Address by The Hon Lindsay Tanner MP
Minister for Finance and Deregulation
Sydney
Tuesday 28 July 2009
I would like to thank CIPSA for the opportunity to speak today. This conference comes at a time when public sector procurement is more important than ever. The global financial crisis has hit us all and the necessity for governments at all levels – and indeed private enterprise – to make the most of every dollar has never been greater.
Over the next two days, I am sure a host of valuable discussions will take place and each of you will take home experiences that will assist you in delivering better procurement outcomes.
I would like to take the opportunity to provide you with an overview of the Rudd Government’s multiple procurement reform processes; reforms that are taking place around our core principle of value for money through competition, non-discrimination and efficient, effective, ethical and transparent processes.
The Australian Government is one of the largest consumers of goods and services in the country. In 2007-08 the value of procurement contracts awarded was around $24 billion.
Our agenda for reform of procurement is driven by the absolute need to maximise the value Australians receive from every one of those dollars. This means the best possible procurement outcomes in terms of price, in terms of quality and in terms of service.
I know that federal government procurement officials have already been undertaking a host of work to achieve these outcomes and deliver savings from efficiency improvements. There is still significant work to come not only in terms of achieving savings but also ensuring we maintain a strong accountability and transparency framework.
One of the key challenges that we face in achieving these outcomes is that the federal public sector operates in a devolved environment; that is Chief Executives are responsible for managing the affairs of their own agency.
While this decentralised system of financial management does have its benefits, it does run the risk that the Australian Government may not be fully leveraging its substantial purchasing power to achieve value for money in its procurement.
While the excessive decentralisation that was embraced by our predecessors inevitably resulted in significant waste, duplication and inefficiencies in the procurement of goods and services, we recognise that taking it to the extreme on the other side – to excessive centralisation – is not the answer either.
It is for this reason that we have taken a balanced approach to procurement, one where sufficient autonomy exists to encourage innovation and flexibility, but at the same time is coordinated enough to effectively use the Commonwealth’s significant buying power to secure the best possible procurement outcomes.
As part of this approach the Rudd Government has introduced a framework for the coordination of government procurement contracts to deliver savings and efficiencies.
My department – the Department of Finance and Deregulation – is currently undertaking scoping studies to evaluate whether greater value for money can be achieved by combining the Australian Government’s purchasing power for products and services such as telecommunications, desktop computers and major office machines.
Based on these scoping studies work is already underway on developing co-ordinated procurement contracting arrangements for travel services and standard contractual clauses for accounting services.
Where co-ordinated procurement contracting arrangements are implemented, agencies will be required to use the contract established for that particular good or service. Only under exceptional circumstances will agencies be granted an exemption from a coordinated contracting arrangement once it is in place.
One of the key outcomes of the reforms underway has been the revised Commonwealth Procurement Guidelines that came into effect in December last year.
The CPGs – as I am sure many of you know them – outline the Australian Government’s procurement policy framework and establish the Government’s expectation for all departments and agencies when performing duties in relation to procurement. They also govern how agencies procure property or services and reinforce the fundamental procurement principle of value for money.
In developing the CPGs federal government agencies, stakeholders and suppliers were consulted on what aspects of existing procurement policy did and didn’t work. While it seems an obvious step to take, it proved an invaluable initiative and was key to the development of a procurement policy that works for all parties.
An example of this is the management of risk. The CPGs have always required agencies to manage risk appropriately regardless of whether that risk was real or perceived. During the consultation process many suppliers raised concerns about the allocation of risk and liability. Consequently, we have acted to reinforce that risk should be managed by the party best placed to manage it.
In taking these actions, we have made it clear that businesses should not be asked to unnecessarily carry risk. Small improvements like this make it easier for suppliers to do business with the Government.
The Rudd Government’s revision to the CPGs has also highlighted requirements on government procurement to ensure that our suppliers are acting ethically by complying with all relevant laws, by not having unpaid employee entitlements, by disclosing who they are subcontracting work to and by requiring those subcontractors to comply with all relevant laws too.
In addition, we have made it easier to procure property or services from businesses that primarily exist to provide the services of people with disabilities by exempting these businesses from the Mandatory Procurement Procedures.
The Australian Government’s procurement policy framework deals with ‘socially responsible procurement’ in a very different way to other Australian jurisdictions. We do not prescribe what procurement officials purchase. Rather we have set out a principles-based framework which governs how to do procurement.
There is a balance that we must strike because Government is accountable to the public and taxpayers. We do not want to make procurement more complex for suppliers or officers than it needs to be. Generally it is better and more effective to implement a more direct policy measure to address an issue than to attempt to address the issue through procurement, and this is a key element underpinning the Australian Government’s approach to procurement.
Procurement is often seen as an easy and cost effective option for implementing policy. However those who adopt this view often overlook hidden costs, such as the cost to the Government and to taxpayers in administering those policies and in potentially reducing value for money.
This is not a view I have just adopted upon becoming Finance Minister. In 1994 I published a very large paper on industry policy called “The Innovation Challenge” in which I rejected the use of government purchasing as a major arm of industry policy.
You will all be aware of current demands for Australian Government procurement policies to include a “buy Australian” bias. The Government does not support such proposals. We remain resolutely committed to a non-discriminatory purchasing policy.
Australia is a signatory to numerous international agreements that seriously inhibit our ability to use discriminatory procurement policies. We have been vocal in international forums warning against the serious threat any upsurge in protectionism poses to the world economy. If we introduce protectionist measures like discriminatory procurement policies we will invite retaliation from other countries. As a trading nation, Australia stands to lose a great deal in any global outbreak of protectionism.
The notion that there are big gains for Australian companies and workers to be won from discriminatory procurement policies is essentially a mirage. Research by my Department that I am releasing today shows that the possible benefits are very modest.
In 2007-08, the Australian Government awarded $23.7 billion in procurement contracts. In broad terms, based on our research, some $16.5 billion or 69 per cent was directed at Australian produced goods and services. Of the remaining $7.2 billion, $7 billion was spent on imported goods.
More than half of that, $3.9 billion was spent on imported transport equipment, typically specialised equipment for the Defence forces. The Defence Department has arrangements in place that assist Australian participation in many major defence contracts, but it is unlikely that Australia will become a manufacturer of helicopters or fighter jets.
A further $1.6 billion was spent on imported information and communications technology, typically computer equipment. It is reasonable to assume that the bulk of these items had to be imported because they aren’t produced in Australia.
Similarly, almost $500 million was spent on security equipment such as guns, ammunition, body armour and weapons systems.
In other words, once the items that have to be imported are subtracted from the total of $7 billion of imported goods, it would appear that the total of imported items that could have been purchased in Australia may be little more than $1 billion. That sounds a lot, but it’s less than five per cent of total procurement and less than 0.1 per cent of Australia’s annual GDP. And although some of the items in the categories I’ve just referred to may have Australian equivalents, the obverse applies in those categories of imports that I’m assuming could have been purchased locally. Presumably there are some furniture items we can’t buy locally for example.
The conclusion is simple. Although the data is admittedly fairly general and rough, it is pretty obvious that the introduction of discrimination in favour of Australian producers would have a very modest impact. Given that price discrimination would certainly not cause all imports of items that are produced in Australia to cease, the net shift could be as little as a few hundred million dollars of purchasing.
The downsides to such a strategy would overwhelm any benefits it delivers. If Australia takes such a protectionist stance, the adverse international implication would be very serious. And there’d be a domestic cost. We’d be paying more for the same things.
In simple terms introducing local price discrimination into our procurement policy isn’t worth the candle.
That doesn’t mean that we simply leave Australian companies to their own devices. There are certainly things we can do to make it easier for Australian companies to compete for Government business.
At the heart of our procurement reform agenda is better information. At present we at the centre of government don’t know enough about what is happening across a couple of hundred agencies and thousands upon thousands of contracts.
The lack of across-government information and communication systems is also a big problem for Australian suppliers. If an Australian furniture manufacturer came to me and asked for advice about how to break into the government market, I wouldn’t have much to say in reply.
We intend to fix this problem. I propose to establish a Procurement Coordinator in my department. The primary function of this position will be the collection and dissemination of information. Instead of wandering around in a fog, Australian producers will have a much better idea of where new opportunities may lie.
And to improve their chances of competing seriously, I intend to reform the existing requirement for annual procurement plans. Better advance warning of potential procurement opportunities will improve their prospects for competing too.
Procurement policy involves many complex challenges. The Australian Government is a huge enterprise comprising a very diverse range of agencies and arrangements. The factors governing, for example, a Defence contract for new helicopters are very different from those relating to a new fit-out of a Department of Finance and Deregulation building.
We are gradually building a new framework, one that delivers better outcomes across the board. We’re making good progress, but there is still much to be done. I look forward to continuing constructive engagement as we develop a more sophisticated approach to supplying the diverse needs of the Australian Government in partnership with our suppliers.
| Media Contact: | Website: |
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| Tim Naughtin - 0438 265 065 | www.financeminister.gov.au |
