Introduction
3.1
This Chapter provides an overview of the new clauses implemented under the amended Commonwealth Procurement Rules (CPRs) that came into effect on 1 March 2017. It sets out the text of the new clauses and a brief analysis of the changes and their benefits.
Background
3.2
There have been calls for reform of the Commonwealth Procurement Framework to address concerns that it does not support Australian suppliers. In 2014, the Senate Finance and Public Administration References Committee made fifteen recommendations to the government regarding the practical implementation of government procurement practices.
3.3
During negotiations for the passage of the Building and Construction Industry (Improving Productivity) Bill in November 2016, the Government agreed to amendments to the CPRs. The amendments were tabled on 30 November 2016 and the Joint Select Committee on Government Procurement was established to inquire into their implementation.
The new clauses
3.4
The amendments aim to ensure that the full benefit of Commonwealth procurement will flow to the Australian economy and that Australian regulation and standards are upheld. The amendments are designed to mitigate the disadvantages faced by Australian suppliers accessing government procurement opportunities.
3.5
The evidence suggests that effective implementation of the new clauses will be critical in achieving these aims and addressing some of the weaknesses in the new framework.
Clause 10.10 and 10.37: Australian standards
10.10Where an Australian standard is applicable for goods or services being procured, tender responses must demonstrate the capability to meet the Australia standard, and contracts must contain evidence of the applicable standard.
10.37 Where applying a standard (Australian, or in its absence, international) for goods or services, relevant entities must make reasonable enquiries to determine compliance with that standard:
a. this includes gathering evidence of relevant certifications; and
b. periodic auditing of compliance by an independent assessor.
3.6
The specification of Australian Standards in the CPRs was welcomed by Australian industry. Contributors to the inquiry highlighted the safety, economic and environmental risks of not complying with relevant Australian standards.
3.7
Ian Nightingale, the South Australian Industry Advocate illustrated that implementing Australian Standards ensured product quality:
If any public entity is going to provide genuine value for money to our nation and to our state then you must be considering quality—if you are genuinely getting a value–for–money outcome; if you are only going for a least—cost outcome then quality and standards go out the door.
3.8
Dr Burn from the Australian Industry Group (AiG) argued that requiring compliance with Australian standards will help ameliorate the disadvantage faced by Australian suppliers and provide a level playing field for all tenderers:
… the domestic suppliers of competing products who do conform with standards— at a cost of course—are conforming with Australian or international standards at the level that we require here, but they are bearing costs that are not being borne by suppliers who do not put the same effort into the quality of their stuff. So, to the extent that the domestic market has been eroded somewhat by lower quality stuff and domestic suppliers feel that they cannot compete … then there will be … some benefit to domestic suppliers who do conform to higher quality, just as, for that matter, there would be some benefit to imported suppliers who conform and bear the costs of conforming to those standards.
3.9
Specification of Australian Standards was not required in the previous version of the CPRs (CPR 14). Rather, under CPR 14, specifications for goods and services were to be based on international standards, unless they were significantly more onerous than the Australian version in which case the Australian standard could be used instead.
Clause 10.18: Labour regulations, OH&S and environmental considerations
10.18Officials must make reasonable enquiries that the procurement is carried out considering relevant regulations and / or regulatory frameworks, including but not limited to tenderer’ practices regarding:
a. labour regulations, including ethical employment practices;
b. occupational, health and safety; and
c. environmental impacts.
3.10
The inclusion of labour and occupational, health and safety regulations is seen as an important step in levelling the playing field for Australian suppliers. Rossi Boots, a family owned Australian company, emphasised that, while necessary to maintain the conditions expected in Australia, these regulations impose costs on domestic businesses not faced by many of their international competitors:
When government contemplate global sourcing, they should allow for cost factors that they impose on local suppliers that are not imposed on the global competitor. In addition to high minimum wages, these also include weekend penalty rates, payroll taxes, superannuation guarantee levies, accumulation of annual leave, workers compensation, occupational health and safety costs, sick leave and personal leave.
3.11
There is a cost disadvantage for Australian suppliers of complying with environmental regulations that will also be eased with the implementation of clause 10.18:
Australian industry is making huge in-roads on environmental savings and sustainable development which should be a factor taken into account in government procurement decisions.
3.12
Human Rights organisations praised the inclusion of ethical employment and environmental practices within the CPRs. Professor Howe, from Melbourne Law School, spoke on behalf of the Joint Academic and Civil Society Group stating:
We commend the inclusion of rule 10.18 in the Procurement Rules.
3.13
Professor Jennifer Burn, Director of Anti-Slavery Australia also supported the amendment, although called for its expansion:
I was delighted when I saw the amendment with 10.18. I have read the rules and the guidelines. It may seem that such practices should be included, but where the practices are so serious we would recommend that there is an additional example included within that framework that specifically mentions human trafficking, slavery and slavery like practices.
3.14
Compliance with labour regulations, occupational health and safety rules or environmental considerations was not included in CPR 14.
Clause 10.30: Economic benefit
3.15
10.30
In addition to the considerations at paragraph 4.4, for procurements above $4 million, Commonwealth officials are required to consider the economic benefit of the procurement to the Australian economy.
3.16
The focus on economic benefit to the Australian economy was praised by contributors to the Inquiry. Mr Giles-Kaye, Chief Executive Officer of the Council of Textile & Fashion Industry Australia, declared:
This is a fantastic inclusion, in my opinion.
3.17
Professionals Australia expressed similar support:
Professionals Australia strongly supports this clause, and we believe it represents an opportunity to leverage the procurement function to deliver maximum possible community benefit.
3.18
The Australian Steel Institute (ASI) summarised an Industry Capability Network report: Impacts of New and Retained Business in the Australian Manufacturing Sector to demonstrate the possibilities for economic benefit in the Australian Manufacturing sector:
The most valuable point the document makes is the observation that:
Table 3.1 shows the Type I multiplier analysis for the manufacturing industry, indicating for every $1.0 million of new or retained output in the manufacturing industry, approximately:
$713,400 worth of gross value added is induced in the economy. Value-added includes wages, salaries, taxes paid and profits
Six full-time equivalent (FTE) jobs are supported
$64,900 worth of welfare payments are saved. Welfare refers to payments made by Social Security in order to assist and sustain unemployed persons
$225,300 worth of tax revenue is raised.
3.19
Guidance circulated by the Department of Finance listed a number of factors that could be taken into account when considering economic benefit. These include:
building, leasing or procuring infrastructure that supports Australian communities;
providing skills and training that benefit Australian communities;
employing workers in Australia;
paying taxes in Australia;
the environmental benefit of the proposed solution to Australia, for example, low environmental impact through energy efficient inputs;
contributing to positive social outcomes in Australian communities;
using indigenous businesses;
using small and medium enterprises (SMEs) in delivering goods and services, such as a subcontractor or supplier;
sharing knowledge, skills and technology with SMEs; and
using goods and services from a business that provides services of persons with a disability.
3.20
The Committee received suggestions from submitters and witnesses on what should be considered in determining economic benefit. The substance of these suggestions was all contained in the Department of Finance’s existing guidance.
Clause 10.31: International agreements
10.31The policy operates within the context of relevant national and international agreements and procurement policies to which Australia is a signatory, including trade agreements and the Australia and New Zealand Government Procurement Agreement.
3.21
Previous similar attempts to amend the CPRs have been blocked due to concerns over breaching Australia’s international obligations. However, the Department of Foreign Affairs and Trade (DFAT) offered assurances that the wording of the new clauses and careful implementation will mitigate those concerns.
3.22
For example, with regard to clause 10.10 and 10.37, DFAT stressed that all tenderers, both domestic and foreign, must be treated equally:
The changes relating to compliance with standards and regulatory frameworks build on existing provisions in the CPRs and provide clarity to procurement officers. These changes are consistent with our FTA obligations if all tendering firms—domestic and foreign—are required to demonstrate their capacity to meet standards and comply with regulatory frameworks and if procurement officers treat all tenders—domestic and foreign—equally in making their assessments.
3.23
Similarly, with regard to clause 10.10, all tenderers must receive equal treatment when assessing economic benefit:
Treating domestic and foreign firms equally is also necessary when assessing the economic benefit to Australia for Procurements over $4 million. Australia’s FTAs allow a contract to be awarded to the firms that represent the best value or most advantageous tender and give procurement officers the flexibility to request and consider all relevant financial and non-financial in making that assessment … However, this has a clear boundary in that all tendering firms—Australian and Foreign—must be given an equal opportunity to demonstrate the economic benefit to Australia.
3.24
The same principal applies to Australia’s possible accession to the World Trade Organization’s Government Procurement Agreement (WTO GPA):
Australia’s accession to the GPA will not have any impact on the CPR17 changes beyond our existing [Free Trade Agreement] FTA obligations, because the relevant obligations in the GPA are not materially different to those in our FTA’s. This means that, as long as our implementation of the changes in CPR17 is in line with our existing FTA commitments, there will be no impact on CPR17 once we become a member of GPA.
3.25
Despite DFAT’s assurances, some concerns were raised that the amendments will breach Australia’s international obligations. Both the European Union Delegation to Australia and the New Zealand High Commission argue that the CPRs are not compatible with Australia’s current free trade agreements and possible accession to the WTO GPA.
3.26
The New Zealand High Commission and the Delegation of the European Union to Australia both stated that clause 10.30 (economic benefit) may not be in accordance with Australia’s international agreements.
3.27
The New Zealand High Commission consider there are implications for the Australia New Zealand Government Procurement Agreement (ANZGPA):
New Zealand is concerned that the practical application of the new ‘economic benefit’ criteria in the revised CPRs (paragraph 10.30) has the potential to be inconsistent with the key tenets of ANZGPA. The criteria may deny New Zealand suppliers legitimate access to the single market for government procurement.
3.28
DFAT conceded that, although the amended CPRs were designed to ensure compliance with Australia’s international trade agreements, there are concerns about the ANZGPA:
The New Zealand ANZGPA has very similar provisions in that they require that we do not discriminate against—and in fact that is what we do in our FTAs and the GPA principle of non–discrimination. But the ANZGPA does go a little bit further than that. It is an agreement between the two finance ministers and talks about not being biased against or having the effect of denying equal access or opportunity to any ANZ supplier.
3.29
The EU Delegation advised the Committee that clauses 10.30 and 10.10 were not compatible with the WTO GPA, and the EU–Australia trade and investment relationship:
It appears that the requirement for ‘economic benefit to the Australian economy’ is in breach with the GPA, in particular with Article IV(1) of the GPA which contains a general requirement for non-discrimination.
3.30
The EU Delegation did not consider that clause 10.10 (the application of Australian standards) would be compliant with the WTO GPA:
It is not clear how the requirement for compliance with an Australian standard is compatible with Article X:2(b) of the GPA which provides that: ‘In prescribing the technical specifications for the goods or services being procured, a procuring entity shall, where appropriate: base the technical specification on international standards, where such exist; otherwise, on national technical regulations, recognized national standards or building codes.’ It appears that under CPRs only in the absence of an Australian standard, an international standard would apply.
3.31
However, DFAT are confident that, if all tenderers are treated equally the new clauses will not contravene Australia’s international obligations:
The main consideration is that all suppliers, whether they are from Australia or overseas, need to be treated equally in government procurement decision-making processes other than the specific situations where exceptions and limitations in the treaties apply.