Australia should move toward a nationally consistent approach regarding policies that aim to boost local participation on major rail projects, a new report has found.
Releasing its latest report, the Australasian Railway Association (ARA) said that inconsistent policies regarding local content when it comes to procurement for contracts relating to construction, operation, maintenance and services for Australia’s rail sector are hampering the effectiveness of such policies and restricting the competitiveness of Australian suppliers in the rail industry.
It called for the establishment of a national local content policy for the Australian rail industry.
“Different local content policies between states can increase costs, inhibit investment and create inefficiencies throughout the procurement process,” ARA Chief Executive Officer Caroline Wilkie said.
“A more holistic, national approach to local content policies would help rail businesses achieve economies of scale, reduce costs, improve quality and create greater competition in the market.
“This would ultimately lead to better outcomes for both industry and government, maximising the return on investment for critical rail infrastructure.”
The report comes as Australia is undergoing an unprecedented boom in railway construction.
Over the five years to June 2026, Australian Construction Industry Forum expects the value of work done on construction of railways as well as bridges and harbours to come in at almost $80 billion ($79.313 billion).
This represents a 57 percent increase compared with the $50.499 billion worth of work done over the five years to 2020/21.
That number does not count construction of either new station buildings or new rail vehicles/rolling stock.
To ensure that local industry generates the greatest possible benefit out of this, state governments have implemented policies regarding local content procurement and local jobs.
In Victoria, a Local Jobs First Policy requires that local content comprise at least 90 percent the value of any public sector construction project above certain thresholds and 80 percent of any public-sector services or maintenance project above certain thresholds.
Specifically on construction, a Major Project Skills Guarantee also requires that Victorian apprentices, trainees or cadets be used for at least 10 percent of the labour hours on all projects valued at over $20 million.
In New South Wales, meanwhile, the state’s Procurement Policy Framework does not focus as much on specific local content requirements but emphasises participation of small and medium sized enterprise as well as regional procurement.
It requires that for all government contracts valued at over $3 million, at least 10 percent of the contract value should be allocated to small and medium enterprises whilst at least 10 percent should be allocated to support the NSW Government’s ethical, social, economic and environmental priorities (usually in regional areas).
Whilst much of this effort has benefited Australian industry, the report says that challenges have arisen amid inconsistencies across states and territories.
One area of frustration involves the way local content is specified.
Whilst some jurisdictions such as Victoria apply a broad definition of local content to mean that which originates from anywhere within Australia or New Zealand (though some suppliers believe they have missed out on contracts though work not being located specifically in Victoria), others apply a state-based definition under which local content must originate from that state.
In one case, a Sydney based manufacturer responding to a tender from another state was told by the procurement entity that ‘delivering from Sydney is the same as delivering from Turkey’.
This is problematic as costs associated with establishing specific facilities in individual states to cater for local project requirements are substantial and often prohibitive.
Even a small turnout manufacturing facility employing 10 staff would have a setup cost of $5-$10 million and take 1-2 years to establish. This comes with no guarantee of a contract win to recoup the cost of establishing the facility.
As a result, tender processes which limit local content specifications to specific states can favour those with an established state presence and can therefore entrench market concentration rather than promoting greater competition.
Another problem involves the definition of local content.
In some jurisdictions, it has been reported that ‘local’ content can be satisfied through importing rail components and onshore assembly with little regard to the source of materials or the labour involved in assembly.
This approach often focuses excessively on the ‘big steel parts’ and does not afford adequate consideration of the complete assembly or process that goes into the supply of the product from design to project management through to freight and logistics and smaller ancillary components (which often cost more than the big steel parts etc).
One case noted in the report involves a supplier who provides various railway parts which have many subcomponents – some of which are manufactured locally and others of which are imported from overseas.
The supplier feels that they are treated unfavourably in some states compared with three competing firms which have established manufacturing facilities and manufacture the ‘big’ parts locally.
This is despite the fact that each of the competitors are large multi-nationals who in fact import many components from overseas and simply conduct final assembly in Australia.
Other problem areas include:
- Difficulty in understanding and complying with the required percentages or calculation methodologies used to determine the local content requirements – something which is made more challenging by a lack of consistency in methodologies and requirements across states.
- Potential for ‘gaming’ of local content rules which focus on proportional calculations such as percentage value of a contract.
- A perceived lack of transparency regarding the assessment process of local content requirements in tender evaluation.
In its report, ARA called for a nationally harmonised approach to local content policies.
With Australia being a relatively small market in a global context, it said this could help suppliers to achieve greater scale across the nation.
Whilst it acknowledged that full policy harmonisation may be difficult, the report said that incremental steps toward a more national approach could deliver substantial benefits.
Toward this end, it suggested that focus areas include:
- development of a consistent definition of local content
- creating alignment of regulatory requirements across states
- identifying opportunities to integrate state requirements
- understanding Federal Government involvement
- reviewing tender evaluation mechanisms
- reviewing auditing, and compliance requirements; and
- generating greater market awareness of suppliers’ capabilities and requirements.
Wilkie says now is the time to adopt a national approach given the scale of investment in rail projects which are either planned or underway.
“The report’s recommendations clearly outline the benefits of adopting a national approach to local content policy development,” she said.
“Increased harmonisation within the rail industry is vitally important for increasing the competitiveness of the Australian rail supply chain, and facilitating innovation and export market opportunities.”