Report 25: 2017

Local Content in Government Procurement

Introduction and Background

Introduction

This audit assessed the effectiveness of government procurement initiatives in delivering local content and employment. We focused on the following lines of inquiry:

1.      Are local content policies effective in creating employment and stimulating sustained local business activity?

2.      Do agencies apply local content policies consistently to all relevant procurement activities, including activities by contractors?

This audit focuses on the state government’s Buy Local Policy (the Policy) as the key local content policy. Audit data was supplemented by a survey of Western Australian businesses that received 64 responses.

Background

The total annual value of Western Australian (WA) government procurement over the last 5 years has been around $25 billion. The Policy, introduced in 2002, aims to sustain and, if possible, increase the share going to local businesses. It sets out principles and objectives of choosing local suppliers at the regional and state levels where possible and balancing this with the need to get value for money.

A number of other WA policies and guidelines support and interact with the Policy, creating a policy framework that includes national laws and policies, international trade agreements that include government procurement and the Australian Constitution (Figure 1). The Buy Local Policy requires government agencies to include local content selection criteria for contracts above $750,000. But the effects of these trade agreements and the Australian Constitution are that if tenders are received from interstate or certain countries, local content criteria do not apply.

Figure 1 - Policy framework affecting the buy local policy

The Western Australian Jobs Bill 2017 introduced to Parliament in September aims to strengthen the framework by applying new legislated obligations to a wider range of government bodies, including government trading enterprises. This will require a review of the Policy.

Under the Policy, local content is defined as the proportion of the contract that is undertaken locally in WA and includes:

  • the source of goods, materials and services
  • the degree to which local suppliers and subcontractors are used.

The Policy applies a system of zones to determine whether a business or content is local (Appendix 1):

  • Zone 1 is the Perth Region
  • Zone 2 is the Wheatbelt, Peel, South West and Great Southern. In Zone 2, ‘local’ means within 200 kilometres of the point of delivery
  • Zone 3 is the rest of the state. In Zone 3, ‘local’ means within 400 kilometres of the point of delivery.

Local businesses are those that have local office addresses within these zones that are not just postal addresses, regardless of whether they have offices elsewhere. If there is little or no local content offered within these distances, then ‘local content’ means content from within WA, and if not within WA then within Australia.

Tenders are adjusted with a formula that weights local content in the assessment. The system also applies price preferences for regional content and regional businesses and imposes additional costs on imported content. These adjustments are used to compare tender bids only and have no effect on the amount actually paid.

The Policy requires that agencies report the value of contracts awarded to local businesses to the State Supply Commission. More detailed reporting, such as the local content of contracts, is not required by the Policy. State agreements for major projects require local content reporting to the Industry Participation Unit of the Department of Jobs, Tourism, Science and Innovation (JTSI).

Many requests for tender and contracts are issued by the Department of Finance on behalf of client agencies. Some large agencies, such as Main Roads WA and the Housing Authority, issue their own requests for tender and contracts.

 

 
Page last updated: December 5, 2017

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