Lowest common denominator procurement decisions put Australians at risk

Opinion: Weld Australia CEO Geoff Crittenden discusses the welding industry in Australia. 

The trend of some state governments in relation to the procurement of fabricated steel in Australia is encouraging.

For instance, in August 2018, the Victorian state government passed the Victorian Industry Participation Policy (Local Jobs First) Amendment Bill. This bill mandates minimum local content on major projects, including a 90 per cent minimum on construction projects.

In Western Australia, the Industry Participation Strategy came into effect in October 2018, maximising opportunities for local businesses to supply to the state government. In South Australia, the Industry Advocate Act 2017 committed the state government to maintaining an Industry Participation Policy.

Similarly, the federal Labor Party recently announced their Local Projects, Local Jobs plan. Under a Shorten Labour government, projects over $10 million will require bidders to develop a plan for local jobs, while public and large private projects over $250m would have to ensure local firms were provided with a fair opportunity to win work. Labor would also demand that 10 per cent of workers on major projects are apprentices from the local area.

While projects over $10m would contain a certain percentage of local content under a Shorten Labor government, the real-world impact this would have on the fabrication industry is questionable. There are very few fabrication contracts worth over $10m in Australia. So, the head contractors will continue to sub-contract fabrication work to overseas suppliers. If the government is serious about maximising opportunities for local SMEs, particularly fabricators, this figure really needs to be reduced to $1m.

It is vital to Australian industry that both state and federal governments implement effective local procurement policies. With government procurement policies supporting local industry, Australian companies can invest in their own capabilities (from technology and advanced manufacturing processes, through to upskilling existing workers and employing more workers) and grow to become internationally competitive.

However, Australia still has a long way to go, particularly compared to our key international competitors within the region. In Korea, Japan and China, for instance, comprehensive local procurement strategies have been commonplace for years – all government contracts in these countries are awarded to local industry. This is simply not the case in Australia.

The New South Wales government recently ordered a fleet of inter-city trains from South Korea – at the bargain price of $2.3 billion. The government had hoped the trains would prove 25 per cent cheaper than locally manufactured trains. But, with the imported trains failing to fit the tracks in the Blue Mountains, 20 stations now require modifications. The total project cost could be upwards of $3.9b – well above the government’s expected 25 per cent savings.

Private business is equally quick to send – what should be – Australian jobs offshore. BHP awarded more than 20,000 tonnes of structural steel work for its $4.7b South Flank project to an offshore manufacturer late last year.

Since the beginning of the last mining boom, the Australian steel fabrication industry has shrunk by over 30 per cent because of exactly this type of short-sighted procurement decision.

Not surprisingly, Australian fabrication companies have gone broke and closed their doors, resulting in thousands of welders leaving the trade.

So then, why are these short-sighted procurement decisions the norm in both government and private business contracts?

It is because procurement professionals are chasing the lowest purchase price rather than whole of life cost.

This drives fabricators, whether in Australia or overseas, to deliver the cheapest solution, not the best solution.

Without regulations that mandate compliance to Australian Standards for the manufacture, fabrication and erection of steel, procurement decisions have been reduced to the lowest common denominator: cost.

This complete lack of regulation is putting Australian lives at risk. There is no compulsion for either a client or a fabricator to comply with Australian Standards.

The problem is that, if structures and components are not fabricated in accordance to Australian Standards, there is simply no way to guarantee that they will not fail.

Whether fabricated steel is manufactured in Australia or overseas, it is critical that the work is undertaken according to Australian Standards.

As such, Weld Australia is currently lobbying both sides of government to amend the necessary regulations to mandate compliance to Australian Standards, or wear the consequential loss of life.

Without mandated compliance to Australian Standards, the Australian public and workers are being put at risk by lowest common denominator cost procurement decisions.

No cost saving is worth even one Australian’s life.