AUSTRALIAN JOBS BILL 2013 Explanatory Memorandum

Commonwealth of Australia Explanatory Memoranda

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AUSTRALIAN JOBS BILL 2013

2010-2011-2012-2013 THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA HOUSE OF REPRESENTATIVES AUSTRALIAN JOBS BILL 2013 EXPLANATORY MEMORANDUM (Circulated by authority of the Minister for Climate Change, Industry and Innovation the Honourable Greg Combet AM MP)

AUSTRALIAN JOBS BILL 2013 OUTLINE The Australian Government is investing $1 billion in a range of measures to support and create Australian jobs and to support the future of our businesses and industries. The Government`s Industry and Innovation Statement, A Plan for Australian Jobs, released on 17 February 2013, is a detailed policy statement, containing long-term systemic changes to ensure we can withstand pressures currently being felt by Australian industry and build a strong foundation going forward. The important issues for manufacturing - to improve collaboration, innovate and to improve productivity - are equally important for businesses and jobs across our entire economy. The Government is committed to helping businesses develop their capabilities and competitiveness and increasing opportunities for local business to grow and create jobs. Australian businesses do not always find it easy to connect with opportunities in global and international supply chains. To ensure they get a fair go, the Government will extend and tighten Australian Industry Participation (AIP) arrangements to help firms get access to supply to major projects. The key objective of this bill is to support the creation and retention of Australian jobs by requiring AIP plans for major projects which will ensure that Australian entities have full, fair and reasonable opportunity to bid for key goods and services. Under this Bill any domestic project worth $500 million or more must demonstrate how they will provide opportunities to local businesses. The Bill also creates a new Australian Industry Participation Authority (the Authority) to oversee these changes which will give local businesses greater opportunities. The Bill provides the Authority with a sufficient range of powers to not only ensure compliance with the Bill, but also to administer a range of other initiatives aimed at building capability and capacity within local business to win work on major projects. The Government believes that higher priority should be given to identifying untapped opportunities for Australian businesses to participate in major projects. However, the Government does not accept that mandating local content is an effective or efficient way to bridge opportunity-capability gaps. Besides being inconsistent with international trade obligations, mandating local content ignores the need for Australian businesses to innovate and develop capabilities that are genuinely competitive in order for them to promote our future prosperity. This Bill will require major projects, both private and public, with a capital expenditure of $500 million or more to develop an AIP plan. An AIP plan outlines the actions a project proponent will take to provide Australian businesses with full, fair and reasonable opportunity to participate in a major project. For a new facility, AIP plans will be applied to the initial operational phase of major projects where there may be more opportunities for Australian businesses. AIP plans will continue to operate alongside procurement principles of value for money and leaves the decision about which suppliers to use with the project proponent. However, AIP plans will ensure that project proponents are fully informed of local capabilities when making these decisions. 2

AIP plans should be prepared at an appropriately early stage of project approval, and will be triggered by events during the early design and development of the project. This increases the chances of Australian entities winning work as tender specifications can be developed with Australian capabilities in mind, rather than having to comply with pre-existing specifications drawn up with overseas suppliers and established supply chains in mind. Those making procurement decisions on behalf of the project will be required to keep themselves informed of industry capability and capacity in relation to the major project prior to tendering. Consistent with existing AIP plan requirements, a mandatory element of AIP plans will be information on standards to be used in the project. Design specifications should take Australian industry capabilities and capacity and Australian and international standards into account so that Australian entities are not designed out of the project. In addressing this element, if the project proponent is not using Australian or international standards it will need to state why these standards are not being used. The provision of information on standards will be material to AIP plan compliance. Consequences of non-compliance have been included in the Bill and will be administrative in nature and include adverse publicity notices, naming a relevant person(s) and the ability for the Authority to seek performance and restraining injunctions. The Bill establishes the Authority. The Authority is proposed to be a prescribed agency for the purposes of the Financial Management and Accountability Act 1997 and that Act will apply to the operations of the Authority. The staff will be engaged under the Public Service Act 1999 and made available by the Department. The Authority will be directly accountable to the Minister and remuneration will be determined by the Remuneration Tribunal. The Authority will have substantial experience and knowledge and significant standing in economics, industry or public administration. To maximise coordination and focus, all Australian Government requirements for AIP plans and the related support activities that boost industry capability and capacity will be collected under the Authority. The Bill allows for the establishment of the Australian Industry Participation Advisory Board (AIP advisory board) which has the function of advising the Authority and the Minister about AIP matters. The AIP advisory board will be comprised of one Chair and at least two (and up to 4) members with expertise in a wide range of areas related to economics, industry, project management and procurement of goods and services The AIP plans under the Bill will be complemented by AIP requirements for the Enhanced Project By-law Scheme and for government procurement, grants and loans. The Authority will evaluate, approve AIP plans, publish AIP plan summaries, monitor and report on the AIP plan implementation and impose administrative consequences for non-compliance. The Authority will also take responsibility for delivering support arrangements to help our businesses develop the capabilities and connections needed to capture these opportunities. The Authority will improve coordination between the Buy Australian At Home and Abroad initiative and Supplier Advocates and other relevant parts of AusIndustry and Enterprise Connect. It will be a one-stop-shop for Australian entities seeking to build capability and capacity and link into new business opportunities. 3

The Authority will support the continuing work of Supplier Advocates who use their professional networks, business experience and access to decision-makers to increase the competitiveness and capacity of SMEs, and help them connect with new business opportunities. Advocates build on the activities of industry partners and government agencies, including Enterprise Connect, the Industry Capability Network Ltd, Austrade and the Export Finance and Insurance Corporation. In addition to the recently announced Automotive Supplier Advocate, Advocates currently work in the resources, rail, steel, information technology, clean technologies, water and textiles, clothing and footwear sectors. This Bill is an active approach to help Australian businesses develop the capabilities, experience and connections needed to capture opportunities from major projects, grow their businesses, take part in global supply chains that support major projects around the world and create jobs. Experience shows that the most effective results are achieved by a combination of encouraging major project proponents to consider local businesses and improving local capabilities. This expands both the supply options for project proponents and the market potential of local businesses. This Bill has the same clause numbering as in the Exposure Draft. FINANCIAL IMPACT STATEMENT A Plan for Australian Jobs announced changes to the R&D Tax Incentive to make money available to support new areas of innovation in Australia. Internationally, it is recognised that small firms are more responsive to R&D tax incentives than large firms. The Government is reprioritising funding currently allocated to R&D support for very large companies and redirecting it to other priorities including the package of initiatives under A Plan for Australian Jobs. The Opening Up Opportunities through Australian Industry Participation reforms, including the implementation of this Bill, will be funded from part of the savings from the R&D Tax Incentive reform, which are estimated at over $1 billion in total from 2014-15 to 2016-17. The Government has committed $98.2 million over five years for the Opening Up Opportunities through Australian Industry Participation reforms. The funding is allocated in the following financial years: 2012-13 2013-14 2014-15 2015-16 2016-17 $m $m $m $m $m 1.1 21.7 19.7 27.8 28.1 4

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011. Overview of the Bill The Australian Jobs Bill 2013 will require an Australian Industry Participation (AIP) plan for projects with a capital expenditure of $500 million or more and will create an Authority to administer the functions under the legislation. The objective of the Bill is to support the creation and retention of Australian jobs by requiring AIP plans for major projects. AIP plans will assist Australian entities to win more work through addressing the information gaps between major project proponents and suppliers concerning supplier capabilities and major project requirements. Projects may overlook competitive local suppliers by relying on existing global supply chains. Breaking through this barrier and making companies aware of alternative local suppliers is a basic underlying rationale for this policy initiative. Human rights implications The Bill engages the following Human Rights: Equality and non-discrimination Article 26 of International Covenant on Civil and Political Rights (ICCPR) prohibits discrimination in law or in practice in any field regulated by public authorities. This means that when the Commonwealth legislates in any particular area, it must do so without discriminating. The term discrimination` means any distinction, exclusion, restriction or preference, which has the purpose or effect of nullifying or impairing the recognition, enjoyment or exercise by all persons, on an equal footing, of all rights and freedoms. Not all treatment that differs among individuals or groups on the grounds mentioned above will amount to prohibited discrimination. Differential treatment will be justifiable provided that it is aimed at achieving a purpose which is legitimate, based on reasonable and objective criteria, and proportionate to the aim to be achieved. Subclauses 35(f) and 39(f) of the Bill provide that Australian entities shall not be discriminated against in relation to the amount of time they may have to respond to a tender to supply goods and services into a major project. The object of this provision is to ensure that Australian entities receive equal opportunity to respond to tenders for work on major projects as non- Australian entities, however this provision may provide for differential treatment between Australian and non-Australian entities. As the rights and freedoms under the ICCPR apply only to individuals and not to corporate entities, the right itself will only be engaged if an entity is an individual or sole trader. Therefore the right in the Bill has almost no chance of being triggered as, in a commercial environment, it is extremely unlikely for a sole trader to tender into a major project or even be in a position to do so. However, because the Bill may provide for a remote level of differential treatment it is important to highlight this fact and provide the details about the purpose for which this treatment is legitimate. Based on Article 26, the effect of subclauses 35(f) and 39(f) can be 5

labelled as indirect discrimination, because while it aims to prevent discrimination against Australian entities, it makes no mention of preventing discrimination against other entities. The policy rationale and the overall objective for including this provision in the Bill is because there has been cases where project proponents have made open bid tenders for supply into their major project and set longer timeframes to respond for their overseas or global suppliers and shorter timeframes to respond for the Australian tender process. Subclauses 35(f) and 39(f) aims to prevent that type of behaviour by ensuring that Australian entities are given equal timeframes to respond to tender bids. The purpose for which subclauses 35(f) and 39(f) are included are both legitimate and reasonable especially when proportionality with the likelihood of this applying to an individual and not a corporate entity. Protection from arbitrary and unlawful interference with privacy Article 17 of the ICCPR provides that no one shall be subjected to arbitrary or unlawful interference with their privacy. This right may be subject to permissible limitations where the limitations are authorised by law and are not arbitrary. In order for an interference with privacy not to be arbitrary, the interference must be in accordance with the provisions, aims and objectives of the ICCPR and reasonable in the particular circumstances. Part 9 of the Bill contains provisions that allow for the disclosure of protected information, therefore triggering Article 17. In order for an interference with privacy not to be arbitrary, it must be necessary in the circumstances and proportionate to the end sought. The majority of the provisions in Part 9 limit the disclosure of protected information to a specific purpose such as the performance of functions or the exercise of certain functions or powers. However clause 104, dealing with disclosure to the Minister, is a provision that contains no limitation and may be seen as arbitrary. The nature of information being provided to the Minister under clause 104 will be purely of a commercial nature, and not personal information. The Bill`s objective is the provision of information to the Authority that is of a commercial nature, not personal information. The type of information that will be obtained relate to specific commercial practices, processes and procedures as well as information relating to a specific commercial project. In the event that there is personal information provided to the Authority that is incidental to providing other commercial details, the Authority will implement a policy to deal with this type of situation. It is therefore reasonable to allow for this provision within the Bill and necessary for it to exist given the need for the Minister to be provided information about commercial projects under the Bill. Part 4 of the Bill also provides for the Authority to obtain information and documents from project proponents and facility operators relevant to the operation of the Bill. In line with what has been stated above, the object of these provisions is to obtain commercial information about the project or facility in order to assist the Authority in either approving an AIP plan or monitoring ongoing compliance with an AIP plan. Personal information will not be requested by the Authority and in the event that it is provided unintentionally by the project proponent or operator, the Authority will have in place a policy to deal with this. Part 4 also contains safeguards for each of the provisions relating to obtaining information. These safeguards are in the form of protection from self-incrimination where an individual will be excused from giving information or producing a document if doing so would incriminate the individual or expose them to a penalty. This safeguard is important in providing a level of proportionality to these powers, even though personal information is not the objective or intent of the provisions. 6

Presumption of innocence The presumption of innocence is set out in Article 14(2) of the ICCPR. It imposes on the prosecution the burden of proving the charge and guarantees that no guilt can be presumed until the charge has been proven beyond reasonable doubt. Subclauses 102(1), 107(4), 107(6), 111(4) and 111(6) of the Bill contain reverse burden provisions that will place an evidential burden on the defendant in relation to an offence of unlawfully disclosing protected information. The objective of these subclauses is within the broad secrecy provisions under Part 9 of the Bill. The entire purpose of Part 9 is to ensure that any commercial in confidence information that is provided to the Authority under an AIP plan or its broader functions under the legislation is adequately protected. The type of projects that the Bill deals with is high value commercial projects with global project proponents using specified processes and methods that are generally highly sensitive and confidential. There needs to be a high level of confidence in the Authority, on the side of the project proponents, in providing this information within an AIP plan or as requested by the Authority, to ensure it is dealt with in a strictly confidential manner. Part 9 provides a clear level of security for dealing with protected information and gives confidence to the proponents in providing commercially sensitive information to meet the compliance provisions within this Bill. The justification for shifting the evidentiary burden in the subclauses mentioned is linked to the commercial sensitivity of protected information and the potential for damage if disclosed unlawfully. For example if certain information about commercially sensitive schematics to be procured for a project are provided to the Authority, and these schematics are disclosed unlawfully by a Commonwealth officer, the potential for commercial damage to the proponent could be extremely high. Such a scenario could result in the project being delayed, suspended or cancelled, potentially jeopardising millions of dollars in investment and jobs. It is for this type of reason that the reverse burden provisions are justified and proportionate. The regulatory context of these provisions in the Bill is clear and in cases where there is a breach, it is clearly more practical for the accused to prove a fact rather that for the prosecution to disprove it. Conclusion The Bill is compatible with human rights because to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate. 7

REGULATION IMPACT STATEMENT Strengthening Australian Industry Participation Glossary AIG Australian Industry Group AIP Australian Industry Participation AIPP Australian Industry Participation Plan AMWU Australian Manufacturers Workers Union BCA Business Council of Australia DIISRTE Department of Industry, Innovation, Science, Research and Tertiary Education EPBS Enhanced Project By-laws Scheme EPCM Engineering, Procurement and Construction Manager ESAA Energy Supply Association of Australia FEED Front End Engineering and Design FID Final Investment Decision FTA Free Trade Organisation GVA Gross value added ICN Industry Capability Network ICNL Industry Capability Network Limited ICNV Industry Capability Network Victoria LIP Local Industry Participation Plans MRRT Mineral Resources Rent Tax OEM Original Equipment Manufacturer PAA Program Acceptance Application RIS Regulatory Impact Statement SAMP Supplier Access to Major Projects program SME Small and medium sized enterprises TCO Tariff Concession Order TCS Tariff Concession Scheme VCEC Victorian Competition and Efficiency Commission VIPP Victorian Industry Participation Policy WTO World Trade Organisation

1 Background Introduction Australian companies have demonstrated that they can successfully compete against global companies to win work supplying major projects. However, Australian companies face ongoing challenges in gaining access to global supply chains and major investment projects. For example, the trend towards greater use of global Engineering, Procurement and Construction Managers (EPCMs) and established global supply chains by investors can create significant impediments to Australian industry participation in major projects if Australian companies are not known to overseas based EPCMs or not part of established global supply chains. In addition, concerns have been raised that some projects may specify overseas standards or overseas certification and testing requirements that exclude local suppliers. The paucity of verifiable data has contributed to controversy over the benefits of investment and foreign investment in particular. The Australian Industry Participation (AIP) National Framework was signed by Commonwealth, State and Territory Governments in 2001 to encourage a national approach to maximising opportunities for Australian industry to participate in major investment projects. The purpose of the AIP National Framework is two fold: firstly to provide Australian industry with full, fair and reasonable opportunity to participate in major projects in both the public and private sectors, in Australia and overseas; and secondly to promote, develop and maintain a sustainable competitive Australian industry capability by encouraging competitive Australian industry participation in investment projects. Consistent with the AIP National Framework, each jurisdiction has its own industry participation policies, but there are gaps and overlaps in the implementation of these policies. The Commonwealth introduced the Enhanced Project By-law Scheme (EPBS) in 2002 to encourage Australian industry participation and investment in major projects. The EPBS is a voluntary scheme that waives the five percent tariff on eligible goods not produced in Australia for projects over $10 million in applicable sectors. To qualify for the scheme the projects must prepare and implement an AIP Plan (amongst other requirements). An AIP Plan outlines how the project will give Australian industry full, fair and reasonable opportunity to participate in the project alongside their established supply chain partners (see section 5.1.3.1 for details). A number of States have also introduced requirements for their own versions of AIP Plans for Government procurement and major projects; these are known as Local Industry Participation (LIP) Plans. For AIP and LIP Plans the final decision on who wins the work is up to the project proponent, although some LIP Plans specify local content targets. As a result of a number of factors over the last decade including increasing globalisation, the strength of the Australian dollar and the move towards modularisation, Australian industry is facing increasing challenges in accessing global supply chains for major projects. Governments have responded by boosting arrangements to assist industry. In 2009, the Commonwealth released an Australian Government Procurement Statement which required the preparation of an AIP Plan by the companies bidding for major Government procurement contracts. In addition, AIP provisions for the EPBS were tightened to require AIP Plans to be developed earlier in the life of the project. The Supplier Advocates Program was also introduced to facilitate the access of SMEs to domestic and global opportunities (in 9

partnership with AusTrade) and to existing programs that help SMEs improve their competitiveness (such as Enterprise Connect). In 2010, the Government introduced the Buy Australian at Home and Abroad program to further support Australian industry participation in major resource projects. The program included funding for the Supplier Access to Major Projects (SAMP) program that supports the State based Industry Capability Network in providing information about Australian suppliers to major resources projects. The program funds supply chain improvement programs delivered by Enterprise Connect to improve competitiveness. It also funds Resources Sector Supplier Advocates and the Resources Sector Supplier Advisory Forum to boost linkages between suppliers and the major project proponents in the resources sector. In summary, the Government presently has a range of programs designed to improve opportunities and build capabilities, and number of industry leaders (advocates or envoys) who seek to ensure that those programs operate in a coordinated fashion. The range of programs is illustrated in Figure 1. This Regulation Impact Statement canvasses additional measures that the Government has under consideration. Figure 1: Australian Government programs which enhance access to opportunities and build capability OPPORTUNITY CAPABILITY AIP Plans: o EPBS o Government procurement/grants Envoy/ Supplier Advocates Supplier Access to Major Projects Procurement Processes in Practice It is important to understand the procurement process for major projects, as this is an important part of the context in which AIP Plans operate. Figure 2 below shows how project construction timelines relate to procurement timelines, Government approval processes (eg environmental impact statements) and AIP implementation. A high level description of the key concepts 10

covered in the diagram is given below. It should be noted however that no two projects will proceed in exactly the same way. Figure 2 is an illustration of a major project`s construction and procurement timelines and intersection with Government requirements. 1.1.1 The construction timeline The construction timeline illustrates moving from a concept/feasibility stage of a project through the first stage of engineering and design (FEED). FEED is the essential process of developing sufficient strategic information with which owners can address risk and make decisions to commit resources in order to maximise the potential for a successful project.1 Importantly it is the time when the ability to influence changes in design is relatively high and the cost to make those changes is relatively low. As the project moves into the detailed design phase flexibility decreases. Final Investment Decision (FID) is a determination made by directors and/or management as to how, when, where and how much capital will be spent on investment opportunities. Following FID the project moves into the construction stage - the construction process is often subcontracted by the owner/operator to an EPCM whose job it is to undertake the entire procurement process. Often they become part of the project team at the FEED stage (shown as the prime contractor in the figure). Project commissioning is the process of assuring that all systems and components of the project meet the operational requirements of the owner or final client. 1 https://www.construction-institute.org/scriptcontent/index.cfm 11

The project then moves into the production phase, which will often be accompanied by a hand over of responsibilities from the EPCM to the owner/operator. What is not shown on this diagram, but makes up a final stage of many projects, is decommissioning and remediation. 1.1.2 The procurement timeline As noted above, often the procurement manager, or EPCM, is employed at the FEED stage of the project. Part of the role of the EPCM is to help the company collect information to inform the FID, i.e. to detail what has to be built and at what cost. For a major project, it may be obvious from the outset that some major pieces of equipment (eg undersea pipe laying) have to be purchased from global specialists, so the EPCM will reserve` key goods and services to lock in prices and availability. They will also start the process of pre-qualifying companies that they believe will be in a position to support the construction of the project. As demonstrated in the figure this can be a staged process where the EPCM identifies a Tier 1 supplier who then cascades requirements down to Tier 2 and 3 suppliers that they or the EPCM has identified. Many, but not necessarily all, of the Original Equipment Manufacturers (OEMs) which contribute to the build phase will transition from the EPCM to the owner/operator as the supplier of ongoing maintenance and replacement equipment. However, at this point in the process the decision rests with the owner/operator who may look to take advantage of cost savings offered by competitors to the OEM. 1.1.3 Government approvals Governments place varying conditions on projects before they are allowed to begin and also when they are operating. This may include a licence to extract oil/minerals from a particular deposit or environmental approvals to control for how they are going to do this in an environmentally responsible operation or at a particular construction site. Key approvals have to be in place before the board/management will feel able to make a FID. 1.1.4 AIP intersection with major projects The timing of AIP Plans is important as the construction /procurement timelines must be taken into account when trying to achieve the goal of influencing Australian industry participation in major projects. As noted above FEED and even pre-FEED are critical as this is the time when specifications start to get locked-in and suppliers can inadvertently become excluded. Ideally AIP Plans are put in place at the very early stages of the project. This should be before approaching the market for provision of goods and services or pre-qualifying suppliers. This 12

same period of time is usually when parallel Government approvals are occurring - as such these may be appropriate triggers for having companies submit AIP Plans. Recent Developments and Consultations regarding AIP The Australian Government reiterated its commitment to supporting Australian industry participation at the Jobs Forum in October 2011, where the Prime Minister announced further measures to strengthen AIP requirements and appointed a working group to advise on how these would be implemented. Part of this process called for submissions through a public consultation process, resulting in a wide range of views from stakeholders being considered. The consultation process focussed on how to implement the key aspects of the Government`s announcement: publishing summaries of AIP Plans; increasing requirements and scrutiny of AIP Plans for EPBS customers; applying AIP Plans to large Government grants and other payments; and working with the States and Territories to maximise Australian industry participation policies applied to major infrastructure projects receiving funding from the Australian Government but managed by the States. The submissions to this process were varied, with some stakeholders suggesting that there should be further extension of AIP Plans beyond what was being canvassed. The report by the non-Government members of the Prime Minister`s Manufacturing Taskforce canvases AIP issues. So too have the two EPBS reviews and post-benefit surveys, consultations by Supplier Advocates in the resource and non- resource areas, the Resources Sector Supplier Envoy as well as a range of consultancies commissioned by the Department in support of the Resources Sector Supplier Forum (see section 7.1.7 for a summary of outcomes). Many of these suggest that more needs to be done. 2 Policy Context A Changing Industry The general shift in the way major projects are now designed and constructed is causing new challenges for Australian manufacturers. These issues include: The increasing use of modular construction technology (as opposed to the on site stick build methodology used in the past).2 This has meant that previously non-traded construction and fabrication services can be replaced with manufactured modules that are internationally traded. The size and scope of work packages - many are now more complex and beyond the capabilities of Australian suppliers to bid for entire scope of works, even if they may be capable in part.3 Larger projects and modularisation can mean that local suppliers find it difficult to achieve the required scale to bid for work. Tiering of procurement arrangements may mean that lower tier local suppliers are locked out if the first tier supplier is overseas based. 2 Dr Martin West, Modular Fabrication in the Resources Sector in WA: Current Practices and Strategies for Improvement`, Report for WA Departments of Commerce and State Development, November 2011 3 ibid. 13

Design, procurement and contract management moving offshore - experience shows that engineering/procurement location has a strong impact on the choice/selection of suppliers.4 Overseas based Engineering, Procurement and Construction Managers (EPCMs) may not have an understanding of local supply capabilities and therefore work packages may not be appropriately scoped for local industry to be able to compete. In addition, overseas EPCMs may specify overseas standards or overseas certification and testing processes that are not readily available to local suppliers. Rising use of global supply chains and EPCMs makes it difficult for Australian suppliers to break in 5 - particularly in risk averse industries. High safety and quality requirements and intense due diligence of those standards mean that sub-contractors must be pre-qualified well before tender processes start. A failure to initiate these pre-qualification arrangements sufficiently early can lock out local suppliers from the opportunity to tender. The strong Australian dollar makes it difficult for Australian suppliers to compete on cost even when they do get the opportunity to compete. AIP plans are not a silver bullet, local suppliers must be competitive to win work. Information Asymmetries, Market Failures & Global Supply Chains Large complex projects bring into sharp focus the many reasons that, while markets can be highly effective ways of allocating scarce resources, much economic activity occurs within firms or in arrangements amongst firms that do not reflect simple transactional contracts6. Contracts may be incomplete because the project is not fully designed from the outset or future technological or economic changes may provide opportunities for changes over the life of large projects. Asymmetric information about the capabilities of supplying firms in meeting strict quality and safety requirements of large projects imposes a need for expensive due diligence and pre-qualification processes before suppliers can be permitted to bid for work on the project. A need for specialised capabilities that may be transaction-specific mean that the supplier and project can have strong inter-dependencies. All these factors can mean that the relationship between firms, especially along global supply chains, is relationship-based rather than transactional. The existence of these long term relationships can make it hard for new entrants to enter existing supply chains. 4 Western Australia Legislative Assembly, Economics and Industry Standing Committee, The Potential for the Development of a Centre of Excellence in LNG Industry Design in Western Australia. A Discussion Paper`, Report No. 3 in the 38th Parliament, 2010. 5 ibid. 6 Relevant literature includes: Oliver E. Williamson, the Theory of the Firm as Governance Structure: From Choice to Contract, Journal of Economic Perspectives, 16(3) Summer 2002, pp 171-195; Patrick Bolton and David S Scharfstein, Corporate Finance, the Theory of the Firm, and Organisations, Journal of Economic Perspectives, 16(3) Summer 2002, pp 95-114, Bengt Holmstrom and John Roberts, The Boundaries of the Firm Revisited, Journal of Economic Perspectives, 12(4) Fall 1998, pp73-94., pp 171-195 14

There may also be a principal-agent problem in large companies where procurement managers may seek to make their own life simple rather than maximise profits by seeking new competitive suppliers. This principal-agent problem is difficult to distinguish from legitimate reasons for utilising an established supply chain. The presence of market failures associated with the incomplete contracts, relationship-specific investments and principal-agent problems does not mean that heavy-handed Government intervention is warranted. It is not appropriate to require firms to change their contracting arrangements. Rather, the very complexity of the relationships between firms suggests that any intervention should be focussed on seeking to improve the flow of information rather than interfere in these relationships. There are incentives to find information on local firms in terms of broadening the supply base, potential cost savings in finding new competitive suppliers, proximity of suppliers and access to local repair and maintenance capability. However, there is a cost for large firms to find data on local firms. Pressures such as scarce management time, risks associated with deviating from pre-approved vendors, and issues in overcoming existing arrangements such as warranties can diminish motivation to identify and provide opportunities for new local suppliers. A requirement for the development and implementation of Australian Industry Participation plans is intended to promote the flow of information that is capable of verification by third parties. The information is relatively high level so that commercial-in-confidence arrangements between firms are not compromised. The plans do not prescribe the mechanisms by which firms engage with potential new entrants. Global EPCMs are often unaware of local industry structure and contracting practices and therefore overlook local suppliers. The standard practice of EPCMs is to break up work packages into certain sectors and categories, which may or may not align with local industry practices. AIP Plans, therefore, are a information mechanism that will provide for both the EPCMs and local industry to better align their procurement models to achieve a mutual benefit. AIP policy aims to help Australian SMEs to win more work through addressing the information gaps between major project proponents and suppliers concerning supplier capabilities and major project requirements. Projects may overlook competitive local suppliers. Breaking through this barrier and making companies aware of alternative local suppliers is a basic underlying rationale for AIP Plans. Addressing the Information Gap The barriers built up through established global supply chains are difficult to lower. However, there is evidence that the Government`s current programs are having a positive effect in a limited range of projects through greater dissemination of opportunities and information flows. The Prime Minister`s Manufacturing Taskforce discussed some of the current work being done in this area to improve outcomes, however, also recognised the need to go further: "Some Government initiatives, such as the Resource Sector Supplier Envoy and the Automotive Industry Envoys, support Australian businesses to penetrate national and global value chains. However, these remain the exception rather than the rule even in large industries." 15

The report also clearly identifies the need to utilise the large pipeline of projects to promote outcomes for local firms. "The $450 billion pipeline of resource sector and infrastructure related investment provides an excellent opportunity to address some of the cyclical demand side issues. Australia should use its very large economic projects to leverage outcomes, both because this is the fastest route to lifting standards in technology, management and design, and because this helps to capture national value from these projects. With appropriate linkages to other sectors this can help firms adapt to current cyclical pressures." The Government utilises a two pronged approach by using AIP Plans to make global projects aware of Australian capabilities, together with facilitation programs to maximise SMEs competitiveness and aims to benefit both communities as well as industry. Through promoting competitive and capable SMEs, industry and the communities in which they operate will benefit from winning the work, with flow on effects in local employment levels and future investment possible. In its submission to the AIP Working Group, the Australian Steel Institute (ASI) stated that: "Increased local content is good for Australia and the local economies in which the companies operate. An independent report completed for the Industry Capability Network (ICN) shows that for every $1 million that is new or retained manufacturing business for Australia, the following effects flow through the economy: $713,400 worth of gross value added (GVA) generated, 6 full-time equivalent jobs created, $64,900 worth of welfare expenditure saved, and $225,300 worth of tax revenue generated." The AMWU and the ACTU also support the extension of measures to increase industry participation. In their submissions to the AIP Working Group they stated: "with the high levels of spare capacity and distressed conditions confronting Australian industry today, the Commonwealth needs to open a new front on AIP Plans to help "get more work now" into the factories." AIP Policy reform has been called for specifically by the non-Government members of the Prime Minister`s Manufacturing Taskforce to address the current problem of lack of demand being experienced in the construction and metal fabrication sectors. The Steel Industry and the relevant unions have also been vocal in regards to extending the application of AIP Plans. However, as outlined in the impacts section of this document, the potential benefits of AIP Plans can be relevant to other sectors. Diminishing Influence of the Enhanced Project By-law Scheme (EPBS) The EPBS has seen fewer companies applying in recent years and has therefore had a diminishing capacity to achieve positive outcomes through the application of AIP Plans to major projects. Drivers of this reduced use of the EPBS include the signing of more Free Trade Agreements, which allow projects to import duty free if the rules of origin are met, and increased use of the Tariff Concession Scheme. 16

In the absence of any policy response it is likely that a continued decline in the number of projects using the EPBS will further reduce the coverage of AIP plans amongst major projects and thereby reduce the benefits of increased opportunities for Australian suppliers that can result from well executed AIP plans. The EPBS waives the 5 per cent tariff on eligible goods not produced in Australia, for projects with more than $10 million of eligible goods in applicable sectors, if they prepare and implement an AIP Plan. An AIP Plan outlines how the project will give Australian industry the same opportunities as established supply chain partners to participate in the project. Since the EPBS began in 2002-03, 395 private projects have prepared and implemented AIP Plans. However, over the last three years, on average only nine projects annually have prepared and implemented AIP Plans through EPBS, compared with 40 projects annually over the last ten years. See Figure 3 below for an illustration of the decline in EPBS utilisation. The Department conducted an internal review of EPBS in 2009 and sought submissions from stakeholders. The majority of submissions received were supportive of EPBS, however, some project proponents were concerned that tightening the requirements for the program could result in fewer companies accessing the scheme. A contrasting concern was put by some suppliers, who were of the view that the EPBS benefited imports rather than local industry, although these comprised only a small portion of the views presented. Figure 3 demonstrates the decline in implemented AIP Plans through EPBS over the last 10 years and contrasts this with a rise in forgone revenue. (Since the EPBS operates with a lag, and involves refunds of tariffs, the estimates of the cost to revenue for most recent periods will rise over time.) Figure 3 EPBS: Number of Projects and Revenue Forgone 90 160 80 140 70 120 Implemented AIP Plans 60 100 50 $m 80 40 Implemented 60 AIP Plans 30 Revenue 40 forgone 20 10 20 0 0 * Revenue forgone will increase over time due to refund activity 17

In 2010, Access Economics conducted a review of the efficiency and effectiveness of the EPBS on behalf of the Department. The feedback received by Access Economics was similar to that received in 2009. Project proponents raised issues about compliance costs and sought more flexible requirements (such as the definition of functional units) and suppliers indicated support for increased reporting requirements, more restrictive definitions of functional units and stronger provisions for engagement with local industry. The following is a quote from a submission to an Access Economics evaluation of EPBS in 2010 highlights both the shift away from the EPBS and importance of AIP Plans in influencing procurement behaviour:7 ,,Obviously, the TCS application procedure is much less onerous on a project than the EPBS and when the benefits are similar you would have to expect a drift away from the EPBS. We have already noticed this with a few smaller projects (values still measured in up to hundreds of millions of dollars though) opting not to bother with the EPBS. Unfortunately, this also means that we risk losing the benefits of local industry participation and advancement that the EPBS encourages. Whilst most of our clients, and certainly the three mentioned earlier, always show a preference for local companies where all other factors are equal, if the EPBS is not being utilised there is no incentive to go that extra step and, for example, push for inclusion in overseas supply chains or to assist local manufacturers improve their quality, safety, production methods, etc, that will bring them into line with worlds best practice. We also commonly see projects being controlled by foreign companies who will have no incentive whatsoever to use local manufacturers if they are not pushed towards the EPBS by the project proponent. To fully leverage the pipeline of projects in the private sector, alternate avenues are necessary to ensure subsequent opportunities being made available to local industry through wider coverage of AIP Plans. This point is made by Dr Martin West8 in his recent report to DIISRTE and the Western Australian Government where he states the following. ,,On a national level the EPBS scheme is used as a "trigger" to require Australian Industry Participation Plans (AIPP). The development of AIPPs and associated reporting requirements are generally considered effective in ensuring full, fair and reasonable access to Australian industries. ... Free trade agreements negate the benefit of the EPBS scheme and subsequent need for AIPPs. To be effective, it needs to be ensured that all major projects produce AIPPs. 7 From a Customs Broker that acts on behalf of numerous clients that use the EPBS, including projects in the resources sector. [APC logistics] 8 Dr Martin West 2012 Op Cit page ix. 18

International Policy Initiatives for Local Participation Similar to the policy initiatives in Australia, other countries have also identified gaps in local industry participation and implemented a range of policies to maximise local content in major projects. These policies range from investing in important projects, influencing decision- making and in some cases mandating levels of local content. An independent report cited in Western Australia`s May 2011 Local Content Report examined the policies and processes used in Canada, Russia, Nigeria, Norway and the UK. The report indicated that the use of prescriptive policies had not led to significantly higher levels of local content than those achieved to date in Western Australia (under the AIP National Framework). Rather, the report found that a stronger influence on local content outcomes was the degree of political encouragement exerted to ensure project proponents focus on this issue. The two case studies below illustrate two different approaches to local industry practices. As the Canadian example demonstrates, an approach that asks project proponents to consider local suppliers is not unique to Australia. The Canadian approach does however include mandating an office with decision making capabilities as a way of trying to overcome the information gap between major project proponents and local capabilities. The approach taken by Brazil shows the ramifications for a country attempting to mandate a level of local content, resulting in a large scale distortion of the market. Countries that are mandating levels of local content may risk being investigated by the World Trade Organisation (WTO) as other nations can dispute the legality of the measures. Furthermore, it has been demonstrated that countries mandating local content may suffer unintended consequences including bottlenecks, uncompetitive pricing, as well as both cost and time blow outs. Examples of these consequences include those experienced by Brazil`s oil and gas industry. Whilst many countries are exploring ways to increase local industry participation, mandating local content has often resulted in a detrimental impact on industry. In contrast, the implementation of AIP Plans provides local companies with the same fair and reasonable opportunities afforded to global supply chain partners, rather than reviving protectionist policies of the past. 19

Case Study: Canada-Newfoundland and Labrador Benefits Plan and Canada-Nova Scotia Benefits Plan Canada is often cited as an example of a county with an effective local content policy. The Canada-Newfoundland Atlantic Accord Implementation Act and Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act establish the statutory requirement that a Benefits Plan must be submitted and approved by the relevant Offshore Petroleum Board prior to the approval of a development plan. The legislation established requirements by which it is intended to provide an opportunity for businesses and individuals in the Province, and elsewhere in Canada, to participate on a competitive basis. Benefits Plans include requirements that: Before carrying out any work or activity in the offshore area, the corporation or body submitting the plan shall establish in the Province an office with appropriate levels of decision-making. First consideration given to goods manufactured in the Province and services provided from within the Province, where those goods and services are competitive in terms of price, quality and delivery. First consideration given to individuals from the Province for training and employment. Expenditure is made for research and development to be carried out within the Province. The legislation requires that businesses in the province and other parts of Canada must have full and fair opportunity to participate on a competitive basis. In practice, this means that contracting procedures must not unfairly disadvantage local suppliers, but the project proponent must demonstrate that all reasonable efforts have been taken to ensure that local suppliers have been afforded an opportunity to participate in the procurement process on a competitive basis. Case Study: Alternate means of encouraging local content - Brazil Alternative options to encourage increased local industry participation are currently utilised by Brazil which, according to Dow Jones Newswires, has been imposing local content requirements on oil companies since 1999*. Brazil's policy requires a Concession Agreement for the exploration, development and production of oil and natural gas, including an agreed upon Local Investment Percentage for the project. The article identified a study by Booz & Co., prepared for Brazil's National Petroleum Industry Organisation (ONIP) which found that Brazilian producers in the oil services industry charge 55% more than their international competitors. Booz & Co. attributed the gap in price as a result of a heavy tax burden, high borrowing costs and infrastructure bottlenecks. Dow Jones also reported that Petrobras (Brazilian state-owned oil giant) forecasts that, if limited to domestic suppliers, there will be no production growth in the next 3 years despite its 16.4 billion barrels oil-equivalent in proven resources. As reported in the Economist, local industry leaders justify local content rules as needed to promote industrial development# Similar programs in other sectors of the country have also resulted in unintended negative consequences. For example, Brazil's local content requirement in its second phase PROINFINA program were partially intended to increase the use of Brazilian steel in large wind farm developments, but have instead resulted in the substitution of more cost-effective concrete made wind towers in larger projects. * article reference: Dow Jones Newswires, 18 July 2012, Brazil Local Content Policy Inhibits Oil Development. # Eike Batista: The salesman of Brazil: Brazil's richest man is betting on resources and infrastructure. Can he deliver? The Economist (print edition) May 26th 2012 20

3 Statement of the Problem There is a concern that Australian companies (suppliers) are not winning work to provide goods and services into major projects within Australia and overseas even where they may be competitive. Suppliers claim that this is occurring for a variety of reasons including the size of tender packages, specification of foreign standards or testing facilities in project requirements and a simple lack of information about local capabilities. DIISRTE analysis indicates that more than half of the current major projects are currently not subject to AIP requirements. The total value of these projects without an AIP plan is approximately $32 billion. Without a comprehensive and consistent approach to AIP, controversy and lack of clarity about what is behind declining Australian industry participation in major projects will continue. The Australian Government utilises a two pronged approach to address this issue by using AIP Plans to make project investors aware of Australian capabilities, together with facilitation and capability programs to maximise SMEs competitiveness. These policies aim to benefit the community as well as industry. Lack of Access driven by lack of Information and Changed Procurement Processes Industry procurement process will always aim to achieve value for money for the customer, but this is difficult to achieve and there can be disincentives for major procurement projects to look beyond their current supply chain to new suppliers. Information about Australian industry capabilities may not be readily available to major project proponents. Australia has a large number of small and medium enterprises (SMEs) and this can raise the cost of discovering information about industry capabilities and capacity. Information about innovative Australian companies providing new technologies may not be readily available. For example, an innovative supplier used by one project may confer competitive advantages that the customer would prefer to keep to itself. Customers may not have the incentive that suppliers have to identify major customers as reference sites. A report9 by Dr West for the Western Australian Department of Commerce, makes the following observation. " Even though the WA resources sector is relatively small in terms of number of players, some resource developers indicated that they were not aware of which company provides which type of product service. Similarly some fabricators indicated that they were not aware of some potential tender opportunities. This Industry Capability Network (ICN) has been active in providing a market place where RD's and fabricators and other providers can meet." During the resources investment boom there has been a perception that local companies will be operating at full capacity and therefore procurers look to imports as a risk mitigation strategy. Where there are multiple potential projects in a region, all may presume that the local capacity will be fully utilised and all will arrange for a non-local supply chain. In the absence of information and testing of the market, the local suppliers can be overlooked. 9 Dr Martin West, 'Modular Fabrication in the Resources Sector in Western Australia: Current Practices and Strategies for Improvement', Report for Western Australian Department of Commerce, November 2011, p29 21

The modern procurement practice of utilising a tiered supply chain (to manage risk and complexity) can mean that smaller companies are locked out of procurement by tier one procurement decisions that may or may not be in the best interest of the project. Procurement is complex and difficult and mistakes are made. For example, there has been at least one identified case where procurement decisions have ignored differential transport costs and locked out local suppliers who were cheaper on a whole of life basis and where the procurement decision ran counter to company policy about supporting the local community. A report prepared for DIISRTE by Developmental Impacts10 which surveyed project proponents, ICN representatives and 20 SMEs made the following observation. "In contrast to the ... situation where an EPCM is providing clearly articulated and segmented information about work packages aimed at Tier 2 and lower providers within the online environment, feedback received as part of this study suggests that this is frequently not the norm. The perception amongst the SME sector appears to be that more often than not, EPCMs do not segment the larger project work packages they have successfully tendered for. These remain elusive to the SME market in so far as there appears to be no mechanisms to enforce Australian Industry Participation (AIP) requirements on the EPCM sector. Regardless of whether this is in fact the case, the current SME market perception certainly sees this as a major impediment to enabling SMEs to win work in the Australian resources sector. Participating SMEs stated on numerous occasions that consideration should be given to how to more effectively stipulate and enforce AIP requirements not only on project proponents, but also onto EPCMs. SMEs felt strongly that EPCMs need to be made to abide by the AIP framework and that avenues should be investigated which support and provide incentives for EPCMs to contract smaller work and project packages out to Australian companies." Increasing role of overseas-based EPCMs and engineering Because project activities such as FEED, EPCM may be undertaken by overseas entities who may be unaware of local industry capabilities and this may restrict the opportunities for local suppliers. To create opportunities for local firms, project proponents need to have an understanding of the market place so that they can design work packages to suit local capabilities and capacity, if that is appropriate. Taking the steel fabrication industry as a example, where there is a lack of early project engagement it can result in isolation of medium size companies who are either unable or not willing to tender for the work. The factors influencing these fabricators` decisions can be numerous, but they include a perception that the work will be sourced offshore, the scale of the work is too large and would involve working with local competitors, and not having the knowledge about the project at a sufficiently early stage to tender a competitive bid. Lack of detailed understanding means that tenderers` pricing includes an allowance for risk that makes the tenderer uncompetitive. Information received from industry stakeholders, such as BlueScope Steel, has stated that for the industry to secure larger resource projects, strategies to ensure early engagement in projects 10 : Resources Sector Supplier Online Communication Study, Developmental Impacts Pty Ltd, August 2012. Commissioned by DIISRTE at the behest of the How to Win Work Working Group of the Resources Sector Supplier Advisory Forum. 22

need to be implemented. If early engagement is achieved for larger resource projects it is much easier to identify those packages in which the industry has an opportunity at being competitive. Early engagement with proponents will enable companies to better understand the scope of supply, intended tendering, and design and construction methodologies to be used by EPCMs. This information allows companies to properly match capacity and expertise ultimately enabling them to guarantee delivery, resulting in project flexibility for the end client. It also means that the tenderers do not need to include inappropriate risk margins. The loss of local engineering opportunities means that it is more difficult for local suppliers to be known or familiar to the overseas engineering and procurement teams. Therefore the local suppliers are at a disadvantage to those based in the region where the engineering and procurement is undertaken. The Government of Western Australia agrees, stating that:11 "The business model adopted by a project proponent is also important. Projects managed by proponents new to Western Australia, which have long-standing relationships with global supply chains or employ engineering, procurement and construction managers (EPCMs), may have little interest in trying to source material locally. Supply opportunities will be greater for projects whose proponents are well established locally and which provide design, engineering and procurement internally." The Prime Minister`s Manufacturing Taskforce in its Report to Government identified the difficulty Australian firms have in accessing global value chains: "Australias penetration of value chains is extremely weak. [The Global Competitiveness Report ranks Australia 75th for global chain breadth].... This is a real concern, as most collaboration and innovation occurs within these value chains." Similarly, the AIP Working Group recognised this issue as a significant barrier for Australian industry participation:12 "... the trend towards greater use of EPCMs and established global supply chains by investors can create significant impediments to Australian industry participation...Australian companies are not known to overseas based EPCMs or not part of established global supply chains." Reflecting on this perceived information gap, the WA Government reports that both project proponents and industry acknowledge the need for increased communication:13 "Communication is also essential to identify new and emerging opportunities where (Western) Australian industry can be competitive. This requires an understanding of international trends in technology, business models and procurement by suppliers. Both companies and industry associations recognise the need for improving communications between suppliers and proponents." Contractors can only bid for packages if they are aware of them, conversely suppliers need to make packages widely available to ensure competitive bids with a high value proposition. The bottom line is that awarding contracts will always remain a commercial decision, but if firms 11 Government of Western Australia, Local Content Report, May 2011 12 Australian Industry Participation Working Group, Report to the Australian Government on implementation of measures to extend Australian Industry Participation`, February 2012. 13 Government of Western Australia, Local Content Report, May 2011 23

do not look outside their current scope then this results in an opportunity lost for Australian industry. For example, a report by Dr Martin West found that:14 "Some reservations have been expressed concerning the offshore allocation of FEED as FEED engineers often tend to use suppliers or contractors for advice and basis for specifications which are near to them. In addition, an international FEED company may be less aware of the local vendor (WA) capabilities. It also makes it harder to engage with the FEED procurement group." Declining local content outcomes The manufacturing industry has highlighted the spare capacity they currently have in an environment of resources boom`, as they see work packages awarded to overseas suppliers. AIP Plans seek to address this issue through encouraging large projects to become increasingly aware of local suppliers and their capabilities. The capacity exists to increase supply to major projects if companies are provided with the opportunities to tender and if they can be competitive. The steel fabrication sector is one sector that was expected to directly benefit from increased demand from the resources investment boom. However, a survey of a group of steel fabricators commissioned by DIISRTE in 2010 indicated that at the time of the survey (July/August 2010), despite the resources boom, the companies interviewed were operating at 51.6 per cent utilisation on average.15 The Government of Western Australia reports these trends have resulted in a decreased proportion of local content, particularly in offshore energy projects.16 As an example, Liquefied Natural Gas (LNG) Train 4 of the Woodside North West Shelf project had 72 per cent local content,17 while local content for LNG Train 5 fell to an estimated 45 per cent.18 The main differences in the two projects were that Train 5 involved modular construction overseas, and engineering design work for Train 5 was undertaken in the United Kingdom, rather than Perth. Lack of application of AIP Plans To the extent that AIP plans lead to improved opportunities for Australian industry, the absence of formal AIP plans will lead to reduced opportunities for competitive Australian suppliers. Lost opportunities for Australian suppliers 14 Dr Martin West, Modular Fabrication in the Resources Sector in WA: Current Practices and Strategies for Improvement`, Report for WA Departments of Commerce and State Development, November 2011 15 Industry Capability Network (ICN) Queensland, Capacity Survey conducted for the Commonwealth Department of Industry, 2010 16 Government of Western Australia, Local Content Report, May 2011. 17 ibid. 18 Industry Capability Network Western Australia, reported in article from EWN Publishing Ltd, http://www.erisk.net/erisk7/article/453383/australian_steel_institute_accuses_bp_chevron_shell_mitsubishi, August 2005, downloaded on 1 November 2012. 24

Analysis by DIISRTE suggests that each year there are 23 major projects (with an investment of over $500 million) that currently do not have a formal AIP Plan and 19 with a plan through the EPBS scheme. This means that more than half of the current major projects are currently not subject to AIP requirements. The total value of these projects without an AIP plan is approximately $32 billion. ICNL analysis suggests that well implemented AIP plans for these projects would lead to increased opportunities for Australian Industry of at least $1.6 billion (see section 6.1.1.3 for additional details). In a recent report19, which focused on the issues of modular construction the following question was asked of survey respondents (12 project proponents and 7 EPCMs) - how frequently their selection process for suppliers included any guidelines regarding the use of Australian suppliers? Figure 4 shows that around 57% actively looked at local industry participation while the remaining 43% sometimes, rarely or never take into account guidelines regarding the use of Australian suppliers. This figure is of concern and reflects the contemporary problems in this area. Figure 4 demonstrates usage of guidelines for involvement of Australian suppliers Lack of comprehensive and verifiable information about Australian industry participation in major projects has contributed to controversy about the benefits of the resources boom and foreign investment in Australia. A series of articles in The Australian is representative, with titles such as Mining contracts lock out Aussies with buy Chinese` clauses (17 January 2012), 19 Dr Martin West, Improving Australian Industry Participation in the Resources Sector Supply Chain`, October 2012. Report for DIISRTE and the West Australian Department of Commerce. Pages 25-26. 25

$6bn port builder urged to buy Chinese (18 January 2012), Cheap finance being used to hook local miners (18 January 2012), Chinese favouritism row of made-to-measure contracts (19 January 2012). The misinformation and controversy that can erupt in the absence of comprehensive and verifiable independent information can lead to the development of sovereign risk fears by potential foreign investors, leading to reduced investment if investors believe an inappropriate regulatory response may occur as a result of controversy. It is expected that collecting and reporting information from project proponents through the AIP process will ensure that the community, Australian business and the Government all have a strong understanding of how major projects are operating. This will contribute to reducing unnecessary controversy based on inadequate information. Inconsistent Industry Participation approaches The AIP National Framework is a set of principles for Australian industry participation policy. Each jurisdiction gives action to these principles through their own policies and programs. Some State and Territories have a Local Industry Participation (LIP) policy that is applied when Government funding is involved and others have the capacity to deem` projects significant` warranting an AIP Plan. The ability for States and Territories to implement differing LIP policy leads to a perception by global EPCMs of inconsistency in requirements. This may lead to increases in project cost and time. Some industry stakeholders have also expressed concerns about whether State Governments see local as within the State itself or with the country. The changes to the Commonwealth AIP policy in July 2012 extended the application of AIP Plans to grants and funding to the States, in addition to existing procurement policy. Although this has extended the coverage of AIP Plans, it is limited to Commonwealth funding recipients. A large majority of the major projects in Australia are within the resources sector, however Commonwealth and even State investment or procurement is very limited in this sector. Generally private projects are not covered through this policy unless EPBS is accessed or there are relevant State and Territory policies. Jurisdictional inconsistencies and the inherent flexibility to change policies create uncertainty for industry, concerns about jurisdictional bias and questions about compliance with international trade obligations. This can lead to confusion from the private sector about what sectors are required to submit a LIP, whether Government funding is or is not a requirement for an LIP Plan, and what the link is with the Commonwealth AIP requirements. This issue was canvassed in a recent report by Don Scott-Kemmis20. "Mining activity and METS firms are widely distributed across Australia, with strong concentrations in Perth and Brisbane. Amplifying this fragmentation, in some States ,,local content means local to that State." As demonstrated by the two examples below, State Governments are adopting very different approaches to AIP, ranging from mandating local content by legislating for LIP plans to encouraging companies to complete LIP plans. 20 Leveraging Resource Development for Industry Development, Don Scott-Kemmis, June 2012. Report for DIISRTE. 26

Victoria Under the VIPP guidelines, the Victorian Government is able to declare certain large projects with a whole-of-life value of $250 million or more, or a capital cost of at least $100 million as having strategic significance to the Victorian economy. The Project declaration enables the Victorian Government to set minimum local content requirments and other conditions relating to delivering outcomes for local industry. During 2011-12 there were five VIPP Strategic Projects underway across Victoria totalling $5.553 billion. These projects were: 1. Procurement of 50 new trams 2. Victorian Comprehensive Cancer Centre 3. Regional Rail Link 4. Melbourne Park Redevelopment 5. New Bendigo Hospital (Victorian Industry Participation Policy 2011-12: Annual Report to Parliament prepared under Section 10 of the Victorian Industry Participation Policy Act 2003, Page 4); available at http://www.dbi.vic.gov.au/projects-and-inititatives/victorian-industry-participation-policy/vipp-parliamentary- report-archive Western Australia State Government Actions to support actions for improved accountability and communication strategies: Following the amendment of relevant State Agreement Acts, negotiation with BHP Billiton and Rio Tinto to introduce Industry Participation Plans covering all future expansions, which are subject to these Acts. These plans will focus on linking procurement and business models to the principle of full, fair and reasonable oppportunity for local suppliers, and the continuation of forthcoming purchasing patterns. It is State government policy that all future Agreement Acts will include this requirement and any amendments to existing Acts will also incorporate this initiative. Communication with approximately 40 projects, not covered by the State Agreements Acts, to encourage voluntary reporting of local content outcomes and community benefits of project activity. [Local Content Report May 2012, Department of Commerce, Government of Western Australia, page 7 available at www.commerce.wa.gov.au/localindustry participation] 27

4 Government Objectives The Government`s objective is to ensure that Australian industry is provided with opportunities to compete for work in major projects and that the effort major project proponents invest in providing opportunities to local industry is understood and recognised by the community. The Government is pursuing a parallel strategy to enhance the capabilities and competitiveness of Australian industry to improve their chances of winning work when provided with the opportunities. The Government also wishes to improve the coordination of these existing programs. A further objective is to minimise overlaps and gaps in industry participation policies between levels of Government that can add complexity and uncertainty for industry. 28

5 Options Option 1: Legislation and AIP statutory body The Government would introduce new AIP legislation to require all major projects (above a capital expenditure threshold) to submit an appropriately detailed AIP Plan and report on its implementation. Legislation would also establish a new agency to focus on identifying and maximising opportunities for Australian industry. The agency would be tasked with administering the new AIP legislation. Compliance processes will include public reporting of non-compliance and a range of non-monetary penalty provisions for not submitting or implementing an AIP Plan. The legislative option is considered appropriate because: the Government requires certainty about compliance; universal application is required; there is a history of systematic non- compliance with industry-led or softer regulatory approaches; and existing industry bodies do not have comprehensive coverage or are not committed to the need to change behaviour21. While positive AIP practices exist, there has been limited evidence of implementation of industry-wide and industry-led approach to AIP. 5.1.1 A new agency The agency would provide assistance to companies developing their AIP Plan and assist organisations to achieve full, fair and reasonable opportunity for Australian industry, including by providing education programs and promoting good practice in procurement. It would evaluate and approve AIP Plans and publish Executive Summaries of those Plans, monitor and report to Parliament on their implementation and impose penalties on non-compliant firms when required by legislation. The agency would also administer agreements to support operation of Australian Industry Opportunities Officers for the EPBS as well as existing AIP requirements for EPBS, Government procurement, grants and loans. To maximise coordination and focus the new agency could deliver existing Government support and facilitation services including: Continue the work of the Buy Australian at Home and Abroad initiative to connect Australian suppliers with the resources sector including the Resources Sector Supplier Advocates and Advisory Forum; Continue the Supplier Advocates in non-resources sectors including water, clean technology, rail, ICT and TCF; and Continue support for activities funded through Industry Capability Network Limited (ICNL) including the Supplier Access to Major Projects (SAMP) program. 21 The legislated AIP approach is similar in some ways to the approach taken to address equal opportunities for women in the workplace, see Reform of the Equal Opportunity for Women in the Workplace Act 1999, Regulatory Impact Statement, Office of Best Practice Regulation, page 20. 29

5.1.2 Legislation The legislation would require mandatory AIP Plans for all major projects in Australia with $500 million capital expenditure and above. The legislation would provide for the establishment of a statutory authority (the Agency referred to in 5.1.1) that will be responsible for the administration of AIP Plans and associated policy initiatives. The subsidiary regulations would stipulate what is required in the content of an AIP Plan and would set out a range of non-monetary penalties for failure to have a compliant AIP Plan. These penalties could include disqualification from Government contracts and grants and/or seeking adverse publicity orders. 5.1.2.1 Thresholds A variety of thresholds have been canvassed during the consultations. Some of the organisations consulted, such as BlueScope and Australian Industry Group, suggested a lower threshold than the proposed $500 million should apply. The Steel Supplier Advocate has suggested $300 million as an appropriate threshold, as higher thresholds could exclude too many projects that the Steel and Fabrication Industry may otherwise be eligible to participate in.22 This conclusion has also been backed by Dr Martin West`s most recent report23. The estimated impact on the number of projects and sectors is listed below. The table provides a snapshot of projects, as at the end of June 2012, with an estimated capital expenditure of various thresholds. It includes projects that are have been announced but construction has not yet begun (committed`) and projects where a decision whether to proceed is expected in the reasonably near future (under consideration`). This is a current snapshot of projects that could be captured by the proposed legislation. However, some projects may have already progressed past the point where an AIP Plan would be useful (see section below on timing). Table 1: Current Projects listed as Committed and Under Consideration in Australia as at June 2012 Current Projects listed as Committed and Under Consideration 22 Cadmean Management Services Pty Ltd, Steel Supplier Advocate`s Report for Australian Participation in Large Resource and Infrastructure Projects`. 23 Dr Martin West 2012 Op cit. 30

Number of Projects Sector >=$100m >=$300m >=$500m >=$1b >=$2b Construction This includes construction and redevelopment of hotels and resorts, offices, non- residential buildings, warehouses and shopping centres and retail developments. Construction of radio networks and telecommunications towers. 61 33 21 8 4 Mining This includes oil and gas extraction, iron ore and coal mines and metal ores (such as zinc, lead and gold). 54 41 35 29 15 Power This includes power stations, gas and wind turbines. 39 25 21 7 1 Transport This includes road, rail and port upgrades and developments. 26 16 14 11 2 Total 180 115 91 55 22 Source: Deloitte Access Economics Investment Monitor June 2012 The $500 million threshold strikes a balance between capturing the major projects undertaken by large EPCMs with global supply chains and the compliance burden on proponents and the administrative burden of monitoring and implementation of the AIP Plan by the agency. Lowering the threshold below $500 million would result in a far greater number of projects being captured, but the effectiveness of AIP monitoring would thereby diminish as a result. It also can be argued that targeting the larger projects would, given time, have flow on effects at the lower end of the project scale, as many of the same EPCMs are involved in those types of projects. This threshold was accepted by at least some of the organisations consulted for this RIS, once the issue of effective monitoring and compliance was raised. 5.1.2.2 Sectoral Coverage The legislation does not propose to limit the application of AIP legislation to a particular sector, as currently occurs for EPBS. Rather it will use a project threshold, as outlined above. This will ensure that all major projects are captured. However, an examination of those projects currently being tracked by Deloitte Access Economics Investment Monitor gives a good sense of the likely projects that will be covered. As noted in Table 1, current projects above $500 million in Australia are in four broad areas. 31

Construction: including construction and redevelopment of hotels and resorts, offices, non- residential buildings, warehouses and shopping centres and retail developments. This category also covers construction of radio networks and telecommunications towers. Mining: including oil and gas extraction, iron ore and coal mines and metal ores (such as zinc, lead and gold). Power: including power stations, gas and wind turbines. Transport: including road, rail and port upgrades and developments. While consideration was given to restricting the legislation to particular sectors (for example, mining and/or construction) this was not pursued. If legislation was restricted to specific sectors, careful consideration would be required to define the sectors to which the legislation would apply. Restricting the sectors could lead to both boundary issues (ie projects arguing they are in or out of certain categories), and calls for further action to broaden legislation to other sectors. There is also a risk that the sector definition in the legislation may not capture projects that, in a policy sense, should be captured. Given the range of risks involved with applying a sectoral approach to the legislation, the logical outcome would be for the legislation to apply to all sectors regardless, using the threshold as the defining marker. This model would be the ideal approach in dealing with the problem statement outlined in this document. 5.1.2.3 Timing for AIP Plans The legislation would require AIP Plans to be prepared at the earliest possible stage of a project. It has been suggested that this be at environmental approval stage, concurrent with undertaking a feasibility study, prior to engaging a design or engineering contractor, or prior to site modification other than initial exploratory drilling. Some of the comments made during the consultation indicated that timing of an AIP Plan is a critical issue and that one model may not suit all the sectors. The regulations would seek to address these issues by providing a number of alternative mechanisms for triggering an AIP Plan. 5.1.2.4 Mutual recognition To avoid duplication of processes, implementation of the legislation could draw upon State or Territory based Local Industry Participation (LIP) Plans. It is expected that credible LIP Plans could be used so long as the relevant State policy met or exceeded the requirements of Commonwealth legislation in terms of developing, monitoring and reporting on AIP Plans. The legislation will outline an appropriate administrative process for assessing requirements for mutual recognition. The Commonwealth will consult, through the ongoing review of the AIP National Framework, with the jurisdictions to seek agreement on common requirements for AIP/LIP plans. The existence of a transparent legislated AIP plan requirement is expected to assist in creating policy stability, encouraging a National Approach`, and reducing the frequency of changes to LIP policies that have occurred over recent years. 32

5.1.2.5 Moving from construction to operation It is not proposed that the legislation apply retrospectively. What is proposed however is that projects which enter into the system continue to be monitored during the operations phase. Whether a project continues to report during the operations phase will be determined by the Agency based on the potential opportunities that will be available. It is proposed that consultation with industry on these requirements occur once the agency is operational (January 2014). It is anticipated that there will be a reasonable lead time for the agency to determine these requirements while it waits for projects with AIP Plans to move from construction into operation. 5.1.3 Operation of Australian Industry Participation Plans This section explains in some detail what an AIP Plan is and the criteria by which AIP plans are evaluated under the EPBS and Government procurement. These same requirements would apply for legislated AIP Plans. It also canvases the use of Australian standards. AIP Plans outline how project proponents will provide full, fair and reasonable opportunity to Australian industry to supply goods and services to the project. There is a focus on providing these opportunities to Australian small and medium sized enterprises (SMEs), noting that a reference to SMEs includes those from New Zealand for the purpose of Government procurement. It is important to note that a requirement for an AIP Plan does not detract from the ordinary principles of procurement, such as value for money, and is not intended to delay procurement and project timeframes. Nothing in AIP Plan requirements state that opportunities or preferences must be given to Australian industry; it merely asks organisations that are conducting major projects in Australia to look at what possible opportunities there may be for Australian industry and to make those opportunities available in a reasonable manner. 5.1.3.1 What are the contents of an AIP Plan? Currently, AIP Plan criteria includes: 1. Communication Strategy A communication strategy is fundamental in demonstrating how opportunities will be conveyed to Australian industry, along with the length of notice given to participate in projects (i.e. when the communication strategy is implemented). 2. Opportunities through all tiers of supply and in all stages of the project The tenderer must outline actions to be taken to provide Australian industry with full, fair and reasonable opportunity through the entire supply chain (from prime contractors, EPCMs and first tier suppliers) and the measures they propose to encourage this in all stages of the project (i.e. through design, procurement, construction, operation and whole-of-life support). This recognises that participation opportunities may be more realistic in the operation and maintenance phase of the project. 33

3. Opportunities for longer-term participation by Australian industry on a commercial basis The project developer must explain how the actions in (2) above will assist SMEs develop capabilities and participate in the project developer's supply chain over time. Proposed actions should promote long term industry participation by SMEs especially through integration and connection to global supply chains for major projects. 4. Procedures and Resources Companies must demonstrate that they have appropriate resources and procedures in place to effectively implement the actions they have outlined when addressing the criteria. 5.1.3.2 AIP Plans in practice AIP Plans ask whether the company has given any consideration to whether there could be a local, cost competitive and capable supplier that could be brought into the supply chain. As demonstrated in Figure 5, there will always be components of a project that must be sourced from overseas for various reasons, similarly there are components (such as local construction and transport services) that have to be sourced from Australia, what AIP is focused on is the contestable space i.e. where it can be sourced from either Australia or overseas. In projects where existing supply chains are established, and in some cases are reliant on a commercial arrangement or stipulation for supply, AIP does not attempt to prevent or interfere in these situations. The AIP Executive Summary24 for Paradise Phosphate`s Georgina Basin Phosphate Project further demonstrates the concept of contestability (see Appendix B). The Summary details the steps the Company is taking to meet its AIP requirements for EPBS (as per the steps outlined above). It also outlines at a high level the goods and services to be procured for the project and the expected opportunities for industry participation. The list identifies a mixed procurement strategy - with design, construction and engineering services sourced from Australia; stainless steel, dozers and slurry pumps sourced from overseas and the remainder of the items including steel beams, steel fabrication, information technology services and dump trucks being contestable. ` Figure 5: Shows in visual terms that any project has a component of Australian, overseas and contestable content. Total value of a major project to suppliers Australian content Overseas content Must be l e Must be sourced from t ab sourced from s Australia n te rk overseas (e.g. transport Co wo (e.g. specialised 24 This AIP Plan Executive Summary is currently being finalised for public release technology) services) in November 2012. It will be one of, if not the first, AIP Executive Summary released under the changes to EPBS reporting announced by the Prime Minister in 2011. 34

5.1.3.3 Reporting requirements for AIP Plans Reporting requirements for AIP Plans would be broadly based on existing requirements, including recommendations made by the AIP Working Group in February 2012.25 This includes reporting, and providing evidence, that actions agreed to in the AIP Plan have been implemented. In addition, the AIP Working Group recommended that companies should provide a breakdown of the key goods and services to be procured for the project, and the estimated percentage of Australian industry value added as a measure of Australian content. The Working Group also recommended that where companies can identify specific items that will be procured for the project these should be published. While companies should provide an estimate of Australian versus overseas content to DIISRTE, this should not be published where it is commercial-in-confidence. For public reporting purposes, only an aggregate percentage of Australian industry value added should be published for each company or project. The Working Group`s recommendations on AIP Plans were accepted by the Australian Government and came into effect on 1 July 2012 for all programs requiring AIP Plans. 5.1.3.4 AIP Plans and Australian Standards Technical specifications should not be an impediment to providing opportunities for local industry to supply goods and services. Major projects use a range of local, global and company specific standards. Consistent with existing AIP Plan requirements, a mandatory element of AIP Plans is information on standards to be used in the project. Design specifications should take Australian industry capabilities and Australian standards into account so that Australian industry is not designed out of the project (i.e. tender documentation cites Australian standards or equivalent standards that Australian industry can meet). In addressing this element, if the project proponent is not using Australian standards it should indicate whether these standards can be met by Australian industry and what impact not using Australian standards may have on the ability for Australian industry to participate. 5.1.4 Additional requirements for EPBS The EPBS is a voluntary scheme that provides significant financial benefits to companies that apply for it and meet the requirements, which include the preparation of an AIP Plan. Given that all projects of $500 million or more would be required by legislation to develop and implement AIP Plans, it is proposed to make changes to the EPBS for large projects that are seeking to access the scheme. This information is provided for the sake of completeness of understanding given EPBS is a voluntary scheme. The Government`s expectation is that projects receiving financial benefits through the EPBS should perform beyond the standard AIP requirements. For large projects in the EPBS (greater than $2 billion), it is proposed that project proponents will be required to appoint an Australian 25 Australian Industry Participation Working Group report is available at http://www.innovation.gov.au/Industry/AustralianIndustryParticipation/Documents/AIPWorkingGroupReport.doc 35

Industry Opportunity officer within their procurement teams or global supply office. The costs associated with this will be the responsibility of the company and would be an additional requirement for large projects in order to access tariff concessions through the EPBS. The AIP officer, who will be selected and appointed by the company, could undertake a range of activities including: identify capable Australian suppliers and assist them to bid into global supply chains; marketing assistance for SMEs training programs international marketing advice; and preparing biannual reports to the Commonwealth. Figure 6: Represents the current AIP Framework participation numbers relative to project size and the proposed approach with the projected participation number based on a $500 million threshold. Number of Number AIP Plans Projected Project Size (2011-12) (2012-13) $0 $10m $500m $2b CURRENT EPBS AIP Plan required Additional reporting required (Voluntary) 5 9 MAJOR PROJECTS - 0 0 No AIP Plan required (non EPBS) Projected PROPOSED Number EPBS <$2b 14* AIP Plan required (Voluntary) EPBS >$2b 5* AIP Plan & AIO Officer required (Voluntary) MAJOR PROJECTS 23# AIP Plan required (non EPBS) * Based on 3 year average (DIISTRE estimates) # Based on data from Deloitte Access Economics Investment Monitor - June 2012 (DIISRTE estimates) This option as originally conceived in the consultation process was to apply from $500 million, not $2 billion. This figure was revised upwards following consultation with industry stakeholders who expressed concern that this requirement would impact smaller companies more heavily than larger firms who can more readily manage the costs. 36

Option 2: Maintain existing mechanisms The Government currently encourages private sector projects to develop and implement an AIP Plan through the EPBS. AIP Plans have also recently been extended to cover Government spending over $20 million in a range of areas including procurement, grants and loans. This approach addresses AIP as related to Government procurement, grants and loans, but as outlined elsewhere the coverage afforded by EPBS is limited and declining. As indicated above, the coverage of the EPBS is limited to fewer than half of large private sector projects and coverage has been declining. In the absence of any policy response the coverage of AIP Plans in large private sector projects is likely to continue to decline. To the extent that AIP Plans lead to increased opportunities for Australian industry (estimates are provided at section 6.1.1.3), the declining coverage of AIP plans will lead to reduced opportunities. The increasing importance of globalisation and global supply chains is also likely to lead to fewer opportunities for Australian industry in the absence of policy responses. The declining coverage of AIP Plans is also likely to mean that even less information will be available on the success or otherwise of major projects in providing opportunities for local suppliers. The current approach to AIP provides opportunities for Australian industry to win work supplying goods and services to major projects through: Requiring publication of AIP Plans and outcomes through the EPBS; Requiring more comprehensive evidence of opportunities being made available to Australian industry through all stages of the EPBS; Requiring project proponents to list details of opportunities for Australian industry to participate in major projects on a public website for large EPBS projects (greater than $2 billion); Requiring project proponents to report more regularly on AIP Plans and their outcomes, for large EPBS projects (greater than $2 billion); Requiring as part of the EPBS guidelines, all projects to seek approval of eligible goods as an additional step for large projects (greater than $2 billion); Requiring AIP Plans for projects which receive Commonwealth grants over $20 million; and Requiring AIP Plans for large infrastructure projects where funding over $20 million is provided by the Commonwealth through the States and Territories. Option 3: Self-regulation An alternative to a regulation based approach could be through an industry-led Code of Practice in relation to Australian Industry Participation which would have voluntary compliance mechanisms. In this instance, because of the large coverage it could require four or more separate codes to span the range of projects in areas as diverse as construction, mining, power and transport sectors. 37

Self-regulation is generally characterised by industry formulating rules, standards and codes of conducts, and having sole responsibility for enforcement. This can require the use of industry councils to develop industry standards or codes of practice that are essentially voluntary, but are enforced by industry. In this instance, industry would need to define how it would approach issues such as what constitutes full, fair and reasonable`. Specific performance standards would need to be developed and an approach to transparent industry reporting. Data collection will be paramount to achieving reporting goals, demonstrating outcomes and for informing Government policy. For a Code of Conduct, the onus on enforceability and monitoring would shift to the industry. As the major projects would include a range of sectors, this would require a high level of cross sectoral industry cooperation and there is unlikely to be a single existing industry grouping positioned to prepare an equivalent code of practice`. While it is understood that some State-based industry associations may be exploring this option as a way of working to improve Australian content in major projects, this option is not favoured. It is difficult to see how a group of diverse industry stakeholders might come together to agree an approach to AIP, and produce consistent reporting. To date, the closest that the industry has come to a code of practice was APPEA`s Best Practice Guide for Maximising Australian Industry Participation in Petroleum Exploration and Production.26 This approach is not likely to meet the Government`s objectives of achieving certainty of compliance and establishing clear verifiable data about outcomes and AIP practices in industry. The absence of verifiable data could lead to continued controversy and calls for stronger regulatory and protectionist approaches. 26 As referenced in the 2007 Department of Resources, Energy and Tourism`s Offshore Acreage release website, this document is no longer available on the APPEA website. http://www.ret.gov.au/resources/documents/acreage_releases/2007/html/overview/overview_5.html 38

6 Impacts Legislation and new AIP agency 6.1.1 Legislating for AIP Plans 6.1.1.1 Cost to the Government To establish AIP legislation and a separate agency to administer and monitor AIP Plans, excluding the delivery of associated industry facilitation policy measures, will be a total cost over forward five year estimates of $18.9 million. This includes a 24 ASL per year for these functions once the agency has been established. These costs include corporate and initial setup costs for the new agency. Regarding the EPBS, there will be no revenue impact to Government as projects will be able to move between the various tariff concession schemes to access their relevant benefit. 6.1.1.2 Cost to companies Background There are two components to the direct cost associated with developing and implementing an AIP Plan. At the low-cost end of the spectrum, costs are primarily associated with submitting, implementing and reporting on the AIP Plan and the outcomes for Australian industry. This assumes that the AIP Plan reflects actions or procurement processes the company already undertakes, so there is minimal additional cost associated with implementing the AIP Plan. The second component is the cost associated with implementing the actions identified in the AIP Plan, where these actions go above and beyond existing company procurement practices. However, a well executed AIP Plan would often involve business-as-usual procurement processes to identify and ensure opportunities are provided to capable suppliers. Information on the cost of developing and implementing an AIP Plan for major projects comes primarily from the EPBS. It should be noted that EPBS includes costs associated with the AIP Plan as well as costs associated with applying for duty free entry of eligible goods, which varies according to the number and nature of the goods. The range of examples below suggest that full AIP costs for a large project are in the range of $50,000 to $150,000. Direct Costs - development and reporting on AIP Plans To estimate the minimum direct costs of developing and reporting on AIP plans, the time spent on developing an AIP Plan and reporting biannually has been estimated and incorporated into the business costs calculator based on information from discussions with EPBS applicants. The start up cost of developing an AIP Plan is estimated to be $9,000 and the ongoing annual cost is $9,000. The start up cost is based on 1 employee spending 2 weeks on completing an 39

AIP Plan at $119 per hour. The hourly rate is based on an annual salary of $200,000 plus oncosts. The ongoing cost is the cost of reporting biannually, and based on 1 employee spending 1 week per reporting period at the hourly rate. While some projects have reported costs as being significantly higher than those estimated using the business calculator, the decision to expend a higher amount on AIP is purely a matter for the company. The costs calculated by DIISRTE represents the lowest compliance cost for completing and reporting on a satisfactory AIP Plan. It is important to note that DIISRTE has taken feedback regarding the time taken to complete AIP Plans and used it to improve the template and clarify requirements in an effort to reduce compliance costs. Direct Costs - implementation of AIP Plans A more significant direct compliance cost than developing the AIP plan is its implementation. Again a range of estimates have been identified over the life of the EPBS. One major project proponent in the resources sector has estimated that costs in developing and implementing the AIP Plan in-house have been between five and twenty per cent of a procurement manager`s time. The higher end of this scale has been at key preparation and submission events. For the remainder of the time, this project has used ICN who do much of the legwork and the contracting and procurement departments at each of the project engineering locations prepare packages for posting and evaluate nominated companies received from ICN. Assuming 12.5 per cent of a person`s time is spent on the AIP Plan, this is approximately $29,000 per year, using the same salary assumptions as above. Other project proponents have stated that the activities associated with complying with an AIP Plan (e.g. holding industry seminars, advertising procurement packages, holding stakeholder forums, engaging the Industry Capability Network (ICN) etc.) all incur significant costs. It is difficult to estimate the costs of implementing an AIP Plan as the range of activities can vary significantly. Direct Costs - stakeholder views Through previous consultation processes, most companies that have developed AIP Plans have stated that it is not an onerous process. In an Access Economics evaluation of EPBS in 2010, several major project proponents and EPBS consultants provided their views of the compliance costs associated with EPBS, including the AIP Plan. Note that these submissions were provided to Access Economics in confidence, so the companies have not been identified. "Beginning with the PAA, the associated compliance costs are minimal. The document itself is not overly burdensome and can usually be completed (for the most part) with little disruption to the applicants operations." "The main costs involved are ensuring the development of an appropriate Australian Industry Participation Plan using the right resources and then the costs involved in ensuring industry understand the plans for a project and also the cost of community engagement. Costs of compliance are relatively small as the interest in recording which companies for what values within a project is a base Project Control parameter. 40

... "Compliance with an AIPP has costs attached which for some projects have been partially covered by the State Government via the ICN." When asked how the EPBS could minimise its compliance costs, one major project proponent answered, "I dont believe the compliance costs are a major driver in larger projects (more than $50 million)" It should be noted that there have also been dissenting views, due to companies completing AIP Plans for the first time: "We see the system as excessively time consuming and costly to undertake, with limited benefit the extent of which being uncertain." The Victorian Competition and Efficiency Commission (VCEC), the State equivalent of the Productivity Commission, completed an inquiry into Victorian Manufacturing in 2011. The report referenced an Ernst & Young review of Victorian Government procurement policy, commissioned by the Victorian Department of Business and Innovation. The VCEC report states:27 "The Ernst & Young review found that bidders reported significant variability in the time and effort involved in the development of a VIPP Plan and the process of receiving certification by ICNV [Industry Capability Network Victoria]. Development and certification of a [first] VIPP Plan could consume from two days to two weeks, though subsequent plans took considerably less time (up to 75 per cent less)." As an example, in its submission to VCEC, Bombardier stated that compliance costs associated with completing the plan were insignificant.28 Summary of direct costs The costs of approximately $9,000 for developing an AIP Plan, and $9,000 per year for reporting twice a year represent the lowest compliance cost for completing and reporting on a satisfactory AIP Plan. Over a five year reporting period, this results in $54,000 as the lowest compliance cost over this period. From the information provided by one major resources company, the five-year cost of developing, implementing and reporting on the AIP Plan is estimated as $145,000. As a comparison, DIISRTE has considered other information associated with the cost of EPBS applications. In EPBS major projects often engage consultants to assist in the EPBS application. However, projects are under no obligation to use a consultant as DIISRTE is available to provide assistance in completing an AIP Plan. Where projects choose to use a 27 Victorian Competition & Efficiency Commission, Victorian manufacturing: meeting the challenges. Inquiry into a more competitive Victorian manufacturing industry`, Final Report, September 2011. 28 Bombardier Transportation Australia, submission to Victorian Competition & Efficiency Commission, Victorian manufacturing: meeting the challenges. Inquiry into a more competitive Victorian manufacturing industry`, submission MDR53, 22 July 2011. 41

consultant, this usually involves a suite of services, including the AIP Plan but also administrative and compliance functions associated with tariff concession applications through EPBS and other mechanisms. DIISRTE understands that between $50,000 and $100,000 is a reasonable estimation of the cost of engaging a consultant to comply with AIP Plan documentation across the construction of the project. Some mega` projects spend considerably more than smaller projects on implementation of the AIP Plan, including dedicated resources to ensure that Australian industry has been given full, fair and reasonable opportunity. It is not surprising that some very large projects will spend more on the AIP Plan, as the effort required to communicate with Australian industry, the key element of an AIP Plan, should be commensurate with the opportunities available in the project. Indirect costs There is a risk that increased regulation can add time and indirect costs to projects, however this has not been the case based on DIISRTE experience with the EPBS. As noted in the Productivity Commission (PC)29 report into Upstream Petroleum the costs of attaining approvals are modest, relative to the total costs of the project, and that delays in the approvals process impose far more significant burdens. It is important to note that submission of an AIP Plan does not have a material impact on progress with the project itself. While environmental approvals and other licensing requirements are often required before a project may start, development and lodging of an AIP Plan can continue alongside the implementation of the project. Departmental procedures and practices ensure that turn around times for AIP Plan approvals are prompt and avoid any unnecessary delays. There is a concern that completing an AIP Plan means that a proponent is required to buy from Australian companies even where this incurs an additional cost, however this is not the case. AIP Plans operate alongside procurement principles of value for money and leaves the decision of who to purchase from with the proponent. As such it does not add to costs for a project by influencing specific purchasing decisions. Some proponents will have existing supply chains, which in their view are optimised. The requirement to complete an AIP Plan will mean that they have to look to their supply chains to determine if an alternate approach can be adopted that engages Australian firms. Whether or not this will lead to a reduction in costs for the firm will depend on the outcome of the procurement process. Some companies such as Chevron are currently allocating funding to national media campaigns explaining how they are meeting their social licence to operate. How they are managing Australian industry participation in their projects is one element of this. Compliance with and reporting on AIP Plans offers firms a means of promoting their good efforts. Non-compliance costs Where a project proponent does not comply with the legislation they may be subject to compliance action including financial and non-monetary penalties. 29 Review of the Regulatory Burden on the Upstream Petroleum (Oil and Gas) Sector April 2009. 42

6.1.1.3 Benefits of Legislating AIP Plans The benefits of legislating is that it will ensure universal application of AIP Plans across all major projects and it will ensure there is comprehensive coverage across sectors, which would be difficult to achieve otherwise. The benefits of an AIP Plan can be significant to both major projects and Australian industry, but are expected to be more important for small and medium enterprises that would not otherwise have an opportunity to supply to major projects and enter global supply chains. Increased opportunities for Australian industry Experience with the EPBS indicates that the majority of major project proponents have agreed that their preparation of an AIP plan has benefited both the project proponent themselves as well as local suppliers. There have also been benefits to the regional economy and positive employment and skill benefits for employees. Surveys of EPBS participants since 2003 showed that over 70 per cent of respondents agreed that their AIP Plan had a positive impact on procurement outcomes for their company. Similarly, 71 per cent agreed that their AIP Plan also had a positive impact for their Australian producers, over 75 per cent agreed AIP plans had a positive regional development impact and over 90 per cent agreed AIP plans had a positive employment and skill acquisition impact on the Australian economy through their suppliers. The surveys also found that AIP Plans lowered transaction costs and addressed information asymmetries and that Australian suppliers that were identified through AIP plans were found by project proponents to be suitable to the projects needs. Around 79 per cent of EPBS survey respondents agreed that the Australian producers identified by their prime contractors were competitive and capable. Furthermore, many respondents found that using Australian suppliers had no negative impact on costs, with only 12 per cent stating that the Australian producers increased costs immediate procurement costs. These figures suggest that tangible and mutual benefits can be achieved through well implemented AIP Plans. Industry Capability Network (ICN) experience over 20 years suggests that a well executed AIP Plan that effectively engages with local suppliers and utilises the business capability matching services of the ICN can increase local content by between five and twenty per cent, depending on the nature of project.30 Analysis by DIISRTE indicates that each year about 23 major projects (with an investment of over $500 million) currently do not have a formal AIP Plan. Over the past two years the average size of these 23 projects is $1.4 billion, suggesting that major projects valued at $32 billion do not have a formal AIP Plan. Using the lower end of the ICN estimate (five per cent increase in local content for a well executed AIP Plan utilising ICN services), a requirement for AIP Plans for these 23 projects valued at $1.4 billion could increase opportunities for competitive local industry by about $1.6 billion per annum. As mentioned above, this figure is based on a conservative use of ICN estimates of the impact of AIP Plans. For comparison, ICNL reports that in 2011-12, the ICN worked on 20 major projects receiving support through the Supplier Access to Major Projects Program. Eight of 30 Advice to DIISRTE from D. Lark, Executive Director ICNL based on information from ICN State Executive Directors. 43

these projects, with the majority having an approved AIP Plan, relate to specific major project developments in Australia. ICNL estimates that contracts worth more than $3 billion were awarded, with the help of ICN, to Australian and New Zealand companies that may have otherwise gone overseas.31 ICNL`s report on actual outcomes is more than double the theoretical estimate above. There is currently no information collected on the nature of companies benefiting from AIP Plans. In any case, such information - on the companies receiving access to contract opportunities - would be difficult to collect and track, particularly as many of the beneficiaries will be unaware that their opportunity resulted from implementation of an AIP Plan. However, in an AIP program delivered by the Industry Capability Network (ICN) - Supplier Access to Major Projects (SAMP) - ICN does have established systems in place to identify companies that it has nominated for contracts in major projects. For Australian-based projects supported through the former SAMP Australia program, since 2008 ICN reports 56 per cent of contracts since 2009 have been awarded to SMEs, and 29 per cent of contracts have been awarded to suppliers classified as being in regional areas. Table 2: ICNL contracts reported under SAMP Australia Reporting Period Number of SMEs Regional contracts (%) (%) 2008 311 76 4 2009 (Jan-Jun) 404 58 46 2009-10 496 36 29 2010-11 34 96 36 2011-12 75 76 41 TOTAL 56 29 Note that the SAMP Australia has been replaced with other SAMP programs. Hence, data in the last two years represented the final project reporting under the SAMP Australia program. In addition to these quantitative estimates of benefits, there are a number of qualitative measures of the benefits of AIP Plans to both major project proponents and Australian suppliers, especially SMEs. In surveys of EPBS projects since 2003, over 70 per cent of respondents agreed that their AIP Plan had a positive impact on procurement outcomes for their company. Similarly, 71 per cent agreed that their AIP Plan also had a positive impact for their Australian producers. The VCEC report recognised that industry participation plans can be an effective way of addressing information asymmetries: "The Commission considers that VIPP Plans can be an effective way to address information gaps by encouraging shortlisted bidders to acquire information about the local supplier market, and to develop links and networks with local suppliers." In the 2010 review of EPBS, Access Economics noted that whilst is it difficult to measure the benefits of the AIP requirements of the scheme to Australian suppliers: 31 ICNL Annual Report 2011-12. 44

"Feedback from consultations indicated there are a range of benefits and the scheme has had a favourable impact in breaking down some preconceived notions of local industry capabilities. To the extent the scheme helps disseminate market knowledge and information on Australian industry capability at a relatively low cost, this part of the scheme has the potential to provide worthwhile and ongoing benefits. In this vein, it appears the scheme has its biggest (marginal) impact where proponents are new to the Australian business environment, such as overseas resource companies, or where new production processes are being established. In such cases, the scheme can play a crucial role in compelling proponents to genuinely investigate Australian supplier opportunities and engage with local communities." Benefits for Projects The most reported benefit of using Australian suppliers is that it saves companies time and money in terms of quicker response times. Major project companies report that having a supplier located in Australia cuts out long delivery times from overseas. Australian suppliers have shorter deliver times and can respond quickly in the event of a breakdown. This means that the down time at plants is shortened and the potential for loss in production is decreased. Australian suppliers can also carry out general maintenance, provide spare parts and are a phone call away if problems arise. "One of the advantages of using Australian suppliers is that delivery is much faster, and large parts, such as the chimney stack, do not have to be assembled from many smaller parts, as would be the case if they were shipped from overseas. "There are also quality control benefits. For instance, if one of our parts needs servicing, the manufacturers close by. In the energy business, we require extremely fast repair times. "And this is a lot easier if a parts manufacturer is just down the road."32 Major project companies have also commented that developing and implementing an AIP Plan had unexpected benefits on procurement practices. A number of companies reported that the process of implementing the AIP Plan resulted in better practices such as forcing the company to consider procurement at the early stages of the project, giving the company time to plan and put in place good practices. Companies report that the AIP Plan process made it standard practice in procurement to identify the capabilities of Australian suppliers from the outset. "Doing an AIP Plan had a positive impact on procurement outcomes for the project, it broadened our existing network of suppliers and helped in identifying new Australian suppliers."33 A key message from major project companies is that developing and implementing an AIP Plan prompts companies to consider the capabilities of Australian suppliers. Whilst major project companies may already use Australian suppliers for some goods and services, in a number of cases doing an AIP Plan resulted in companies looking beyond existing procurement arrangements to find out what goods and services could be sourced in Australia. 32 Tallawarra Power Station, EPBS Customer Story, November 2007. 33 Foster`s Group Yatala Brewery Expansion Project, Major Projects AIP Bulletin, June 2007. 45

This is highlighted in examples such as Quality Bakers breadline project. Rather than accept the existing arrangements with the overseas major equipment provided, Quality Bakers considered components that could be made in Australia. "We are now more aware of Australian suppliers and look for Australian supply rather than importing goods."34 Benefits for Suppliers A number of projects that have implemented AIP Plans report success in their suppliers going on to win work in other projects either in Australia or overseas. As an example, Gordon Brothers, an Australian company, upgraded a refrigeration and CO2 recovery plant to match the increase in production capacity as part of the Yatala Brewery Expansion Project. The CO2 recovery plant captures CO2 from fermenters and reuses it in brewery processes, reducing greenhouse emissions. Using cutting edge technology, Gordon Brothers developed its capabilities to supply to the project. Gordon Brothers has since gone on to expand its operations in the United Kingdom. "Gordon Brothers Industries built a carbon dioxide recovery plant which had not been available in Australia before." "Theyre now selling their system in Europe."35 The AIP Plan for the TRUenergy gas-fired Tallawarra Power Station project led to the use of Australian components, including:36 Generator transformer, which was expected to come from China or Europe, being sourced from Australia; Water treatment plant, which was originally to be made in Malaysia, instead being supplied by Australian company Osmoflo; and Chimney stack, which was to be shipped from Malaysia in many parts, was instead made by a local company and was constructed in only two parts. Developing an AIP Plan early in the project, and effectively implementing the Plan, raises the awareness of Australian suppliers and prompts major project companies to look for Australian capabilities. "Putting plans in place from the start resulted in good AIP outcomes for the project."37 Through EPBS it has been demonstrated that firms that have developed AIP Plans and discussed their implementation with the Department have improved their procurement 34 Quality Bakers Australia Breadline Project, Major Projects AIP Bulletin, December 2006. 35 Foster`s Group Yatala Brewery Expansion Project, AusIndustry EPBS Customer Story, March 2008. 36 Tallawarra Power Station, EPBS Customer Story, November 2007. 37 Foster`s Group Yatala Brewery Expansion Project, Major Projects AIP Bulletin, June 2007. 46

outcomes on projects. Legislating AIP Plans can be expected to improve procurement outcomes for a larger number of projects and firms. 6.1.2 Establishing a new agency 6.1.2.1 Cost to the Government Establishing a new agency has a modest additional cost to the Commonwealth compared with using established agencies. There will be adjustment costs and additional reporting costs associated with a separate Authority, but those are expected to be minor given the low numbers of staff involved, as indicated in section 6.1.1.1. 6.1.2.2 Benefits of establishing a new agency A separate agency will provide additional transparency in reporting requirements. It will provide a more focussed and coordinated specialist agency to deliver related programs. To maximise coordination and focus, all Australian Government requirements for AIP Plans and the related support activities that boost industry capability and capacity will be collected under a single agency. There are flow on benefits to Australian suppliers and major projects through combining the AIP Plan requirements with facilitation functions in a single agency. Including the ability to easily and more effectively connect projects with identified capable and competitive suppliers and build capability within industry to compete for and win work on major projects. Major projects could also benefit through cost savings in finding new competitive suppliers and access to local repair and maintenance capabilities. 6.1.3 Strengthening the Enhanced Project By-law Scheme 6.1.3.1 Cost to the Government There will be a small cost to the Government to monitor and evaluate reporting on additional opportunities under the Australian Industry Opportunity officer requirement to be eligible for the tariff concession. 6.1.3.2 Cost to companies The EPBS is a voluntary scheme for major projects to access a tariff concession and alternative mechanisms such as the TCS and FTAs are also available. Should the EPBS be strengthened for large projects, to require project proponents to embed Australian Industry Opportunity officers within procurement teams or global supply offices, the costs associated with this will be the responsibility of the company and will be an additional requirement for access to the tariff concession. DIISRTE estimates that the benefits of EPBS are approximately one per cent of the total project value. For a $500 million project, this would equate to a minimum benefit of $2.5 million in tariff concessions. It is assumed that the cost of embedding an Australian Industry Opportunity officer is one full time employee, approximately $232 000 per annum. If 47

the average project runs for five years, compliance costs for the project would be approximately $1.16 million, which is less than the tariff concession. 6.1.3.3 Benefits of strengthening the Enhanced Project By-law Scheme The benefits of AIP Plans developed through the EBPS have been canvassed elsewhere in this document. By adding additional reporting requirements for AIP Plans associated with the EPBS, the Government is making it clear that higher standards apply where a company is receiving a financial benefit from the Government, in this instance a tariff concession. Maintain existing mechanisms 6.1.3.4 Cost to the Government There is no additional cost to the Government to maintain the existing mechanisms. 6.1.3.5 Cost to companies There are no additional costs to companies above current requirements for this option. Any cost incurred by companies under the EPBS to complete an AIP Plan are voluntary and both EPBS and Government procurement and grants provide a benefit for companies that the companies are not compelled to seek. This option does not imply no change in the circumstances faced by industry. The ongoing globalisation of supply chains and reducing coverage of the EPBS is likely to mean that the challenges facing SME suppliers are likely to grow. To the extent that AIP plans provide benefits to local suppliers, their declining importance is likely to lead to increased forgone opportunities. 6.1.3.6 Benefits of maintaining existing mechanisms Without legislation, the only mechanism for applying AIP Plans to private projects is through the voluntary EPBS. The benefits to Australian suppliers of maintaining the existing mechanisms are limited, with the applications for EPBS reducing in recent years to an average of nine applications per year, covering fewer than half of the major projects in the country. Self-regulation 6.1.3.7 Cost to the Government There is a cost to the Government in situations where industry has decided to self-regulate but the Government wishes to monitor compliance with the self-regulated system. If companies will be completing an AIP Plan, the Government will need to monitor and report on the content of the AIP Plans. Given the quantum of self-regulation can not be determined by Government, the cost can not be calculated. 48

The cost to the Government of this approach is predominantly the forgone certainty that the AIP measures will be implemented that is provided by the legislated option. 6.1.3.8 Cost to companies Direct compliance costs associated with self-regulation or an industry-led Code of Practice would be unlikely to significantly different to those of regulation if the same level of compliance was achieved. It could be expensive for industry to create the new system, especially as a range of sectors and many industry associations would need to be involved to achieve a comprehensive scheme. As a voluntary compliance mechanism it would be up to individual companies as to how involved they are in implementing industry participation initiatives. 6.1.3.9 Benefits of self-regulation There could be benefits from self-regulation for Australian suppliers from increased opportunities to tender for work. Major projects could also benefit from broadening their supply base, potential cost savings in finding new competitive suppliers and access to local repair and maintenance capability. Companies could also view this option as good publicity for the company as they would be seen to be proactive rather than complying with Government legislation. However, as a voluntary scheme it has the advantage for firms of not having statutory enforcement of compliance and penalties and as such reduced reputational risk. 49

7 Industry Consultations As will be evident from the preceding sections, Australian Industry Participation Policy has been the subject of much debate and discussion, particularly over the last few years as the Government considers its response to the current issues facing the Australian manufacturing sector. During October 2012, DIISRTE provided an Australian Industry Participation Options for Further Reform (the discussion paper) to a select number of industry stakeholders. The stakeholders selected represented a cross section of companies and industry bodies and those wishing to be publicly identified are as follows: Australian Industry Group (AIG) Australian Manufacturers Workers Union (AMWU) Business Council of Australia (BCA) BlueScope Steel Limited Energy Supply Association of Australia (ESAA) Critically they represent investors in projects (ESAA); producers of services and Australian manufactured goods (Bluescope, BCA, AMWU, AIG) as well as importers of services and manufactured goods (BCA and AIG). Due to the confidential nature of the policy proposal, the consultation process was limited and subject to non-disclosure agreements. The discussion paper (at Attachment C) was provided a few days prior to the consultation and was intended to facilitate discussion about the options the Government is exploring in the context of concerns being expressed that Australian companies (suppliers) are not winning work to provide goods and services into major projects within Australia and overseas where they may be competitive. Those consulted where then offered the opportunity to follow up with additional comments over the following weeks and given an opportunity to approve their comments for inclusion in this document. The project proponent that was consulted declined to have their comments included in the public version of the regulatory impact statement. The discussion paper outlined the options the Government is considering as a possible solution and sought feedback on a number of specific questions: particular views on the application of the legislated model for AIP Plans; the project value threshold of $500 million capital expenditure; at what early stage or process is it appropriate to prompt the requirement to submit an AIP Plan; views on administering and monitoring the legislation under a new statutory authority; lead time required by industry to adapt and implement this new legislation; views on the imposition of penalty provisions and public disclosure on non-compliance; 50

views on the requirement of Australian Industry Opportunity officers as an additional requirement of EPBS; if a code of practice model was implemented how would this work and what would be the timeframe for implementation; and is there an opinion of the costs associated with developing and implementing an AIP Plan and are the cost estimates outlined in the discussion paper accurate. Additional verbal consultation was undertaken in November 2012 with EPCMs and project proponents. Consideration was given to additional consultation with investors in Australian projects, in light of concerns raised by the BCA that AIP Plans could lead to increased uncertainty in projects and could add to time delays at an additional cost. This issue was further explored with project proponents and EPCMs during the November discussions. The concensus was that there will be issues of perception (as outlined in secton 6.1.1.2) that will need to be carefully managed during implementation. Other industry consultations A series of industry consultations conducted since 2009 have suggested that current AIP Plan requirements do not sufficiently address the underlying issues with Australian industry participation and a number of stakeholders have proposed further action to ingrain AIP into major project procurement. The consultation processes included: the Inquiry into a more competitive Victorian manufacturing industry` report released by the Productivity Commission`s Victorian equivalent, the Victorian Competition and Efficiency Commission (VCEC) in September 2011; the report by the non-Government members of the Prime Minister`s Manufacturing Taskforce in August 2012; and two separate EPBS reviews in 2009 and 2010. In addition, the Government`s Resources Sector Supplier Forum, chaired by the Hon Peter Beattie, and Supplier Advocates in a range of non-resources sectors have conducted extensive consultations about AIP Plans in major projects (see section 7.1.7 for details). Other views expressed by industry While consideration was given to additional consultation with project proponents through organisations such as APPEA and MCA, it was determined that previous consultations had provided ample information on their likely views regarding extensions of Australian Industry Participation Plans. As outlined in sections 7.1.8 and 7.1.9 both make the case that the government should look to improve the capability of suppliers rather than look to regulation as the solution for improving industry participation in major projects. 51

7.1 Main Views of the Stakeholders 7.1.1 Australian Industry Group The Australian Industry Group (AIG) is a peak industry association in Australia which along with its affiliates represents the interests of over 60,000 businesses in an expanding range of sectors including: manufacturing; engineering; construction; automotive; food; transport; information technology; telecommunications; call centres; labour hire; printing; defence; mining equipment and supplies; airlines; and other industries. AIG indicated to the Department that they were supportive of the preferred policy option in the discussion paper, being the legislative option, as long as the policy was broadly consistent with the EPBS and did not attempt to mandate any level of local content. They went on to raise a number of implementation issues that if not handled correctly would be of concern to their membership. Firstly in relation to timing for submission of an AIP Plans, AIG stated that the legislation must be clear about when an AIP Plan must be submitted. Their view was that industry needs appropriate and clear markers to comply with the process otherwise there will be confusion within industry about when and what to do at a particular stage during a project. In relation to reporting, the Department was requested to ensure that the AIP template was of a high quality and did not contain too frequent or burdensome updates. AIG suggested a minimum of 6 monthly updates. In regards to the penalty provisions, AIG noted that any penalty applied will need to be weighted in proportion with the size of the projects. This is to avoid larger projects simply absorbing the penalty, for not completing an AIP Plan, into its procurement costs. A minimum project threshold of $250 million was suggested and AIG generally agreed with the Department`s estimates on the cost impact on a company for completing an AIP Plan. The point was made that many of the companies undertaking major project procurement are already doing this kind of work regardless. AIG predicted that some of their impacted members would voice concerns initially about the increased requirements, however these members would understand the need and rational behind the policy. With the EPBS changes, the AIG stated that this should not mean a company would have to employ an additional person; rather the role can be allocated to existing procurement personnel. There was no support for the Code of Conduct approach by the AIG, as in their view this does not provide the industry with a definite or consistent approach and could be difficult to apply from sector to sector. If the Government wishes to strengthen AIP than it would be better, from an industry point of view, to proceed with legislation. 52

7.1.2 Australian Manufacturers Workers Union The Australian Manufacturing Workers Union (AMWU) represents over 100 000 workers in all areas of manufacturing, including: food and confectionery; metal and engineering; printing and packaging; technical, supervisory and administrative areas; and vehicle building. Overall the AMWU were supportive of the legislated policy approach and mentioned that this policy represents an important opportunity for the Government to restructure important areas to better address some of the issues facing the Australian economy. In regards to the proposed project threshold, the union representatives on the Manufacturing Taskforce would prefer the lower threshold of $100 million. However, AMWU mentioned that if the Government proceeded with the $500 million threshold, a lower threshold could be revisited if there is a policy case to do so. The AMWU stated that it is appropriate for the Government to look to request an AIP Plan during the Environmental Impact Statement stage, this conclusion is based on their discussion with ECPMs. During the discussion with the Department the AMWU canvassed projects where an Environmental Impact Statement approval is not required and alternative mechanisms, such as board approval of a project, that could trigger when an AIP will need to be submitted. On the issue of costs to businesses, the AMWU stated that as far as gross costs, our projections and estimates outlined in the discussion paper are somewhat accurate. However, they felt that benefits may have been understated and that these would offset some of the costs involved. The AMWU went on to say that the costs discussion would also raise the issue of how competitive the local suppliers were comparative to the overseas suppliers. The AMWU stated that whether the Government decided to have a separate agency or one built within the Department, consultations would be required on how the Industry Capability Network Limited (ICNL) best fits within the new arrangements. Ultimately while ICNL is a private company, its funding is primarily from the Commonwealth. Consultations, including with the State ICN network, should be undertaken and the Commonwealth must then act to best enhance AIP arrangements. As far as the potential for an industry led Code of Conduct approach, the AMWU felt that this approach could be part of a AIP model where legislation would take care of projects above $500 million and a Code of Conduct model could be set for projects from $100 - $500 million. The AMWU stated that they are currently canvassing an MOU with industry super funds undertaking construction projects to voluntarily complete AIP type Plans. However the AMWU were not of the opinion that a Code of Conduct model was a viable alternative to legislation, rather it was complementary initiative. Regarding the EPBS reform, the AMWU considers the approach as a good idea and mentioned that it is important to get the administration aspects of this policy up and running as soon as possible, while the legislation is developed and implemented. 53

7.1.3 Business Council of Australia The Business Council of Australia (BCA) is a national institution that provides a forum for Australian business leaders to contribute directly to public policy debates. Their membership is made up of the CEOs of 100 of Australia`s top companies. Members represent a range of sectors including mining, retail, manufacturing, infrastructure, information technology, financial services and banking, energy, professional services, transport and telecommunications. Overall the BCA were not supportive on the preferred policy measure and requested the Department to ensure that the benefits of the increased regulatory burden were clearly expressed to be able to justify the increase in costs. The BCA expressed a number of key concerns with the preferred legislative policy approach. Their core concern was whether or not the legislative approach would solve the perceived problem. BCA stated that the justification for proceeding with this option should be supported by a detailed cost/benefit analysis. BCA also stated that this proposal may have an impact on the costs and competiveness of projects in Australia. They noted that AIP costs need to be considered in the context of other Government requirements and costs such as environmental and planning approvals. While AIP may lead to a small additional cost it is the cumulative costs that impact on competitiveness. The BCA also suggested that international experience on this issue should be examined by the Department. As far as the analysis into the perceived problem goes, BCA stated that the root cause for the problem needs to be examined and the range of policy options and their impacts should be explored. For example, if AIP Plans did provide additional opportunities, was there was an adequate supply chain to complete the work. The BCA stated that the increase in regulatory and compliance costs is becoming increasingly prohibitive to investment, especially in a world where companies needed to compete strongly for the investment dollar. BCA expressed a concern that this policy could increase uncertainty in projects, and could add to time delays at an additional cost. Finally BCA questioned whether there were some alternative, more focused and targeted policy mechanisms available that could be utilised as an alternative to regulation. They did not offer alternatives as part of the discussion. . 54

7.1.4 BlueScope Steel Limited BlueScope Steel is a leading steel company in Australia and New Zealand, supplying a large percentage of all flat steel products sold in these markets. The company specialises in the production of flat steel products, including slab, hot rolled coil, cold rolled coil, plate and value-added metallic coated and painted steel solutions. Their steelworks at Port Kembla in New South Wales is the largest steel production facility in Australia. Overall BlueScope were supportive of the legislated policy approach and understood the benefits of AIP Plans and the Governments reasons for exploring these options. In their view the current mechanisms are not providing effective results. They made a number of comments from the supply perspective on the detail of this policy and its implementation. They raised the possibility of applying a AIP Plans at a lower threshold than the $500 million being proposed, especially where Government policy such as Renewable Energy Target was the major driver of the projects (wind farms). In regards to the separate agency model for administration of this policy, BlueScope stated that, while this model could be useful, the agency was not of great importance. In their view the content of the AIP Plan is the component that will make the most difference, not who administers it. BlueScope`s strong preference was for the Government to not waste time in setting up the agency, rather focus on implementing the policy as soon as possible. BlueScope stated that it is important to make the AIP more transparent, especially in being able to discern the steel usage in major projects. BlueScope stated that given the sophistication of large projects, the lead in time required to allow implementation should not be great. Their reasoning was that it should not take companies any length of time to complete an AIP Plan, noting that this is dependant on how onerous the AIP Plan requirement was. BlueScope noted the importance of reporting, with a focus on public reporting, on detail regarding what is occurring under the AIP Plan process for each project. In essence, they want to see public reporting of what took place and the reasons why certain actions took place. Regarding the EPBS reform, BlueScope state that they generally supported these increased requirements however noted that this may result in companies opting to use the Tariff Concession Scheme (TCS) instead of EPBS and that the TCS would need to be tightened as a result. BlueScope were not supportive of an industry led Code of Conduct approach as it lacked meaningful enforcement mechanisms and therefore would not solve the problems currently faced by Australian industry. 55

7.1.5 Energy Supply Association of Australia The Energy Supply Association of Australia (ESAA) was established in January 2004 as the peak national industry body for Australia`s energy supply sector. The ESAA promotes the policy interests of the electricity supply industry and downstream natural gas sector. Its focus is on strategic, whole-of-industry policy issues affecting Australia`s energy supply sector. The ESAA membership comprises the Chief Executives of more than 40 electricity and downstream natural gas businesses. Overall, the ESAA understood the reasoning behind the preferred policy approach outlined in the discussion paper and what the Government was trying to achieve. However the ESAA would not be supportive of this policy measure as traditionally they do not support market distorting features. They went on to note that even though the cost on business is small and there is no requirement to use local content, it carries with it the potential for market distortion because it adds compliance costs to already large compliance costs. In regards to the proposed project threshold, ESAA noted $500 million is a reasonable figure and would pick up the larger wind farm projects and some gas projects. However this project threshold may result in a number of project proponents, who are at or just over the threshold, to modify their project sizes to avoid AIP requirements. They mentioned that most if not all construction in Australia is contracted out to joint ventures or global EPCMS. ESAA noted that over a million tonnes of steel will be required over the next decade for wind towers, but due to a number of factors, a fair proportion of the steel would be sourced offshore. One of the factors mentioned was that the margins being dealt with by EPCMs, who are looking to achieve the lowest possible cost. ESSA mentioned that the margins are often minor and selection of a local supplier would not add a large cost onto the project and has the additional benefit of a positive story around local engagement and flow on community benefits. Commenting on the potential lead in time required by industry to implement this policy, ESAA stated that implementation must occur in a manner that would avoid, as much as possible, distorting investments into major projects. The ESAA had no comment on how to monitor this policy, whether through a separate agency or otherwise. In the potential for industry to apply a Code of Conduct, ESAA stated that this can potentially be weaker than the other model preferred by Government; however it could be beneficial as industry would be seen as pro-active. If the Code of Conduct model can deliver the same outcomes as the legislated requirements, this would be preferred by the ESAA as the ahead of Government intervention. 56

7.1.6 Project Proponents Project Proponents readily accept and recognise they need to undertake engagement with local industry. Some also present themselves as strong supporters of AIP Plans, appropriately framed for appropriate projects. For projects operating in Western Australia proponents noted that they are already having to report regularly under State Agreements. The key concern in relation to the introduction of legislation was that this would add to the costs and regulatory requirements already being placed on major project. Further, there were significant concerns expressed regarding implementation of the proposed approach. A general concern, also expressed by EPCMs, was that compulsory AIP Plans would add an additional compliance cost and burden to the resources sector which is already heavily regulated. It was noted that time means money and that any delays can add to project costs. The point was made during one consultation that project proponents are weary of regulation and the level of pre-approval work required to get a project off the ground. The view was put that they would be particularly concerned if there was duplication between Commonwealth and the State Government requirements. Industry would be looking for a quick and efficient process performed by staff who understand the industry well enough to make quick decisions. Project proponents would look for the new requirements to be implemented as efficiently as possible, and some questioned the value of a new Agency in achieving this outcome. Some expressed confidence in the AIP process, based on previous experience while others expressed general uncertainty over the degree to which the proposed legislation will improve AIP outcomes and whether these outcomes would offset the compliance costs for companies. It was also generally noted that the requirement for AIP Plans would impact smaller companies more heavily than larger firms given that larger companies can more readily manage the cost and workload of managing AIP effectively. Smaller firms, particularly those who do not have operations, will likely need to hire in consultants to undertake this work. It was also noted by one proponent that the Commonwealth would also bear increased costs to monitor and administer an increased number of AIP Plans. One project proponent expressed a concern that there is a fundamental misunderstanding on what it takes to develop and implement an effective AIP Plan. From their point of view and through their current operating practices, AIP Plan implementation is not just limited to one person. Some have appointed AIP Coordinators who are involved in active management of the AIP Plan on a daily basis. They also noted that AIP requirements flow down to other areas of the company and further, to requirements with the EPCMs and other contractors. This is consistent with feeddback provided by EPCMs. There is also a misunderstanding, that AIP is simply reporting, however this is a very small part of AIP Plans and the most significant work is in the liaison. Those project proponents consulted all identified that they had staff employed to look at Australian Industry Participation in their projects. One noted that in addition to the individual employed that costs extend further into the project itself. 57

Regarding the issue of penalties, if monetary sanctions are imposed, this will be a further increased burden to the cost of AIP. Non monetary sanctions, such as identifying those companies who are non-compliant was preferred. In relation to AIP Offices, proponents were generally concerned that an additional requirement for EPBS projects would be added (be it introduced at a $500 million or $2 billion threshold). As to the timing of when to appropriately complete an AIP Plan, one project proponent noted that for EPBS, AIP Plans now need to be completed immediately after commencement of Front End Engineering and Design (FEED). However completing an AIP Plan at this stage is too late as much of the critical contracting has already been completed, while stating that the earlier an AIP Plan is required the harder it is to predict outcomes and actions. To address this challenge the general concensus was that the timing for when an AIP Plan should be submitted should be fluid and dependent on the type of project. One proponent also noted that the application of the proposal is too broad and the Government should consider targeting the projects where the greatest opportunity lies. There were limited discussions on the implications of these changes for potential investors. The view was put that overseas export credit agencies may be investors in projects, and part of the motivation for this investment was the potential for their companies to win work. If AIP Policy and the Plans that flow from it remains about full, fair and reasonable opportunity for Australian industry there should be little impact. If the policy is articulated as being about protectionism` then this will raise concerns with overseas investors. 58

7.1.7 EPCMs The views of EPCMs consulted varied somewhat in detail, particularly in relation to concerns regarding implementation, but in general they were against regulation as a mechanism for improving access of local industry to major projects. It was noted that many large projects are already having to meet AIP requirements (for EPBS or for State Governments) and these requirements flow down to EPCMs in most large projects. EPCMS identified that they are already dedicating resources to meeting AIP requirements with these being full-time roles within their organisations and for larger projects these can expand up to small teams. These teams report back to project proponents on AIP activities and outcomes to assist project proponents meet their reporting requirements. One EPCM expressed a concern that this would be one more cost added to an industry already burdened down with red-tape. However, they also noted (as alluded to above) that much of this work was already happening as part of standard business practices of project proponents operating in Australia. When asked if this would cause a concern for potential investors they noted that it was unlikely to be an issue because it was not about mandating local content, which is occuring in some overseas jusidictions. It does add costs to the project, but by being more open there is also an incentive for local industry to keep their costs under control. Australian industry needs to understand - they won`t win the work if they aren`t competitive. The $500 million threshold should not present any problems for projects. Whether or not a lower threshold would work really depends on the type of project that is being tendered and the amount of content that can be sourced locally. The view was expressed that a code of practice might work as well as legislation because projects and EPCMs that work in this country already look to local industry to supply where they are competitive. How complex it would be to implement would be the main influence on cost. If this is kept high level and firms can work out which Australian industry they are involving along the way, this will make for the most effective approach. 59

7.1.8 Resources Sector Supplier Advisory Forum What follows is a background paper prepared for the first meeting of the Resources Sector Advisory Forum held on 25 November 2011. It reflects consultations conducted in September and October 2011 by the Hon Peter Beattie AC, in Adelaide, Brisbane, Launceston, Melbourne and Sydney involving almost 200 participants. Consultations were later conducted in Perth and Darwin which are not reflected in this original paper but were provided as an addendum at the meeting, as the issues raised are largely the same this has not been included here. ISSUES ARISING FROM CONSULTATION PROCESS Purpose: Inform the Forum of issues raised in discussions facilitated across Australia with suppliers, project proponents, unions, academics, industry associations and government representatives involved in the resources sector. To assist the Forum in identifying two key issues and recommending strategies and actions to address them. Below are a number of perceived barriers and impediments to greater local industry participation in the resources sector identified during consultations facilitated by the Resources Sector Supplier Envoy. Early Engagement A central theme across the consultation process was the importance of early engagement between potential suppliers and project developers, including Engineering, Procurement and Construction Managers (EPCMs). Many suppliers consider that they are missing out on work because they are not afforded adequate opportunity to prepare tenders and to ready themselves to deliver projects. Suppliers reported that early engagement was sometimes hard to achieve due to difficulties in gaining recognition from customers. A number of project owners and EPCMs invited suppliers to approach them to discuss project requirements, capabilities and pre-qualification. One supplier reported that while it had taken considerable time and effort to establish a relationship with one of the major global EPCMs, this commitment had paid off and resulted in the supplier securing work on more than 60 resources projects, including work overseas. Once tender documents have been issued, it is often too late for suppliers to engage effectively (particularly where specifications limit the opportunity for local industry participation, see below). Early engagement is becoming more difficult to achieve as project development timeframes are shortening. Another barrier to early engagement is the fact that design work and decision making often take place offshore. Some suppliers noted that the short time frame expected from Small to Medium Enterprises (SMEs) between being awarded a contract and delivery was unrealistic and unique to the resources sector. 60

Project developers reported that in many cases "off the shelf" designs are used for large project components or even entire plants, so early engagement is not necessarily an option. Suppliers were urged to look for opportunities to work with the global supply chains that deliver standardised projects and components. Early engagement is a two-way process and project developers also indicated that at times their own efforts had been frustrated, for example when suppliers failed to take up opportunities or meet agreed performance levels. The ICN and many project developers have initiated activities such as web portals and information seminars to increase opportunities for early supplier engagement. Standards and Specifications A common issue raised was that of specifications being used in tenders which appear to have the effect of excluding many Australian companies from tendering. In particular, many stakeholders considered that it was inappropriate for project proponents to specify foreign standards. Some stakeholders took a view that Australian standards should be used for all Australian projects. There were differing views as to whether Australia should better align its standards with other international examples to integrate better into supply chains, or retain standards which many considered embodied better safety, quality and whole-of-life performance. It was noted that the specifications of EPCMs were often very prescriptive (it was suggested that in some cases they were perhaps even aimed at a particular provider). Accreditation and Tendering Processes The costs, time and effort required to meet pre-qualification, induction and tendering requirements were seen as unnecessarily burdensome by many suppliers. Some suppliers indicated that they had been required to meet very short deadlines for preparing quotes and submitting pre-qualification and tender documents (which were often extremely detailed). Many also considered that they had wasted considerable time, money and effort qualifying, quoting and tendering when they alleged sourcing outcomes were pre-determined (in some cases it was suggested this was due to pressure from, or deals with, overseas investors). Some suppliers queried whether their offshore competitors were being asked to meet the same requirements. 61

Transparency Several stakeholders sought greater transparency in tendering processes, including: the structuring of work packages; the channels by which opportunities would be made known; the expected percentage of local content; and, where local content was not expected to be utilised, an explanation as to why this was not considered. Transparency of procurement requirements and timeframes would allow capacity and capability gaps to be identified and addressed before overseas companies are awarded contracts. Greater transparency of tender outcomes would assist industry to see why their bids might have failed. Global Supply Chains and Modularisation Modularisation, the increasing size of many work packages, and EPCMs` growing reliance on established global supply chains were cited as trends which contributed to Australian industry being bypassed. Quality Issues and Whole of Life Cost Considerations It was a common perception among the supplier community that work was being awarded offshore based only on lower up-front costs, with too little account taken of other factors such as durability, reliability, quality and delivery which affect the lifetime costs associated with an investment. Stakeholders considered this was disadvantaging Australian suppliers. Some EPCM representatives responded that such major investments were always analysed with respect to all relevant costs, although one oil and gas company reported that it had elected to modify its sourcing processes to ensure that costs were not cut to the detriment of quality and reliability. Resources companies emphasised the critical importance of safety in all aspects of their operations. Capability While it was generally agreed that Australia has some strong industrial capability, some stakeholders took a view that this capability is often fragmented, with extended supply chains, and inadequately organised to take advantage of the ever increasing size of resources projects. It was suggested that Australia did not always promote its capabilities clearly enough. Targeting opportunities Suppliers were encouraged to focus on the contestable opportunities and identify areas in which Australia was well placed to compete. Then, in areas of particular strength, Australian capabilities could readily be applied abroad. This targeted approach could take into account the size of the contracts that Australian suppliers are best positioned to deliver. Another approach recommended by some participants was to seek opportunities in the global supply chains that resources firms and EPCMs utilise. 62

Skills The difficulty and cost of finding and retaining skilled personnel was a concern both for suppliers and for their customers. Representatives from smaller manufacturing companies and unions expressed concern that larger companies were not investing sufficient resources into training and apprenticeships. SMEs also reported problems retaining trained employees when higher wages were often available in larger manufacturing or mining companies. Short project timeframes exacerbated workforce planning issues. Some EPCMs have developed strategies to coordinate their staffing across the multiple sites so as not to put an unnecessary strain on workforce requirements. Intellectual Property (IP) Issues The cost of enforcing patents was considered a barrier to tendering as well as doing business overseas. The fact that competitors in some jurisdictions may not pay full price for the use of software and other IP could afford them an unfair advantage. Local Business Conditions The strong Australian dollar, infrastructure constraints, taxes, alleged dumping, limited access to finance and industrial relations issues were all raised as impediments to local business. Many participants considered that it was impossible to achieve a level playing field where other jurisdictions do not maintain the same standards (for example of occupational health and safety) and levied higher import taxes or subsidised exports. 63

7.1.9 Minerals Council of Australia The Minerals Council of Australia (MCA) is the peak industry organisation representing Australia`s exploration, mining and minerals processing industry. In December 2011, the MCA made a submission to the Australian Government`s AIP Working Group. The Working Group was established to advise the Government to changes to AIP Plan requirements in the EPBS. Through its submission to the Working Group,38 and other comments in the media,39 the MCA has made the following comments in relation to Australian content in the mining sector, and suggestions to tighten AIP Plan requirements. In the Australian Financial Review on 18 January 2012, Dr John Kunkel, Deputy Chief Executive of MCA, said "if there is seen to be a problem, our preference is for enabling measures where government and industry work together to improve the capacity of local suppliers rather than reaching for a new regulation as a first step." In its submission to the AIP Working Group process, MCA provided the following views: "MCA member companies already make substantial purchases locally on major projects and generally achieve high levels of Australian content. In 2009, the mining industrys total demand for goods and services was $85.7 billion, of which $75.8 billion (88%) was supplied by local industry. Within this total: 53.3% of iron and steel used by the mining industry was locally supplied; 64.6% of structural metal products used by the mining industry was locally supplied; and 71.7% of sheet metal products used by the mining industry was locally supplied. More recent data from major mining states highlights further the degree to which both local business opportunities and broader societal benefits are being generated by the mining sector in Australia. For example, in 2010-11 the Queensland resources sector purchased $20.5 billion in goods and services from employing QLD businesses, up from $18.8 billion in 2009- 10. Around 80% of QLD postcodes benefited directly from this expenditure." The following series40 of quotes are extracts from the MCA submission to the AIP Working Group report. "A recent internal study for Western Australias resources industry shows a continuing high level of local industry participation in mining sector supply chains with 86% of spending sourced domestically in the construction phase and 95% in the operations phase of WA projects. With the large expansion of WA mining projects, operations expenditure has increased substantially providing sustained opportunities for local suppliers." "The MCA considers that the Consultation Paper [on changes to tighten AIP Plan requirements for EPBS] proposes a series of regulatory changes which: have not been grounded in sound economic analysis; 38 Available at http://www.innovation.gov.au/Industry/AustralianIndustryParticipation/Documents/Submissions/2011AIP_CP_Su b_MCA.pdf 39 For example, in The Australian Financial Review, Wednesday 18 January 2012. 40 MCA submission to AIP Working Group, December 2011 64

would expose companies to having to reveal commercially sensitive information; would open up companies to commercially unrealistic ambit claims by third parties with a vested interest in overturning normal commercial decision-making; are highly complex and likely to result in considerable compliance costs; and would, in some cases, duplicate existing measures and result in additional and costly regulatory overlap with other Federal and state government processes. Specifically, the MCA regards the proposed changes to the EPBS as unnecessarily complex and counter-productive, especially in light of recommendations to government only a year ago that made a strong case for streamlining the scheme." "Overall, the MCA views the measures proposed as lacking firm underpinning in economic analysis. The premise of the paper is that there is a "trend towards greater use of established supply chains by investors (which) can create significant impediments to Australian industry participation in major projects". Yet nowhere is this trend explored with any empirical evidence. Equally, nowhere in the paper is there a cogent, economy-wide case made for extending and tightening what are already complex processes around AIP Plans and access to tariff concessions under the EPBS." "Consistent with what the MCA recognises as the policy objective in this area, the Australian Government should refocus its efforts on measures that actually build the capacity of Australian firms (especially SMEs) to participate in major project supply chains, including in the resources sector. The focus should be on enabling actions, with a focus on unlocking synergies between private sector and government investments, rather than on imposing greater regulatory complexity and costs on companies. Areas where enabling actions either have or could prove fruitful include: jointly funded studies of resource sector supply chains to identify areas of opportunity for local industry and to understand how these opportunities can be realised; collaborate R&D initiatives that would assist local industry in capturing higher value areas in resource supply chains; and innovation programs designed to address particular knowledge and technology gaps among suppliers to the Australian mineral resources sector. The MCA stands ready to be part of a constructive approach to ensuring even wider benefits flow to Australian industry from a period of strong mining investment." 65

7.1.10 Australian Petroleum Production and Exploration Association The Australian Petroleum Production and Exploration Association (APPEA) is the peak industry organisation representing Australia`s exploration, mining and minerals processing industry. In December 2011, APPEA made a submission to the Australian Government`s AIP Working Group. The Working Group was established to advise the Government to changes to AIP Plan requirements in the EPBS. Through its submission to the Working Group,41 APPEA has made the following comments in relation to Australian content in the oil and gas sector and suggestions to tighten AIP Plan requirements: While APPEA has stated that "the oil and gas sector supports a policy framework based on the principle of full, fair and reasonable opportunity for competitive local suppliers", it has expressed concerns about the tightening of AIP Plan requirements and whether this would be effective in increasing Australian content in oil and gas projects: "....it is unclear how the measures proposed would address these factors and create additional opportunities over and above the work already underway. It is likely that more benefit would be delivered by enabling suppliers to compete internationally than applying an additional regulatory layer on projects." "It is also important that any additional initiatives are aligned with initiatives and obligations that already exist under the different levels of government. Alignment of State and Federal initiatives in relation to local industry participation is critical to achieving traction and reducing duplication. In summary, the industry: supports the development of high quality and competitive local supplier industries as of vital importance both during construction and in the longer operations and maintenance phase for projects i.e. the full life cycle of projects; respects and is committed to work within the framework that local suppliers be provided with full, fair and reasonable opportunity to compete for work within major resource projects; seeks improved alignment of government initiatives at Commonwealth, State and Territory level, particularly in relation to the preparation of industry participation plans; supports a real and on-going dialogue between project proponents, engineering and procurement companies and governments regarding opportunities, competitiveness and outcomes; and sees the need for clearer linkages between the proposed measures outlined in the consultation paper and how they will deliver increased local industry participation. While it is the experience of the upstream petroleum industry that local industry is competitive in many areas, it remains important that there is a focus on identifying and addressing the key drivers that will improve competitiveness." 41 Available at http://www.innovation.gov.au/Industry/AustralianIndustryParticipation/Documents/Submissions/2011AIP_CP_Su b_APPEA.pdf 66

8 Conclusion There is sufficient evidence to demonstrate that Australian industry participation in major projects could be enhanced through initiatives that require major project investors to consider local suppliers. The benefits of a well developed and executed AIP Plan can be significant to both major projects and Australian industry. However, the full extent of the benefits is difficult to quantify in financial terms as it can be difficult to distinguish from routine procurement practices. The evidence available on the benefits is limited to company specific case studies and narratives, which demonstrate that properly implemented AIP Plans have led to Australian suppliers winning work in multiple projects and integrating themselves into global supply chains. AIP Plans also have the advantage of making more transparent to industry and the community the steps project proponents and EPCMs are taking to engage with Australian industry. Under existing arrangements more than half of the current major projects are not subject to AIP requirements. This represents $32 billion worth of projects without an AIP Plan. As such the status quo doesn`t deliver against the government`s objectives to the same extent that the legislated option provides. Further, the envisaged complexities of industry successfully implementing the self-regulation option across the multiple sectors, brings into question its potential to meet the government`s objectives to the same extent as the legislated option. The legislated option is therefore considered the most appropriate choice to meet the stated objectives. The key then is to consider what threshold best applies to the legislated option and how best to implement it. Taking into consideration the factors raised in some of the consultations, the $500 million threshold represents a compromise between effective Government administration of AIP Plans and capturing a sufficient number of major projects to achieve the Government`s objective. Limiting the number of projects, per annum, also allows the statutory agency to dedicate more time in ensuring the quality and content of the AIP Plans are sufficient, that administration is efficient and the Plans are delivering the right outcomes for Australian industry. Legislating for AIP Plans is not a unique concept, as demonstrated by the successful implementation of similar programs in Canada (refer Section 2.5). While legislating for AIP Plans would place costs on companies and slightly increases their regulatory burden, these costs are marginal especially given that the project threshold is at high end of the project spectrum. Project Proponents and EPCMs caution however that this would be another regulatory requirement added to a resource sector already facing high regulatory burdens. While concerns about the compliance costs were stated by some parties during the consultation process, it was also noted by many that companies involved in procurement on the large scale are already undertaking the type of activities required by an AIP Plan. There was a strong call for efficient administration of the scheme, with some raising concerns regarding the need for a new agency to administer the legislation. There was also a call for ensuring an implementation approach which integrates with the existing local industry requirements of State and Territory governments, particularly Western Australia, to minimise overlaps and ensure that duplication does not emerge in regulatory practices. 67

The evidence suggests that the impact of requiring an Australian Industry Opportunity officer within procurement teams through the EPBS is modest compared with the financial benefits of the EPBS. While some voiced concerns regarding the additional impost it should be noted that the EPBS remains a voluntary scheme. Establishment of a statutory agency, to coordinate and implement the Australian Government`s two pronged approach to AIP policy, benefits suppliers and major projects by housing all the legislative and facilitation initiatives within a single agency. As noted above, ensuring it delivers on its full potential will require efficient and effective administration of the AIP legislation. Balancing the costs and benefits between the options and taking into consideration the input from the consultations, implementing legislation and a new AIP agency is the appropriate option to achieve the Government`s objectives to ensure that Australian industry is provided with opportunities to compete for work in major projects and that the effort major project proponents invest in providing opportunities to local industry is understood and recognised by the community. 68

9 Implementation and Review Implementation of the preferred option would occur over the next year, 2013. It is anticipated that legislation, including establishment of the new agency, would come into effect on 1 January 2014. Stakeholders will be engaged in implementing this policy through the public exposure of the draft legislation process which could assist in managing a transition into mandated AIP Plans and to put in place the necessary mechanisms for implementation prior to commencement of the legislation. Implementation of compulsory AIP Plans and establishing an agency is dependent on passage of the legislation. The definition of legislation parameters is a significant implementation risk. For example, eligible corporations and defining capital expenditure` thresholds of a project will need to be carefully defined in the legislation. A review of implementation will be completed approximately 12 months after the agency is established. This will ensure that the organisational structure is appropriate and that the appropriate data, both qualitative and quantitative, is being collected to support the KPIs and that the implemented policy will achieve the stated objectives. A review will be undertaken in 2016-17 to determine the efficiency, effectiveness, appropriateness, integration, strategic policy alignment and performance assessment of each measure. The KPIs could include trends in opportunities provided to Australian suppliers based on data collected from external sources. 69

AUSTRALIAN JOBS BILL 2013 NOTES ON CLAUSES Part 1--Preliminary Clause 1 - Short title Provides for the Bill, once enacted, to be cited as the Australian Jobs Act 2013. Clause 2 - Commencement Subclause 2(1) inserts a three column table setting out commencement information for various provisions in the Bill. Each provision of the Bill specified in column 1 of the table commences (or is taken to have commenced) in accordance with column 2 of the table and any other statement in column 2 has effect according to its terms. The table has the effect of providing for: sections 1 and 2 and anything in this Bill not elsewhere covered by this table to commence on Royal Assent; and Section 3 to 128 to commence on Proclamation. Subclause 2(2) provides that column 3 of the table is for additional information which may be added to or edited in any published version of the Bill but that information is not part of the Bill. Clause 3 - Object Clause 3 sets out the main object of the Bill. To support the creation and retention of Australian jobs by requiring Australian Industry Participation plans for major projects to ensure that Australian entities have full, fair and reasonable opportunity to bid for the supply of key goods or services for the project or new facility`s operational phase. Clause 4 - Simplified outline Clause 4 provides a simplified outline of the Bill which comprises the following components: the basic Australian Industry Participation plan (AIP plan) requirement; the scope of an AIP plan; the key objectives of an AIP plan; the establishment of the Australian Industry Participation Authority; the functions of the Authority; and the establishment of an Australian Industry Participation Advisory Board.

The below diagram outlines the steps to determine whether a project will require a draft AIP plan to be prepared and submitted to the Authority. No Step 1 Is there a project? (clause 5) Yes Does the project involve the No Step 2 establishment, expansion, improvement or upgrade of an eligible facility? (clause 6) Yes Does the eligible facility meet the criteria for a No Step 3 designated project? (clause 7) Yes Does the eligible facility No meet or exceed the major Step 4 project threshold amount? (clause 8) Yes Step 5 Is there a person responsible No for carrying out the project? (clause 9) Yes Step 6 Project proponent must No further action provide draft AIP plan If a project proponent must provide the Authority with a draft AIP plan (clause 17), the proponent must provide the AIP plan and a summary of the specified steps in the AIP plan 71

(clause 22) 90 days prior to the trigger event or another day specified by the Authority. The project proponent must also notify the Authority of an estimated date of completion for the project at or around the time when a draft AIP plan is submitted. Clause 5 - Definitions Clause 5 sets out the definitions of terms used in the Bill. Below are the key terms in the Bill: ABN has the same meaning as in the A New Tax System (Australian Business Number) Act 1999. ACN has the same meaning as in the Corporations Act 2001. acquire has the same meaning as in the Competition and Consumer Act 2010. advisory board member means a member of the AIP advisory board, and includes the Chair of the AIP advisory board. AIP advisory board means the Australian Industry Participation Advisory Board established under section 85 of the Bill. AIP matter means: a) a matter relating to the opportunities for Australian entities to bid for the supply of key goods or services for a designated project; or b) a matter relating to the opportunities for Australian entities to bid for the supply of key goods or services for the initial operational phase of a new relevant facility in relation to a designated project. AIP plan rules means the rules set out in Division 2 of Part 2 of the Bill. approved AIP plan means an approved AIP plan under section 18, 19 or 20 of the Bill. Australian entity is any entity with an ABN or an ACN. Australian police force means: a) the Australian Federal Police; or b) a police force or police service of a State or Territory. Authority means the Australian Industry Participation Authority. bid could include tender, proposal, submission or offer. constitutional corporation means a corporation to which paragraph 51(xx) of the Constitution applies. designated project has the meaning given by section 7 of the Bill. draft AIP plan means a plan that is accompanied by a document stating that the plan is a draft AIP plan. electricity facility means one, or a combination of 2 or more, of the following facilities: a) an electricity generation facility; b) an electricity transmission facility; c) an electricity distribution facility. 72

eligible facility has the meaning given by section 6 of the Bill. engage in conduct means: a) do an act; or b) omit to perform an act. entity has the same meaning as in the A New Tax System (Australian Business Number) Act 1999. entrusted official means: a) the Authority; or b) a member of the staff assisting the Authority; or c) a person whose services are made available to the Authority under section 81 of the Bill; or d) a person engaged as a consultant under section 82 of the Bill; or e) an advisory board member. goods has the same meaning as in the Competition and Consumer Act 2010. key goods or services has the meaning given by section 10 of the Bill. key goods or services for a new relevant facility's initial operational phase has the meaning given by section 12 of the Bill. key goods or services for a project has the meaning given by section 11 of the Bill. key objective: a) in relation to Part B of an approved AIP plan for a major project--has the meaning given by section 34 of the Bill; or b) in relation to Part C of an approved AIP plan for a major project--has the meaning given by section 38 of the Bill. land transport facility means one, or a combination of 2 or more, of the following things: a) a road; b) a tunnel; c) a bridge; d) a railway line; that is to be used for the transport of people or goods. legislative rules means rules made under section 128 of the Bill. low-value contract has the meaning given by subsection 10(7) of the Bill. low-value contract threshold amount has the meaning given by subsection 10(8) of the Bill. major project has the meaning given by section 8 of the Bill.. major project threshold amount has the meaning given by subsection 8(2) of the Bill. non-Australian entity means an entity other than an Australian entity. 73

operator is a person who has day to day management and control of the facility and its activities. petroleum has the same meaning as in the Offshore Petroleum and Greenhouse Gas Storage Act 2006. petroleum facility means one, or a combination of 2 or more, of the following things: a) a well, or other thing, for use for the exploration for petroleum; b) a well, or other thing, for use for the recovery of petroleum; c) a thing for use for the processing of petroleum; d) a thing for use for the storage of petroleum; e) a thing for use for the offloading of petroleum; f) a thing for use for the piped conveyance of petroleum. prescribed court means: a) the Federal Court of Australia; or b) the Federal Circuit Court of Australia procurement entity could include an Engineering, Procurement and Construction Management company or an equivalent tier 1 contractor making procurement decisions on behalf of the project. A procurement entity does not include sub-contractors. productive facility that is producing or distributing goods, or both, could include a port or a railway line. A productive facility that is providing services could include a hospital or a shopping centre. project includes: a) a project as varied and in existence from time to time; and b) a project that has been completed. project proponent is the person ultimately responsible for the project. The below diagram is an example where the company would be the person responsible for the project and would therefore be the project proponent. Shareholder Shareholder Equity Lenders Company Debt Contractor Sub-contractor Sub-contractor Sub-contractor 74

In the example below the individuals compromising partnership would be the project proponent as they would be the person responsible for the project. Principal 1 Principal 2 Partnership Contractor Sub-contractor Sub-contractor Sub-contractor In the example below, the incorporated joint venture is the person responsible for carrying out the project and would therefore be the project proponent. Principal 1 Principal 2 Incorporate Joint Venture Contractor Sub-contractor Sub-contractor Sub-contractor In the example below the principals participating in the unincorporated joint venture would be the project proponent as they would be the person responsible for the project. Principal 1 Principal 2 Unincorporated Joint Venture Contractor Sub-contractor Sub-contractor Sub-contractor 75

In the example below the public private partnership project vehicle would be the project proponent as it would be the person responsible for the project. Government Principals Concession Equity Lenders Public Private Debt Partnership Project Vehicle Operation & Construction management Contractor Operator Sub-contractor Sub-contractor protected information may include commercially sensitive and personal information. relevant facility, in relation to a project, means: a) to the extent to which the project involves establishing a new eligible facility--the new eligible facility; or b) to the extent to which the project involves expanding, improving or upgrading an eligible facility--the expanded, improved or upgraded eligible facility. Royal Commission has the same meaning as in the Royal Commissions Act 1902. services has the same meaning as in the Competition and Consumer Act 2010. sewage or wastewater facility means one, or a combination of both, of the following: a) equipment, excavations and structures that are to be used for treating sewage, or other wastes in water, produced by the public: i. to reduce the damage caused by its disposal in the natural environment; or ii. to make any component of the things treated suitable for re-use; b) channels, drains or pipelines for carrying sewage, or other wastes in water, produced by the public to or from the equipment and structures covered by paragraph (a). State/Territory government body means: a) the government of a State or Territory; or b) an agency or authority of a State or Territory. subsidiary has the same meaning as in the Corporations Act 2001. supply has the same meaning as in the Competition and Consumer Act 2010. telecommunications network has the same meaning as in the Telecommunications Act 1997. 76

trigger date is the date, under clause 13, which triggers when a project proponent must give a draft AIP plan to the Authority. water supply facility means one, or a combination of 2 or more, of the following: a) dams, weirs, reservoirs or tanks that are to be used for storing, and regulating the flow of, water for public consumption, or other use by the public; b) bores that are to be used for extracting water for public consumption, or other use by the public; c) channels or pipelines that are to be used: i. for supplying water for public consumption, or other use by the public; or ii. for carrying water between dams or other storage places from which it is to be supplied through channels or pipelines for public consumption, or other use by the public; d) pumps and associated structures that are to be used: i. in extracting water from bores covered by paragraph (b); or ii. for pumping water along channels or pipelines covered by paragraph (c); e) equipment and structures that are to be used for treating water that is to be supplied to the public through pipelines to make it fit for the public to drink. Clause 6 - Eligible facility Clause 6 provides that eligible facility` means a thing specified under subclause (1) or a thing declared to be an eligible facility for the purposes of the Bill. Subclause (1) lists the following types of things as an eligible facility: a mine or quarry a land transport facility a wharf or other port facility a petroleum facility an electricity facility a factory an airport a passenger terminal a water supply facility a sewage or wastewater facility a telecommunications network any other productive facility. An eligible facility also includes two or more things that are necessary for the eligible facility to operate. An example of where two or more things would be an eligible facility is where an iron ore mine requires construction of a railway to transport the processed iron ore to a port. Where a facility, or a combination of facilities, is not listed, the legislative rules may declare, that a thing, or a combination of two or more things, is an eligible facility for the purposes of the Bill. 77

The Authority (to be established by clause 67) may declare, by legislative instrument, that a thing, or a combination of two or more things, is not an eligible facility for the purposes of the Bill. Subclause (7) clarifies that for the purposes of exercising any of the declaration powers under clause 6, the existence of a specified thing or things at the time the declaration is made is not material. Clause 7 - Designated project A designated project under clause 7 is any project that establishes a new eligible facility and/or expands, improves or upgrades an existing eligible facility and at least one of the following conditions is met: that one more constitutional corporations are responsible for carrying out the project; or the facility is to be located within one or more offshore areas (within the meaning of the Offshore Petroleum and Greenhouse Gas Storage Act 2006) and is in exercise of Australia`s sovereign rights in the exclusive economic zone or the continental shelf; or the purpose of the relevant facility is to facilitate the following trade or commerce: (i) between Australia and places outside Australia; or (ii) among the States; or (iii) within a Territory; or (iv) between a State and a Territory; or (v) between 2 Territories; or a relevant facility is to be located in a Territory; or a relevant facility is to be located in a Commonwealth place (within the meaning of the Commonwealth Places (Application of Laws) Act 1970). Subclause (2) clarifies that a project is not a designated project if the project`s trigger date (as defined by clause 13) occurs any time before 90 days after the commencement of the Bill, once enacted. Clause 8 - Major project Clause 8 deems a designated project to be a major project where the total capital expenditure of a designated project is reasonably likely to be greater than or equal to the major project threshold amount` of $500 million (as defined by subclause (2)). To ensure all eligible projects are included in the definition of major project, subclause (3) deems any outstanding conditions in respect of the project to be met for the purposes of determining the major project threshold amount. Provision is made to deal with situations in which the parties to a transaction in relation to project did not (or are unlikely to) deal with each other at arm`s length or engaged in conduct intended to avoid the operation of the Bill. Subclause (4) anticipates situations where two parties to a transaction in relation to a project are not likely to deal with each other at arm`s length with the result that the amount of the parties` transaction is, or is reasonably likely to be, less than is reasonable. Under this 78

provision, the amount of the two parties` transaction will be deemed to be the amount that would have been reasonable if the parties were dealing with each other at arm`s length to ensure the full value of the transaction is used to determine the major project threshold amount. Similarly, subclause (5) is intended to deal with instances where one or more persons enter into a scheme` whereby two or more low-value designated projects are carried out separately where the combined total capital expenditure in carrying out those separate projects would be greater than or equal to the major project threshold amount. The definition of scheme` is intended to encompass a broad range of matters and includes any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; or any scheme, plan, proposal, action, course of action or course of conduct, whether there are two or more parties or only one party involved. Under this provision the Authority may determine, in writing, that each of those separate projects is a major project for the purposes of the Bill if, having regard to specified matters it would be concluded that the parties` sole or dominant purpose of carrying out the projects separately is to avoid triggering the major project threshold amount. If however, the total capital expenditure in respect of the designated project is less than the major project threshold amount, the project is deemed to be a low-value designated project`. The Authority is required to publish all determinations made on the Authority`s website, where the Authority has deemed two designated projects as a major project for the purposes of the Bill. Subclause (8) clarifies that the Authority`s determination-making power under subclause (5) is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003. Clause 9 - Person responsible for carrying out project The term person responsible for carrying out project` is defined to ensure the project proponent or project owner is able to be identified with certainty. For the purposes of the Bill, where an agreement exists in which one person carries out a project (or part thereof) for or on behalf of another person, the person carrying out the project is deemed to be the contractor`. The contractor is deemed not to be responsible for carrying out the project and the other person is deemed to be the person responsible for carrying out project. The Authority may declare, by writing, that a person or persons are taken to be the person or persons responsible for carrying out a specified project and that no other person is taken to be responsible for carrying out the project. The Authority`s declaration under subclause (3) or (5) is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003. Clause 10 - Key goods or services Clause 10 defines the concept of key goods or services` to ensure that all substantive procurements in relation to a project are included in an AIP plan where Australian entities are 79

best placed to compete for contestable opportunities. Key goods or services` means goods or services other than those supplied, or to be supplied, under a low-value contract`. A key good for a building project may include concrete for the base structure, or in the case of a gas project it could be the pipeline. An example of a key service may be procuring surveying services or engineering services. Under this provision, a low-value contract` is where the total value of a contract is less than the low-value contract threshold amount` of $1 million (subclause (8)). Subclause (2) is intended to deal with instances where goods or services are to be procured for a major project under two or more low-value contracts where the combined total expenditure would be greater than or equal to the low-value contract threshold amount. The Authority may determine, in writing, that the goods or services to be obtained under separate low-value contracts are deemed to be key goods or services if it would be concluded that the parties sole or dominant purpose of procuring those goods or services is to avoid triggering the application of an approved AIP plan (under Part 2 of the Bill) to those goods and services. Similarly, provision is made to deal with situations in which the parties to a transaction in relation to the procurement of goods or services did not or are unlikely to deal with each other at arm`s length or engaged in conduct intended to avoid the operation of the Bill. Subclause (6) anticipates situations in which two parties to a transaction in relation to a procurement are not likely to deal with each other at arm`s length with the result that the amount of the parties` transaction is, or is reasonably likely to be, less than is reasonable. In this case, the amount of two parties` transaction will be deemed to be the amount that would have been reasonable if the parties had been dealing with each other at arm`s length to ensure the full value of the goods or services acquired is used to determine the key goods or services. The Authority is required to publish all determinations made on the Authority`s website where the Authority has deemed certain goods or services to be key goods or services for the purposes of the Bill. Subclause (8) clarifies that the Authority`s determination-making power under subclause (2) is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003. Clause 11 - Key goods or services for a project Clause 11 makes clear that key goods or services for a project` are those key goods or services that are, wholly or partly, intended for use in connection with carrying out the project. Clause 12 - Key goods or services for a new relevant facility's initial operational phase Clause 12 defines the term key goods or services for a new relevant facility`s initial operational phase` to mean key goods or services that are for use in connection with the operation of the new relevant facility during the initial two year period commencing on the final completion of the facility. 80

Clause 13 - Trigger date AIP plans should be developed at the very early stages of the project before procurement methodologies, design specifications and standards are defined. These trigger events are intended to be early in the project where an AIP plan can be most valuable. The trigger events relate to actions by a project proponent to determine the economic/financial viability of a project that may require the procurement of goods or services. Under this definition, trigger date, means the first trigger event for the project during the interim period or the earliest trigger event for the project after the interim period. The interim period begins 90 days after the commencement of the Bill and ends two years after the commencement of the Bill. Each of the following is a trigger event: block diagrams developed for the project, which could be the completion of a diagram which illustrates how the general conceptual elements of the project work together; process flow diagrams developed for the project, which could be the completion of a diagram that is used to depict the relationship between major components of a project that are of particular importance; a project proponent enters into a contract with another person under which the other person becomes a procurement entity in relation to the project; a request for bids for the supply of key goods or services for the project is made; technical specifications are prepared for the project, which could be preparation of an explicit set of requirements to be satisfied by material, design, product, or service; a project proponent determines which standard or standards will apply to any of the key goods or services that are to be acquired for the project; an equipment list for the project is prepared; the project proponent first contacts a supplier with a request for pricing details for any of the key goods or services for the project; a construction and contracting methodology is developed for the project, which could include the development of a guideline system for the project construction and associated contracts which identifies specific components such as phases, tasks, techniques, tools, services and labour; an environmental submission is made in relation to the project; a detailed schedule is prepared for the project, which could include preparation of a list of project milestones, activities, and deliverables (including the estimated resource allocation, budget and duration, linked by dependencies and scheduled events); and a high-level scoping of the goods and services for the project is conducted, which could include commencing a preliminary study to define the scope of the goods and services required for the project. In circumstances where the trigger date cannot be ascertained with any certainty, notwithstanding the listed events, the Authority may by written notice to the proponent, specify another day as the trigger date for a project either on application by a project proponent for a project or on the Authority`s own initiative. 81

The Authority must not specify as a trigger date any day occurring earlier than 120 days after the day on which the notice is given to the project proponent. Clause 14 - Crown to be bound Clause 14 means that the Bill, once enacted, will bind the Crown in the right of the Commonwealth and each of the State and Territories. Clause 15 - Extension to external Territories Clause 15 provides that the Bill, once enacted, will extend to every external Territory. The external Territories include Norfolk Island, Christmas Island and the Cocos (Keeling) Islands. Clause 16 - Extension to exclusive economic zone and continental shelf Clause 16 provides that the Bill, once enacted, will apply to matters relating to the exercise of Australia`s sovereign rights in the exclusive economic zone or the continental shelf. 82

Part 2--Australian Industry Participation plans Division 1--Australian Industry Participation plans Clause 17 - Project proponent must give draft AIP plan to the Authority Clause 17 obliges a project proponent for a major project to give a draft AIP plan to the Authority at least 90 days before the trigger day for the project. The Authority is also able to specify an alternate date on which the project proponent must provide an AIP plan, either on the Authority`s own motion, or on application by a project proponent. The obligation will not apply in circumstances where a project proponent is not aware the relevant project is a major project under the Bill. However, subsequent to the project proponent becoming aware that the project is a major project, the obligation to submit an AIP plan arises, with the requirement that the proponent provide an AIP plan within 60 days of becoming aware. For example, if a project does not meet the $500 million threshold amount but subsequently project costs increase above the threshold amount, the project proponent is required to submit an AIP plan within 60 days of becoming aware that the project met the threshold amount and becomes a major project for the purposes of the Bill. A number of States and Territories have also introduced requirements for their own versions of AIP plans for Government procurement and major projects; these are sometimes known as Local Industry Participation Plans (LIP Plans). The AIP obligations may not apply to project proponents who have submitted a compliant State or Territory plan and also comply with the conditions set out in the legislative rules. The Authority will determine whether the project proponent complies with the specified conditions and will make a decision to grant an exception to provide an AIP plan under the Bill. The Minister may also set other conditions specified in the legislative rules that can be used to provide an exception to the obligations under the Bill. The Authority will determine whether the project proponent complies with these specified conditions and will make a decision to grant an exception. Clause 18 - Approval of draft AIP plan On submission of a draft AIP plan, the Authority must consider whether the AIP plan complies with the AIP plan rules and that the steps specified in accordance with the obligations (clauses 35(2), 36(2), 39(2) and 40(2) as applicable) are adequate before approving or refusing to approve a plan. If the Authority gives its approval, the plan becomes the approved plan for the project. The Authority is also required to give written notice to the project proponent of the decision. If approval of a draft AIP plan is refused, the Authority must by written notice, direct the proponent to provide the Authority with a revised draft AIP plan within 30 days. The written notice must direct proponent give the Authority a revised AIP plan that complies with the AIP plan rules and sets out the adequate specified steps. On resubmission, if the revised draft AIP plan complies in full with the direction given to the proponent, the Authority must give its approval. On approval of a revised AIP plan, the 83

Authority must give written notice to the project proponent of the decision and that the plan is the approved plan for the project. If, on resubmission the revised draft AIP plan fails to comply with the direction, then the proponent will be taken not to have complied with the legislation and action may be taken against the proponent by the Authority for non-compliance. To ensure all draft AIP plans are dealt with in a timely manner, the Authority must take all reasonable steps to reach a decision within 30 days of receipt of draft AIP plan for a project. Clause 19 - Replacement of approved AIP plan before completion of project Where a project has not yet been completed the project proponent may submit a draft AIP plan with the intention of replacing the original plan. This may occur in circumstances where the project has materially changed so that the approved AIP plan is no longer suitable or meets the new project requirements. On submission of a draft replacement AIP plan, the Authority must consider whether the replacement plan complies with the AIP plan rules and if the steps specified are adequate before approving or refusing to approve a plan. If the Authority gives its approval, the replacement plan becomes the approved plan for the project. The approved AIP plan remains in force until a replacement AIP plan has been approved by the Authority. To ensure all draft replacement AIP plans are dealt with in a timely manner, the Authority must take all reasonable steps to reach a decision within 30 days of receipt of a draft replacement AIP plan for a project. Clause 20 - Replacement of approved AIP plan after completion of project On completion of the construction phase of a project, the operator of the new facility may submit a new draft AIP plan in replacement of the original plan approved by the Authority. Replacement of an approved AIP plan may be required if the operator has different procurement practices and is unable to fulfil the steps from the project proponent who developed the original AIP plan. On submission of a draft replacement AIP plan, before making a decision, the Authority must determine whether the replacement plan complies with the AIP plan rules other than in relation to the rules on the project phase (as provided under Subdivision C of Division 2) and that the steps specified are adequate in accordance with subclauses 39(2) and 40(2) to ensure that the operator of the new facility ensures the fulfilment of the obligations, including by each procurement entity for the new facility. The approved AIP plan remains in force until a replacement AIP plan has been approved by the Authority. To ensure all such draft replacement AIP plans are dealt with in a timely manner, the Authority must take all reasonable steps to reach a decision and notify an operator of its decision, including its reasons, within 30 days of receipt of a draft replacement AIP plan for a project. 84

Clause 21 - Duration of approved AIP plan An AIP plan commences when the Authority approves the plan, and where the project establishes a new facility, the plan will continue in force until the expiration of two years after the completion of the project. If the project is not in relation to the establishment of a new facility, the plan will continue in force until the completion of the project. Clause 22 - Summary of specified steps All plans submitted to the Authority in respect of a project must also include a summary of the steps specified for the plan in accordance with the obligations of a project proponent (clauses 35(2), 36(2), 39(2) and 40(2)) as applicable. The steps must show how the objectives will be met. Specified steps` includes the list of intended actions that will be undertaken to meet the obligations under Part B and Part C, if applicable, of the AIP plan. The summary must accord with the format approved by the Authority and must be suitable for publication. Subclause (3) requires that all summaries will be made available on the Authority`s website for 15 days beginning on the day after the summary was received by the Authority. This will allow the general public to be aware of the proposed major project prior to the AIP Plan approval. Clause 22A - Project proponent must notify estimated completion date for a new relevant facility Clause 22A details when a project proponent must notify the Authority of the expected completion date of the project for a new relevant facility. If a major project involves establishing a new relevant facility which has not been completed the project proponent must notify the Authority of the estimated date of completion of the new relevant facility when the draft AIP plan is submitted to the Authority. The date of completion may be known as the project commissioning date within certain industries. Clause 23 - Register of approved AIP plans The Authority will maintain a register of all approved AIP plans which are in force. The register may be kept in electronic form, such as a database. This register will not be publically accessible and will be subject to the Secrecy provisions in Part 9 where appropriate. Clause 24 - Compliance with approved AIP plan It is a requirement that as long as an approved AIP plan is in force, a project proponent for a major project must comply with Part B of the plan. Part B of the plan aims to ensure project proponents of a major project provide full, fair and reasonable opportunity for Australian entities to bid for the supply of key goods or services to the project. The purpose of compliance with the approved AIP plan is to check the progress of the project and monitor outcomes achieved against their obligations under the plan. 85

In respect of the establishment of a new relevant facility, the operator of the new relevant facility will be required to comply with Part C of the plan as long as the approved AIP plan of the project remains in force. Part C of the plan aims to ensure that operators of new relevant facilities provide full, fair and reasonable opportunity for Australian entities to bid for the supply of key goods or services for the new relevant facility`s two year operations phase. The purpose of compliance with the approved AIP plan is to check the progress of the project and monitor outcomes achieved against their obligations under the plan. It is the responsibility of the Authority to ensure ongoing compliance with an approved AIP plan and the Bill provides the Authority with sufficient powers to monitor compliance. The Authority may use its powers to make further inquiries where there may be a breach of an approved AIP plan. Clause 25 - Compliance report--project proponent After approval of an AIP plan, for as long as the plan remains in force, regular compliance reports must be submitted to the Authority on the actions and activities that have been undertaken to implement the approved AIP plan. These reports may include information about any outcomes or actions that have been undertaken or achieved through the AIP plan. A project proponent must submit an approved report for each six month period commencing on the day the plan is approved until the project is completed. The date by which a compliance report must be given to the Authority is within the first three months after the end of each six month reporting period. The Authority may, by written notice to the project proponent, determine a different reporting period for the purposes of this clause. The determination under subclause (4) is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003. Further information to be provided in a compliance report may also be specified in the legislative rules. Clause 26 - Compliance report--operator of new relevant facility Where a project is in relation to the establishment of a new relevant facility, the operator of a facility must also provide compliance reports on the actions and activities that have been undertaken to implement the approved AIP plan in relation to the operator`s obligation under Part C of the plan for as long as an approved AIP plan remains in force. Part C relates to the initial facility operational phase and is often where there may be more opportunities for small and medium size enterprises. The operator may also wish to specify long term AIP objectives or commitments even though these would not be within the scope of the AIP plan and not subject to any compliance. This would ideally demonstrate the facility operator`s commitment to AIP principles. An operator must submit an approved report for each six month period commencing on the day the plan is approved. The date by which a compliance report must be given to the Authority is within the first three months after the end of each six month reporting period. An operator must continue to provide compliance reports during the two year period in which an AIP plan continues in force (see clause 21(1)). 86

Further information to be provided by an operator in a compliance report may also be specified in the legislative rules. Clause 27 - Record-keeping--project proponent A project proponent for a major project must keep appropriate records in relation to the project as is necessary to allow the Authority to ascertain a proponent`s compliance with Part B of the plan. Such records must be kept for a minimum period of five years. Clause 28 - Record-keeping--operator of new relevant facility An operator for a major project involving the establishment of a new relevant facility must keep appropriate records in relation to the project as is necessary to allow the Authority to ascertain the operator`s compliance with Part C of the plan. Such records must be kept for a minimum period of five years. 87

Division 2--AIP plan rules Subdivision A--General rules Clause 29 - AIP plan rules Clause 29 outlines that Division 2 provides for the AIP plan rules. Clause 30 - AIP plan must have Parts Clause 30 specifies the components of an AIP plan. An AIP plan in relation to the establishment of a new relevant facility must comprise the following three parts: (a) Part A--Title; (b) Part B--Project Phase; (c) Part C--Initial Facility Operational Phase. An AIP plan for all other major projects must comprise the following two parts: (a) Part A--Title; (b) Part B--Project Phase. Clause 31 - AIP plan must be in the approved form All AIP plans submitted for approval must be in the form approved by the Authority. Subdivision B--Rule for Part A of the plan (Title) Clause 32 - Title Clause 32 provides that Part A must state that it is the AIP plan for the major project. Subdivision C--Rules for Part B of the plan (Project Phase) Clause 33 - Part B of AIP plan binds project proponent Clause 33 requires that an AIP plan must contain a statement to the effect that the project proponent for the major project is bound by the terms of Part B of the plan from time to time. This provision is intended to ensure that, notwithstanding unanticipated changes to the plan, the project proponent`s obligations under the plan will continue no matter who the project proponent may be at a particular point in time. In effect this means that the approved AIP plan is attached to the project rather than to a specific proponent. Clause 34 - Key objective Clause 34 requires that an AIP plan for a major project must contain a statement to the effect that the key objective of Part B of the plan is that Australian entities should have full, fair and 88

reasonable opportunity to bid for the supply of key goods or services for the project. All steps taken in clauses 35 and 36 should tie back to this key objective. The current Australian Industry Participation National Framework defines the principles of full, fair and reasonable opportunity. Clause 35 - Primary obligations of project proponent Clause 35 outlines the key obligations of a project proponent under Part B of an AIP plan. Under this provision, Part B of a plan must contain a statement to the effect that until such time as the project is completed, the project proponent will take all reasonable steps, including specified steps, to ensure that each procurement entity for the project achieves the following: (a) the key objective of Part B of the plan; (b) the objective that the procurement entity will have a publicly accessible website; (c) the objective that the procurement entity will not request bids to supply key goods or services for the project unless the procurement entity has a broad understanding of the capability and capacity of Australian entities generally to supply those goods or services: this may involve approaching relevant industry networks and bodies to gather information about the capability and capacity of certain industries and Australian entities to compete for work; procurement entities should not solely rely on in-house knowledge but should keep themselves regularly informed of industry capability and capacity in relation to their project; (d) the objective that requirements which potential bidders must satisfy in order to bid to supply key goods or services for the project: (i) will be published on the website of the procurement entity; and (ii) will be so published at a reasonable time before the request for bids is made to allow potential bidders enough time to prepare a bid to the standard required for the procurement entity; (e) the objective that: (i) standards for key goods or services for the project that are to be acquired by the procurement entity will be published on the website of the procurement entity; and (ii) if the standards are neither Australian standards nor international standards--the procurement entity will publish on its website a statement explaining why neither Australian standards nor international standards are being used: international standards could be taken to mean International Organization for Standardization (ISO) or other standards broadly adopted globally; for example, there are other broadly adopted international standards in the oil and gas industry, such as the American Petroleum Institute standards used in the design and engineering of new projects globally; (f) the objective that the procurement entity will not discriminate against Australian entities in relation to timeframes for responding to requests for bids to supply key goods or services for the project: procurement entities should not set different timeframes for response to tenders; 89

(g) the objective that the procurement entity will: (i) provide feedback to Australian entities whose bids to supply key goods or services for the project have not been successful: o feedback may be written or oral and should outline the reasons why the bid was not successful; o oral feedback provided should be documented by the procurement entity; and (ii) ensure that such feedback includes recommendations about any relevant training and any relevant skills, capability and capacity development that could assist the Australian entity to become successful in future bids; and (h) the objective that the procurement entity will: (i) at all times have an employee who is designated as the procurement contact officer for the project; o the contact officer for procurement does not necessarily have to be a sole person responsible for the entire project, the contact person can be more than one as long as the designation for responsibility is clear and this information is available on the procurement entities website; and (ii) publish the procurement contact officer`s contact details on the procurement entity`s website. Specified steps` includes the list of intended actions that will be undertaken by the project proponent to meet the obligations under Part B of the AIP plan. Clause 36 - Other obligations of project proponent Clause 36 outlines the other important obligations of a project proponent under Part B of an AIP plan. In addition to a project proponent`s primary obligations, Part B of a plan must also contain a statement to the effect that until such time as the project is completed, the project proponent will perform the following obligations, including where necessary taking specified steps to ensure the fulfilment of these obligations: (a) have a publicly accessible website; and (b) conduct awareness programs about opportunities for Australian entities to supply key goods or services for the project: this may include training, seminars, conferences and advertising by the proponent, or through another network, to outline the opportunities that are or will be available in the project; and (c) conduct training programs that are: (i) for employees of procurement entities for the project; and (ii) directed towards ensuring that procurement entities, including tier 2 and below for the project are aware of the key objective for an AIP plan and obligations set out in clause 35; and (d) publish on its website a statement of the proponent`s expectations in relation to: (i) key goods or services that are likely to be acquired for the project: 90

this will make Australian entities aware of the opportunities that exist or are likely to exist in the future and reduce missed opportunities through lack of knowledge of project requirements; and (ii) opportunities for Australian entities to supply key goods and services for the project; and (iii) opportunities for non-Australian entities to supply key goods and services for the project; broken down into categories of goods or services in the way specified in the legislative rules; and (e) both: (i) cause to be published on a publicly accessible website statements about available opportunities to supply key goods or services for the project; and (ii) notify the Authority of the URL of the website; and (f) if the project proponent has a global supply chain - encourage Australian entities that are supplying, or have supplied, key goods or services for the project to develop the capability and capacity to supply key goods or services to the project proponent`s global supply chain and integrate into the project proponent`s global supply chain; and (g) both: (i) at all times have an employee who is designated as the project proponent`s contact officer for the purposes of this Bill; and (ii) notify the Authority of the contact officer`s contact details. Specified steps includes the list of intended actions that will be undertaken by the project proponent to meet the obligations under Part B of the AIP plan. Subdivision D--Rules for Part C of the plan (Initial Facility Operational Phase) Clause 37 - Part C of the plan binds operator of new relevant facility Clause 37 requires that an AIP plan for the major project must contain a statement to the effect that the operator of a new relevant facility is bound by the terms of Part C of the plan as that plan exists from time to time. This is to ensure that, in spite of unexpected variations to the plan, an operator`s obligations under the plan will be ongoing. Part C does not apply to projects that expand, improve or upgrade an existing eligible facility. Clause 38 - Key objective Clause 38 requires that an AIP plan must contain a statement to the effect that the key objective of Part C of the plan is that Australian entities should have full, fair and reasonable opportunity to bid for the supply of key goods or services for the new relevant facility`s initial operational phase. All steps taken in clauses 39 and 40 should tie back to this key objective. The current Australian Industry Participation National Framework defines the principles of full, fair and reasonable opportunity. Clause 39 - Primary obligations of operator of new relevant facility Clause 39 outlines the key obligations of an operator of the new relevant facility under Part C of an AIP plan. Under this provision, Part C of a plan must contain a statement to the effect 91

that the operator will take all reasonable steps, including specified steps to ensure that each procurement entity for the new relevant facility will achieve the following objectives: (a) the key objective of Part C of the plan; (b) the objective that the procurement entity will have a publicly accessible website; (c) the objective that the procurement entity will not request bids to supply key goods or services for the new relevant facility`s initial operational phase unless the procurement entity has a broad understanding of the capability and capacity of Australian entities generally to supply those goods or services: this may involve approaching relevant industry networks or bodies to gather information about the capability and capacity of certain industries and Australian entities to compete for work; procurement entities should solely rely on in-house knowledge but keep themselves regularly informed of industry capability and capacity in relation to the initial facility operational phase; (d) the objective that requirements that potential bidders must satisfy in order to bid to supply key goods or services for the new relevant facility`s initial operational phase: (i) will be published on the website of the procurement entity; and (ii) will be so published at a reasonable time before the request for bids is made to allow potential bidders enough time to prepare a bid to the standard required for the procurement entity; (e) the objective that: (i) standards for key goods or services that are to be acquired for the new relevant facility`s initial operational phase by the procurement entity will be published on the website of the procurement entity; and (ii) if the standards are neither Australian standards nor international standards--the procurement entity will publish on its website a statement explaining why neither Australian standards nor international standards are being used: international standards could be taken to mean International Organization for Standardization (ISO) or other standards broadly adopted globally; for example, there are other broadly adopted international standards in the oil and gas industry, such as the American Petroleum Institute standards used in the design and engineering of new projects globally; (f) the objective that the procurement entity will not discriminate against Australian entities in relation to timeframes for responding to requests for bids to supply key goods or services for the new relevant facility`s initial operational phase procurement entities should not set different timeframes for response to tenders; (g) the objective that the procurement entity will: (i) provide feedback to Australian entities whose bids to supply key goods or services for the new relevant facility`s initial operational phase have not been successful: o feedback may be written or oral and should outline the reasons why the bid was not successful; and (ii) ensure that such feedback includes recommendations about any relevant training and any relevant skills, capability and capacity development that could assist the Australian entity to become successful in future bids; (h) the objective that the procurement entity will: 92

(i) at all times have an employee who is designated as the procurement contact officer for the new relevant facility; and (ii) publish the procurement contact officer`s contact details on the procurement entity`s website. Specified steps includes the list of intended actions that will be undertaken by the operator to meet the obligations under Part C of the AIP plan. Clause 40 - Other obligations of operator of new relevant facility Clause 40 outlines other important obligations of an operator of the new relevant facility under Part C of an AIP plan for a major project. Additional to an operator`s primary obligations, Part C of a plan must also contain a statement to the effect that the operator of the new relevant facility will perform the following obligations, including where necessary taking specified steps to ensure the fulfilment of these obligations: (a) have a publicly accessible website; and (b) conduct awareness programs about opportunities for Australian entities to supply key goods or services for the new relevant facility`s initial operational phase: this may include training, seminars, conferences and advertising by the operator or through another network to outline the opportunities that are available in the new facility; and (c) conduct training programs that are: (i) for employees of procurement entities for the new relevant facility; and (ii) directed towards ensuring that the procurement entities, including tier 2 and below for the new facility are aware of the key objective and obligations set out in clause 39; (d) publish on its website a statement of the operator`s expectations in relation to: (i) key goods or services that are likely to be acquired for the new relevant facility`s initial operational phase: o this will make Australian entities aware of the opportunities that exist or are likely to exist in the future and reduce missed opportunities through lack of knowledge of project requirements; and (ii) opportunities for Australian entities to supply key goods or services for the new relevant facility`s initial operational phase; and (iii) opportunities for non-Australian entities to supply key goods or services for the new relevant facility`s initial operational phase; broken down into categories of goods or services in the way specified in the legislative rules; and (e) both: (i) cause to be published on a publicly accessible website statements about available opportunities to supply key goods or services for the new relevant facility`s initial operational phase; and (ii) notify the Authority of the URL of the website; and (f) if the operator has a global supply chain - encourage Australian entities that are supplying, or have supplied, key goods or services for the new relevant facility`s initial 93

operational phase to develop the capability and capacity to supply key goods or services to the operator`s global supply chain and integrate into the operator`s global supply chain; and (g) both: (i) at all times have an employee who is designated as the operator`s contact officer for the purposes of this Bill; and (ii) notify the Authority of the contact officer`s contact details. Specified steps includes the list of intended actions that will be undertaken by the operator to meet the obligations under Part C of the AIP plan. 94

Part 3--Notification obligations Division 1--Major projects Clause 41 - Authority to be notified of preliminary trigger day for major project If a preliminary trigger day for a designated project occurs after the commencement of the Bill (once enacted) and the project proponent is aware that it is reasonably likely to be a major project, clause 41 initiates an obligation on the project proponent to notify the Authority of the preliminary trigger day within 60 days. If the preliminary trigger day occurs after commencement but the project proponent is not aware that the project was likely to be a major project, the project proponent must notify the Authority of the preliminary trigger day within 14 days of becoming aware. Any notification made to the Authority must be in writing and in the approved form. The notification must also include any information and documents (if any) specified in the legislative rules. The preliminary trigger day for a project means the day on which the earliest of the following events occurs: the project concept design begins, which could be the point at which initial project planning overlaps with the design phase of the project (for example, activities conducted during the concept phase will eventually be integrated into the various planning documents and/or will drive the planning elements such as schedule and budget); a project proponent commences an environmental assessment, which could include an assessment of the environmental impact of the project prior to any statutory environmental approval process application; a project proponent enters into a contract with another person to carry out an environmental assessment of the project which could mean that the project proponent has sufficient information about the project to conduct an environment assessment of the project; the raw materials for the project are estimated, which could include the initial calculation of the quantities of the various items of work, and the expenses likely to be incurred for the project; and the utility consumption for the project is estimated, which could include undertaking engineering calculations, pilot study, modeling or simulations to estimate utility usage for the project either during construction and/or post construction (noting that utilities` could include energy, such as electricity and fuel, water and carbon emissions). Clause 43 - Person must notify Authority if the person becomes a project proponent for a major project Clause 43 requires any person who becomes a project proponent for a major project to notify the Authority within 60 days of having taken on this role. Similarly, the notification made to the Authority must also be in writing, in the approved form and must include any information specified in the legislative rules. 95

Clause 44 - Person must notify Authority if the person ceases to be a project proponent for a major project If a person ceases to be a project proponent for a major project, clause 44 requires the person to notify the Authority within 60 days of ceasing to be in this role. Again, the notification required to be made by the person to the Authority must also be in writing, in the approved form and must include any information specified in the legislative rules. Clause 45 - Project proponent must notify Authority if major project is abandoned or cancelled Where a major project is abandoned or cancelled, clause 45 requires the project proponent to notify the Authority within 60 days after the abandonment or cancellation. The notification required to be made by the proponent to the Authority must also be in writing, in the approved form and must include any information specified in the legislative rules. Clause 46 - Project proponent must notify Authority of certain events To ensure the Authority is kept notified of all other significant and material events, the Minister may by legislative rules, declare certain events to be a notifiable event. A notifiable event may include any event not envisaged in this Bill that may arise in the future. If a specified notifiable event were to occur, the project proponent for the major project must notify the Authority within 60 days after that event occurs. The notification required to be made by the proponent to the Authority must be in writing, in the approved form and must include any information specified in the legislative rules. 96

Division 2--New relevant facilities Clause 47 - Person must notify Authority if the person becomes an operator of new relevant facility Notification requirements also apply to persons who become an operator for a major project to establish a new relevant facility. Clause 47 requires any person who becomes an operator of such a facility to notify the Authority within 60 days of having taken on this role. The notification made to the Authority must also be in writing, in the approved form and must include any information specified in the legislative rules. Clause 48 - Person must notify Authority if the person ceases to be an operator of new relevant facility Similarly, if a person ceases to be an operator of a new facility, clause 48 requires the person to notify the Authority within 60 days of ceasing to be in this role. Again, the notification required to be made by the person to the Authority must be in writing, in the approved form and must include any information specified in the legislative rules. Clause 49 - Operator of new relevant facility must notify Authority of certain events Similar to clause 46, to ensure the Authority is kept informed of all other significant and material events in relation to the initial facility operation phase of a major project, the Minister may by legislative rules, declare certain events to be a notifiable event. A notifiable event may include any event not envisaged in this Bill that may arise in the future. If such a specified notifiable event were to occur, the operator of the facility must notify the Authority within 60 days after that event occurs. The notification required to be made by the proponent to the Authority must be in writing, in the approved form and must include any information specified in the legislative rules. 97

Part 4--Information-gathering powers Division 1--General powers Clause 50 - Authority may obtain information or documents The Authority has a range of information-gathering powers to ensure compliance with the Bill. These powers are able to be exercised in circumstances where the Authority believes on reasonable grounds that a person has information or documents which are relevant to the operation of the Bill. The Authority may wish to exercise this power in situations where there may be a breach of an approved AIP plan and further information is needed to corroborate the allegation. The Authority may, by written notice, compel a person to give information, to produce and/or make copies of documents. The written notice must specify the manner and form the person is required to give such information or to produce such documents or copies thereof. The notice must also stipulate the timeframe within which the person must comply with the notice. The timeframe to comply must not be less than 14 days after the notice is given to a person. Any person given such a notice must comply with its requirements to the extent the person is able to. Clause 51 - Copying documents--compensation Where a person, under a notice given, is required to make copies of documents and to produce those copies to the Authority, the person is entitled to payment from the Commonwealth to cover the reasonable costs associated with complying with the notice. Clause 52 - Copies of documents On production of original documents or copies of original documents, the Authority may inspect such original documents or copies, or may make and retain copies of such documents, or may take and retain extracts from such documents. Clause 53 - Authority may retain documents Clause 53 empowers the Authority to retain any original documents produced to it for as long as is necessary. During the period of the Authority`s retention of the original document, the person who is entitled to possession of the original document is entitled to be supplied with a certified copy from the Authority as soon as practicable. Until such time as a certified copy of the document is supplied to the person, the Authority must permit the person (or a person authorised by that person) to inspect and make copies of, or to take extracts from, that document. Clause 54 - Self-incrimination Clause 54 provides a defence against self-incrimination if the production of a document or the giving of certain information would tend to incriminate an individual or to expose that 98

individual to a penalty. In such a situation, the individual is excused from producing a document or giving the information. 99

Division 2--Powers to obtain information from project proponent Clause 55 - Authority may obtain information from project proponent The Authority also has specific powers to obtain information from a project proponent for a major project where an approved AIP plan is, or was previously in force for the major project. The Authority may, by written notice, require a project proponent to give the Authority information relating to the project. The written notice must stipulate the manner, the form and the period within which the proponent is required to give such information. The timeframe to comply must not be less than 14 days after the notice is given. Any person given such a notice must comply with its requirements to the extent the person is able to. Clause 55 also provides a defence against self-incrimination if the giving of the information would tend to incriminate an individual or to expose that individual to a penalty. In such a situation, the individual is excused from giving the information. Notwithstanding the application of clause 55 to project proponents, the Authority`s general information-gathering powers under clause 50 are not limited in any way. 100

Division 3--Powers to obtain information from operator of facility Clause 56 - Authority may obtain information from operator of new relevant facility The Authority`s specific powers also extend to obtaining information from an operator of a new relevant facility where an approved AIP plan is, or was previously in force for a major project involving the establishment of a new relevant facility. The Authority may, by written notice, require an operator to give the Authority information relating to the operation of the new facility. The written notice must stipulate the manner, the form and the period within which the operator is required to give such information. The timeframe to comply must not be less than 14 days after the notice is given. Any person given such a notice must comply with its requirements to the extent the person is able to. Clause 56 also provides a defence against self-incrimination if the giving of the information would tend to incriminate an individual or to expose that individual to a penalty. In such a situation, the individual is excused from giving the information. Notwithstanding the application of clause 56 to the operator of a new facility, the Authority`s general information-gathering powers under clause 50 are not limited in any way. 101

Part 5--Consequences of non-compliance Division 1--Administrative consequences of non-compliance Clause 57 - Administrative consequences of non-compliance Clause 57 provides for administrative consequences for failing to comply with the requirements of Parts 2, 3 or 4. Action can be taken by the Authority against a relevant person` who fails to discharge an obligation under Part 2, 3 or 4 without reasonable excuse. The Authority may, by written notice, require a relevant person to publicise details of his or her non-compliance and any other matter the Authority considers appropriate. The Authority may also require the relevant person to notify a specified person or class of persons of the details of the contravention and any other matters. If appropriate, the Authority may require a relevant person to take both of these actions. In both instances, the Authority will also require evidence to be furnished to the Authority within seven days after the end of the time period in which the relevant person was required to take the specified action or actions. If the relevant person concerned is a subsidiary of a constitutional corporation, the Authority may give written notice to the subsidiary`s parent company to take any other specified actions to require public broadcasting of the subsidiary`s contravention. The Authority can also include the name and details of any contravention of a relevant person (or a subsidiary of a body corporate as the case may be) in the Authority`s annual report under clause 83 of the Bill. Additionally, the Authority may by another means, including electronically, name the relevant person (or a subsidiary of a body corporate as the case may be) and provide details of the person`s contravention. Before the Authority may take any of these actions, the Authority must ensure the relevant person is afforded procedural fairness before giving the person an adverse publicity notice. The procedural fairness requirements oblige the Authority to give written notice to the person setting out the proposed administrative action and the reasons for taking such action. The Authority must also invite the person to make any written submissions about the proposed administrative action within 28 days of the day specified in the notice. If the person makes written submissions, the Authority must have regard to those submissions within that period. 102

Division 2--Injunctions Clause 58 - Injunctions Clause 58 permits the Authority to seek an injunction from a prescribed court against a person if that person has contravened or is likely to contravene Part 2, 3 or 4. The Authority may apply to the court to seek a restraining injunction against a person who has engaged or is proposing to engage in conduct that would breach Part 2, 3 or 4 to prevent the person from further contravening acts. The court may also grant an injunction requiring the person to do something if in the opinion of the court it is desirable to do so. Similarly, the Authority may also seek a performance injunction from the court to require the person to do an act or thing if the person has refused or failed to do an act or thing in breach of Part 2, 3 or 4, or is likely to refuse or fail to do so. Clause 59 - Interim injunctions If the Authority has made an application to the court for an injunction under clause 58, the court may grant an interim injunction to restrain the person from further engaging in the conduct that is the subject of the court application. The court may not, however, require the Authority to give any undertakings as to damages as condition of granting the interim injunction. Clause 60 - Discharge etc. of injunctions If a court has earlier granted an injunction for the purposes of this Division 2, the court may also vary or discharge the injunction as appropriate. Clause 61 - Certain limits on granting injunctions not to apply Clause 61 provides that the powers of a prescribed court to grant injunctive relief is not to be limited. The power of the court to grant a restraining injunction under this Division 2 may be exercised if the court is satisfied that the person has engaged in the relevant conduct, or if it appears to the court that, unless the injunction is granted, the person is likely to engage in the relevant conduct. It is immaterial to the exercise of the court`s powers whether or not the person intends to continue to engage in the offending conduct again, or whether or not the person previously engaged in that conduct before. Similarly, the court may grant a performance injunction under this Division 2 if the court is satisfied that the person has refused or failed to do an act or thing, or if it appears to the court that, unless the injunction is granted, the person will refuse or fail to do that act or thing. Again, it is immaterial to the exercise of the court`s powers whether or not the person intends to refuse or again fail to perform that act or thing, or whether or not the person refused or failed to do that act or thing before. 103

Clause 62 - Other powers of the court unaffected Clause 62 clarifies that the powers granted to a prescribed court by this Division are separate and additional to any other powers of the court, whether conferred by this Bill or otherwise. 104

Part 6--Multiple project proponents and multiple facility operators Division 1--Multiple project proponents Clause 63 - References to project proponents Clause 63 makes clear that in instances where there are two or more project proponents with joint responsibility for carrying out a project or a part of the project, each of the multiple project proponents is a project proponent in this Bill (once enacted). Any reference to a project proponent for the project appearing in this Bill, the legislative rules, an instrument (made under the Bill) or a draft or approved AIP plan, is to be read as a reference to each of the multiple project proponents. Clause 64 - Obligations of multiple project proponents Clause 64 provides that where there are multiple project proponents for a project, any and all obligations imposed by the Bill or an approved AIP plan in respect of the project proponent are imposed on each of the multiple project proponents. However, such obligations are able to be discharged by any of the multiple project proponents. This means that one AIP plan can be submitted by a project proponent on behalf of all project proponents. 105

Division 2--Multiple facility operators Clause 65 - References to operators of new relevant facilities Similarly, clause 65 makes clear that in instances where there are two or more operators (for a major project involving the establishment of a new relevant facility) with joint responsibility for operating the new facility or part thereof, each of the multiple operators is an operator of the new facility. Any reference to an operator of the new relevant facility appearing in this Bill (once enacted), the legislative rules, an instrument (made under the Bill) or a draft or approved AIP plan, is to be read as a reference to each of the multiple operators. Clause 66 - Obligations of multiple operators of new relevant facility Clause 66 provides that where there are multiple operators of a new relevant facility, any obligations imposed by the Bill or by an approved AIP plan is imposed on each of the operators of the facility. If, however, the multiple operators will have joint responsibility for operating the new facility, the obligation may be discharged by any of the multiple operators. This means that one AIP plan can be submitted by an operator on behalf of all operators. 106

Part 7--Australian Industry Participation Authority Division 1--Office and functions of the Australian Industry Participation Authority Clause 67 - Establishment of the Australian Industry Participation Authority Clause 67 establishes the Australian Industry Participation Authority. Clause 68 - Functions of the Authority Clause 68 sets out the function of the Authority. The functions of the Authority are: (a) such functions as are conferred on the Authority by this Bill; and (b) to advise and assist persons in relation to their obligations under this Bill; this would include where the Authority may be approached by a prospective project proponent who is seeking information about their AIP obligations and what kind of information is required in an AIP plan; alternatively this can also be an active function where the Authority may look to inform prospective project proponents about their obligations under the Bill well before those obligations are triggered; and (c) to monitor compliance with this Bill: this would include implementing procedures and processes that will scan existing and prospective databases for projects that are reasonably likely to become major projects covered by this Bill (this is to ensure all projects that can be covered are notified and proponents are aware of their obligations); monitoring compliance would include the Authority: o ensuring that approved AIP plans in place are being adhered to, and the key objective (as noted in clauses 34 and 38 of the Bill) is being upheld; o investigating situations where there may be a breach of an AIP plan; and (d) to promote compliance with this Bill: active promotion by the Authority will be through an effective communication strategy and ensuring that the most up to date information, guidelines and templates are available on the Authority`s website to project proponents and operators to comply with the Bill; furthermore the Authority can take a role in meeting with project proponents and operators, whether they have an approved AIP plan or not, to discuss the operation of the Bill, effective engagement with the Authority and any other AIP matters or functions in relation to the Bill; and (e) to collect, analyse, interpret and disseminate information relating to AIP matters: it is envisaged that the Authority will use the information provided through AIP plans and through the operation of this Bill to determine further action on AIP policy; statistical information may be in relation to the total numbers of major projects and which particular sectors offer the most opportunity for Australian entities to win work; 107

this information, subject to the secrecy provisions, can be shared with relevant government and state agencies or industry associations to inform policy debate and reform; and (f) to support, encourage, conduct and evaluate training programs that are directed towards improving the skills and knowledge of people involved in AIP matters: it is intended that the Authority will be responsible for a range of industry facilitation programs, the information gathered through the operation of this Bill can be used to link relevant entities to certain training programs run by a Commonwealth or State government; the information can also be used to adjust existing programs to suit ongoing industry requirements; this provision also operates to allow the Authority to run training programs such as seminars and workshops aimed at project proponents and operators to facilitate AIP matters and improve the skills and knowledge in dealing with the Authority; and (g) to support, encourage, conduct and evaluate educational, promotional and community awareness programs that are relevant to AIP matters: the Authority will be expected to have a marketing and communication strategy in place that will promote awareness and understanding of AIP matters (this will not be limited to the AIP plan obligations under this Bill but will also encompass any other functions conferred by a legislative rules); the Authority may use all available mechanisms to conduct and encourage programs including, but not limited to, social media and advertising; and (h) to support, encourage, conduct and evaluate research about AIP matters: conducting and analysing existing research about AIP matters will be important in facilitating the ongoing discussion about AIP policy and ensuring that the policy is delivering the best outcomes for Australian industry; and (i) to advise the Minister about AIP matters: formally and informally advising the Minster about the issues that arise about AIP matters and any of the Authority`s conferred functions; and (j) to consult and cooperate with other persons, organisations and governments on AIP matters: this would include establishing ongoing dialogue with relevant Commonwealth and State governments as well as industry associations, project proponents and other affected corporations; the Authority will ensure that there are mechanisms in place that will allow effective ongoing consultation and cooperation with all parties in relation to AIP matters or any other conferred function; and (k) on behalf of the Commonwealth, to administer such schemes and programs as are specified in the legislative rules: these programs may include ones that assist with the facilitation of Australian entities to win work on major projects and any other programs that support, build and encourage the capabilities and competitiveness of Australian entities; and (l) such functions as are conferred on the Authority by a law other than this Bill; and (m) such other functions (if any) as are specified in the legislative rules; and 108

(n) to do anything incidental or conducive to the performance of any of the above functions: this would ensure that the Authority can deal with issues and matters that are not strictly related to its functions but arise as a result of the performance, conduct or establishment of any of its functions. 109

Division 2--Appointment of the Authority Clause 69 - Appointment of the Authority Clause 69 provides for the appointment of the Authority. The Minister will appoint the Authority by written instrument. The office of the Authority will be held on a full-time basis. In appointing a person to the Authority, the Minister must be satisfied that the relevant candidate has substantial experience or knowledge, together with significant standing in the field or fields of economics, industry or public administration. Clause 70 - Period of appointment for the Authority The office of the Authority will be held for a maximum period of 5 years. The Authority may be reappointed. Clause 71 - Acting appointments Clause 71 allows a person to be appointed to the office of the Authority in an acting capacity. The Minister may appoint a person to act as the Authority during any period of vacancy in the Authority`s office including where an appointment is yet to be made. A candidate for appointment to act as the Authority must be able to satisfy the eligibility criteria under clause 69. 110

Division 3--Terms and conditions for the Authority Clause 72 - Remuneration and allowances The remuneration to be paid to the person holding the office of the Authority is to be in accordance with any determination made by the Remuneration Tribunal. Where no appropriate remuneration has been determined by the Tribunal, the Authority is to be paid the remuneration prescribed by the legislative rules. The Authority is also to be paid allowances prescribed by the legislative rules. Clause 73 - Leave of absence The person holding the office of the Authority has recreational leave entitlements as determined by the Remuneration Tribunal. The Minister may also grant the person other forms of leave on such terms and conditions as determined by the Minister. Clause 74 - Outside employment The person holding the office of the Authority must seek the Minister`s approval before engaging in outside paid employment. Clause 75 - Disclosure of interests to the Minister The person holding the office of the Authority must disclose all forms of interests which she or he holds or acquires which may create a conflict in the person`s performance of the Authority`s functions. The disclosure must be made by written notice to the Minister. Clause 76 - Resignation The person holding the office of the Authority may resign from his or her appointment. The resignation must be made in writing to the Minister and will take effect on the day specified in the notice or on the day it is received by the Minister, whichever is the later. Clause 77 - Termination of appointment The Minister may terminate the appointment of the Authority for the following reasons: for misbehaviour; or if the Authority is unable to perform the duties of his or her office because of physical or mental incapacity; or if the Authority becomes bankrupt; or if the Authority applies to take the benefit of any law for the relief of bankrupt or insolvent debtors; or if the Authority compounds with his or her creditors; or if the Authority makes an assignment of his or her remuneration for the benefit of his or her creditors; or if the Authority is absent, except on leave of absence, for 14 consecutive days or for 28 days in any 12 months; or if the Authority engages, except with the Minister`s approval (as required by clause 74), in paid employment outside the duties of his or her office; or 111

if the Authority fails, without reasonable excuse, to disclose all interests to the Minister in accordance with clause 75. Clause 78 - Other terms and conditions Any other matters pertaining to the office of the Authority which are not dealt with by this Bill shall be subject to terms and conditions to be determined by the Minister. 112

Division 4--Delegation Clause 79 - Delegation by Authority The Authority may delegate, by written instrument, any or all of his or her functions or powers to the following: an SES employee; or an acting SES employee; or an APS employee who holds or performs the duties of an Executive Level 2 position or equivalent. A delegate must comply with any written direction made by the Authority. 113

Division 5--Staff and consultants Clause 80 - Staff assisting the Authority The Authority is to be assisted in performing its functions and duties by the staff of the Department who are made available to the Authority by the Secretary. Clause 81 - Other persons assisting the Authority The Authority is also able to be assisted with the performance of any of the Authority`s functions by the following staff whose services are made available to the Authority: by officers and employees of Agencies (within the meaning of the Public Service Act 1999); or by officers and employees of authorities of the Commonwealth; or by officers and employees of a State or Territory; or by officers and employees of authorities of a State or Territory. Clause 82 - Consultants The Authority may engage consultants on appropriate terms and conditions to be determined in writing by the Authority. Any persons engaged as a consultant must have suitable and appropriate qualifications and experience. 114

Division 6--Reports Clause 83 - Annual report The Authority must prepare an annual report on the Authority`s operations in respect of a financial year as soon as practicable after the end of each financial year. The Authority must provide the report to the Minister for presentation to the Parliament during that year. 115

Division 7--Directions by Minister Clause 84 - Minister may give directions to the Authority The Minister may, by legislative instrument, give general directions to the Authority about the performance of its functions which the Authority must comply with. Any such instrument of direction is not subject to disallowance under section 42 and Part 6 of the Legislative Instrument Act 2003. 116

Part 8--Australian Industry Participation Advisory Board Division 1--Australian Industry Participation Advisory Board Clause 85 - Establishment of Australian Industry Participation Advisory Board The Minister may establish the Australian Industry Participation Advisory Board (AIP advisory board). The Minister is required to consult with the Authority before she or he can establish the AIP advisory board. The AIP advisory board is to be established by written instrument. Subclause (3) clarifies that the written instrument by which the Minister establishes the Board is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003. Clause 86 - Functions of AIP advisory board Clause 86 sets out the function of the AIP advisory board. The functions of the AIP advisory board are: (a) to advise the Authority, at the Authority`s request, about matters relating to the performance of the Authority`s functions: the board may apply or provide its own expertise and knowledge to the matter and provide advice, information or a recommendation to the Authority; the Authority may choose to accept or reject any advice or recommendations made by the board about its functions; (b) to advise the Minister, at the Minister`s request, about AIP matters: the board may apply its own expertise and knowledge to the matter in order to provide advice, information or a recommendation to the Minister; (c) to do anything incidental or conducive to the performance of either of the above functions: this would ensure that the board can deal with issues and matters that are not strictly related to its functions but arise as a result of the performance, conduct or establishment of any of its functions. 117

Division 2--Appointment etc. of AIP advisory board members Clause 87 - Membership of AIP advisory board The AIP advisory board is comprised of a Chair and a minimum of two members, but no more than four other members. Clause 88 - Appointment of advisory board members etc. The Minister may appoint board members by written instrument. Each board member is appointed on a part-time basis. The term of each board member is to be specified in the written instrument, but must not exceed 5 years. A board member is eligible for reappointment. In appointing board members, the Minister must ensure that the members of the advisory board collectively possess experience or knowledge in economics, industry, project management and procurement of goods or services. Clause 89 - Vacancy in the membership of AIP advisory board Clause 89 clarifies that for the purposes of applicable provisions in the Acts Interpretation Act 1901 in relation to a vacancy in the membership of a board, the AIP advisory board is comprised of 2 offices for members, together with the Chair of the AIP advisory board. 118

Division 3--Terms and conditions for advisory board members Clause 90 - Remuneration and allowances The remuneration to be paid to members of the advisory board is to be in accordance with the determination made by the Remuneration Tribunal. Where no appropriate remuneration has been determined by the Tribunal, each board member is to be paid the remuneration prescribed by the legislative rules. Board members are also to be paid allowances prescribed by the legislative rules. Clause 91 - Leave of absence The Minister may grant members of the advisory board leave of absence on terms and conditions as determined by the Minister. Clause 92 - Disclosure of interests to the Minister Each member of the advisory board must disclose all forms of interests which she or he holds or acquires which may create a conflict in the person`s performance of the member`s functions. The disclosure must be made by written notice to the Minister. Clause 93 - Disclosure of interests to AIP advisory board Each advisory board member who has a direct or indirect pecuniary interest in any matter to be considered by the AIP advisory board must disclose that interest to a meeting of the advisory board. Such disclosure must be made at the earliest opportunity after the member is aware of the interest and must be recorded in the minute of the meeting. If such a disclosure has been made, the advisory board member must not be present during deliberations of the matter, nor take part in any decision-making in relation to the relevant matter unless the AIP Advisory Board has determined otherwise. During any deliberations of the board in determining the involvement of a board member in relation to the matter for which the member has disclosed an interest, the relevant board member must not be present, nor take part in the decision making process of the determination. Any such determination made must be recorded in the minutes of the meeting. Clause 94 - Resignation An advisory board member may resign from his or her appointment. The resignation must be made in writing to the Minister and will take effect on the day specified in the notice or on the day it is received by the Minister, whichever is the later. Clause 95 - Termination of appointment Clause 95 allows the Minister to terminate the appointments of the advisory board members. 119

Division 4--AIP advisory board procedures etc. Clause 96 - Procedures of AIP advisory board The AIP advisory board is required to hold sufficient meetings as are necessary to ensure its functions are discharged. The Chair of the AIP advisory board may convene a meeting of the board as appropriate, but must convene a meeting if the Minister or the Authority requests such a meeting in writing. Clause 97 - Presiding at meetings At all meetings of the AIP advisory board the Chair must preside if she or he is present. In the absence of the Chair, the remaining board must appoint one member to preside. Clause 98 - Quorum The quorum of the AIP advisory board will be a majority of the board members. If however due to a conflict of interest on a particular matter, a member is excluded from a board meeting (by clause 93) resulting in a quorum no longer being present, the remaining members shall comprise a quorum for the purposes of dealing with that particular matter. Clause 99 - Voting at meetings All matters arising during meeting are to be determined by a majority of the votes of the present advisory board. The person presiding at a meeting shall have a deliberative vote. If however the votes are equally divided, the person presiding shall have a casting vote. Clause 100 - Conduct of meetings The AIP advisory board may conduct its meetings as it considers appropriate subject to the requirements of this Division 4. Section 33B of the Acts Interpretation Act 1901 permits members of a body to participate in a meeting by other communication means such as telephone or closed-circuit television. Clause 100 deems the AIP advisory board as an appropriate body to which the provisions of section 33B of the Acts Interpretation Act 1901 shall apply. Clause 101 - Minutes Clause 101 requires that the AIP advisory board must keep minutes of each of its meetings convened. 120

Part 9--Secrecy Clause 102 - Secrecy Clause 102 is an offence provision aimed at protecting sensitive information from unauthorised disclosure or use. Under this provision, it is an offence for a person who is, or has been an entrusted official to disclose or use protected information obtained in an official capacity unless one of a number of exceptions apply. The penalty for breaching this offence provision is up to two years` imprisonment or 120 penalty units (which currently equates to $20,400), or both. Protected information is not to be disclosed or used unless that disclosure or use is authorised by a provision of this Part 9 or is in compliance with a Commonwealth law or a designated law of a State or Territory. The legislative rules may declare that a certain prescribed law of a State or Territory is a designated law for the purposes of this provision. This provision is important to ensure that compliance with the provisions of the Bill is not compromised. These provisions exist to protect certain information received by the Authority in the performance of its functions under the Bill. The provisions provide a level of formal security for project proponents and facility operators to be able to provide commercially sensitive information, when meeting their requirements under the Bill, to the Authority and be assured that it will be treated in accordance with this Part. Clause 103 - Disclosure or use for the purposes of this Act etc. Clause 103 sets out the circumstances in which protected information may be disclosed or used by an entrusted official. These circumstances are: (a) the disclosure or use is for the purposes of this Bill; or (b) the disclosure or use is for the purposes of the performance of the functions of the Authority; or (c) the disclosure or use is for the purposes of the performance of the functions of the AIP advisory board; or (d) the disclosure or use is in the course of the official`s employment or service as an entrusted official. Clause 104 - Disclosure to Minister Clause 104 authorises an entrusted official to disclose protected information to the Minister. Clause 105 - Disclosure to Secretary etc. Clause 105 authorises an entrusted official to disclose protected information to the Secretary of the Department or an officer of the Department who has been authorised by the Secretary, in writing, if the disclosure is for the purpose of advising the Minister. 121

Clause 106 - Disclosure to a Royal Commission Clause 106 authorises an entrusted official to disclose protected information to a Royal Commission. Under this provision, the Authority may, by writing, impose conditions to be complied with by the entrusted official for any such disclosure made to a Royal Commission. The Authority`s power to impose such conditions is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003. Clause 107 - Disclosure to certain agencies, bodies and persons Clause 107 enables the Authority to authorise, in writing, an official to disclose protected information to any of the following agencies, bodies or persons if the Authority is satisfied that particular protected information will enable or assist such agencies, bodies or persons: (a) the Australian Communications and Media Authority; (b) the Australian Competition and Consumer Commission; (c) the Australian Prudential Regulation Authority; (d) the Australian Securities and Investments Commission; (e) the National Competition Council; (f) the Productivity Commission; (g) the Australian Statistician; (h) the Commissioner of Taxation; (i) the Australian Competition Tribunal; (j) the Director of Public Prosecutions; (k) the Australian Transaction Reports and Analysis Centre; (l) the Reserve Bank of Australia; (m) Industry Capability Network Limited (ACN 068 571 513); (n) the Chief Executive Officer of Customs; (o) a State/Territory government body whose functions include a function that corresponds to a function of the Authority; (p) a designated State/Territory government body; (q) a designated professional disciplinary body. For the purposes of this clause, the legislative rules may declare that: a specified State/Territory government body is a designated State/Territory government body: o a designated State/Territory government body can be a board, council or commission that oversees an organisation or provides a framework for control or direction for an organisation; a specified professional disciplinary body is a designated professional disciplinary body: o a designated professional disciplinary body can be, in the legal profession for example, a conduct board or relevant law society that deals with complaints about the conduct of legal practitioners and decides whether to dismiss, investigate or initiate disciplinary proceedings in relation to the complaint; o there are equivalent bodies in the medical and accounting professions. 122

Under this provision, the Authority may, by writing, impose conditions to be complied with by the entrusted official for disclosure of protected information to such agencies, bodies or persons. It is an offence for the person subject to the condition to engage in conduct which breaches the condition. The penalty for breaching this offence provision is up to two years` imprisonment or 120 penalty units (which currently equates to $20,400), or both. The Authority`s power to impose such conditions is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003. It is also an offence if a designated professional disciplinary body or one of its members discloses or uses protected information that was previously disclosed to that body that is not: with the consent of the Authority; or for the purpose of deciding whether or not to take disciplinary or other action; or for the purpose of taking disciplinary or other action. The penalty for breaching this offence provision is up to two years` imprisonment or 120 penalty units (which currently equates to $20,400), or both. Clause 108 - Disclosure with consent Clause 108 authorises an entrusted official to disclose protected information that relates to the affairs of a person if the person has consented to the disclosure and the official`s disclosure is in accordance with the person`s consent. Clause 109 - Disclosure of publicly available information Clause 109 clarifies that, if protected information has already been lawfully made available to the public, an entrusted official may disclose that information. Clause 110 - Disclosure of summaries or statistics Clause 110 provides that an official is authorised to disclose summaries or statistics derived from protected information as long as the identity of a person cannot be ascertained from those summaries or statistics. Clause 111 - Disclosure for purposes of law enforcement Clause 111 allows protected information to be disclosed to a Department, agency or authority of the Commonwealth, a State or a Territory or an Australian police force if the Authority is satisfied that the information is reasonably necessary for the enforcement of the criminal law, imposing a pecuniary penalty or the protecting of the public revenue. Information may also be disclosed to a Department, agency or authority of the Commonwealth, a State or a Territory or an Australian police force if the entrusted official has been authorised in writing by the Authority to do so. It is also an offence if a current or former employee or officer of a Department, agency or authority of the Commonwealth, a State or a Territory or an Australian police force discloses or 123

uses protected information that was previously disclosed to that Department, agency, authority or police force that is not: with the consent of the Authority; or for the purpose of enforcing the criminal law; or for the purpose of enforcing a law imposing a pecuniary penalty; or for the purpose of protecting the public revenue. The penalty for breaching this offence provision is up to two years` imprisonment or 120 penalty units (which currently equates to $20,400), or both. The Authority may, by writing, impose conditions to be complied with in relation to protected information disclosed to a Department, agency, authority or police force. The Authority`s power to impose such conditions is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003. It is an offence for the person subject to the condition to engage in conduct which breaches the condition. The penalty for breaching this offence provision is up to two years` imprisonment or 120 penalty units (which currently equates to $20,400), or both. 124

Part 10--Review of decisions Clause 112 - Review by the Administrative Appeals Tribunal The following decisions of the Authority are reviewable by the Administrative Appeals Tribunal: A decision to make a determination under subclause 8(5) that a scheme involving 2 or more low-value designated projects is a major project; A decision to make a determination under subclause 9(3) that a person is taken to be the sole person responsible for carrying out a specified project; A decision to make a determination under subclause 9(5) that two or more persons are taken to have sole responsibility for carrying out a specified project; A decision to make a determination under subclause 10(2) that goods or services proposed to be acquired for a major project under 2 or more low-value contracts are key goods or services; A decision to specify, or refuse to specify, a trigger day under paragraph 13(1)(c); A decision to specify, or to refuse to specify, a later time when a project proponent must submit a draft AIP plan to the Authority under paragraph 17(1)(b); A decision under clause 18, 19 or 20 to refuse to approve a draft AIP plan; A decision to make a determination under subclause 25(4) on the reporting period; A decision to give an adverse publicity notice under subclause 57(2) or (3); A decision to name a person in an annual report in accordance with subclause 57(4); A decision to name a person by electronic or other means under subclause 57(5). 125

Part 11--Miscellaneous Clause 117 - Operation of new relevant facility--constitutional basis Clause 117 clarifies the constitutional basis for the application of the Bill to the operation of a new relevant facility (but is to be disregarded in determining whether a project is a designated project). Under this provision, the provisions of the Bill shall not apply to a new relevant facility except where the following applies: one or more constitutional corporations are responsible for operating the facility; or the facility is in one or more offshore areas (within the meaning of the Offshore Petroleum and Greenhouse Gas Storage Act 2006) and relates to the exercise of Australia`s sovereign rights in the exclusive economic zone or the continental shelf; or the facility is for purposes related to trade or commerce: (i) between Australia and places outside Australia; or (ii) among the States; or (iii) within a Territory; or (iv) between a State and a Territory; or (v) between 2 Territories; or the facility is in a Territory; or the facility is in a Commonwealth place (within the meaning of the Commonwealth Places (Application of Laws) Act 1970). Clause 118 - Concurrent operation of State and Territory laws Clause 118 makes clear that this Bill is not intended to exclude or limit the operation of a law of a State or Territory that is capable of operating concurrently with this Bill, once enacted. Clause 119 - Constitutional limitations Clause 119 clarifies that, any function or power conferred by this Bill is not to be performed or exercised in such a way as to give preference to one State or part of a State over another State or part of a State, for the purposes of section 99 of the Constitution, nor that the performance of the function, or the exercise of the power, would infringe section 92 of the Constitution. Clause 120 - No interference with powers and functions of another jurisdiction Clause 120 operates to protect the States, the Australian Capital Territory and the Northern Territory from any unintended interference with the exercise of their powers, or the performance of their functions or duties, if any provision of the Bill, once enacted, would operate to invalidate a power or function of the government of a State or territory because of the Constitution. Clause 121 - Compensation for acquisition of property Clause 121 affirms the constitutional right (under section 51(xxxi) of the Constitution) that if the Bill, once enacted, would operate to result in the acquisition of property from a person otherwise than on just terms, the Commonwealth must pay that person reasonable 126

compensation or the person may commence legal proceedings in a court if the Commonwealth and the person do not agree on the quantum of compensation. Clause 122 - Validity of transactions in contravention of Act Clause 122 clarifies that a breach of a provision or provisions of the Bill, once enacted, will not affect the validity of any transaction. Clause 123 - Consideration not in cash Clause 123 provides that where a transaction would involve non-pecuniary consideration, it is to be assumed that the monetary value of that consideration would have been incurred. Clause 124 - Translation of amounts into Australian currency Clause 124 provides that, for the purposes of the Bill, all amounts of foreign currency are to be converted to Australian currency at the applicable exchange rate at the relevant time. Clause 125 - Law relating to legal professional privilege not affected Clause 125 provides that the law relating to legal professional privilege will not be affected by the operation of the Bill, once enacted. Clause 126 - Liability for damages Clause 126 provides indemnity for the following persons and bodies from liability for any action or proceeding for damages in relation to an act done, or omitted to be done, in good faith in the performance of any function or exercise of any power conferred by the Bill. the Minister; the Authority; a delegate of the Authority; a member of the staff assisting the Authority; a person assisting the Authority under clause 81; the AIP advisory board; an advisory board member. Clause 127 - Review of operation of Act The Minister must cause a review to be conducted on the operation of the Bill, once enacted, no later than 5 years after the commencement of this provision. The review must ensure that public consultation is undertaken and is wide ranging. The Minister must ensure that a report of the review is prepared and tabled in each House of the Parliament within 15 sittings days of each House after the completion of the report. Clause 128 - Legislative rules Clause 128 provides that the Minister may, by legislative instrument, make rules prescribing matters required or permitted to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to this Bill, once enacted. 127

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