Thousands of jobs and millions of dollars foregone by NSW Government project offshoring

Unions NSW

The NSW Government is being urged to publish the wider economic benefits of awarding contracts to Australian companies after a new report found thousands of jobs and millions of dollars have been foregone by offshoring major projects.

Unions NSW is launching The McKell Institute ‘Build It Here’ report, which analysed six of the NSW Government’s transport contracts including the new intercity rail fleet made in South Korea, the light rail made in France and Spain, new Sydney Ferries made in China and Indonesia and 38 B-Line buses built in Germany and assembled in Malaysia.

The report found that if wider economic benefits were considered it is likely that four of the six projects would have been built in Australia and generated an estimated 4,192 direct and indirect jobs and more than $484 million in payroll and income tax collections.

Unions NSW Secretary Mark Morey said the report discredits the NSW Government’s claim it saves money offshoring projects.

“Four out of the six projects analysed would have produced greater economic value, had they been built in Australia, after cost blow outs and wider economic benefits were taken into account,” said Mr Morey.

“The NSW Government can save money by awarding contracts to domestic manufacturers while also creating jobs here and supporting our economy.

“Not only are NSW taxpayers missing out on the economic benefits tied to local production but they are footing the bill for costly mistakes made by foreign producers.

“Poorly designed intercity trains didn’t fit on tracks in the Blue Mountains, Sydney’s new ferries don’t fit under bridges along the Parramatta River, and require passengers to clear the top deck on every trip, and the cost of the new Sydney Metro has blown out by more than $4 billion.

“These mistakes could easily be avoided by awarding contracts to Australian manufacturers who have a history of local expertise and comprehensive understanding of design requirements.”

The McKell Institute executive director Michael Buckland said accounting for the economic benefits of local production will better inform contract sourcing.

“We consider wider economic benefits when making decisions about major infrastructure projects. It makes no sense to ignore them for significant procurement contracts,” Mr Buckland said.

“If politicians published the economic benefits and jobs they would send overseas, many of these projects would be built in Australia.

“In many cases offshoring contracts drives economic value and jobs overseas.

“Though gains from trade are real and significant, they pale in comparison to the benefits we gain domestically from using local producers.”

The report also found:

  1. The six major international procurements examined in this report experienced increases to their budgets of between 40 and 50 per cent, negating the cost savings originally used to justify awarding the tenders to international bidders instead of domestic bidders.
  2. Wider economic benefits associated with domestic production are not made public when offshoring decisions are made.
  3. Of the six Transport for NSW rolling-stock procurements we examined, four would have produced greater economic benefits from local production than the savings generated from overseas sourcing. The net economic benefit was greatest for contracts worth more than $1 billion.
  4. If the four projects with positive net economic value of local production were produced locally, we estimate that 4,192 direct and indirect jobs would have been created.

The report makes several key recommendations including the following:

Recommendation 1: The cost increases observed in overseas procurements should be investigated to determine whether inefficiencies resulting from offshore contract sourcing are consistent, and how they may be mitigated via local production.

Recommendation 2: The NSW Government should establish an international sourcing comparator based on the public sector comparator to promote transparency in significant procurement decisions. The international sourcing comparator should be published alongside contract award notices.

Recommendation 3: Government agencies should publish wider economic benefits as part of a holistic cost-benefit analysis when making decisions about major procurement contracts that exceed $1 billion.

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