Nick Xenophon (SA, Nick Xenophon Team) Share this | Link to 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.

Kimberley Kitching (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

I rise to support the tabling of the Joint Select Committee on Government Procurement report, Buying into our future. I would like to take this opportunity to thank my colleague, the Senator for South Australia, Nick Xenophon, who served as chair of the committee and who I, as Deputy Chair, found very easy to work with, as well as the other members of the committee, those who gave evidence and those who made submissions. I'd particularly like to thank the committee secretariat, who are the vital backbone of every committee, so thank you Ms Ducker, Dr McClusky, Ms Leahy, Ms Lim and Ms Rowland.

The Australian government has a significant role to play as an investor and employer in Australian jobs and the Australian economy, which is why it's so important that all of our departments and agencies get procurement right. This review came about as the result of amendments to the Commonwealth Procurement Rules which were introduced in December last year and came into effect in March 2017. The committee was formed, and we've now handed down 16 recommendations, which are contained in the report. We received 53 submissions and held three public hearings across Melbourne and Canberra. Although it may sound rather dry, government procurement holds so much exciting potential for Australian industry. It can be a model procurer for other levels of government and, indeed, can have processes relevant for anyone procuring supplies and services.

To put some context around it, in 2015-16 Commonwealth agencies and departments reported entering into 70,338 contracts with a value of $56.9 billion. This direct expenditure is in addition to the funding provided by the Australian government to state and territory governments who procure goods and services on its behalf, predominantly in the form of infrastructure spending. Our biggest ticket items are vehicles—commercial, private and military; healthcare services; management; business and administrative services; building construction and maintenance services; and engineering, research and technology based services.

If I could refer to an inquiry currently being undertaken by another Senate committee, the Foreign Affairs, Defence and Trade References Committee, which is currently looking at the impact of Defence training activities and facilities on rural and regional communities, I would like to use this as an example of why the exemptions to the Commonwealth Procurement Rules contained in 'Appendix A: Exemptions from Division 2' allow flexibility and can enable the Commonwealth to be a more effective procurer. The example I'd like to use is the Department of Defence, who take their procurement policies and outcomes very seriously. As an example, Defence was awarded recently for being the No. 1 procurer supporting Aboriginal and Indigenous procurement in the Commonwealth. They use exemption 17, which is 'the procurement of goods and services from an SME with at least 50 per cent Indigenous ownership'. The Department of Defence have used this, particularly in northern Australia, to ensure that they are responsive to the communities that are there, particularly—obviously—the Indigenous communities. The reward for that has been better relationships in the North of Australia. The CPRs therefore have the flexibility contained in the exemptions, but the committee did have regard to whether they were the most appropriate and whether those exemptions were sufficiently broad.

Going back to whether the Commonwealth is an effective procurer, every time the Commonwealth spends taxpayer dollars, it provides a chance for a company to provide its services. These companies then employ people to carry out their work. In doing so, government procurement directly contributes to the health of the Australian economy. Government procurement, if done ethically, effectively and strategically, has the potential not only to create jobs and contribute to the economy but also to boost the skills of the Australian workforce, foster innovation and even create new industries. I will come back to that.

The Australian Labor tradition is of fiscal responsibility. Australians deserve to be sure and certain that the Commonwealth is spending Australians' money wisely and well. Additionally, government procurement has the potential to create what the CFMEU and the Textile, Clothing and Footwear Union of Australia have termed a 'multiplier effect', where government investment increases economic activity in downstream industries and communities and stimulates private investment in Australian industries.

Given the magnitude of Commonwealth spending on government procurement and the significance of this investment to the health of our economy, it was concerning to hear of some of the loopholes and inconsistencies which did exist and may well still exist under the new CPRs. The amendments to the CPRs were generally well received by those we heard from over the course of the review; however, there were significant concerns raised over the capacity for those amendments to be implemented effectively. Did clauses lack clarity? Did they leave too much up to the discretion of officials? Was there a culture of procurement focusing on lowest cost rather than genuine value for money? Was there a lack of accountability and transparency?

There was also a discussion regarding former procurement plans that some submitters believed had operated well. The ICT sustainability plan was mentioned by a number of submitters. As an example of that, Australian paper, for example, a business in the Latrobe Valley, invested in a $90 million de-inking and recycling plant. This is now the largest private employer in the Latrobe Valley, an area of Victoria which needs more investment whether that be private or public. It is also the largest exporter from the Port of Melbourne. It is Victoria's largest value-added processor of local wood. It generates $900 million of Australia's GDP. It supports 5,786 direct and flow-on jobs. It supports $494 million in household income. It generates $452 million in annual revenue to government, which equates to $1.88 for every ream of office paper manufactured. The Maryville operation supports 7.9 per cent of the Latrobe Valley's household income and 6.8 per cent of Latrobe's gross regional product. As you can see, good can come from government plans.

The committee's 16 recommendations make up a three-pronged approach which aims to address the implementation issues identified and ensure a consistent, transparent and effective application of the new rules. This involved the publication of comprehensive implementation guidelines which would explicitly address hither-to ambiguity terminology, such as the practical definition of economic benefit and the threshold for a business to be considered Australian.

As Senator Xenophon has already highlighted, we heard from South Australian footwear manufacturer Rossi Boots. He lost a Defence Materiel Organisation tender to a company which was based in Western Australia but manufactured their products in Indonesia. The South Australian Industry Advocate, which the committee looked at as a best practice model, reported that they considered where the majority of the workforce was based in assessing procurement, with 65 per cent of South Australian procurement going to companies with a predominantly South Australian workforce.

In addition to the publication of explicit implementation guidelines, we recommended that public service wide training be developed and undertaken to support and empower officials to interpret the rules as intended. The second prong, if you will, was the introduction of procurement related policies in order to safeguard the position of the Australian government as a model procurer, a role which has been overshadowed by doubt and the perceptions of the government as a procurer lacking skills and expertise. Again, we looked at another state-based best practice model in Victoria, where the Andrew's Labor government Project 10,000 policy has a major project skills guarantee where projects over a relatively low limit require at least 10 per cent of jobs on it to be set aside for engineering cadets, graduates or apprentices. As such a major investor in the Australian economy, the government has a responsibility to create policies which support and strengthen the procurement framework. The third and final element of the committee's recommendations involves a formation of an independent industry participation advocate modelled on the South Australian system, which would facilitate consideration and evaluation of the Australian economic benefit.

To summarise, the amended CPRs do provide a good working point for the structure and form of future government procurement in Australia. However, it was the opinion of the committee that more can be done in the implementation to safeguard standards of safety, human rights and ethics, sustainability and the environment, consistency and transparency, and a more effective evaluation of economic benefit. I recommend the report to the Senate and look forward to hearing the results of the inquiry, if established. I seek leave to continue my remarks.

Leave granted.