A Commonwealth Government Procurement report – “Government Procurement: a sovereign security imperative”

Purpose of the parliamentary inquiry

Given the significant expenditure commitments to public infrastructure made by Commonwealth, State, Territory and Local Governments in recent times as part of the post-COVID recovery, the Parliamentary report “Government Procurement: A Sovereign Security Imperative“, published by the House of Representatives Standing Committee on Infrastructure, Transport and Cities on 31 March 2022, is most timely.

Key challenges identified in the report

The broad Terms of Reference for the report resulted in a very interesting and wide-ranging report of nearly 200 pages, which considers matters such as industry capacity and productivity, procurement policy, planning and coordination, contracting approaches, sovereign capability and national security.

Some of the key challenges and themes which emerge from the report include:

• the importance of long-term visionary planning of infrastructure. The current lack of coordination between the three tiers of government limits industry capacity and efficiency. Industry needs the confidence that can only be generated based on a strong pipeline of known opportunities, which would assist to build up industry capacity and productivity through an increased critical mass. At present, delivery processes are too often undertaken in a piecemeal, ad hoc and reactive manner. This thwarts the development of efficiencies that could be attained if there were a coordinated, steady pipeline of projects available from all tiers of government;
• skills shortage and the need for cultural reform in the construction industry. The predominance of men in the construction workforce is a risk to the longer-term sustainability of the industry and its capacity to scale up and meet future labour demands. More needs to be done to address the cultural practices and norms within the construction industry that disincentivise women from entering or staying;
• how real value is assessed in procurement and understanding the difference between lowest price and value. The report notes that decades of choosing the lowest price, as opposed to the ‘best value’, has diminished our capacity to deliver fit-for-purpose infrastructure, which now is presenting as a danger to our sovereign security;
• sovereign security challenges and opportunities to enhance Australia’s sovereign industry capability. Sovereign security is of increasing importance in recent times, given growing coercive trade threats and bans, particularly from China, and the Russian invasion of Ukraine;
• approaches to contracting and risk allocation on projects. Paragraph 4.4(d) of the Commonwealth Procurement Rules provides that Commonwealth procurements should “encourage appropriate engagement with risk” as part of the responsibility to ensure that a procurement achieves a value for money outcome, however the report notes that “early scoping and appropriate engagement with risk” is lacking in government procurements. In its submission, the Australian Constructors Association drew attention to the need to focus on “high value activities like optimising designs and de-risking projects rather than undertaking repetitive tasks associated with procurement processes”;
• lessons from other Australian jurisdictions and other portfolio areas, including, for example, Defence’s industry capability approaches. The stated aim of Defence Industry Capability Plan and the Sovereign Industrial Capability Assessment Framework is to provide Defence with “cost-effective, cutting-edge capability while also maximising Australian industry involvement”, with a focus on specific Sovereign Industrial Capability Priorities. Defence has recently introduced an Enhanced Australian Industry Capability Framework, which introduces stronger assurance mechanisms and contractual remedies to ensure that contractors deliver on their local industry commitments;
• how Australia can balance its international obligations (for example, under free trade agreements) while supporting the growth of Australian industry capability. The Report emphasised the need to support building greater capacity of Australian Tier 1 Contractors, and to increase opportunities for Australian Tier 2 and 3 Contractors and SMEs; and
• alternative procurement models, including reference to international examples. As explained by the Australian BIM Advisory Board, many of the procurement models used in construction and engineering “reduce the productivity of projects due to lack of shared responsibility across the project life cycle”. The report highlighted the need to explore initiatives such as early market engagement, the UK’s Project 13 enterprise model for infrastructure delivery and collaborative contracting.

The committee recognise that without addressing these underlying challenges in the construction sector, the industry may not be best positioned to deliver the ambitious pipeline of current infrastructure projects.

Key recommendations of the report

The key recommendations provided in the report were for the Commonwealth Government to:

1. investigate in consultation with State, Territory and Local governments, and relevant industry bodies and stakeholders, on how to facilitate better planning and coordination of the infrastructure pipeline. The report recommended extending governments’ approach to long-term infrastructure planning from a decade to a strategic outlook of 20 to 50 years;
2. review the practical application of the Commonwealth Procurement Rules, with a particular focus on how factors other than price are assessed in practice. This might, for example, include training government procurement officials in best practice approaches to support sophisticated assessments of value for money and ways to maximise local industry engagement;
3. establish, in consultation with State, Territory and Local governments, a mechanism for monitoring and rating the performance of funding recipients on government-funded infrastructure projects;
4. subject State, Territory and Local Government infrastructure projects receiving Commonwealth Government funding to verification of value for money requirements by the Commonwealth Government or a specified entity. To support this, it is proposed that the Commonwealth Government should establish a mechanism for assessing the plans for proposed infrastructure projects, and the performance of delivered infrastructure projects, of those other tiers of government that use Commonwealth Government funds;
5. explore opportunities for standardisation on like projects to improve planning, procurement and delivery efficiencies for infrastructure projects, in consultation with State, Territory and Local governments;
6. examine ways to maximise developing Australia’s sovereign capacity in infrastructure delivery by increasing the access of tier two and three companies, and related Australian small and medium enterprises, to projects in the Australian infrastructure pipeline;
7. support a digital by default approach in infrastructure projects, including consideration of the relevant recommendations in the 2021 Infrastructure Plan, requiring building information management (BIM) or similar technologies for tenders, fostering contractor upskilling in digital approaches and facilitating whole-of-life digital strategies in project plans; and
8. investigate how tenderers can demonstrate their commitment to, and compliance with, modern workplace standards and their support for sector cultural reform (including mental health and wellbeing, and gender diversity) to improve productivity in the construction industry in tender and delivery processes for government-funded infrastructure projects.

What happens next?

The proposed reforms will be commended to the Commonwealth Government for its further consideration, and it may accept, or partially accept, the recommendations of the Standing Committee. This may lead to potentially significant changes, particularly in areas such as coordination between different tiers of government (particularly for projects which receive Commonwealth funding) and the assessment of value for money (particularly in terms of local industry participation, sovereign industry capability and national security considerations).

How can we help?

At HWL Ebsworth, we advise public and private sector clients on a wide range of major construction and infrastructure projects, including some of the most complex projects within industry sectors such as transport, defence, energy and natural resources, and social infrastructure (including health, education, sporting and other accommodation). We regularly advise clients on the planning and execution of major procurement projects, including procurement strategy and frameworks, contracting models, risk allocation, evaluating tenders (or responding to requests for tender).

We have a significant presence in all States and Territories in Australia and a very strong understanding of the procurement policy frameworks applicable to each tier of government.

We regularly contribute to strategic reviews and reform of procurement and contracting policy. We are at the forefront of the latest trends and changes with regard to procurement and contracting models (including the use of early contractor involvement and incentivised target cost contracting) and the increasing relevance of Australian industry to procurement requirements and evaluation (including sovereign industry capability priorities, Local Industry Participation requirements and evaluation of the contribution to the Australian economy).

If you have any queries regarding the issues raised in this article or would like to explore how the proposed procurement reform recommendations could affect your organisation or your projects, we would welcome the opportunity to discuss them with you.

Please contact Toby Mittelman of our Construction and Infrastructure Group with any enquiries.

This article was written by Toby Mittelman, Partner, Julie Charles, Special Counsel and Konrad Anderson, Senior Associate.