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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 Plotkin Moulis Legal. Basic Government Structure. Australia.

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Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Cost/Benefit Study of the Implications for Thailandof Greater Cooperation on Government ProcurementWith Australia and New Zealand


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Edmund Sim and Supprakanya Geschumpol

Hunton & Williams

Jane Drake-Brockman and Anna Plotkin

Moulis Legal


Basic government structure

Basic Government Structure

  • Australia


Basic government structure australia

Basic Government StructureAustralia

  • 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.


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Basic Government Structure Australia

  • Commonwealth Government

  • The 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: coverscorporatised government agencies

  • Major Procurement Policies

  • Commonwealth Procurement Guidelines: mandatory rules

  • Guidance on Procurement Publishing Obligations

    Publication

  • AusTender: www.austender.gov.au

States and Territory Governments

Own systems of procurement, generally following the Commonwealth System


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Commonwealth 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

Basic Government Structure Australia


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Basic Government Structure continued

  • New Zealand


Basic government structure new zealand

Basic Government Structure New Zealand

  • Unicameral democracy

  • 16 regions created by authority of central government


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Basic Government Structure New Zealand

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


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

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

Basic Government Structure New Zealand


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Types of Procurement

  • Open

  • Select/Selective

  • Special/Limited

  • Direct/by negotiation

  • MULs

  • Panels

  • PPPs

  • E-auction (Thailand): no equivalent in ANZ)


Types of procurement

Types of Procurement

  • Open

    • Free competition if submission complies with published invitation: all interested suppliers may submit a tender

    • Most widely publicised

  • Select/Selective

    • Free competition amongst invited tenderers

    • Eg tenderers on a Multi Use List (MUL)


Types of procurement1

Types of Procurement

  • Special/Limited

    • Like Select Tendering (from WTO text)

  • Direct Sourcing/ by negotiation

    • Not publicised

    • Obtain quotes and negotiate with known suppliers


Types of procurement2

Types of Procurement

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


Types of procurement3

Types of Procurement

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.


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Procurement that is readily accessible to Thai Firms

  • Open tendering

  • MULs

  • (Select Tendering)


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Basic rules for Open Tendering

  • Thresholds for covered contracts

  • Basic principles of assessment


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Thresholds for Open Tenders

*exchange rate as at 4 August 2008


Basic rules for open tendering

Basic rules for Open Tendering

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


Basic rules for open tendering commonwealth states territories continued

Basic rules for Open TenderingCommonwealth (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.


Basic rules for open tendering commonwealth states territories continued1

Basic rules for Open TenderingCommonwealth (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 rules for open tendering1

Basic rules for Open Tendering

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

Basic rules for Open Tendering( New Zealand)continued

Exemptions

  • Public health

  • Education

  • welfare services


Basic procedures for states and territories

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/


Basic procedures for states and territories1

Basic procedures for States and Territories

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


Basic procedures for states and territories2

Basic procedures for States and Territories

Queensland

  • Central body: Queensland Chief Procurement Office and Procurement Board of Management

  • Publication of tendering opportunities on https://tenders.qld.gov.au/queensland/


Basic procedures for states and territories3

Basic procedures for States and Territories

Western Australia

  • Central body: State Supply Commission

  • Publication of tendering opportunities on ‘GEM’ www.gem.wa.gov.au


Domestic preferences

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 concept

    Australia

  • Less than 20 employees (services)

  • Less than 100 employees (manufacturers)

  • Or less than 200 employees

    New Zealand

  • Less than 20 employees


Domestic preferences1

Domestic Preferences

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


Domestic preferences2

Domestic Preferences

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


Domestic preferences3

Domestic Preferences

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


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Blacklisting and Review Procedures

  • 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


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

WTO GPA

What is the GPA?

Where is Thailand now?

  • Not compliant with the GPA


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Towards the GPA continued…

ANZ attitude to GPA

  • Australia

  • New Zealand


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

ANZ attitudes to FTAs

Australia

  • Australia-US FTA

  • Australia-Chile FTA

    New Zealand

  • No commitments yet

  • Will negotiate


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

The Economic Consequences

and

Commercial Implications

of reforming

Government Procurement

in Thailand


First the economics

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

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?


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

  • 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


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

  • 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 money

From a 5% price reduction in goods to an overall 10% increase in Value-for-Money

1.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

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

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

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


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Afternoon Panel: The Trade Policy ContextHow 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?


Edmund sim and supprakanya geschumpol hunton williams jane drake brockman and anna plotkin

Afternoon Panel: The Trade Policy ContextWhat 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?


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