Local Investment Plan: The lowdown on LIP for Strategic Projects

If you are responding to a government tender with a capex that’s greater than $50M, you may be required to submit a Local Investment Plan (LIP) that demonstrates your commitment to broader economic development.

The Local Investment Plan (or LIP) is an emerging tendering requirement for Victorian government Strategic Projects – that is, projects that are greater than $50M.

Like the Victorian Industry Participation Policy and Local Industry Development Plan (see our recent post on Local Content, VIPP and LIDP), the Local Investment Plan for Strategic Projects reflects the government’s desire to see broader economic benefits of its capital investments. The LIP complements the VIPP, which is required for all procurements over $1M (regional Victoria) or $3M (metropolitan Melbourne), including Strategic Projects. The LIP will thus usually go hand-in-hand with a VIPP.

local investment plan LIP

There’s an increasing requirement for businesses tendering for Strategic Projects to submit a Local Investment Plan as part of their government tender response. LIPs provide an opportunity for the tenderer to detail their commitment and approach to increasing capital investment in the industry sector applicable to the tender – for example, renewable energy or manufacturing.

The LIP is assessed as part of an economic development criterion, which assesses a project’s contribution to economic development in (especially regional) Victoria, including jobs, supply chains, manufacturing and service industries.

The LIP measures a Strategic Project’s contribution to economic development in Victoria outside the delivery of the tender services; that is, in addition to commitments that will be delivered as part of the tendered products or services.

Thus will the LIP measure/define the positive impact of a Strategic Project on:

  • economic development of services and manufacturing industries
  • regional development
  • demonstrable development of supply chains, and
  • broader economic benefits, such as headquarter locations, job growth, and research and innovation activities.

Importantly, the commitments contained in the LIP form part of the resulting service agreement with the successful tenderer, which is required to report on these commitments.

What does an LIP include?

  1. A description of the business opportunity that outlines the need in the marketplace for the products or services provided under the tender, including any supporting evidence or data.
  2. Information regarding impacts upon the local supply chain and any long-term supply agreements that will be in place as a result of the proposed capital investment (beyond the tendered delivery).
  3. Quantity of the new capital investment, as well as the break-down of the specific expenditure items.
  4. Location of the capital investment and nature of the facility/facilities it supports.
  5. A description of the technical capabilities of the delivered tender outputs, including the growth of knowhow and technical (and manufacturing) capabilities within the applicable sector.
  6. The timing of the capital investment, as well as any external factors or other projects that may influence the timing or decision.
  7. A description of how the capital investment will increase or support the competitive advantage of the business and applicable (and relevant) industries.
  8. Information about current and expected future customers as a result of the capital investment, why the services or goods are likely to meet the needs of these customers, and strategies to secure sales.
  9. Corporate approvals currently in place, as well as the extent of internal and external stakeholder support.
  10. Government or related approvals required for the capital investment to proceed.
  11. Details of the business/entity/organisation funding the capital investment and the relationship between this entity and the tenderer, as well as any conditions for the capital investment.
  12. How the capital investment will support the sustainability of the particular industry sector and associated industries in Victoria.
  13. Export opportunities enabled through the investment.
  14. An estimate of the economic benefits to Victoria from the capital investment in ($ nominal), including key assumptions in deriving this estimate.

How to respond to a LIP

Many of the questions in a LIP are about risk: Risk to funding, risk to approvals, risk to supply and even risk to customer take-up. Government can only achieve economic benefits when there is a sustainable marketplace with ongoing supply and demand; hence the focus on risk.

In responding to the questions in the LIP, you must therefore consider your responses through a lens of risk to government of achieving the desired economic outcome.

Tenderers must also think more broadly than just the solution and the immediate benefits achieved through the tender. Real economic benefit to the community will be achieved through outcomes that are wider than the tender; for example, the development of an emerging industry through training, formal education programs, transfer of knowhow and technology, and creation of ongoing jobs.

Often the tenderers that successfully demonstrate this positive economic outcome are those that are already on the path to building capability within a sector, and thus the government tender only forms part of the success of that strategy.

Other tips for responding:

#1: Be consistent. If you are committing to 67.5% local content in your VIPP or LIDP response, then you must also commit to the same local content in your LIP. Inconsistencies in values or commitments do not rate well with government evaluators.

#2: Economic development proposals that are determined to be overly conditional or unclear in their commitments will be assessed poorly against the economic development criteria. Ideally the strongest economic development proposal is one where the business submitting the tender response already has a commitment to local investment; thus winning the tender will only enhance the economic benefits, not be conditional on winning the work. Government does not like to read “if Government gives us this contract, then we will invest this”.

#3: Be clear on the need for the product or service and link this back to government policy. In a strategic project there will be policies underpinning the solution requirement. State this need clearly in the terms used by government.

#4: Be clear on your local supply chain – particularly if you are an overseas business. The greater the involvement of local industry, the lower the risk to ongoing supply. Training, apprenticeships and placements also enhance the sustainability of supply.

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