Edmund Sim and Supprakanya Geschumpol Hunton & Williams Jane Drake-Brockman and Anna Plotkin

Cost/Benefit Study of the Implications for

Thailand

of Greater Cooperation on

Government Procurement

With

Australia and New Zealand

Edmund Sim and Supprakanya Geschumpol

Hunton & Williams

Jane Drake-Brockman and Anna PlotkinMoulis Legal

Basic Government Structure

Australia


Australia Federation of six States and two Territories Independent Constitution gives specific areas of responsibility

to Commonwealth (Federal) government States and Territories responsible for all matters

in their physical area of responsibility other than those set out in the Australian Constitution which are within the Commonwealth’s powers.


Australia

Commonwealth GovernmentThe Department of Finance and Deregulation is the main body responsible for procurement policy at a Federal level.

Major Procurement Legislation Financial Management Act 1997: covers government agencies Commonwealth Authorities and Companies Act 1997: covers corporatised government agencies

Major Procurement Policies Commonwealth Procurement Guidelines: mandatory rules Guidance on Procurement Publishing Obligations

PublicationAusTender: www.austender.gov.au

States and Territory GovernmentsOwn systems of procurement, generally following the Commonwealth System


AustraliaCommonwealth Departments

Dept. Finance and Deregulation Dept. Agriculture, Fisheries and

Forestry Dept. Attorney General Dept. Environment, Water,

Heritage and the Arts Dept. of Broadband,

Communications and the Digital Economy

Department of Prime Minister and Cabinet

Department of Treasury Department of Human Services Department of Education,

Employment and Workplace Relations

Department of Innovation, Industry, Science and Research

Department of Resources, Energy and Tourism

Department of Families, Housing, Community Services and Indigenous Affairs

Department of Health and Ageing Department of Foreign Affairs and

Trade Department of Immigration and

Citizenship Department of Infrastructure,

Transport, Regional Development and Local Government

New Zealand


continued

Basic Government Structure New Zealand

Unicameral democracy

16 regions created by authority of central government

New Zealand Government The Ministry for Economic Development is the main body

responsible for procurement policy for the New Zealand Government

Major Procurement Policies Mandatory Rules for Procurement by Departments Policy Guide for Purchasers

Mandatory Rules for Procurement apply to core New Zealand Departments listed in the State Sector Act 1988 (NZ): apply to ‘core departments’ only


Core Departments

Archives New Zealand Crown Law Office Department of Building and Housing Department of Conservation Department of Corrections Department of Internal Affairs Department of Labour Department of the Prime Minister and

Cabinet Education Review Office Government Communications Security

Bureau Inland Revenue Department Land Information New Zealand Ministry of Agriculture and Forestry Ministry for Culture and Heritage Ministry of Defence Ministry of Economic Development Ministry of Education Ministry for the Environment

Ministry of Fisheries Ministry of Foreign Affairs and Trade Ministry of Health Ministry of Justice Ministry of Māori Development Ministry of Pacific Island Affairs Ministry of Research, Science and Technology Ministry of Social Development Ministry of Transport Ministry of Women's Affairs National Library of New Zealand New Zealand Customs Service New Zealand Food Safety Authority Serious Fraud Office State Services Commission Statistics New Zealand The Treasury New Zealand Police New Zealand Defence Force


Open Select/Selective Special/Limited Direct/by negotiation MULs Panels PPPs E-auction (Thailand): no equivalent in ANZ)

Types of Procurement


OpenFree competition if submission

complies with published invitation: all interested suppliers may submit a tender

Most widely publicisedSelect/Selective

Free competition amongst invited tenderers

Eg tenderers on a Multi Use List (MUL)


Special/LimitedLike Select Tendering (from WTO text)

Direct Sourcing/ by negotiationNot publicisedObtain quotes and negotiate with known

suppliers


Multi Use Lists Regulated by CPGs (for Australian Commonwealth

procurement) Operates like a non-specific tender: pre-

qualification In practice, expensive for suppliers, efficient for

the procuring entity No guarantee of contracts Doorway to Select Tendering Published on AusTender


Panels Established for services like legal, accountancy, design Established by open tender Include price for services for specified term No guarantee of contracts No further negotiation required

PPPs Covered by CPGs Additional approvals required

Agency Chief Executive/ Minister for Finance /Cabinet Most State/Territory based. Commonwealth will increase

use.

Procurement that is readily accessible to Thai Firms

Open tendering

MULs

(Select Tendering)

Thresholds for covered contracts

Basic principles of assessment

Basic rules for Open Tendering

Government Category/ notes AUD/NZ threshold

Thai Baht threshold*

Australia

Cth FMA bodies Non-construction AUD80,000 TB2.5million

Construction AUD9million TB281.8million

Cth CAC bodies Non-construction AUD400,000 TB12.5million

Construction AUD9million TB281.8million

NSW AUD150,000 TB4.7million

Victoria AUD102,500 TB3.2million

Queensland Not mandated

Western Australia AUD150,000 TB4.7million

South Australia (NB: must have approved acquisition plan for contracts AUD110,000 and up)

Not mandated

Aust. Capital Territory AUD100,000 TB3.1million

Tasmania AUD100,000 TB3.1million

Northern Territory (NB: can have select contract up to AUD250,000)

AUD50,000 TB1.6million

New Zealand

Core departments Non-construction NZD100,000 TB2.4million

construction NZD10million TB244.5million

Thailand

All government agencies

AU64,000NZ81,700

TB2million

Thresholds for Open Tenders

*exchange rate as at 4 August 2008


Basic principles of assessment: Commonwealth (States and Territories)

Value for money All costs and benefits over life of contract Performance history/ risk

Free and fair competition Non-discrimination Foreign connection not itself relevant Subject to SME protection: 10% by annual value of

contracts of each entity


Commonwealth (States/Territories) continued

Efficient, effective and ethical use of resources Avoid conflicts of interests Equal dealing: time/ extension of time/ correction of mistakes No gifts/ hospitality accepted

Accountability and transparency Publication on AusTender: Open Tendering and MULs Notification Full information All pre-conditions to be specified (eg inclusion on a MUL) Pre-conditions cannot include prior contracting with the

agency Performance and functional basis for requirements: not

description/ design. International standards where possible.


Commonwealth (States/Territories) continued

Deadlines At least 25 days from notice of procurement At least 30 days for AusTender

Exemptions Motor vehicles Defence items Advertising Plasma fractionation


Basic principles of assessment: New Zealand Publication of notices of intended procurement,

annual procurement plans and requests for tender/ MUL on GETS

Non-discrimination subject to full opportunity to local suppliers

Value for money No off-sets Departmental lists of preferred suppliers via GETS

Basic rules for Open Tendering( New Zealand) continued

Exemptions Public health Education welfare services

Basic procedures for States and Territories

NSW Policies, procedures, investigation of grievances:

by State Contracts Control Board, also NSW Treasury

Publication of tendering opportunities on https://tenders.nsw.gov.au/nsw/


Victoria Central body: Victorian Government Purchasing

Board, delegates powers to departmental Accredited Purchasing Bodies

Publication of tendering opportunities on www.tenders.vic.gov.au and in business tenders section of Herald Sun newspaper each Wednesday


Queensland Central body: Queensland Chief Procurement

Office and Procurement Board of Management Publication of tendering opportunities on

https://tenders.qld.gov.au/queensland/


Western Australia Central body: State Supply Commission Publication of tendering opportunities on ‘GEM’

www.gem.wa.gov.au

Domestic Preferences

• Commonwealth Australia 10% by value of contracts granted per agency per year to

go to Australian or New Zealand SMEs

Small to Medium Enterprise: a fuzzy conceptAustralia Less than 20 employees (services) Less than 100 employees (manufacturers) Or less than 200 employees

New Zealand Less than 20 employees


Australian States and Territories Plenty to target

some specific, some require local content or attempt to source locally

Dispersed so effect is less No preference schemes operate in Australian

Capital Territory


New Zealand Non-discrimination principle applies but must not

deny full, fair, reasonable opportunity to domestic suppliers

ie. must give reasons for rejecting local supplier for contracts valued at NZ$100,000 or more: assistance from Manadatory Rules


Thailand 3% price preference to domestically supplied

contracts for works 7% price preference to goods meeting TIS/ISO

9001 or TIS/ISO 9002 5% price preference to domestic products

registered with Ministry of Industry Must have Thai leading firm for services. If not

possible, 50% Thai personnel to be engaged on the project

Note: Tariffs provide additional protection

Thailand Allowed

Australia Not allowed, but past performance relates to ‘value for

money’ ( risk) Some States maintain registers with review procedures:

does not amount to blacklisting

New Zealand Not allowed

Blacklisting and Review Procedures

What is the GPA?

Where is Thailand now?

Not compliant with the GPA

WTO GPA

ANZ attitude to GPA

Australia

New Zealand

Towards the GPA continued…

Australia Australia-US FTA Australia-Chile FTA

New Zealand No commitments yet Will negotiate

ANZ attitudes to FTAs

The Economic Consequences

and

Commercial Implications

of reforming

Government Procurement

in Thailand

First; the Economics

• We need to impose some economic discipline because “you cant manage what you can’t measure”

• Can we construct a useful economic model?

• How can we estimate the economic benefits we might obtain if we reform Government Procurement practices in Thailand?

• How significant are our results?

A Simple but Powerful Model

• We don’t need to start with complex econometrics• In any case we don’t have much data • Lets keep it simple and think about this together• Government Procurement accounts for roughly 15

percent of the Thai economy. 15% is a very big number

• So we know immediately that any efficiency gain we can achieve, will necessarily have a big impact on the economy

• What kind of efficiency gains might we be able be find?

• Having looked at the Thai system and compared it with practice elsewhere, we think that reform of the Thai system could readily generate, over a short period, a 10% improvement in “Value-for-Money”

• A 10% improvement across 15% of Thai GDP is worth an extra 1.5% of Thai GDP

• A 1.5% increase is a very significant boost to Thai productivity and economic growth

• The economic logic to a 1.5% gain in GDP growth would be overwhelming - wouldn’t it?

• (And Thailand could do this unilaterally, independently of any trade negotiation, if it chooses to)

• So where did we find this 10 % efficiency gain we have “assumed” is possible

• Before we look too deeply, there is one very obvious source of prospective efficiency gain (“low hanging fruit”)

• We know that the Thai Government automatically provides a price margin for all local suppliers of Thai goods - in the range of 3% to 7%.

• Lets deliberately estimate this at the low end and call it an average price margin of 5%. We can readily extrapolate this to the services sector (where the local preference is provided by a quantity rather than a price measure)

• I think you can see that this 5% price reduction across 15% of Thai GDP by itself generates 0.75% increase in GDP growth. This represents a minimum that is achieveable, not over a period of time, but immediately and with a high degree of policy certainty

From a 5% price reduction in goods to an overall 10% increase

in Value-for-Money1.The starting point of a 5% price reduction is based on

contracts only for goods. In services, which is more than 50% of Government Procurement, all contracts must go to lead Thai firms, employing at least 50 % Thai nationals. Anecdotal business evidence suggests this generates a price differential of considerably more than 5%!

2.Value-for-Money is not only about Price: it’s also about Quality and about Risk. There are a number of other reforms which Thailand could make, in keeping with the APEC Principles on Government Procurement, which would over a short period of time, deliver additional economic efficiency gains in transparency, open and effective competition, fair dealing, accountability and due process. Some rough proxy indicators for these can be found in Thailand’s rankings in eg World Bank Doing Business index

Second; the Commercial Gains• In addition to the economy-wide efficiency gains from domestic

reform, there are distinct opportunities to increase potential market access for Thai firms in the context of bilateral, regional and multilateral negotiation

• The Australian Government Procurement market is more than AU$140 billion and the New Zealand Government Procurement market is around NZ$20 billion a year

• In Australia, the non-defence budget is around $20 billion at Federal Government level and at least that much again at State Government level (concentrated in New South Wales, Queensland and Western Australia)

• In both countries, there are Government Procurement preferences of various kinds which are provided to local firms, which could be targetted by Thailand in inter-governental trade negotiations, thereby increasing the size of the market potentially open to Thai firms.

Market opportunities• Thailand has a strong trade surplus with Australia, in both

goods and services. Australia imports from Thailand are roughly double Australia’s exports to Thailand

• Thailand already has a demonstrated competitive edge in the Australian market and this could be enhanced by a good deal on Government Procurement

• In both the Australian and New Zealand Government Procurement markets, there are likely to be growth opportunities for Thai firms in eg manufacturing components and supplies, furniture cement, glass, infrastructure construction and maintenance, automobiles and auto parts, catering (processed foods), textiles, health services and professional services such as logistics

Are there any Costs?The strong economy wide gains we have identified are net gains. And the market access gains we have identified are “icing on the cake”. But as with any structural reform, there may also be some actual and perceived transitional distributional costs

Perceived industry policy losses Losses in terms of other social or economic

policy objectives to which Government Procurement has been directed

Administrative costs Commercial impacts from greater competition with foreign suppliers

Afternoon Panel: The Trade Policy Context

How could Thailand take some initial steps to reform Government Procurement ?

How much reform might bilateral partners require of Thailand in a Free Trade Agreement?

What might Thailand expect to gain in return?

What progress is Thailand making in applying the APEC Principles?

How much domestic reform would be required for Thailand to join the WTO GPA?

Afternoon Panel: The Trade Policy Context

What progress is Thailand making in applying the APEC Principles?

How much domestic reform would be required for Thailand to join the WTO GPA?

How much reform might bilateral partners require of Thailand in a Free Trade Agreement?

What might Thailand expect to gain in return?

Edmund Sim and Supprakanya Geschumpol Hunton & Williams Jane Drake-Brockman and Anna Plotkin

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Transcript of Edmund Sim and Supprakanya Geschumpol Hunton & Williams Jane Drake-Brockman and Anna Plotkin