Gai Brodtmann (Canberra, Australian Labor Party, Shadow Assistant Minister for Cyber Security and Defence) Share this | Hansard source

The Government Procurement (Judicial Review) Bill 2017 is one of the enabling pieces of legislation supporting the implementation of the TPP agreement. It will amend the Commonwealth Procurement Rules to include an appeals mechanism and ensure that the CPRs are consistent with free trade agreements like the TPP and the WTO's Agreement on Government Procurement. But I would be doing a disservice to the number of Australian small and medium businesses who contract their goods and services to the Australian government if I didn't highlight—and we're talking about very macro international government procurement here, but we do really need to focus on this—what's actually happening here on the domestic front in terms of government procurement. There are significant challenges for Australian small and medium businesses getting a piece of the action when it comes to government procurement here in Australia. Despite the perceptions that they're getting between 20 and 60 per cent of the work, they are not.

The Australian National Audit Office's December report on Australian government procurement contracting reporting gave an extremely good read. It was a very good insight into the procurement environment of Australian Commonwealth entities. In the 2016-17 period the overall procurement activity by Commonwealth entities was worth $47.4 billion, which was represented by 64,092 contract notices published on AusTender. The ANAO's report analysed financial years over a five-year period from 2012-13 through to 2016-17 and found the number of contracts to be 290,867 and their overall value to be close to $217 billion. That's a huge amount. Of these contracts, the highest number were, not surprisingly, from the Department of Defence: 123,319 contracts, worth almost $112 billion. The second-highest number of contracts was with the non-reporting agencies: 56,000 contracts, worth $33 billion.

Of the identified Commonwealth agencies, the Department of Immigration and Border Protection was the second-highest in the ANAO report, with 13,198 contracts awarded, with a value of $15 billion. This report shows us that procurement accounts for a huge amount of government spending—in the 2016-17 period, $47.4 billion, and over that five-year period, $217 billion, with Defence topping out at $112 billion. They are very significant numbers. As a result of that, Commonwealth procurement should provide a significant opportunity for Australian small and medium businesses. The Commonwealth Procurement Rules set a government commitment to sourcing at least 10 per cent of its procurement by value from SMEs. But this opportunity is balanced against the competition Australian SMEs face, as the Commonwealth Procurement Rules also allow for international businesses to compete on the same playing field.

The CPRs outline the government's procurement policy framework and the core objective. They ensure that entities achieve value for money in their procurement activities. But the CPRs provide guidance to ensure accountability and transparency in government contracts by requiring contracts over a certain threshold to be publicly reported by AusTender. Another requirement is for tenders not to be split or divided into separate parts to avoid the relevant procurement threshold. The ANAO's report assessed the level of compliance by government entities with this requirement and found noncompliance to be low, with as little as 1.6 per cent of 290,867 contracts having discrepancies. The ANAO's analysis identified 2,457 pairs of contracts where both contracts were with the same entity, each of the contracts was entered into with the same supplier, the contracts had a start date within the same quarter and the combined value of the two contracts was above the relevant threshold but each of the reported contract values was below the threshold.

The ANAO notes that 4,914 of the individual contracts would need to be reviewed to determine whether they were for discrete procurements, whether there were data errors, like duplication, or whether a single procurement had been split to avoid reporting against the procurement threshold. It is interesting that the highest proportion of potentially related contracts, 30 per cent, were for the Department of Industry, Innovation and Science—a Commonwealth entity that accounts for only 2.7 per cent of all contracts entered into between that five-year period of 2012 to 2013 and 2016 to 2017. However, on the other hand, the Department of Defence accounts for 42 per cent of the total number of contracts awarded across the same period, with less than 10 per cent of those contracts having any potential contract discrepancies.

The one thing missing from the current CPRs is a complaints mechanism, and that is what this bill puts forward. This bill attempts to create a type of complaints mechanism that was recommended by the Senate Finance and Public Administration References Committee in 2014. While the committee didn't specify a model, this change to Australia's procurement arrangements will let SMEs more easily hold the government to account. It designates the Federal Circuit Court to receive and review local and international supply complaints about breaches of the CPRs, but, aside from that, the government really hasn't explained what this new process will add alongside current review mechanisms. Currently, suppliers can make complaints to the procuring entity, the procurement coordinator within the Department of Finance, the Commonwealth Ombudsman and the Federal Court. The judicial review process set out in the bill will give small and medium-sized businesses located in regional areas greater access to justice, with local magistrates or circuit courts hearing their complaints rather than having to have the case listed in major or capital cities.

While anything that makes undertaking business easier for small and medium-sized businesses is welcome, I have wondered whether this outcome was more by accident than by design. This bill amends the CPRs to include appeal mechanisms to ensure that Australia meets the requirements set out in future FTAs, including the TPP. The changes will also satisfy Australia's obligations as a proposed party to the WTO Agreement on Government Procurement and will allow Australian businesses access to significant government procurement markets in other countries. Whether this international opportunity can be realised by Australia's small to medium-sized enterprises remains to be seen, but I sincerely hope it does.

The Joint Committee of Public Accounts and Audit held a public hearing into Australian government procurement contract reporting in August. Representatives of the 'big four'—PwC, EY, KPMG and Deloitte—all commented on the success of Australian SMEs in being awarded contracts through government panel arrangements. They were applauding themselves. EY noted:

I understand from a recent report from the Digital Transformation Agency that in July 73 per cent of the contracts awarded through that mechanism—

the digital marketplace—

were to small and medium enterprises.

When specifically asked about the effectiveness of panel arrangements in providing opportunities to the SMEs, it was noted that the panels are effective from a government buying perspective but that it can be very difficult for SMEs when trying to access a panel. Evidence provided at the JCPAA hearing noted:

For a larger firm, it wouldn't be unusual for a larger organisation to spend $20,000 or $30,000 just on getting into the panel agreement. That is not an amount that many SMEs are able to withstand, certainly if they need to bid into multiple panel agreements, especially when there is no guarantee of work at the end of it.

This is from PWC:

… the tendering environment in government is highly competitive, and so I do see that there are challenges for SMEs in respect of panel arrangements. But … we also try to work to put the best team forward so that we can be successful and that includes involving SMEs and other subcontractors. When we think about AusTender, AusTender does only record the prime contractor and so there could be … an improvement that could be made to disclose the other organisations that are … part of that consortium.

Before entering politics, I had my own microbusiness. I was mainly contracting to Defence and to government agencies for 10 years, so I know the challenges. I know the challenges of getting on a panel. I know the challenges of getting work once you are on the panel. I know how many highly skilled and experienced microbusinesses and small businesses are being forced to contract to primes and multinationals just to get work. I know that quite often when you're going on a panel, particularly when you are doing that first bid, you basically have to give years and years of financial records, and for a microbusiness that's a challenge—not that we don't have the records. But, really, do we need that much detail? Basically, you have to give half your body in blood and also your firstborn just to get onto a panel. That's been my experience.

My experience has also been that, as a micro, to get onto a panel you have to subcontract to a medium or small outfit, and in some cases you have to subcontract to a prime, a multinational. In that process you are completely at the mercy of those primes and those subcontractors. It wasn't me, but when I was contracting in Defence I knew of other consultants who were billing themselves out to the prime or to the subcontractor for $150 an hour, and they were being billed out at $500 an hour.

I made a speech in this place just recently about the fact that small and medium businesses, and micros particularly, provide extraordinary opportunities for government agencies. They are agile. They are flexible. They are innovative. They are creative. They can deliver efficiencies that larger outfits, particularly large multinational primes, just cannot deliver. They deliver an agility that those large multinational primes just cannot deliver. Our system, unfortunately, is geared to recognising and encouraging those large multinational primes and those large subcontractors at the expense of small and medium businesses and micros. This is particularly the case in regional and remote Australia. In my shadow defence portfolio, I do a lot of travelling to bases around the country, and I usually take the opportunity to go and speak to the local business chamber. They're tearing their hair out about the fact that they can't get a cut of the work. They can't get a cut of the significant Defence work arising from the base. That work tends to go to primes and subcontractors that are invariably based in the major centres on the eastern seaboard or potentially overseas. So those local businesses—I'm talking here about the local electrician, engineer or ICT person—just cannot get a look in in terms of the work.

We really need as a nation to be thinking creatively about how we can maximise the potential of our micros and our small and medium businesses and capture that innovation, agility and creativity that they offer, because at the moment, the way the procurement arrangements are established, they favour being big. They favour low risk, and big is usually low risk. They favour tried and tested solutions that are not necessarily as innovative as they could be. I know this from conversations I've had with some of the cybersecurity outfits that we have here in Canberra, world-class outfits. I'm thinking here about Penten. They're coming out with amazing innovations, particularly for mobile highly secure devices, allowing devices to be mobile and secure. Their mantra when I was leaving was: 'All we ask is that government agencies, particularly Defence, just buy one. Just have a go. Just have faith in us as a creative Australian outfit here in Canberra and as an innovator. Just buy one and just try it.' That's all they ask, particularly those in start-ups, in the innovation sector, in the cybersecurity sector, in virtual reality and in artificial intelligence: 'Just buy one. Take a punt. Develop and manage risk. Mitigate risk. Develop an appetite for risk that is mitigated and managed.' That's all they're asking.

So we are talking here about potential opportunities for micros and small and medium businesses. That said, I want opportunities not just internationally but also here domestically for micros and small and medium businesses in Australia. I want us to realise their potential. I want us to unlock their innovation. I want us to unlock their agility, their flexibility and their creativity.

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