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Local Government Economic Stabilisation Post COVID-19

The Local Government sector in Western Australia is an economy worth $4.1 billion per annum.  It has managed assets of $48 billion, including responsibility for more than 88% of the public road network.  With a total workforce of 22,000 people (16,500 full time equivalent positions), spread across 139 Councils, and governed by 1,222 Elected Councillors, Local Government is a significant part of the Western Australian economy.

At a macro level, Local Government represents 0.59% of Western Australia’s gross state product (GSP).  In perspective, for every $100 spent in Western Australia on goods, services and works, 59 cents of that is spent by Local Government to support the provision of community services and infrastructure development.

Like all industry sectors, Local Government is assessing the full impact and recovery factors associated with COVID-19.  WALGA operates a preferred supplier program and shares business relationships with more than 1,000 companies through this medium.  We have yet to find a business supplying Local Government that has not been impacted by COVID-19, or whose future business process and strategy will remain unchanged in the post COVID world.

The fallout will permanently change the Local Government sector’s approach to sourcing supplies and maintaining supplier relationships.  From observations based on our procurement activity, WALGA sees the following major economic shifts;

1. Agility

All levels of Government have proven themselves capable of immediately responding to economic shocks by delivering stimulus and relief, making policy changes with immediate effect, and recognising the flow on effects of recession.  This will lead to a public expectation of continued greater agility and ongoing responsiveness.  Across the Local Government sector in Western Australia, Local Government is providing $512 million of financial relief and economic support across the community as economic stimulus.

To support immediate economic engagement WALGA implemented the Marketforce platform providing a mechanism for small local suppliers to provide quotations to Local Governments within their region.

2. Security of supply

At the national level a rethink of Australia’s dependency on imports, and a drive towards onshore manufacturing will continue to be part of geopolitical discourse.  This flows right through the supply chain, and is felt by Local Government through daily operations.  For example, facilities are dependent on regular stores of basic consumables and an obligation to meet Occupational Health and Safety requirements.

The recapitalisation of markets, a greater frequency of company failures and new companies appearing, rebranding and packaging of services, and the instability of input costs will result in a more conservative approach to tendering and sourcing.  It will also result in a greater propensity to change suppliers.  WALGA is responding to this by remodelling the entry processes that sit at the front end of the Preferred Supplier program.  This is aimed at speeding up and simplifying access to the Local Government market for new entities.

3. The labour market

The road to recovery of the employment market is buoyed by stimulus programs, providing Local Government with the opportunity to streamline procurement and bring forward “shovel ready” projects.  The nature of work will inevitably become more transient as the labour market experiences greater fluctuations in demand and supply.

We have already noticed the change of employment culture, not only through ongoing flexible Work From Home arrangements, but also in the area of managing interpersonal relationships from a physical distance.  Local Government deals a lot with Contract Management for projects and infrastructure development.  There is a notable shift from more formal business relationships towards greater collaboration and shared risk.  There is a greater demand for technical skills that are complemented by strong interpersonal and soft skillsets.  Our recruitment decisions will place greater emphasis on the latter.

4. Value for money

When considering expenditure and evaluating proposals, buyers are finally looking beyond price, and make decisions based on value.  That is, making decisions not on the basis of cost, but rather on the basis of what is acquired for the amount that gets paid.

The COVID-19 experience was positive in the area of support and consideration which was given towards contract variations where flexibility was needed.  WALGA received almost no examples of suppliers taking advantage of excessive demand by price gouging, and indeed public and market backlash against the few instances of poor conduct was strong.  Pricing negotiations became more transparent and gave regard to reasonable profit margins, especially for small business.

The use of finance and debt as a means of purchase has also increased.  In particular the amortisation of the cost of an asset over its lifecycle opens up opportunities, even when giving regard to the finance cost which remains low in the current market.  WALGA anticipates greater use of operating lease contracts to compensate for depleted reserves.

5. Local economic engagement

Localising supply chains aren’t a one-size-fits-all model.  WALGA is seeing effective examples of local service delivery that is still supported by large corporate supply chains.  Some of these have been manufacturer direct.  Post-pandemic, we expect an even greater emphasis on local sourcing.  Local Governments would also like to enable local manufacturing, engage more social enterprise, and support sustainability into their local business markets.

WALGA approaches its role in supporting local economic recovery through its purchasing and supply arrangements with great focus and recognises the contribution to economic recovery that can be made through an enhanced preferred supplier program.  It may be harder to economically emerge from COVID-19 than it was to suddenly enter a disrupted market.  However the above trends show that the overall Local Government response is well grounded and set to help move Western Australia’s economy forward for the rest of 2020 and into the future.

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