Nick Xenophon (SA, Nick Xenophon Team) Share this | Hansard source

In relation to the Joint Select Committee on Government Procurement's report Buying into our future, I move:

That the Senate take note of the report.

This committee was established on 1 December 2016 to inquire into the Commonwealth procurement framework, particularly the amended Commonwealth Procurement Rules. At the outset, I wish to give special thanks to Dr Narelle McGlusky and Lynley Ducker from the committee secretariat and all their staff, who did such tremendous work in assisting the joint select committee, and also Senator Kitching, my deputy chair in that committee. Amendments to the Commonwealth Procurement Rules, the CPRs, came into effect on 1 March 2017, as a result of negotiations I entered into with the government, on behalf of the Nick Xenophon Team, to significantly improve those rules.

The aim of the amendments is to make sure that the full benefit of the Commonwealth's $57 billion worth of procurement flows to the Australian economy as much as possible. They will also ensure Australian regulations and standards are upheld. The amendments are designed to deal with the disadvantages faced by Australian suppliers accessing government procurement opportunities to level the playing field to give Australian companies, and Australian jobs, an opportunity to be part of that $57 billion worth of procurement.

The evidence received by the committee showed overall support for the amendments to the CPRS; however, there are concerns over effective implementation. Many of the new clauses were found to be too open to interpretation and to leave too much to the discretion of officials. The committee made suggestions to tighten up the clauses by refining or expanding the terms, and we have a good foundation to do so. The committee heard about several problems with the implementation of previous CPRs. These included a procurement culture that focused on lowest cost rather than value for money, a lack of accountability and transparency and unacceptable risk shifting. There is also a perception that, due to a lack of technical skill and expertise, the government has become an uninformed purchaser. The absence of a requirement to comply with Australian standards is considered another deficiency—something that the amended CPRs have dealt with by insisting on Australian standards.

There are several flow-on risks that may be detrimental to Australia more broadly. These include a loss of a skilled workforce, safety, economic and environmental risks and potential wastage—all matters that the CPR 17s are dealing with. Of real concern to the community is the possibility that the procurement system itself may present barriers for domestic businesses attempting to take advantage of procurement opportunities. The committee considered that comprehensive guidelines are essential to address the current deficiencies and ensure successful implementation of the new clauses. This is about shifting the culture of procurement in this country. New guidelines are required to remove the discretionary nature of decision making and replace it with specific standards that must be met. The guidelines should also mandate the evidence required from tenderers, in particular, an explicit definition is required for economic benefit and a weighting system to properly assess suppliers' claims, similar to the South Australian procurement system. The committee also considers that procurement-connected policies are needed to provide guidance for environmental sustainability and human rights. These guidelines and policies should be supplemented with a Public Service-wide training program, and improved record keeping is essential to address the lack of transparency and accountability in the current system. Contract management is another area that the committee would like to see better utilised to control implementation and maximise procurement and contract outcomes. Good contract management ensures tenderers meet their obligations and responsibilities.

If the amended CPRs are to encourage Australian suppliers, the Australian government must not enter into international trade agreements which diminish the benefits that underpin these amendments. Additionally, procurement officers must be better informed of the exemptions currently available in international agreements to preference domestic businesses. I am particularly concerned, as were members of the committee, about the GPAs —that is, the WTO GPAs—which have the potential to water down the benefit of these stronger procurement rules. The committee was made aware of a range of best-practice models able available for Australia to draw on to improve our procurement system.

At this stage, I refer to a procurement case study in the report into Rossi Boots Pty Ltd, but I want to pause briefly here to inform the chamber that, sadly, the former chairman of Rossi Boots, Dean Rossiter, passed away yesterday. He was an extremely passionate South Australian who came from a proud heritage of bootmakers. He was SA-proud and will be sadly missed, not just by the greater business community but also by his extremely loyal workforce and the many hundreds of thousands of customers of Rossi Boots. With this in mind, I pay tribute to Dean Rossiter. Rossi Boots is a family-owned company, established in South Australia in 1910. It makes 250,000 pairs of boots each year and employs approximately 80 people in its small factory in Adelaide. In 2014, the company missed out on a $15 million contract to supply 100,000 pairs of non-combat boots to the Australian Defence Force. The company was told their tender was compliant, but did not measure up on value for money. Instead the contract went to an Indonesian company. A former defence minister, Senator Johnstone, admitted that the cost differential was only 10 to 15 per cent, compared to boots made here in Australia. The company included information in their tender regarding the broader economic benefits that would have accrued from choosing an Australian supplier. They gave evidence to the committee that:

We certainly put forward in the tender the benefits that we believed would be forthcoming both to the economic situation in South Australia and in Australia in general, because we would be buying supplies from other places. We certainly talked about the desire from our own research and development of the Australian troops wanting to wear Australian made product.

The company also identified the anomalies that are not always taken into consideration when an Australian bid is assessed against an overseas bid. For example, government-imposed costs such as the superannuation guarantee levy, payroll tax, annual leave loading or long service leave, penalty rates and workers compensation all have to be factored into any tender bid for an Australian business—as it should be and as it must be—but they are not necessarily part of the cost for an international tenderer, and higher standards of safety are, in many cases, included when we're dealing with Australian made goods. Again, they gave evidence:

The point is that these are rarely seen when we start to look at the pricing overseas. They make up about a 25 per cent additional cost on top of whatever your manufacturing costs are.

Rossi Boots emphasised they were not implying that these costs should be removed. In fact, they are proud of the fact that they pay above-award wages to many of their employees. They have very low turnover of their staff. They are an excellent employer. On the contrary, they acknowledged that this was not taken into account. These absolutely appropriate high Australian standards are not taken into account when we're dealing with companies overseas.

We saw this contract go offshore. The money was effectively exported. Rossi Boots had expected to increase its workforce by 15 to 20 people, some 20 per cent. They would've purchased a lot of raw material from local manufacturers, so there would've been a spillover effect, and they probably would've invested in some new advanced computerised stitching. None of that occurred, because the defence department chased price, not value. We have seen our Army ration pack contracts go offshore. We have seen largely wasted discussion on shipbuilding, in terms of our supply ships, being conducted offshore. This has to stop, and the amended CPRs in this report are the key to that.

The committee believes that a three-pronged approach is necessary to address the implementation issues identified in this report and ensure the new rules are applied consistently, transparently and to maximum effect. We would like to see the publication of comprehensive implementation guidelines coupled with Public Service wide training to support officials to apply the rules effectively, the introduction of procurement-connected policies to safeguard the Australian government's role as a model procurer and the formation of an independent industry participation advocate modelled on the South Australian system to facilitate consideration of Australian benefit. Accordingly, the committee has made 16 recommendations to that effect.

The report had cross-party support and negotiated the amended CPRs in good faith in 2017. It provides a foundation that Senator Kim Carr, a former industry minister, acknowledged were a quantum leap of improvement in terms of what we've had in previous CPRs. But, of course, I always want to do better. I want to and intend to work with the government and all my colleagues in the opposition and on the crossbench to see that the CPRs are implemented and executed in full. I look forward to a positive government response to the report and its recommendations. I note the final recommendation of the committee to conduct a further review on the implementation and execution of the rules in 18 months time.

This is an important report. This is something that will make a big difference to Australian industry. At a time when we are losing manufacturing in our auto sector, this will build up our manufacturing sector. This is about good Australian jobs being able to be supported by having a level and fair playing field when it comes to procurement in this country. That is why this is so important. These rules are not perfect, but they are a significant improvement on what we've had previously, and this inquiry has been a very positive process to ensure that we are vigilant in terms of these rules, that we improve them and that we ensure that Australian government money—taxpayers' money—is, wherever possible, at every opportunity, used to promote Australian jobs and Australian industry so the manufacturing sector in this country, which is so absolutely important, can be revived. I seek leave to continue my remarks.

Leave granted.