Regulaton & Policy
‘Broader Benefits to the Australian Economy’ Needs Clarity in CPR

New Commonwealth (of Australia) Procurement Rules (CPRs) – rather, updated ones – came into effect on 1st March 2017 – these are the basic set of rules on how all Australian public sector procurements are undertaken. Alongside them, a set of guidelines have been produced to clarify and help in understanding them. There’s a good table here that outlines the main changes.

Two of the changes are causing a bit of controversy. The first is the text added to the part on Specifications and Standards – “Where an Australian standard is applicable for goods or services being procured, tender responses must demonstrate the capability to meet the Australian standard, and contracts must contain evidence of the applicable standards (see paragraph 10.37).”

There’s plenty of discussion going on around the nature of that update, one in particular cites “the treatment of Standards in procurement both in the CPRs and in guidance is muddled and misleading.” There’s a discussion worth following here if you would like to read how the Dept of Finance responds.

However, more interesting for us is the added text under Value for Money and broader benefits to the Australian economy.  “In addition to the considerations at paragraph 4.4, for procurements above $4 million, Commonwealth officials are required to consider the economic benefit of the procurement to the Australian economy.” (10.30) And “The policy operates within the context of relevant national and international agreements and procurement policies to which Australia is a signatory, including free trade agreements and the Australia and New Zealand Government Procurement Agreement.” (10.31)

The European Union has criticised the Australian Government’s purchasing rules under this amendment, and the Delegation of the European Union to Australia has submitted an inquiry calling for the rules to be re-examined.

It states: “In  view  of  the  importance  of  CPRs,  the  EU  considers  that  it  is  crucial  to  ensure  their  compatibility with  Australia’s  existing  and  future  international  obligations … we  are  concerned  in  particular  that  the  “economic  benefit  to  the  Australian  economy” test could be applied in a discriminatory manner towards EU suppliers. First of all, according to the guidelines it appears  that  the  burden  of  proof  to  assess  if  and  when  a  tender  would  bring  benefits  to  the  Australian economy  remains  with  the  bidder.  Only direct effects to the Australian economy should  be  assessed …”

It goes on to describe what those benefits might be and concludes that “… it appears  that  the requirement  for  “economic  benefit  to  the Australian  economy”  is  in  breach  with  the  GPA,  in  particular  with  Article  IV  (1)  of  GPA  which  contains  a general requirement for non-discrimination.”

An article in The Canberra Times reveals that the EU is Australia’s second-largest trading partner and largest source of foreign investment. Two-way merchandise trade was valued at $59.5 billion and two-way services trade $29.9 billion in 2015. Australia exported $23.5 billion worth of goods and services to the EU.

A Joint Select Committee was established recently by the government to inquire into and report on the new procurement framework.The committee chairman Nick Xenophon is cited as saying the revised rules aim to increase the competitiveness of Australian businesses when they bid for federal contracts, particularly against international counterparts. But the EU claims that the procurement rules require “specific interpretative guidance …to align them with Australia’s international obligations and principals of the GPA”.

We read the Australian Government Finance Dept guidance note on “Consideration of broader economic benefits in procurement,” and note that a paragraph states: “The change in paragraph 10.30 of the CPRs operates within the context of Australia’s trade agreements. These agreements require officials to treat all potential suppliers equitably and not to discriminate against suppliers on the basis of their size, location or ownership.”

And – “Economic benefit consideration should not detract from officials’ ability to achieve high quality, value for money procurement outcomes. The relative importance of evaluation criteria should reflect the type of procurement, industry sector and market conditions … Evaluation of the economic benefit to the Australian economy should be balanced with the efficient use of Australian government funds. For example, advantages of the production of a good in Australia may be outweighed by the cost of a similar good produced overseas.”

So that’s the theory – we’ll have to wait and see what it means in practice. The guidelines, it would seem, are open to misinterpretation, so further clarity around the test to assess value for money is needed. And while we can understand why the Australian government wants to support Australian business, this does appear to be part of a global trend towards more protectionist behaviour, and a desire to use public procurement to support that protectionism. We will have more on that tomorrow, and the select committee report is due by May 31.