MARY-ALICE PATONPartner

Network of Procurement Professionals

Procuring Locally: Supplier Relationships, the Law and Tensions

Economic Development and the Role of Local Government

• Times are changing – SA’s economy is in transition

• Councils can play an important role in this transition – particularly through economic

development strategies and initiatives

• Weatherill Government’s 10 Point Plan to strengthen SA’s economic future

• Financial guarantees worth $50 million to drive business growth and jobs

• Access to finance will drive innovation

• Innovation drives efficiency dividends

SA Centre for Economic Studies Report, July 2013

Providing Local Economic Stimulus and Promoting Local Economic Development: Possibilities for Councils in SA

• Integral to the core purpose and objective of Councils – to build and enhance community development – is

the promotion of economic development

• Effective development of local economies supports regional and state wide growth

• Councils can improve local economies by implementing economic development strategies and initiatives

• Report concludes that not only can Councils be actively involved in economic development but it is

important that they actually do so

• Other than resources there are little or no constraints on Councils taking whatever role they may wish to

play in promoting economic development in their areas

• Strategies and initiatives must be applied consistently and over a sustained period to ‘overcome the

inertia caused by economic and social histories’

What can we do?

Uncertainty drives cost but certainty drives competition

• Get your governance framework right

• Understand your spend

• Understand your commercial environment

• Approaches to market and procurement activities when bidders know the rules of the

game are the critical success factors

Obvious Challenges for SMEs

• Sensible starting point – buy as close to home as we can

• In order to do so must still achieve value for money

• Generally only the larger Councils have a dedicated economic development officer

• Obvious challenges for SMEs and the way forward

• The SA economy must transition

• The SMEs that are the engine room of our economy are struggling to come to grips

with the change required to survive

• Diminished access to finance

• Sales shrinking

• Productivity lags

• Innovation constraints

• This translates to diminished competitiveness, challenge to stay afloat

Local Buy

• Open to Councils to deliberately stimulate local economy by use of local suppliers and

businesses

• Must do so by reference to framework

• Adopted Policy position

• Evaluation criteria in procurement processes which are not exclusionary

Australian Competition and Consumer Act 2010

• Council is undertaking business activities in respect of its procurement and approach to

market processes

• Subject to the Australian Consumer Law (ACL) enacted by the Act

• Section 46 of the ACL provides that where a corporation (including a Council) has a

substantial degree of power in a market for the supply of goods or services they can not use

this power for purpose of preventing a business from entering into that market

• Determining the required ‘substantial degree of power in a market’ done on a case by case

basis

• ie all Councils in South Australia approaching the market for kerbside collection

compared to regional shared services collaboration

Impact of Section 46 of ACL

• Section 49 policy and all approaches to market must be drafted in a way

which ensures that their purpose not to exclude particular supplier from

consideration because they are not a local supplier

• Assume Council has the ‘substantial degree of power in a market’

• Must comply with ACL

• Draft framework in a way which allows consideration of local issue but

not exclusion if they are not local

Practical Considerations

Policy

1. Include wording along the lines of ‘After evaluation of responses to an approach to

market, where all other factors are equal, the Council may give preference to local

suppliers’

2. Takes issue further ‘The Council supports the development of the local economy

and the enhancement of local supplier capability. The Council will include local

industry participation tests as part of its evaluation criteria in all procurement

processes’

3. Include a weighting for this criterion

• Maintain maximum flexibility

• If application of the local business and industry criterion results in an outcome that

is unreasonable, does not deliver VFM or is not advantageous to the Council matter

must be referred to the elected members for further consideration

Practical Considerations (cont)

Evaluation Criteria

• Avoid offending the ACL and principles of probity by not facilitating exclusion of bidder by reason that they are

not local

• Evaluate on basis that criterion is desirable not mandatory

• ‘...one of the factors that will be considered in determining the successful bidder is whether the relevant

service provider is a local supplier within the Council’s area’

• Indicate to bidders that the Council intends to foster strong relationships with its local suppliers, however at

the same time not guaranteeing that a local supplier will be chosen over an interstate or international supplier

• Consider higher scores for the following:

. Employing local staff

. Increased job opportunities in the local area

. Encouraging local participation

• Critical that all bidders are aware from approach to market that such considerations will be taken into account

State Government Initiatives

Office of the Industry Advocate

• Reducing the threshold for contracts covered by Industry Participation Policy

from $10M to $4M and $1M in regional areas

• Requirement to seek at least one local quote on contracts of up to $220K

• Single prequalifying tender process will be established across all government

agencies so businesses don’t have to submit multiple forms

• Insurance liabilities capped at 5 times the contract value on low risk government

contracts up to $1M

• Tender Ready