businesses have been given a full, fair and reasonable opportunity to supply goods and services on their project.
5.46
There are concerns that implementation of the Building Code 2016 may breach non-discrimination requirements in the CPRs. There also appears to be some contradiction between the requirement for Australian standards in the Building Code 2016 and the option to use international standards in the amended CPRs.
5.47
The previous procurement policies identified as being most useful for departments making procurement decisions were:
ICT Sustainability Plan; and
5.48
The National Waste Policy came into effect in 2009 and is designed to provide a ‘coherent, efficient and environmentally responsible approach to waste management in Australia’. Although the Policy provided guidance on sustainable procurement, Finance indicated that it ‘did not provide any compliance factors’ and therefore, when the policies were streamlined, it was not deemed to be a procurement connected policy.
5.49
Australian Paper maintain the withdrawal of the National Waste Policy has left procurement officers without any guidance in considering environmental sustainability with regard to the CPRs.
5.50
The ICT Sustainability Plan 2010–2015 set mandatory environmental standards in ICT procurement across the Commonwealth Government and provided guidelines for the implementation of sustainable procurement principles and practices. The Plan lapsed in 2015 and has not been renewed by the Department of Environment and Energy.
5.51
The Fair Work Principles applied to all procurements over $80 000 and required tenderers to comply with the Fair Work Act 2009. The Principles created specific obligations for tenderers from the cleaning services industry and from textile, clothing and footwear manufacturing. Textile, clothing and footwear suppliers had to have accreditation under the Homeworkers Code of Practice which was administered by Ethical Clothing Australia. The Fair Work Principles were revoked on 1 July 2014.
5.52
Also recommended as a useful example of a procurement connected policy that provides guidance in a difficult area, was the Welsh Government’s Code of practice: Ethical employment in supply chains. The Code commits ‘public, private and third sector organisations to a set of actions that tackle illegal and unfair employment practices’. All organisations that ‘receive funding from Welsh Government, either directly or via grants or contracts’ are expected to sign the code.
Training for procurement officers
5.53
The provision of comprehensive guidance was closely linked to a call for an improved program of training for procurement officers. The Australian National Audit Office (ANAO) have found ‘significant skill and capability gaps amongst personnel (at all levels) undertaking procurement activities’. Finance currently provides a range of guidelines, advice on best practice and training as required. However there is no mandatory requirement to access the support provided. It is at the discretion of individual departments.
5.54
Both the growing volume and complexity of government procurement were evident. Consult Australia was one of the many witnesses who highlighted the need for government to ‘invest in the skills of its procurement officials’ to meet the increased expertise and knowledge required by procurement decision-makers. Consult Australia recommends the establishment of an independent Procurement Centre of Excellence building on the work of the existing Australasian Procurement and Construction Council (APCC):
The Centre would be tasked with building a stronger relationship between government and business and supporting best practice procurement in Australia at all levels of government. The Centre should:
be established as independent of government;
build stronger linkages between government and with industry sectors;
provide transparent expert advice to all levels of government; and
develop guidelines, build capability and improve standards.
5.55
There was collective agreement among human rights advocates that specific training is required to ensure that procurement officers can effectively interpret and implement clause 10.18. The Australian Human Rights Commission recommends that such training be mandatory. The Joint Academic and Civil Society Group advises that it be developed in ‘consultation with stakeholders and other experts such as the Australian Human Rights Commission’.
5.56
The training should cover the broad spectrum of relevant issues including ‘human trafficking and slavery, identification of risk in supply chains and the appropriate measures to be taken’ if these issues are recognized. For example, with regard to modern slavery the Australian Catholic Bishops Conference pointed out:
… procurement officers will need specialised training. It would be difficult for procurement officers to make the ‘reasonable enquiries’ required in clause 10.18 unless they are trained to identify modern slavery. Australian are often not aware slavery still exists, even in a wealthy country like Australia, making it much harder for people to understand what a reasonable enquiry might be. Modern slavery cannot be exposed and eradicated until people understand what it is and the key risk factors that indicate further investigation or risk mitigation is necessary.