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Thursday, 21 August 1980
Page: 649

Mr ROGER JOHNSTON (Hotham) - We are debating the Preference to Australian Goods (Commonwealth Authorities) Bill. I stress that because the honourable member for Adelaide (Mr Hurford), who preceded me in this debate seemed very vague about it. The purpose of this Bill is to provide a measure of preference to producers of Australian goods and services and to their employees. I will come back to the word measure' later. Let me assure honourable members that it is not about offset policies, as the Opposition would have us believe. In 1976, in definite contradiction to what the honourable member for Adelaide said, the Prime Minister (Mr Malcolm Fraser) announced a policy of preference to Australian goods, a policy traditionally based on giving selective assistance in special circumstances; and this was acted upon.

In 1977 the Prime Minister announced in his election policy speech a different approach, a more positive approach, to such preference; that is, there would be preference to Australian goods unless there were substantial reasons to the contrary. This had the extra effect of motivating companies to examine the possibility of increasing the use of Australian goods. This sounded good, and was good, but this Government found that in practice it was not as effective as had been hoped. There were many reasons for that, and I am sure that honourable members received as many complaints from tenderers as I did. While the intent was there, in practice things differed to some extent. This Government, acting in a responsible manner and ever conscious of the real life position, decided to introduce overriding legislation to facilitate and to ensure compliance by Commonwealth authorities with the preference policy, except where specific exemptions were granted.

To some extent this Bill puts existing policy and practice into legislation. However, there is a very real problem with the States and their parochial interests. This is because some States have initiated their own purchasing preference schemes to favour their own manufacturers. This reduces the efficiency of Australian industry overall by encouraging a greater degree of industry fragmentation and significantly distorts the trade position. However, it is the practical implementation of any policy that really counts. This Government is due to make available a long promised booklet entitled How to do Business with the

Commonwealth Government.I sincerely hope that it picks up a vast range of practical problems for the many tenderers for government projects. This is really big business, for the Government has a total purchase approaching $5 billion, of which $1.5 billion is by the authorities and $3.5 billion by Commonwealth departments. The very number of projects and tenderers and the total value of those tenders are in themselves cause for a close look at the whole tendering arrangement and, beyond this, at our duty to Australia as a whole, and at our attitude to the protection of industries as such and the protection of the jobs they represent.

I was involved for many years with tendering around the world and in my present position as a member of parliament I have been made very aware of Commonwealth tendering. Every time rules are laid down, I have seen those rules produce less than the best outcome. In private enterprise the successful tenderer is the one who will be providing the most advantages to that company buying his goods or services. This advantage covers a huge range of considerations such as design, experience, quality, service, financial backing - the list goes on and on. Therefore, I was pleased to see in the second reading speech of the Minister for Administrative Services (Mr John McLeay) talk of 'flexibility to cope with special cases'. In line with that, Australia, as a buyer of goods or services, is right to give preference to Australian-made goods. But we must make some rules to ensure that everyone gets a fair go; that is, everyone must know the ground rules.

There are a number of situations associated with this Bill. I will briefly mention some of them in the hope that the actual implementation of the legislation will make the necessary allowances. Clause 2 states:

This Act shall come into operation on a date to be fixed by Proclamation.

The Minister, in his second reading speech, talked about a 20 per cent preference margin, and there will be an amendment to incorporate this margin in legislation. I see we already have a copy of that. But as this Bill is about this one figure basically, I am glad that the amendment will be introduced during the Committee stage.

Clause 4 is based on the fact that many tenders, if not most, are drawn up with a popular make, brand or style of product in mind. This is done in this way mainly for ease in drawing up a tender, sometimes because one manufacturer has involved himself essentially as a consultant and sometimes because that manufacturer is the standard or the ultimate in the market. This leads, of course, to many hassles in tendering. Therefore, clause 4 is inserted so that goods of Australian origin are not excluded by this specification.

However, this clause should really be extended, and I hope it is covered in the booklet on government tendering. It should be extended so that no suitable goods, Australian or otherwise, are excluded. As an example, a tender may call not for a casting but for a forging, the equipment for which is not available in Australia. This precludes an Australian tender, and often for no good technical reason. On the other side, an item may require a certain tolerance as part of its specification. One tenderer will buy from overseas because he knows that that is the only way to obtain that tolerance. Another tenderer from Australia knows that he cannot meet that tolerance but tenders anyway and gets the contract on Australian preference only. Later, when this tenderer cannot produce, the tolerance is waived to the detriment of performance and of other tenderers. I know that that has happened. Perhaps proposed new section 5 (3) covers this in some circumstances, but it seems to do so in a back to front way.

Clause 6, which deals with the list of registered tenderers, may be innocent enough. One of the possible problems is the ability of the authority to assess the financial status of the supplier. In marginal cases the decision has to be made whether to support the Australian supplier with minimum financial backing ahead of an overseas company with good and acceptable backing. Will the authority decide that it will not make waves and go by the preference rules, crying 'shame' when the Australian tenderer goes broke? Eventually, in some areas overseas companies will be driven from the scene as they fail to be awarded tenders. However, I know that they are still being asked by departments to continue tendering, at a large cost to themselves, so that the Australian monopoly company will be kept honest, as one department put it recently.

Further to this, though covered by another ministry, is the by-law exemption arrangement whereby a company obtains by-law exemption for importing an item if that item cannot be made in Australia. Many examples exist of departments taking the 'yes' of an Australian manufacturer when there is no way he could ever manufacture a certain item. It is a selfish approach for no good reason. A department may ask for a yes or no with no thought of size of order, tooling arrangement, whether it is part of another order, delivery, et cetera. I know one manufacturer who now deliberately says that there is no way in which an item can be made in Australia- it does not matter whether it can or not - because he believes that that will help some businesses in Australia.

Clause 7, which deals with the postponement of tenders, should include something on the validity period of tenders because some problems have come to light. Generally the tenderer places a date for the validity of tender or accepts the validity date nominated under the conditions of contract. After this date the tender is no longer valid. If the tenders have not been assessed by this date the tenderers are usually contacted regarding a new date for validity. When this is accepted, assessment of tenders continues. If the situation has changed by the end of the first validity period the tenderer can increase his price or keep it the same, and this price will be the tender price until the end of the new validity period. In effect, it is a new tender, and this is acceptable to both parties. However, another situation exists whereby the changing conditions at the end of the first validity period result in a lower price. This could be caused by new manufacturing equipment becoming available, lower tariffs, overseas purchases, restructuring of the tenderer's company, and so on. It would seem that such lower price with the second validity period is just as acceptable a new tender as the first situation. Departments do not generally see it that way.

Let me now return to the measure of preference mentioned earlier. Customs tariff is protection for Australian producers against overseas competition. Adding the Australian preference is saying essentially that the protection is not high enough. These protection rates can become very high. I take as an example a contract which has the same costs, say $100,000, whether supplied from overseas or Australia. If we take a customs tariff figure of 30 per cent, which is certainly not the highest rate, the tender price of the overseas product would then be $130,000, but with the 20 per cent Australian preference the Australian tender would be counted as $80,000. This would mean that the overseas price would be 63 per cent higher than the Australian price, which will almost invariably lead to selection of Australian products. But will it lead to Australian products becoming more competitive or will we end up with monopoly situations, with Australian manufacturers charging more and more as all existing overseas competitors give up in disgust? Will it stop the transfer of technology, and the other advantages of having some overseas competition? I am glad that the Minister for Administrative Services (Mr John McLeay) explained the clause 16 exemptions. In his second reading speech he said:

These exemption provisions are designed to allow the necessary flexibility to deal with special cases whilst not detracting from the overall impact of the policy.

I hope that proposed new section 16 (1) (b), which talks about authorities performing their functions, includes the function of doing the best for Australia overall. I hope that the departments and authorities will not rigidly apply the rules but will use flexibility to ensure the best for Australia, considering all aspects. To ensure this flexibility there must be much more discussion with tenderers. This will require some change in the general procedures as these discussions must take place - I stress this point - during the evaluation of tenders. All too often we see cases of a tender being awarded and its soft spots then being pointed out by the losing tenderers. The department becomes defensive, in spite of appreciating the criticism, and feels that it has to maintain its stand, unfortunately to the detriment of Australia. To implement the flexibility called for by the Minister in this Bill, there will need to be changes within the departments and the authorities. This Bill, which gives preference to Australian goods, tidies up some of the policies and directions with which departments and authorities were working. A flexibility is written into the Bill which should allow many aspects of tenders to be assessed for the overall good of Australia. I commend the Bill to the House.

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