The government has made a useful update to Commonwealth procurement rules which now incorporate a definition of just what constitutes an Australian business – something which didn’t exist before.
Considering, how long Australian politicians and industry have talked up sovereign capabilities, this is a longstanding and quite surprising oversight.
That change has won it a big tick from defence businesses, including the Sovereign Australian Prime Alliance (SAPA) which said this was a much needed reform to the Commonwealth Procurement Rules.
Under the Department of Finance’s updated guidance, officials must also consider the benefits to the Australian economy when making significant procurements.
The updated rules define an Australian business as a business, including any parent business, that has 50 per cent or more Australian ownership or is principally traded on an Australian equities market, is an Australian resident for tax purposes and is a business that has its principal place of business in Australia.
SAPA said it had has always maintained that definitions were an essential building block when designing and implementing industry policies.
“When policies are developed without accurate definitions to guide them, policy failure is almost certain,” the organisation said
“Now, armed with a commonsense definition of an Australian business, Government will be able to make accurate assessments of policies affecting Australia’s industrial base, both local and international, and direct future policies with confidence.”
Australian counter-drone company Droneshield also backed the changes.
“The importance of sovereign capability cannot be overstated at times of geopolitical uncertainty,” said DroneShield chief executive officer Oleg Vornik,
“As a proud sovereign defence technology company, DroneShield – alongside its Sovereign Australian Prime Alliance partners – welcomes the important procurement reforms the Australian Government has announced to redefine what constitutes an Australian business.
“Government will now be able to make accurate assessments of policies affecting Australia’s industrial base – both local and international – and direct future policies with confidence.”
The new guidance was developed through a process of public consultation conducted last year in which a range of Australian business organisations and businesses, including defence industry organisations and small and medium-sized enterprise (SMEs), participated.
SAPA said it participated in the Ministerial Working Group to help shape these important bipartisan reforms.
“We look forward to working with Commonwealth government departments as this new reform gets embedded in future procurement and tendering processes, and we encourage state/ territory governments to adopt this commonsense solution which has been led at the Federal level,” it said.
In the discussion paper released for the consultation, the Department of Finance said Australian business was not commonly defined in Australian Government legislation or policy and the Australian Government did not have a standard definition of an Australian business applicable to all situations.
“Instead, there are a range of Australian business-related definitions that have been adopted for different purposes, including at the federal and state and territory level,” it said.
In fact, the only reference to an Australian business in the Commonwealth Procurement Rules was the definition of an SME as being an Australian or New Zealand firm with fewer than 200 full-time equivalent employees.
The Australian Taxation Office maintains no explicit definition of an Australian business in tax law, though it does use various criteria to determine whether an entity was an Australian resident for tax purposes.
Defence conducted its procurement within the context of the Commonwealth procurement framework.
However, security considerations reflected in the procurement rules and also through international agreements provided flexibility for Defence to consider factors such as local industrial capability.
The discussion paper said Defence operated through the Australian Standard for Defence Contracting (ASDEFCON) template suite.
In the context of measuring Australian Contract Expenditure under the Australian Industry Capability framework, an Australian Entity is defined as a company registered under Australian and New Zealand Corporations legislation, or a body corporate, partnership, joint venture or association formed or incorporated in Australia or New Zealand.
That can also include a foreign-owned company registered in Australia or New Zealand carrying on business through a permanent establishment in Australia or New Zealand.
The other procurement rule reforms will require future government procurement to consider a broader range of weightings, priority outcomes and contracting considerations when assessing submissions for government contracts.
Department of Finance guidelines for consideration of economic benefits through procurement previously existed and were last updated in July 2022.
The new guidance takes that further, requiring officials to consider the economic benefit of a significant procurement to the Australian economy in the context of determining value for money.