Public release of the Industry Commission Report on "Competitive Tendering and Contracting by Public Sector Agencies"

I am releasing today the Industry Commission (IC) report on "Competitive Tendering and Contracting (CTC) by Public Sector Agencies".

In the report the Industry Commission examines the scope of contracting out by Commonwealth, State and Local governments and their agencies. Specifically, the report identifies some of the costs and benefits of contracting out and also develops a set of indicative principles for public sector managers to use in assessing the scope for more cost effective use of contracting out.

The Commission's main findings show that:

• contracting has been used by all levels of government for many years;
• the potential gains to economic and allocative efficiency from successful CTC implementation are likely to be significant;
• the use of CTC is growing and extending to encompass new areas and is used widely overseas and in the private sector: and
• improved information and management practices could help facilitate progress towards more successful implementation of CTC reforms.

The IC report made 25 recommendations which are designed to improve the effectiveness of CTC arrangements, these include, inter alia:

1. the development of appropriate contracting guidelines which:
   • improve service quality and client responsiveness;
   • improve the cost effectiveness cf CTC; and
   • maintain public accountability for service delivery;
2. improving administrative arrangements for CTC;
3. the development of competitive neutrality guidelines for in-house bids, to ensure that. in-house tenders:
   • are prepared in isolation from those in the organisation responsible for evaluating tenders and awarding contracts; and
   • reflect full cost attribution, including taxation, return on capital and all relevant overheads; and
4. the use of transitional mechanisms when introducing CTC into new areas of public sector activity.

The IC report suggests that CTC can increase the level of contestability and efficiency in the provision of public services. Where viable markets exist or can be developed for the provision of 'public' goods and services, this brings into question the need for continued direct government involvement in the actual delivery of a good or service. Under CTC, these contestable public services are provided by the most competitive provider which may be either in-house government agencies, the private sector or other public agencies. CTC provides one avenue through which governments can increase the level of contestability and reduce the cost of the provision of Commonwealth, State and Local Government public services.

The Government will consider each of the IC recommendations in detail and will respond to the IC report sometime after August 1996 following the completion of the National Commission of Audit Report. State and Local Governments will also need to consider their responses to the report's recommendations.

Copies of the report may be obtained from Commonwealth Government Bookshops.

Contact Officers:

Gary Adams (Department of Finance) Phone (06) 263 2647
Lyn Maddock (Industry Commission) Phone (03) 9653 9184