Retained Economic Benefit is the next new thing

James Riley
Editorial Director

Spending by Australian governments on information technology is expected to exceed $13 billion this year, according to global research outfit Gartner. That’s an extraordinary amount of money and a massive opportunity for developing the local tech industry.

Unfortunately, outside of the Defence sector, Australia has a dismal track record in devising procurement frameworks that encourage the development of sovereign capability and capacity. This is a great shame, and a wasted opportunity (to say nothing of the taxpayer dollars involved).

Other governments around the world routinely attach industrial development requirements to public spending. It is a powerful lever that governments use to boost domestic capability.

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Where’s the beef?: Procurement policy most consider Retained Economic Benefit measure

The United States government, for example, is a pacesetter in this regard. The US has always used the massive purchasing power of its government to drive industrial outcomes. Because why wouldn’t you?

President Joe Biden has taken Donald Trump’s America First rhetoric and institutionalised it through his January Made in America Executive Order – one of his first acts as President. This Biden executive order makes Donald Trumps America First program look like the little league.

The executive order is all about preferential treatment for American suppliers and American technology in government procurement. It also creates a Made in America Office within the US’ powerful Office of Management and Budget to crack the whip, making sure US agencies adhere to the policy.

The executive order is openly aimed at helping American businesses compete in strategic industries and helping American workers to thrive. Any agency planning to make a procurement purchase outside of this buy American edict must apply to the Made in America Office for a waiver.

This is unabashedly about applying US procurement dollars to US strategic interests. In America, this is a non-controversial issue.

In Australia, however, our government is less plugged into industrial policy. It is less interested in using its procurement spending as an instrument of industrial development. It is bizarre.

Federal Defence spending is routinely attached to sovereign capability development. As a matter of security, there are many, many areas where it is considered imperative that Australia have its own domestic capability. Hooray for common sense.

But surely Defence cannot do all of the heavy lifting in this regard? And surely capability development in information technology and telecommunications are areas of core strategic interest?

Cybersecurity, artificial intelligence, software development, digital delivery, data centre construction and management, cloud service delivery: Are these not areas where it is critical that Australia maintain a sovereign capability?

And what about quantum technologies? Australian governments have invested quite heavily in its development, but on past performance our governments would be unlikely to buy an Australian-developed quantum product because it is all too hard.

How are these things not fundamentally a part of Australia’s thinking when it comes to government procurement policy?

Scott Morrison’s uninspiring “We’ve just got to be the best at adopting it” speech last October in relation to tech entirely misses the strategic importance of sovereign tech capability. This thinking from a national leader in the 21st century is baffling.

It is time for a reform of technology procurement in this country. The difficulties that Australian tech companies have in selling to government is both cultural and structural. But in an era of geo-strategic uncertainty, this must surely change.

Which brings us to the notion of Retained Economic Benefit, a term that Australian companies are starting to use in relation to procurement policy.

Retained Economic Benefit refers to a consideration that should be written into Commonwealth procurement rules that applies a positive weighting to where the benefits of a purchasing decision will land (beyond the actual dollars).

The retained economic benefit of a purchasing decision would include the spill-overs and multipliers that come from income earned through a government contract. Are the jobs that the contract will support created in Australia or elsewhere? Will any intellectual property created through the contract be owned by an Australian company and will it contribute to the nation’s sovereign capability?

What is the effective historical tax rate of one company compared to the tax rate of another? How much will the contract add to a company’s valuation, and what are the multiplier benefits that will be created by that increased valuation.

The addition of a Retained Economic Benefit measure is a modest request from Australia’s domestic suppliers. The Commonwealth Procurement Rules already contain quite broad ‘value-for-money’ to which a Retained Economic Benefit weighting could be easily added.

The Retained Economic Benefit concept has been discussed within the NSW ICT Procurement Taskforce. It is understood to be in active discussion within the Australian Information Industry Association.

For what seems like a no-brainer, there is already pushback against the proposal.

Incredibly, the NSW government taskforce was understood to have been advised by the Department of Foreign Affairs and Trade that a requirement for a Retained Economic Benefit required would breach the Australia-US free trade agreement.

This is absurd and lazy advice to a state government that is doing the right thing and seeking to build sovereign capability in a strategically important sector.

Someone should tell DFAT about Joe Biden’s Made in America executive order LOL.

Do you know more? Contact James Riley via Email.

1 Comment
  1. Wayne Fitzsimmons OAM 3 years ago

    Great perspective Mark. John Button initiated Offset policies and we have matured our national policies since then….but not enough to match the current global economic rules. What is wrong with developing policies like “Buy Australian”? And we are the very best at many areas in hi-tech. Let’s have none of this we are very good adopters rubbish, we are very good inventors and innovators!

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