Government policies for driving local investment can be tricky to navigate when terms such as VIPP, LIDP, Local Content and ANZ Value are tossed around. Yet understanding what they mean will boost your chances of winning the tender.
VIPP, LIDP, Local Content, ANZ Value. If you are responding to a tender with a capex that’s greater than $3M, it’s likely you will have encountered one or more of these acronyms.
Every Australian state and the federal government has a different policy centred on driving local investment, where ‘local’ means ‘Australia and New Zealand’ in compliance with the Australian and New Zealand Government Procurement Agreement.
Local and regional governments include similar provisions in their tenders; however, in their case, the words ‘local content and local investment’ refer to their immediate municipality.
To similarly encourage state-based local investment, state governments have created additional requirements that coexist and remain compliant with the Australian and New Zealand Government Procurement Agreement.
In Victoria the primary relevant policy is the Victorian Industry Participation Policy (VIPP), which is a core consideration in procurements over $1M (regional Victoria) or $3M (metropolitan Melbourne) and comprises a formal minimum 10% local content weighting as part of project tender evaluation.
We advise you understand the VIPP requirements to increase your chance of winning government business.
Victorian Industry Participation Policy (VIPP)
The Victorian Industry Participation Policy (VIPP) can be summarised as follows:
Through its Local Jobs First – Victorian Industry Participation Policy (VIPP), the Victorian Government is committed to improving opportunities for local suppliers to create more new jobs and grow the economy.
VIPP ensures that small and medium size enterprises (SMEs) are given a full and fair opportunity to compete for government contracts ………… while still achieving value for money.
VIPP requires government departments and agencies to consider competitive local suppliers, including SMEs, when awarding contracts valued at:
- $1 million or more in regional Victoria, or
- $3 million or more in metropolitan Melbourne or for state-wide activities.
The VIPP gives particular attention to Strategic Projects, which are government procurements valued at $50 million or more or as otherwise agreed as strategic by government. These projects have minimum local content requirements and other conditions determined on a case-by-case basis by government, so as to maximise local business and job opportunities.
Let us now unpack and define these requirements.
Local Content under VIPP refers to the ANZ value-added activity of a good or service. It is determined on a cost basis and is the part of a product or service left once the cost of the international component has been subtracted. It can be expressed by the following equation:
Local content = total cost of the good or service less international content
The content of a good or service may include, but not be limited to: fees, tax, margins, profits, tariffs, cost of finance, insurances, land, freight, transport, engineering, design, planning, testing and analysis certification, commissioning, manufacturing or provision of service.
Many projects will state the local content targets for bidders to deliver against. All Strategic Projects (i.e. those greater than $50M) have mandated targets.
Standard VIPP Statement
Work valued at $1M or more in regional Victoria and $3M or more in metropolitan Melbourne requires a bidder to complete a Standard VIPP Statement. This statement is an indication of the local content and employment that the bidder will commit to if successful under the contract.
A Standard VIPP Statement must address:
- expected level of ANZ value-added (local content)
- expected employment levels for new and retained full-time equivalent positions (Annualized Employee Equivalent, AEE), to be created locally as a result of the contract
- expected number of new and retained apprentice/trainee positions to be created locally as a result of the contract
- how the plan will be implemented and expected outcomes achieved.
Expected level of ANZ value-added (local content)
To help identify local content, a tender will include a proposed list of contestable items. Contestable items are those items where a competitive local market is said to exist. Bidders must first address every contestable item, indicating whether each of these is applicable for the delivery of the solution or not.
Against the applicable contestable items, a bidder is required to indicate the percentage local content in:
- Manufacture (of the item)
- Supply (of the item), and if required
- Maintenance and ongoing supply of that item.
Bidders must also list all other items that form their bill of materials required to deliver the solution and indicate the level of local content against each of these items.
Bidders then must indicate the percentage of local content as a percentage of overall contract value (generally capex value).
Expected employment levels, apprentices and trainees
In addition to a commitment to using local industry, bidders must demonstrate their commitment to creating employment opportunities. The VIPP Statement uses the term Annualised Employment Equivalent (AEE), which is calculated as a percentage, based on the total hours that can be worked in a year being 38 hours per week multiplied by 52 weeks – a total of 1976 hours.
For example, if you are employing a resource for 3 days a week for 52 weeks, then the AEE is:
1,185.6 / 1976 = 0.6 * 100 = 60%
Bidders must also indicate the number of existing staff they will use to provide the services, as well as the number of apprentices and trainees that will be used.
VIPP commitments made by bidders are assessed on a risk basis, i.e. the risk to achieving the stated local content and AEE commitments. Thus a VIPP Statement must comprehensively address the strategy for identifying suitable local content, evaluating this local content and reporting on the achievement of this local content.
Tips for preparing a VIPP Statement
Tip #1: Do not leave any field in the Standard VIPP Statement blank. If a contestable item is not used, state this as not applicable. If an item is zero, state this.
Tip #2: The more items you include within your bill of materials, the greater opportunity for local content.
Tip #3: Use the Industry Capability Network (ICN) and its Supplier Gateway pages to identify local suppliers. Reference a partnership with the ICN to demonstrate how you will achieve your commitments.
Tip #4: Consider paying a marginal premium for local content over imported content. Commitment to local content is important for the growth of our industries and specific sectors. However, commitment to local content can also pay dividends during the maintenance phase of the contract, where the cost advantages of local supply of replacement parts and maintenance can reduce the impact of that initial premium you paid to gain that local content. It will also score well with the Government!
Tip #5: Increase your local content (and increase the value of your imported content) by counting transfer into the state of new technologies, skills and know how. Through VIPP commitments we can begin to shape new industries in Victoria.
Tip #6: Consider social procurement policies and embrace equal opportunity employment. Create opportunities for aboriginal employment, the employment of people with disabilities, employment or training of people in underprivileged areas, and, of course, gender-balanced employment.
Tip #6: VIPP Statements must be submitted before the tender phase. Compliant VIPP Statements will then be assessed from a risk perspective. It may impact the assessment of your whole tender if a complete and compliant VIPP plan is not submitted at its earlier due date.
Local Industry Development Plan (LIDP)
Bidders must complete a LIDP for Strategic Projects (i.e. those that are greater than $50M). Many of the requirements are identical to a Standard VIPP Statement; however mandated local content targets are set for capex, operational phases and the use of Australian steel (where applicable to the project).
The LIDP also requires a more detailed VIPP Plan and reporting mechanism.
Each government has a responsibility to ensure that significant investment in their jurisdiction/state builds opportunities for local businesses as well as wider investment opportunities. It’s also important to understand that governments must be compliant with the Australian New Zealand Government Procurement Agreement. A tender process must not discriminate between a buyer using a Victorian business versus one in Wellington NZ.
Before VIPP reforms, the government in Victoria struck a delicate balance, saying that out of bidders demonstrating the same value for money (score and cost), those with higher Victorian content would be successful. This seems to be removed from VIPP now, with just a weighted focus on ‘local’ or ANZ value content.
However, governments still have an eye firmly on state-based or municipal-based economic development, and so they should. Thus any VIPP Statement or LIDP must also address the commitment to Victorian businesses.
Governments all have policies on the regional zones they are focused on (in Victoria, think Geelong, La Trobe Valley, Bendigo and Ballarat) and industries they want to support and those they want to grow (in Victoria these are the 8 sectors or future industries that position the state for economic growth).
Understand these Victorian Government policy drivers and build a VIPP Statement that addresses these. Not only will this help you create a winning VIPP it will mean you are doing the right thing by the state that’s paying for your contract.