THE AUSTRALIAN COMPANIES INSTITUTE LIMITED Senate Inquiry 2014 Government Procurement Australian Owned Businesses Current Practices Cases Studies Impediments Opportunities A Basis for Further Discussion Policy Input Prepared in Consultation with ACIL (AUSBUY) Corporate Members January 2014 1 Prepared by the Australian Companies Institute Limited (AUSBUY) 02 94375455 [email protected] INDEX Page Page 19. G - The Inherent Value of 3. A - Executive Summary Australian Owned Businesses 5. B- Discussion to Our Economy 8. C- Interpreting Our Rules 20. H - Reinvestment in Our Economy – Think Local 10. D - Managing the Practices 22. I - Managing the Tender Process 12. E - Case Studies 23. J - Proudly Australian Owned 18. F - Why Give Priority to Australian Serviced, Manufactured and businesses? Grown 24. K - Summary 2 Prepared by the Australian Companies Institute Limited (AUSBUY) 02 94375455 [email protected] REPORT ON GOVERNMENT PROCUREMENT FOR AUSTRALIAN OWNED BUSINESSES A Executive Summary: i. Governments are big customers. At every level, governments do not generate income. They are an expense funded by tax payers, businesses, or money borrowed off shore. It is therefore in Australia’s interest that Government Procurement funds are reinvested here to support Australian skills and jobs, and give priority to and sustain our owned businesses. ii. At the beginning of the GFC President Obama stated that he was the President of the USA not the world, and that Government Procurement would give priority to US businesses. In the USA that largely means to US owned businesses. The President’s “intent” was that USA Government’s procurement policies ensure Government funds are reinvested in local businesses and jobs. iii. Australia has few requirements for Australian companies’ participation. The issue of international obligation does not appear to deter other countries from closing their doors to support their own, although it is an excuse here to open our markets to competition. iv. Our governments cannot devolve their responsibility to engage Australia’s assets and our people to work and reinvest in Australia’s long term interests v. There may be some examples of Australian public companies fulfilling government contracts in other countries, but this paper addresses how the Australian process impedes opportunity for our local businesses condoning competition from overseas. We need to change how we approach the issue. vi. Australia’s policy of value for money appears in practice to be interpreted rather as the cheapest price. This approach costs Australia in the disregard of such issues as intellectual property and failure to meet Australian standards. vii. While we can talk about future opportunities, we have failed to think strategically and support our sustainable competitive advantages. 3 Prepared by the Australian Companies Institute Limited (AUSBUY) 02 94375455 [email protected] The consequences are the erosion of business profitability especially those Australian owned businesses that pay full taxes and employ people here. Foreign countries and companies operating here enjoy unfair advantage under the current system. We appreciate we cannot deliver stealth bombers and our foreign owned manufacturers are leaving or threatening to do so, but there are still many highly skilled efficient Australian businesses that could supply and service governments’ needs at many levels if given “a fair go”. viii. Case studies below highlight some of the key issues from Australian owned businesses’ perspectives, current impediments and management issues, some of which put businesses under threat of closure that have been operational for years. ix. Poor policies and management mean as a country we lose the critical mass of owned business in key industry sectors. These are necessary for a vibrant productive economy that nurtures and develops innovation and reinvests here. They are also important for the supply of basic commodities and services. In all industries we are failing our own. Government Procurement at every level that gives priority is an opportunity could ease the loss of national income and skilled jobs. x. Australians have a history of “thinking outside the square”. We need to be open to creating the opportunities for our own. Government Procurement has been a concern for the Australian Companies Institute Limited (AUSBUY) since forming in 1991. The Senators who have instituted this Inquiry are to be commended. It is long overdue. This review at least acknowledges the problem. 4 Prepared by the Australian Companies Institute Limited (AUSBUY) 02 94375455 [email protected] B Discussion: i. Our Government’s first obligation is to get Australian businesses, our assets and our people working for Australia again so we can pay off our national debt, renew confidence among our business people to reinvest in Australian innovation, create skilled jobs and revitalise our economy. We appreciate that we cannot supply all the skills and products required, but even those we can supply should be given priority. In practice we have interpreted our rules to operate against our own interests. ii. At Davos recently the Prime Minister said he wanted business to lead the change. Australia cannot do that if we do not attend to our owned businesses. If the businesses he referred to are foreign owned and operate here then they will look after their own first. Evidence of this is their lack of commitment unless highly subsidized to stay here. Countries buying our assets will have a longer term view. Either way we pay. We are missing the potential that our small, medium and larger business could contribute to our economy. Instead we allow countries to buy our assets, have ready access to government contracts, use off shore skills, source off shore and take profits off shore with little reference to opportunities for local suppliers. How does Australia benefit? iii. Governments, their advisers and economists rarely discriminate between what is Australian owned and what is foreign owned operating in Australia. When governments give preference to foreign companies against Australian owned companies that can fulfill the requirements, it uses tax payer funds against our owned business and puts their viability, skills, jobs and reinvestment at risk. Government Procurement that gives priority to Australian owned companies would return some balance and opportunity for reinvestment here. 5 Prepared by the Australian Companies Institute Limited (AUSBUY) 02 94375455 [email protected] iv. Australian Government Procurement policies’ concepts of value for money rarely give preference for Australian interests. Nor do they determine the real value to Australia when these contracts are won and substitutes for local made goods or skills are sourced off shore. The real “value for money” is when Australian owned businesses deliver product quality, service and integrity, source here and employ skilled people here and reinvest here. The cheapest price for off-shore services or imports cost twice in lost opportunity to secure skilled jobs here and reinvestment here. If foreign interests dominate here then Australia does not get the full advantage for the money sent. v. The problem is we are losing the critical mass to optimise productivity among our businesses. While the global market place remains fragile, other countries will seek opportunities for themselves. We are losing the critical mass is key skill sectors in engineering and farming. As the Australian dollar declines, we have become even more reliant on imports for basic needs we will only add to inflation and unemployment. Trade is not the solutions as many of our export industries are controlled by foreign interests and we do not get the full benefit of assets that were once reinvested here. Government Procurement could form a buffer to this situation. vi. Many of the countries we now deal with require majority local representation to ensure locals dominate in their countries. In the mining sector we have rules for Australia Industry Participation (AIP Programme), but this is circumvented. In the majority of sectors our systems do not discriminate between foreign owned interests that largely control the supply chain and Government contracts. 6 Prepared by the Australian Companies Institute Limited (AUSBUY) 02 94375455 [email protected] The big picture approach of big government undermines the opportunities that right policies could stimulate to benefit our whole economy through reinvestment across industry sectors. This is practical stimulation to create productive skilled jobs and reinvestment here. We need to think local before we can take advantage of global opportunities. 7 Prepared by the Australian Companies Institute Limited (AUSBUY) 02 94375455 [email protected] C Interpreting Our Rules: Value for Money i. In any business transaction value for money means more than price. If budgets are tight, and the cheapest is the measure by which Government contracts are allocated, then we are not getting value for money. There will always be off shore interests keen to cut prices Australian businesses have high costs imposts relative to imports in terms of employment costs, rising energy and high taxation. If foreign owned operating here they can siphon jobs off shore and substitute local goods with imports. Australia loses at many levels. ii. Consumer laws protect consumers from faulty goods or services, but when Government procurement contracts purchase goods or services which do not meet our standards to meet the perceived value for money , then the real value to Australia is lost in revenue, skills and product or service integrity. iii. Although price is often quoted as the reason why people buy, in international marketing disciplines it is recognised that price is the fifth reason why people buy. Buyers: 1. need it 2. know where to find it 3. have used it before or are aware of it through promotions 4. offers value for money – used before and satisfied 5. price – we do not always buy the cheapest if it does not meet the above criteria 6. provenance – in every country this is increasingly significant – our policies should reflect this iv.