NSW Government procurement reform Part 1 - Buy Local
17 March 2025
Procurement reform has been a priority for the Minns Government, with significant progress already taken and additional initiatives planned for the future. Minister Houssos represents procurement policy in Cabinet, underlining the emphasis on generating greater social and industrial outcomes from the State’s $42 billion procurement budget.
This is the first article in a four-part series that will explore the NSW Government’s procurement reform agenda and its implications for both government officials and suppliers. In this article, we will focus on initiatives designed to stimulate local industry participation in government procurement.
A quick recap on the government procurement landscape in NSW
The key procurement architecture in NSW is set out in Part 11 of the Public Works and Procurement Act 1912 (NSW) (PWP Act), which includes:
- descriptions of the primary obligations of agencies when undertaking procurement
- the establishment of the Procurement Board as the control authority for procurement policy
- empowerment of the Procurement Board to issue policy and directions for agencies, and
- definitions of procedures to deal with contravention of enforceable procurement provisions.
The Procurement Board has issued various directives, which are consolidated into a single policy known as the NSW Procurement Policy Framework (Policy Framework). This framework contains both mandatory and advisory provisions and holds statutory authority under Part 11 of the PWP Act. The most recent consolidation of the Policy Framework was released in December 2024.
Additionally, the Procurement Board has issued the Enforceable Procurement Provisions (EPP) direction[1], which defines tender and other requirements for the procurement of construction services valued over $9.584 million and other goods and services valued over $680,000. There are elevated sanctions for contravention of the EPPs, which can include injunctive relief and compensatory orders issued by the Supreme Court.
Procurement by local governments in NSW is regulated separately under the Local Government Act 1993 (NSW), the Local Government (General) Regulation 2021 (NSW), and guidance issued by the Office of Local Government[2]. Local government procurement will be addressed in a future series.
Inquiry into procurement practices and its social impact
Recently, the NSW Legislative Council Standing Committee on Social Issues completed an inquiry into government procurement practices (Inquiry)[3]. This Inquiry had broad terms of reference, including an examination of the social impacts of procurement[4]. An initial report of the Inquiry was tabled in June 2024 (Initial Report)[5], followed by a final report in October 2024 (Final Report)[6]. The Government has expressed support for most of the recommendations from the Inquiry, which is not surprising given the government representation on the Committee.
Adjusting non-discrimination provisions
All governments support their local industry through both financial and non-financial policy measures. In the procurement context, Australian governments must balance the support for local suppliers with the need to avoid discrimination against foreign suppliers, as this is prohibited under various free trade agreements to which Australia is party. This includes NSW and other state and territory governments[7]. As a result, historically the EPP has prohibited several practices, including:
- discrimination based on foreign ownership and the origin of goods
- discrimination based on the origin of goods and services, and
- requiring offsets from foreign suppliers such as mandates for the use of domestic suppliers, technology transfer, or local investment)[8].
However, in October 2024, following a direction from the Minister, the Procurement Board amended the EPP to remove the prohibitions on requiring offsets and on discrimination based on the origin of goods and services. These changes grant officials more flexibility to favour locally sourced products and enhance local supply chain.
Local market testing
The Procurement Board has issued a direction[9] requiring agencies to conduct upfront local market testing in all procurement plans exceeding $7.5 million. This aims to ensure that ‘local suppliers’ have a ‘full and fair opportunity’ to participate in procurement processes.
In this context, a ‘local supplier’ is defined as a ‘NSW based enterprise’, which is consistent with the Government’s focus on driving outcomes in the NSW economy rather than on a national scale. This definition raises practical questions about what it means to be ‘NSW based’. For instance, larger businesses may have a modest representative office or facility in NSW while their headquarters and manufacturing operations in another state or country. Will that still qualify as ‘NSW based’?
The direction doesn’t specify the nature and extent of the market testing requirements, but it likely will require agencies to proactively determine whether ‘local suppliers’ are able to supply the goods and services required for a proposed procurement. Agencies may also need to conduct initial briefings to ensure local suppliers are fully informed before opportunities are advertised.
There are integrity issues associated with market testing; agencies must ensure that the information provided to the market remains consistent when opportunities are advertised and that procurement specifications are not unduly influenced by early engagement with ‘local suppliers’.
Explain why local participants not selected
Officials will now be required to explicitly state in procurement decision briefs why a ‘local supplier’ was not selected when one was available for procurements exceeding $7.5 million[10]. This ‘if not, why not’ approach challenges officials to consider local suppliers, knowing they must justify their position not to appoint one. This strategy has been effective in shaping behaviour in other contexts and is also applied by the ASX Corporate Governance Council in its Corporate Governance Principles and Recommendations for ASX-listed companies.
Enhanced oversight through centralised records and reporting
The Procurement Board will be able to supervise local market participation initiatives more intensively thanks to several changes that improve access to procurement information.
All agencies will be required to record all procurement opportunities (including selective procurements), exceeding $150,000 centrally on the Buy NSW hub by 31 December 2025[11]. This will give the Procurement Board a comprehensive view of major procurement activities. Although agencies can nominate how selective opportunities are presented—potentially limiting visibility to to invited suppliers—there will still be a central record of the procurement and its outcome.
Additionally, agencies will be required to submit quarterly reports to the Procurement Board on the procurements awarded in excess of $7.5 million. These reports will include data on the number of procurements, those awarded to local versus non-local suppliers, the availability of local suppliers in the market, and reasons why local suppliers were not selected, all aligned with specific value-for-money criteria[12].
With these measures, the Procurement Board should have a clearer understanding of procurement decisions across government and will be better equipped to identify any impediments to local participation, which may lead to further directions or policy measures.
Local content requirements
The Premier has indicated plans to introduce legislation that will mandate a minimum 30% weighting for tender evaluations on procurements exceeding $7.5 million. This weighting will take into account local content, job creation, small business, and ethical supply chains. Additionally, a Jobs First Commission will be established to oversee the implementation of this initiative and other reforms mentioned above[13].
Currently, the NSW Small and Medium Enterprise and Regional Procurement Policy[14] requires that for contracts exceeding $3 million, officials must reserve in the non-price evaluation criteria at least:
- a 10% weighting allocation to SME participation, and
- a 10% weighting allocation to support the NSW Government’s economic, ethical, environmental, and social priorities.
It is unclear how the new 30% tender evaluation weighting will be administered and what specific metrics it will be used to measure. It is also unclear whether the weighting allocations under the current policy will be retained for contracts between $3 million and $7.5 million. For context, the Commonwealth Procurement Rules take a less prescriptive approach, simply requiring officials to consider the impact of procurements over $1 million on the Australian economy[15].
Public consultation on the new legislation has not yet begun, although there are likely antecedents. The policy appears to be influenced by the Victorian Government’s Local Jobs First program and the NSW Jobs First Bill (Bill), which was introduced by the-then opposition in 2020 and 2021 (having lapsed on both occasions) and may reflect elements of a 2025 bill. The Bill had a focus on government procurement and included:
- a regulation-making power to set minimum local content for projects
- powers for the Minister to set local content requirements for significant projects
- powers for the Minister to set project parameters (e.g., maximising use of local products)
- a requirement for a local industry development plan for certain significant projects
- a requirement for skills development plans for certain major projects
- a requirement that tender specifications set mandatory weighting for local content, and
- establishment of the NSW Local Jobs Advocate, an office subject to Ministerial direction that could request information from agencies and require them to audit their compliance with local industry development plans and skills development plans amongst other responsibilities.
The Keneally government introduced the Local Jobs First Plan in 2009 to support local SME businesses in participating in government procurement activities, which included a requirement for NSW government agencies to report on their participation[16].
We will keep you updated as more details about the new legislation become available.
[1] PBD-2019-05 – Procurement (Enforceable Procurement Provisions) Direction 2019 (NSW) [Link]
[2] Tendering Guidelines for NSW Local Government (NSW Office of Local Government: 2009) [Link]
[3] Parliament of NSW Legislative Council Standing Committee on Social Issues Inquiry into procurement practices of government agencies in New South Wales and its impact on the social development of the people of NSW [Link]
[4] Inquiry into procurement practices of government agencies in New South Wales and its impact on the social development of the people of NSW – Terms of Reference [Link]
[5] Procurement practices of government agencies in New South Wales and its impact on the social development of the people of New South Wales - First Report (Parliament of NSW Legislative Council Standing Committee on Social Issues: Report No.63: June 2024) [Link]
[6] Procurement practices of government agencies in New South Wales and its impact on the social development of the people of New South Wales - Final Report (Parliament of NSW Legislative Council Standing Committee on Social Issues: Report No.63: October 2024) [Link]
[7] See for instance Ch 15 of the Australia-United States Free Trade Agreement [Link] and Ch 16 of the Australia-United Kingdom Free Trade Agreement [Link].
[8] Note 1, Chp 3.
[9] PBD 2024-02 – Increasing opportunities for local suppliers to supply to government [Link].
[10]Ibid.
[11] PBD 2024-01 – Mandate for the publication of NSW Government supply opportunities on buy NSW [Link]
[12] Note 9.
[14] NSW Government Small and Medium Enterprise and Regional Procurement Policy [Link]
[15] Commonwealth Procurement Rules 2024 [Link], para 4.7.
[16] C2010-09 – The Local Jobs First Plan [Link].
