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Wednesday, 13 September 2017
Page: 7147

Defence Procurement

Senator KAKOSCHKE-MOORE (South Australia) (14:31): My question is to the Minister for Defence. With total contract values adding up to $32.7 billion for the last financial year, Defence is by far the largest procuring agency in the Commonwealth. According to AusTender, in financial year 2012-13, 51 per cent of all procurements were sought by way of limited tender. Limited tenders are tenders where the number of vendors that can respond to the tender are limited, sometimes to only one company. In 2013-14, the percentage was also 51 per cent. In 2014-15, the number started climbing to 53 per cent. In financial year 2015-16, it skyrocketed to 65 per cent. In the last financial year, the percentage was even higher, with 67 per cent of all Defence procurement, totalling $15.2 billion, sought by limited tender. What analytics has the minister carried out in respect of this dramatic rise in the use of limited tender, and what is the reason for it?

Senator PAYNE (New South WalesMinister for Defence) (14:32): I thank Senator Kakoschke-Moore for her question. The senator has noted a particular increase in the proportion of procurements let by Defence using limited tenders since 2015-16. I acknowledge, Senator, the provision of some information in relation to the question to enable me to provide an answer. Thank you for that. I would note that it appears that the figures that you have quoted prior to 2015-16 don't include the procurements of the former Defence Materiel Organisation. So, in fact, it's not, as you have described, a 'skyrocketing increase'. It is, in fact, adding back in the Defence Materiel Organisation.

As you would be aware, DMO was absorbed back into Defence as part of the reforms that the government introduced following the first principles review. Given the exemption of procurements for acquisition and sustainment of Defence materiel from the operation of parts of the Commonwealth Procurement Rules, it makes total sense that there would be therefore an increase in Defence's use of limited tenders. That exemption exists because of the unique nature of Defence procurements. Often, there are only a couple suppliers—perhaps a single supplier—who can provide the materiel required. We do try and limit when we use limited tenders but, clearly, the work of CASG, formally the DMO, often requires that.

More broadly, as you would also be aware, the CPRs also allow agencies to utilise limited tender arrangements in a number of limited circumstances, such as when they are seeking to utilise Indigenous-owned business—small-to-medium enterprises—under the Commonwealth's Indigenous Procurement Policy. Defence is actually the best-performing agency in the Commonwealth in relation to the number of contracts we have let to Indigenous enterprises. Defence complies fully with the requirements of the Commonwealth Procurement Rules, including in our use of limited tender arrangements.

The PRESIDENT: Senator Kakoschke-Moore, a supplementary question.

Senator KAKOSCHKE-MOORE (South Australia) (14:34): Limited tenders reduce the number of entities that can compete for work, often to a single entity. Noting the importance of competition in achieving value for money, what is the minister doing to ensure that this trend is reversed?

Senator PAYNE (New South WalesMinister for Defence) (14:34): I am afraid I do have to disagree with the sentiments of the senator's question. There hasn't been the increasing trend that the senator has referred to in the last sentence of her question. It is a matter of the former Defence Materiel Organisation coming into Defence's numbers. What I can say, though, is that the government's first principles review of defence considered all issues surrounding procurement in Defence, particularly as part of the capability life cycle. That was a coalition election commitment from 2013, which was kicked off by our former colleague and minister Senator Johnston, and the outcomes of the FPR are an outstanding piece of work and a most valuable contribution by Senator Johnston.

We've introduced new Smart Buyer arrangements to better establish exactly when limited tender arrangements should be used. It actually makes sense sometimes to use a limited tender when there are only a limited number of suppliers, or even a single supplier, of specialist defence materiel. It saves other companies money by not competing for something they can't win. It saves the Commonwealth and the taxpayer money. (Time expired)

The PRESIDENT: Senator Kakoschke-Moore, a final supplementary question.

Senator KAKOSCHKE-MOORE (South Australia) (14:35): The Commonwealth Procurement Rules were changed this March to require procurement officials to take into account the economic benefit of any purchase, including the number of Australian jobs, the amount of local investment and the supply chain impact. Does the minister concede that restricting the number of tenderers—sometimes to one—inhibits opportunities for the department to maximise these economic benefits, including with regard to Australian jobs?

Senator PAYNE (New South WalesMinister for Defence) (14:35): I acknowledge the changes to the CPRs that the senator has outlined, but I don't concede her assertion in relation to the use of limited tenders when appropriate. In fact, I have already directed the Department of Defence to take full advantage of the CPR changes to drive up the level of Australian industry across all procurements, in particular for procurement that relates to infrastructure and to major capital facilities. As the Senate would be aware, I referred last week to the introduction of a Local Industry Capability Plan pilot, which I have introduced to ensure that local industry has the best possible opportunity to be involved in the government's unprecedented $200 billion investment in defence capability over the next decade. The pilot projects require tenderers bidding for major capital facilities projects to state clearly how they've engaged with local industry in providing their tendered solution and how local industry will specifically be involved in delivering the work packages that underpin the projects. (Time expired)