Revised Agreement on Government Procurement
This Chapter reviews the World Trade Organization (WTO) Revised Agreement on Government Procurement (Annex to the Protocol Amending the Agreement on Government Procurement, adopted on 30 March 2012 (GPA/113)) (the Agreement). The treaty action was tabled in the Parliament on 29 November 2018.
The Agreement will enable Australia to accede to the GPA on the terms agreed between Australia and the Parties to the GPA, as set out in the Decision of the Committee on Government Procurement of 17 October 2018 (GPA/CD/1), including its attachments (the Decision of the Committee).
According to the National Interest Analysis (NIA), Australia’s accession to the GPA will provide legally binding rules for market access for Australian goods, service and construction suppliers to access the government procurement markets of GPA Parties. The WTO estimates GPA Parties’ procurement markets to be worth over US$1.7 trillion annually. The GPA was revised in 2014, expanding the market access opportunities under the agreement by around an additional US$80 billion to US$100 billion annually according to the WTO. The 2014 revision also brought changes that aligned the GPA more closely with Australian practices.
The Committee noted that Australia has been an observer government for the WTO GPA since 1996 and queried why Australia has not joined the Agreement sooner. The Department of Foreign Affairs and Trade (DFAT) explained that the revision and expansion of the GPA in 2014 provided an opportunity for Australia to join the Agreement.
DFAT also identified concerns that, originally, Australia would not meet the provisions of the Agreement in relation to judicial review. The necessary changes to address these concerns were incorporated into legislation introduced in 2018 to facilitate the implementation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP-11). That legislation, the Government Procurement (Judicial Review) Act (Judicial Review Act), came into effect in October 2018.
The Judicial Review Act was designed to meet the requirements of the TPP-11 but also fulfilled the requirements for the GPA. DFAT detailed the obligations that the Judicial Review Act addressed:
There were limitations on the access that we provided to suppliers to our judicial system, in our judgement, and we have now extended and made very clear and very accessible how a judicial review will operate with the Government Procurement Agreement … The main change that Australia’s made is a minor change … we have designated the Federal Circuit Court, which has a strong presence in regional Australia and which has a continuing presence in all states and territories, as the first point of contact should there be a requirement for judicial review of government procurement decisions.
Asked to clarify why these changes were necessary to Australia’s judicial review processes and to whom the provisions would apply, DFAT told the Committee the changes applied to any supplier, both international and domestic, and would improve transparency and accessibility:
… there was always the potential for suppliers … to take action through the court system against a Commonwealth procurement process, but there wasn’t a lot of transparency or clarity about that process in terms of how it could be undertaken and the kinds of criteria that could be considered.
The Judicial Review Act empowers the Federal Circuit Court to hear appeals against processes, and it very clearly specifies the criteria that can be considered. The FCC is present in every state, territory and a range of rural and regional areas, and it has quite a low barrier to access, which is a benefit to [rural small and medium enterprises (SMEs)] … The bill is about appealing departures from the Commonwealth Procurement Rules, specifically division 2 of the Commonwealth Procurement Rules, which relates most closely to our overseas obligations.
There are currently 47 Parties to the GPA. The NIA suggests that accession may open new opportunities in the European Union (EU), Canada, European Free Trade Association states, Ukraine, New Zealand and Chinese Taipei. Australia does not currently have legally binding rules for procurement access to these countries. The NIA maintains that the GPA would also provide greater security and certainty for Australian firms against future protectionist measures introduced by GPA Parties.
The NIA notes that, in some instances, the GPA improves on Australia’s government procurement outcomes from existing Free Trade Agreements (FTAs). For example, it broadens access under the Australia-United States FTA by including access to additional US states.
Further, the NIA notes that nine additional WTO members are seeking to accede to the GPA, including some with large government procurement markets that Australia does not currently have relevant agreements with, including China and Russia.
DFAT was asked if it could quantify the benefits and risks for Australian businesses. The Department explained that there is no consistent set of data that provides an indication of the success of Australian businesses tendering in the international procurement market. However, the Department is aware of instances where Australian businesses have been barred from the market in WTO member countries:
For instance, in respect of some agreements in countries like Italy, in a couple of instances Australian firms were successful in securing contracts and then had their contracts overturned because Australia was not a member of the GPA. In Finland in 2015 the international project consulting firm, again, was unable to tender because Australia was not a member of the GPA. Most recently, we’ve got an example from Cyprus, where a South Australian firm was clearly extremely competitive in respect of a desalination and water treatment project but was kept out of that project because Australia was not a member of the GPA.
Asked for an estimate of the value of the business lost in these circumstances, DFAT reiterated the lack of data but provided the following example:
The two instances where Australian firms were shut out of the Italian procurement market—in 2008 and then again in 2010—involved contracts of the order of $41 million in the first instance and a very significant contract in the second instance, where the Italian firm with which the Australian firm was associated in consortium had raised 100 million euros to tender for the contract.
The NIA suggests that accession to the GPA reinforces Australia’s support for the multilateral trading system and the importance of trade rules. Australia’s accession to the GPA is considered to demonstrate the commercially meaningful outcomes that the multilateral system can provide for Australian exporters.
The NIA maintains that Australia’s accession to the GPA will ensure Australian firms are not at a competitive disadvantage relative to firms of GPA Parties. It also suggests that Australia may have a greater opportunity to influence the terms of new GPA Parties’ accession in line with the country’s national interest.
The NIA claims that the consultation process showed strong support within the business community for Australia’s accession to the GPA.
Public consultation and stakeholder engagement on Australia’s accession to the GPA commenced with a call for public submissions in 2014. DFAT met with peak bodies and industry stakeholders and held a public consultation process that included consultation events, stakeholder meetings, and phone calls.
State and territory governments were consulted and all states and territories provided written support for Australia’s accession to the GPA. The Committee queried how possible anomalies between Commonwealth obligations and those of the states and territories would be reconciled. DFAT assured the Committee that the Department is working with states and territories to resolve any differences:
The manner in which we would incorporate state and territory government commitments—and we have been talking to the state and territory governments about this—is through discussions with the premiers and chief ministers. The Australian minister for trade has been keeping them fully apprised of the developments with the negotiations, and they have been confirming to us their intentions both to accede to the agreement and to bring their procurement practices into compliance with the agreement.
According to the NIA, civil society and industry groups provided the majority of GPA accession submissions, with peak bodies, industry associations and services institutes broadly supportive of Australia’s accession to the GPA.
The NIA notes that a concern raised by civil society stakeholders was the need to retain current exemptions in Australia’s existing government procurement system. This concern was also raised by submitters to the Committee and is discussed further in paragraph 3.33 below. The NIA claims that Australia’s final offer maintains existing exceptions, particularly for SMEs, defence, health and Indigenous procurement.
The NIA states that stakeholder engagement will continue after the formal accession to raise awareness of the GPA.
Reasons for Australia to take the treaty action
The following summary, from the NIA, shows possible new opportunities for Australian businesses to bid for government procurement services in countries with which Australia does not have existing FTA government procurement commitments. (The NIA contains further details of the countries for each section at paragraph 8.):
accounting, auditing and taxation services;
management consulting services;
computer and related services;
architectural engineering and other technical services;
telecommunication and related services;
environmental protection services;
insurance and banking and investment services;
health and social services; and
Other areas listed in the NIA include:
construction and highway maintenance equipment;
mining equipment and technology;
agricultural machinery and equipment;
water purification and sewage treatment equipment;
health and pharmaceutical supplies.
Exceptions to provide policy flexibility
According to the NIA the GPA includes a range of exceptions to provide policy flexibility, including:
exceptions ensuring governments are not prevented from taking actions considered necessary for the protection of essential security interests in relation to certain procurements, or from imposing measures necessary to address public policy objectives;
general exceptions according to which Parties are not prevented from taking measures necessary to protect public morals, order or safety; human, animal or plant life or health; the protection of intellectual property; or relating to goods or services provided by persons with disabilities, philanthropic institutions or prison labour (Article III);
specific conditions under which Parties can apply technical specifications to promote and conserve natural resources or protect the environment (Article X:6); and
exceptions relating to the following procurements: land and immovable property, non-contractual agreements, fiscal agency or depositary services, public employment contracts, international aid, and procurements related to troop stationing and international organisations (Article II:3).
The NIA notes also that the GPA provides access to the legally-binding WTO dispute settlement mechanism for disputes brought by GPA Parties.
The NIA indicates that Australia has negotiated specific exceptions from coverage in its offer, consistent with Australia’s existing FTAs. The NIA lists the following examples of Australia’s exceptions:
any form of preference to benefit small and medium enterprises (SMEs);
measures for the health and welfare of Indigenous people;
measures for the economic and social advancement of Indigenous people;
protection of essential security, such as Defence materiel procurement, or defence services relating to support of military forces overseas or military systems and equipment;
health and welfare services;
plasma fractionation services;
government advertising services; and
blood and blood-related products, including plasma derived products.
In addition, the NIA notes that there are also exceptions within Australia’s offer for states and territories. Each state and territory government has nominated exceptions which are included in the terms of Australia’s accession to allow them to address specific sensitivities and largely continue with existing procurement arrangements. This includes motor vehicle exceptions for South Australia, Victoria, New South Wales and the Australian Capital Territory.
Exceptions for small and medium enterprises
Although these exceptions were welcomed by submitters, there was general concern regarding their practical implementation, particularly with regard to SMEs. Asked to clarify the exemptions for SMEs, DFAT confirmed that Australia had sought and obtained extensive exceptions for these entities:
… the Australian negotiating team did seek extensive exceptions for SMEs in the application of this agreement to our own market, and yet we also sought the coverage of commitments by other markets for SMEs to participate in their contracts, and we were successful on both counts. We were able to preserve policy flexibility for Australia for small and medium-sized enterprises at Commonwealth and state and territory levels and we were able to secure in large part the coverage of the commitments made by the other 47 parties to the agreement, so we’re both able to preserve the policy flexibility at home and also able to access the procurement markets of others for SMEs.
In practical terms, the Department of Finance explained that the Commonwealth Procurement Rules (CPRs) ensure that businesses cannot be discriminated against on the basis of size and ‘require agencies to consider the cost the potential suppliers will incur when they are participating in procurement processes’. Additionally the CPRs require consideration of a range of factors in the context of value for money which support SMEs including:
… the benefits of doing business with competitive SMEs; barriers to entry … SME capabilities and their commitment to local and regional markets; and the potential benefits of having a larger, more competitive supplier base.
The Department of Finance also drew attention to the targets set in the CPRs to secure ‘at least 10 per cent by value of contracts each year from SMEs’. Finance advised that in the next version of the CPRs ‘that target will be supplemented by an additional target of purchasing at least 35 per cent by value of contracts under the value of $20 million’. This change is expected to provide a ‘clearer picture of how SMEs are competing in the part of the procurement market’ in which such businesses are expected to be most competitive.
Further support for SMEs is expected to come from the introduction of a requirement for agencies to assess economic benefit when considering tenders:
… in March 2017, there was a new requirement included in the CPRs and that was for contracts over the value of $4 million and construction contracts over the value of $7.5 million to include an assessment of the economic benefit of the proposal, and that economic benefit is then considered as part of the value-for-money assessment in determining the awarding of that contract.
Asked if a greater economic multiplier was applied for SMEs in rural and regional areas when considering economic benefit, Finance said that such considerations were at the discretion of the agency involved:
We provide some guidance, so we leave it up to agencies to determine how best to measure that. But the guidance that we provide to help them to frame and do that economic benefit assessment does provide a range of examples of the kind of economic benefit that might be cited by suppliers and might be considered. Some of those examples include the benefit to SMEs, the engagement of local businesses, the transfer of skills and knowledge to local SMEs. So there is a range of criteria directly around local SMEs that can be considered in the context of that.
The Export Council of Australia (ECA) stressed the importance of foreign government procurement for Australian businesses but cautioned that government procurement is a complex area and warned that ‘Australian SMEs are largely unaware of their rights under trade agreements’. The ECA acknowledged the work already being done by the Australian Government but urged it to provide more training, advice and support for SMEs seeking to enter the GPA market:
The ECA recommends that the Australian Government do more to raise awareness of these provisions, and educate SMEs about how to use them (including recourse for resolving disputes). This should be coupled with outreach about opportunities for Australian SMEs in major GPA and FTA markets, as well as advice on how to navigate key government procurement systems.
There is also some concern that the exemption of SMEs may come under pressure from other GPA Parties. In the Terms of Accession of Australia to the GPA, the European Union (EU), Iceland and Switzerland have included a clause which identifies the exemption of SMEs as discriminatory. For example, the EU’s terms include the following clause:
The provisions of Article XVIII shall not apply to suppliers and service providers of Japan, Korea, US and Australia in contesting the award of contracts to a supplier or service provider of Parties other than those mentioned, which are small or medium sized enterprises under the relevant provisions of EU law, until such time as the EU accepts that they no longer operate discriminatory measures in favour of certain domestic small and minority businesses.
Article XVIII of the GPA provides for access to judicial review in the case of a breach of the Agreement. The Australian Fair Trade and Investment Network (AFTINET) sees this as a threat to Australia’s ability to retain the exemption for SMEs in the future:
This means that Australian SMEs will have access to the European procurement market, but will not have access to the appeals mechanism. The EU reference to ‘discriminatory measures in favour of certain domestic small and minority businesses’ indicates a clear intention of the EU to pursue the removal of exemptions for SMEs, and for Aboriginal and Torres Strait Islander businesses.
Modern Slavery Act and the GPA
The Committee asked if, under the GPA, the Australian Government would have the ability to prevent modern slavery or labour exploitation within procurement supply chains. DFAT assured the Committee that the policy flexibility built into the Agreement allows the Australian Government to exclude suppliers found to be involved in these practices:
… we have policy flexibility to exclude suppliers on grounds such as final judgements in respect of serious crimes, professional misconduct, integrity of the suppliers, and also unethical practices. This means that there is policy flexibility to ensure that suppliers found to be engaging in modern slavery practices that are criminalised under Australian law can be excluded from procurements. Further, we can take measures necessary to protect public morals, order and safety or measures relating to human health, provided such measures don’t arbitrarily or unjustly discriminate against suppliers from GPA parties.
DFAT is also confident that the recently implemented Modern Slavery Act will reinforce the Australian Government’s ability to detect and act on malpractice in supply chains:
… the Modern Slavery Act, which passed parliament late last year, establishes a modern slavery reporting requirement. All large businesses doing business in Australia, including both domestic and foreign businesses with annual revenue over $100 million, and the Commonwealth government will be required to report on modern slavery through their supply chains … there is no direct connection with procurement but there is an indirect link. The Commonwealth Procurement Rules are quite clear on this. They say that entities must not seek to benefit from supply practices that may be dishonest, unethical or unsafe. There can be clarity about what is unethical or dishonest, but this reporting mechanism will help agencies to make judgements about the practices of businesses that are seeking to do business with the Commonwealth.
Further, DFAT advised that, in addition to the Modern Slavery Act, Australia has a range of other mechanisms in place to ensure that the corporate conduct of participants in the Australian procurement market meet Australian expectations:
In 2018 the Government announced a new procurement-connected policy, which will require all businesses tendering for Commonwealth contracts valued over $4 million to provide a satisfactory Statement of Tax Record from the Australian Taxation Office. This policy will take effect from 1 July 2019 and will effectively debar firms with non-compliance tax behaviour. The treasury is presently consulting on the criteria that will be used.
The Department of Home Affairs controls the import and export of certain goods to and from Australia. These controls prohibit the import or export of certain goods and provide restrictions on other goods.
The Workplace Gender Equality Agency (WGEA) is responsible for the Workplace Gender Equality Procurement Principles and User Guide, which require Australian Government agencies to obtain a letter from tenderers with 100 or more employees indicating their compliance with their obligations under the Workplace Gender Equality Act 2012. A list of non-compliant employers is published on the WGEA website.
The Commonwealth operates a devolved procurement framework, with individual Commonwealth agencies responsible for managing procurement processes to meet their business needs, in accordance with CPRs. This framework, and the Resource Management Framework more broadly, ensures the efficient, effective, economical and ethical use of public resources.
Under the CPRs, procuring officials are able to determine appropriate eligibility criteria for a particular procurement and to request relevant information to assess the suitability of a potential supplier. Agencies are able to request and consider information from tenderers on any convictions and to exclude a potential supplier from consideration on various grounds, including if the supplier’s practices are dishonest, unethical or unsafe.
The NIA maintains that the GPA obligations are broadly consistent with obligations contained in Australia’s existing FTA government procurement chapters. The following summary of Australia’s obligations under the GPA is taken from the NIA.
The GPA consists of 22 Articles and associated schedules. The GPA sets high quality standards for government procurement, reflecting the principles of non-discrimination (Article IV:1 and IV:2), transparency and procedural fairness (Article XVI).
The GPA requires that Parties treat suppliers from other GPA Parties no less favourably than their own domestic suppliers (known as the national treatment obligation: Article IV:1). Article IV:2 prohibits discrimination against local suppliers just because they are partly foreign owned or use foreign goods and/or services. Articles IX:3 and X:1 further prohibit creating specifications or procedures that create obstacles for foreign suppliers to compete for the contract.
The GPA includes obligations to promptly publish any laws, regulations, judicial decisions and other documents that affect covered procurement as well as a range of publication requirements around procurement notices (Article VI).
Parties must generally use an open tendering procedure for contracts above a certain threshold to ensure that government procurement is open to all suppliers, unless specified exceptions apply (Articles IX:4 and XII:1). This is already standard practice in Australia but not necessarily in other countries.
For open tenders, the GPA:
encourages all procuring entities to put information on their procurement system (including notices and tender documentation) online and make such information readily accessible to the public (Article VII:1), whilst certain procuring entities are obliged to make tenders available through electronic means (Article VII:1(a));
encourages procuring entities to publish, as early as possible in the financial year, a notice outlining its future procurement plans (known in Australia as an Annual Procurement Plan) (Article VII:4);
requires procuring entities to allow suppliers no less than 40 days to submit a tender, although this can be reduced to as low as 25 days if the tender process is conducted solely electronically, and to 10 days in a number of circumstances, including if the tender is both conducted electronically and relates to the purchase of commercial goods or services (Article XI:3-8); and
requires procuring entities to limit any conditions for participation in a procurement to those that are essential to ensure the legal, financial, commercial and technical abilities of suppliers (Article VIII:1).
Parties may use selective tendering or limited tendering, but only in specific circumstances outlined in the GPA. Where a Party uses selective tendering, certain procedural rules must be followed, and the system of pre-qualification must not create unnecessary obstacles to the participation of suppliers (Article IX:3–6).
A Party may only use limited tendering in a narrow range of circumstances and only if limited tendering is not used to discriminate or avoid competition among suppliers. If a procuring entity uses limited tendering, it must publicly prepare a written report outlining the circumstances and conditions that justified the use of limited tendering (Article XIII).
The GPA requires that procuring entities conduct procurement in a manner that avoids conflict of interest and prevents corrupt practices.
The GPA provides access to the legally-binding WTO dispute settlement mechanism for disputes brought by GPA Parties (Article XX). Additionally, each party must establish or designate at least one impartial administrative or judicial authority to hear challenges by suppliers in relation to procurements. This review procedure must be timely, non-discriminatory and effective (Article XVIII).
The NIA states that Commonwealth procurement practices and legislation will be GPA compliant from 1 January 2019, including in light of amendments introduced to implement the TPP-11.
The NIA also claims that Australian state and territory governments are currently largely compliant with GPA commitments, with minor changes to procurement rules required for implementation. The NIA reiterates that each state and territory supports Australia’s accession to the GPA, and has indicated that they will take the necessary steps to ensure their procurement policies and procedures comply with the GPA commitments prior to binding treaty action being taken.
The NIA notes that some GPA Parties will also amend their GPA Annexes in line with Australia’s offer. These amendments will apply from the date of entry into force of the GPA for Australia.
Asked how Australia can be certain that other Parties to the GPA are complying with their obligations, DFAT assured the Committee that it maintains close liaison with Australian businesses to ensure that they are aware of the obligations of foreign governments to allow Australian businesses to participate in procurement markets. The Australian Government will also alert foreign partners if Australia is concerned that partners are not fulfilling their obligations under the GPA. This process could include Australia’s participation in the WTO Committee on Government Procurement (GPA Committee). DFAT reiterated that the WTO GPA dispute settlement mechanism is also available if Australia suspects non-compliance:
When things get really serious, we are in a position as a government: we would have status under this agreement to bring matters to the WTO’s so-called dispute settlement system and raise concerns in a very formal way, taking foreign partners to that dispute settlement system for dispute. That would be available to us as a full member of this agreement.
The Committee notes, as it has done in previous inquiries, that reliable quantitative data on the benefits of the Agreement would assist the Committee in its deliberations.
The Committee urges the Australian Government to resist any future pressure from other GPA Parties to weaken the exceptions Australia has gained, particularly for SMEs and Indigenous businesses.
The Committee notes the NIA assurance that stakeholder engagement will continue after formal accession to raise awareness of the GPA. It also acknowledges the work already being done by DFAT and other relevant agencies to educate Australian businesses, particularly SMEs, regarding accessing the opportunities provided by Australia’s FTAs. Nonetheless, the Committee reiterates the importance of this work and urges DFAT and other relevant agencies to continue to strengthen their role in this area and ensure Australian businesses have the support and knowledge required to take full advantage of these opportunities.
The Committee supports the Agreement and recommends that binding treaty action be taken.
The Committee supports the World Trade Organization Revised Agreement on Government Procurement (Annex to the Protocol Amending the Agreement on Government Procurement, adopted on 30 March 2012 (GPA/113)) and recommends that binding treaty action be taken.