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Briefing paper

Public procurement and regional development briefing note

Public finance Regional planning Government procurement Government tenders Australia
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Governments spend vast amounts of money delivering services to citizens. Through procurement, governments invest in infrastructure and ensure the supply of essential services. In 2017, it was estimated that the New Zealand and Australian public procurement markets had a combined value of $160 billion. While a ‘value for money’ criterion primarily directs public procurement processes, governments regularly use these policies to achieve other policy objectives. At any one time suppliers tendering for government contracts will have to consider their contribution to a range of policy objectives including (but not limited to) workplace safety, sustainability, training and environmental goals.

Regional development is a legitimate government policy objective. Across Australian jurisdictions, governments are increasingly engaging public procurement processes to bring about regional development outcomes. This is in line with international practice; since the global financial crisis governments across the globe have engaged procurement processes to promote or sustain economic growth at the national or regional levels. The thinking is that by focusing a government’s purchasing power on suppliers that are connected to local supply chains, a procurement can not only secure the supply of a good or service, but also have a range of flow-on effects. These are often predicted to include an increase in the employment rate or an increase in local business capacity.

Whether and to what extent public procurement can contribute to regional economic development is contested. Where these policies preference local suppliers in procurement processes, critics argue that they violate free trade and other cooperative arrangements. Critics also argue that using public procurement for regional development risks Australia’s reputation as an ‘open and competitive’ economy in international markets and that the practice rests on faulty economic reasoning as policy efforts interfere with the traditional purpose of procurement processes, which is to reliably secure the best priced goods and services for the government on behalf of taxpayers.

Unhelpfully, there is little systematic and robust analysis of the scale and range of regional development impact that public procurement can have. This is largely due to a history of poor program and policy assessment, where policy effort is weighted towards announcements and implementation at the expense of ongoing review and evaluation. This has left a significant gap in the evidence that leaves claims about the use of public procurement to achieve regional development outcomes vulnerable to criticism. But while this evidence gap is substantial, it is disingenuous to argue that public procurement is an entirely impartial process. Evidence shows that processes have come to favour particular kinds of businesses and large sections of the policy effort is shielded from interrogation due to commercial in confidence concerns.

Where does this vagueness leave governments that are designing public procurement policies to improve or sustain economic development outcomes in regions? While the evidence base is thin, we can still draw from it lessons about emerging practice and ways to mitigate the risks that can be associated with poorly designed public procurement policies.

By synthesising what evidence there is with contemporary policy efforts, it is possible to understand the way that governmental use of procurement has developed in the pursuit of regional development goals. While early policy efforts tended to intervene with supply chains in relatively blunt ways, more recent efforts have extended this repertoire to include not only more nuanced policy options for engaging local supply chains but also attempts to address a range of complex, context-specific issues. Design considerations for public procurement efforts will vary according to the policy objectives, as will the administrative effort associated with their implementation and evaluation. Policy objectives can be considered along a spectrum, with minimal intervention at one end and attempts to use public procurement to catalyse an entire regional economy at the other. Broadly speaking, the more catalytic the policy objective, the greater the associated administration and supporting policy architecture.

This briefing note outlines design considerations for public procurement efforts that are intended to bring about regional development outcomes. These focus on the following distinct but related areas:

  • identifying and designing for outcomes as opposed to indicators of administrative effort or outputs;
  • ensuring that the policy effort ‘fits the place’ and is responsive to context;
  • providing leadership for local impacts; and
  • evaluations that contribute to the evidence base.

The note then outlines a series of discussions points that usually occur within or between government departments when procurement processes are leveraged to achieve regional development outcomes. The Appendices include a series of contemporary case studies that feature various approaches to using procurement to bring about regional development outcomes, an overview of the main features of current policy arrangements across Australian jurisdictions, and the concluding summary chapter of the literature review undertaken for this research project by Associate Professor Pascal Trembley and Dr Alicia Boyle at Charles Darwin University.

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