While all attention on ‘the Hill’ in Canberra has recently been focussed on the political uncertainties created by delicately balanced parliamentary numbers, a powerful Senate Committee quietly tabled a report on the 17th of July which has the potential to completely reshape the Commonwealth’s multi-billion dollar a year procurement industry.

The bi-partisan Senate Finance and Public Administration References Committee conducted an inquiry into the operation and effectiveness of the Commonwealth’s procurement practices and how they relate to the participation of Australian companies and businesses in the provision of those goods and services.

A major focus of the inquiry was on the efficacy of the ‘value for money’ principle championed by the Commonwealth in relation to assessing quotes for the provision of its goods and services. The inquiry heard from many frustrated private sector and industry witnesses who made clear to the committee that ‘the value for money proposition is “not only a matter of comparing prices, it is a matter of assessing the broader benefit (to Australia), as well as the costs, of the available options being offered. For example, it may be that increased employment, enhancing the skills base of the economy and boosting tax revenue will vastly outweigh what might have been gained from an initial procurement decision based on price alone.”

In this alert we comment on some of the Committee’s more significant report recommendations.

A Preferencing Scheme for Australian goods and services

The Commonwealth Procurement Rules (CPRs) currently prevent discrimination in favour of local or small suppliers (except in very limited circumstances – eg indigenous businesses). This is primarily because of the view that the Australian/US Free Trade Agreement purportedly limits the extent to which the Commonwealth Government can be seen to officially preference local suppliers. However, a number of industry witnesses giving evidence to the Committee commented on the fact that, notwithstanding this restriction applying to the US Government as well, that country has a ‘Buy American Act’ and its government actively encourages preferences for domestic components in federal government procurement.

The Committee recommended that the Government should be required to provide a detailed explanation to Parliament of the barriers to developing a preference scheme (taking into account Australia’s existing free trade obligations).

Exemption for practices to benefit or preference small and medium business

The Committee also formed the view that the SME provisions in the CPRs do not accurately reflect what the Australian/US Free Trade Agreement had meant to achieve in relation to government work for SMEs. The Free Trade Agreement was in fact meant to ensure that government procurement practices would not apply to ‘any form of preference to benefit small and medium enterprises’, whereas the CPRs start from the opposite end and simply provide that procurement procedures should not discriminate against SMEs. The Committee recommended that the CPRs be redrafted to provide an exemption for official practices aimed at benefiting or preferencing small and medium business.

Establishment of an independent complaints mechanism

The Committee recommended that, following consultation with stakeholders, the Department of Finance should establish an independent and effective complaints mechanism for procurement processes.

This recommendation is based on the Committee’s finding that the current informal complaints mechanisms (involving the services of the Australian Government Procurement Coordinator, based in the Department of Finance) are deficient and that there is a ‘pervading sense of dissatisfaction with the avenues for redress following procurement processes’. In particular, the Committee noted, the Coordinator did not have the power to compel agencies to revisit their procurement decisions. The Committee noted by way of comparison that the United States and Canada both have an independent complaints mechanism.

Application of the Competition and Consumer Act 2010

The Committee also recommended that the Commonwealth provide an explanation as to why the operation of the Competition and Consumer Act 2010 (Cth) should not apply to the Commonwealth’s procurement practices.

This recommendation was made on the basis that the Committee believed no valid evidence was presented to the Committee as to why Commonwealth procurement should be immune from the operation of the Act.

In practice, this would mean that the ‘misleading and deceptive’ provisions of the Act would apply to the procurement activities of traditional Commonwealth departments and agencies. The Act already applies to Commonwealth bodies that ‘carry on a business’. To some extent, this recommendation arguably ignores the legal fact that Commonwealth procurements are already subject to an additional layer of requirements anyway, as a result of the Hughes v Air Services Australia decision.

Greater focus by ANAO on procurement audits

There were a number of recommendations in the report which urged the ANAO to have a greater involvement in reviewing the procurement processes of agencies and holding them to greater account.

The Committee recommended that the ANAO, during its next procurement-related audit:

  1. review the operation of the revised Commonwealth Procurement Rules, particularly the revisions relating to the assessment of financial and non-financial costs and benefits, and provide an evaluation;
  2. undertake an assessment of the application and implementation of relevant procurement-connected policies; and
  3. assess the competencies of agencies’ procurement officers.

Reduced complexity of procurement documentation

During the Committee’s inquiry a number of witnesses and submissions commented on the complexity of tender processes and contract documentation and raised concerns about the significant costs businesses can incur participating in government procurement. The time and costs involved in participating in Commonwealth procurement was contrasted with other examples of more streamlined processes including the Singapore ‘GeBIZ’ system of pre-authenticating tenderers for all legal, contractual and compliance elements of dealing with government.

The Committee recommended that the Department of Finance have regard to these complexity concerns when implementing its new suite of contract documents for procurements under $200,000. King & Wood Mallesons has been involved in the creation of this new suite of documents.

What may happen next?

The report is unusually strong in its recommendations. Some of its arguments are open to criticism - a government senators’ minority report, for example, pointed out that, notwithstanding these apparent faults, nearly 90% of Commonwealth contracts awarded in 2012-13 were given to SMEs, and that over 80% of the goods and services were sourced within Australia (although this is by number, not value). The Government will respond to the Committee’s report and there is little doubt that industry bodies will continue to lobby the government, using the Senate Committee Report as further ammunition.

Further information

Click here for the full report.