Competitive Communities...? A Study of the Impact of Compulsory Competitive Tendering

on Rural and Remote Areas, Small Towns, Small Business, Economic and Regional Development in Victoria.

Peter Tesdorpf

Director, Peter Tesdorpf and Associates Consultants in Regional Development Urban Affairs Planning and Local Government

1. Introduction and Background

Structural reforms in government and public utilities are having a marked impact on smaller communities in Australia’s hinterland, with possible impacts on levels of employment and economic viability in some centres. Mindful of this threat, the Victorian Shires of Loddon, Buloke and Towong were successful in securing Commonwealth funding to undertake a study into the impact of CCT on the social and economic fabric of small rural communities.

Peter Tesdorpf and Associates in conjunction with EW Russell and Associates, Graeme Hodge and Greg Tucker and Associates were appointed to undertake the study, which was completed by November 1996.

NOTE: Some changes have occurred since this Study was undertaken, and so care needs to be taken in interpreting the comments, conclusions and recommendations as relating to that particular point in time.

The study was intended to:

1. provide valuable feedback and advice to governments - both State and Commonwealth - on the effects of National Competition Policy on rural communities;

2. help Councils take greater control of their destiny as governing bodies and stewards of the economic and social resources of their communities;

3. strengthen the Councils’ capacity (and that of Local Government generally) to effectively reconcile their responsibilities for providing cost-efficient services on the one hand and fostering equitable economic and social development of their municipalities on the other;

Until this report there had been no analysis of the broader external effects of CCT (eg: broader regional and local economic and social effects). Most analysis had tended to focus on more direct issues such as the internal impacts of CCT on the Council organisation, the impact on service quality and choice; and whether cost savings have been delivered.

The complete findings can be found in the Competitive Communities” report available from the Loddon Shire Council. This paper contains an abridged summary of the issues and findings.

2. Preliminary Comments

CCT in itself is neither intrinsically good nor bad. One could say it is “morally neutral”. Like most policy instruments, it is likely to have both positive impacts (many of which are highly desirable) and some negative consequences.

We approached the study with the view that it is essential for such mechanisms to be used as tools for delivering good government - for the ultimate well-being of society and the advancement of the nation’s prosperity, rather than becoming ends in themselves.

3. Challenges in Analysing CCT

As a policy instrument, CCT is complex and difficult to analyse. This is because:

1. The Victorian application of CCT has been somewhat of a bold experiment in redefining the relationship and relative roles of the public and private sectors and has no parallels in Australia and few if any internationally.

2. Its impact is potentially significant in terms of challenging traditional views of what the respective roles of government and the non-government sectors are.

3. It has been introduced in parallel with other reforms such as Local Government restructure, making it difficult to quarantine its impact from that of other reforms.

4. There are many powerful forces impacting on the viability of rural communities, again making it difficult to attribute with certainty the impacts of CCT.

4. The International Context

The 1990's have provided an environment of radical change for Governments. Throughout the world, public sector organisations are being reformed, with many improvements based on private sector practices. The "customer focus" and benchmarking movements have permeated public sector service delivery.

In addition to this increased “business ethos”, however, there is also a deeper questioning of the public sector itself - of what it is really there for, and what the difference really is between the public and private sectors.

Public sector reform, whilst based largely on laudable objectives, has brought mixed results. Although the goals of such reforms were usually desirable, the mechanisms themselves were often far from perfect. The promised benefits of the reform were theoretical - the actual implementation impacts were not.

The effectiveness of contracting government services has been the subject of much research and review over the past two decades.

Recent major international research, particularly conducted by Graeme Hodge, reveals the following findings:

Contracting delivers sizable savings in maintenance, cleaning and refuse collection, but negligible savings in all other services;
“Contracting in” delivers around two thirds of the savings of “contracting out” for cleaning and refuse collection but almost identical savings for other services.
Quality change under contracting out is negligible.
The threat of competition and the acquisition of new financial performance data alone leads to real performance improvements.
There is only weak international evidence supporting the notion that contracting out services such as health or other human services results in significant cost savings.
Contracting out does deliver an average cost saving: its amount is from 6 to 12%.
Social impacts of contracting out are rarely reported or analysed.
Contracting out can reduce the openness, public scrutiny and accountability of government.
Contracting out can permit service reductions to be more easily disguised.
Job losses and wage reductions through contracting out tend to affect the weaker groups in society most.

5. National Competition Policy

In April 1995 the Council of Australian Governments (COAG) reached an historic agreement to implement a National Competition Policy, a key aspect of which is agreement by all State Governments to apply principles of competitive neutrality to their significant business activities. The Victorian government is a supporter of and party to the National Competition Policy; and has proceeded to implement a number of reforms consistent with NCP since its election in October 1992.

The NCP and the subsequent Competition Principles Agreement state that (our emphasis) the application of competition should be selective and take into account considerations such as:

ecologically sustainable development;
social welfare and equity;
economic and regional growth; and
the interests of consumers generally;
and that these aspects should form part of a “public benefit” analysis prior to instituting structural changes related to the introduction of competition.

The findings of this study suggest that these considerations have not been adequately addressed in the context of CCT in rural areas.

6. Victorian Local Government Reform

Competitive neutrality principles underlie the introduction of CCT to Victorian Local Government, where Councils are being required to “market test” their services by exposing them to competitive tender. But CCT is just one important element of a broad State Government program for (long overdue) reform of Local Government, a program which commenced with the election of the Kennett Government in 1992.

Other elements of the program included comprehensive boundary restructure, new financial reporting procedures, redefining the relative focus of councillors and Executive staff, new electoral procedures, compulsory rate reductions of 20% coupled with rate capping, corporate planning and annual reporting procedures, introduction of a Charter of Service, benchmarking of services; and reviews of local laws.

These reforms have been complemented by others such as the privatisation of State-owned facilities including, for example, electricity and ports.

7. CCT in Victoria

The Victorian CCT legislation passed in June 1994 requires Councils to put at least 50% of their operating expenditure through a process of “market testing” via the use of competitive tendering.

The purposes are to introduce competition, produce efficiency gains and oblige Councils to define service benefits. In the 1994/5 financial year Councils must tender at least 20% of expenditure, rising to 30% in the following year and 50% in 1996/7.

The Victorian CCT program is only the second to be implemented amongst OECD countries (the first being in Britain under the Thatcher government) and is more radical in that it exposes all services to competition - including human services and town planning services. Not surprisingly, the impacts and complexities of the program are largely unknown and only just beginning to be understood.

The Victorian legislation allows each Council to determine which services it will tender (in contrast to the prescriptive British approach which lists specific services). However in practice the scope for local determination about which services to tender is considerably less due to:

the AAS27 accounting standards which require Councils to include depreciation and interest costs in “operating expenditure” the consequence of which is to raise the minimum target of 50% to well over 70%, requiring some Councils to tender virtually every service to comply; and
recent statements by the Minister and the Office of Local government to the effect that, while not specified in legislation, it is the government’s intent that all services be exposed to market testing.

8. Rural Communities at a Critical Point

Rural communities are very much at an historic turning point in Australia.

The depopulation of Australia’s hinterland as a result of economic forces and technological developments coupled with implementation of significant reforms such as the Hilmer Competition report and reform of Local Government is placing considerable pressure on the very survival of many smaller towns.

The heavy impact of recent micro-economic reforms on rural communities is a policy issue of fundamental importance to Australia’s future, and one which is urgent and vital for each rural community affected. The fact that this impact is resulting from disagreggated decisions without regard to the combined social impact is a matter for profound concern.

Many commentators in geography, economics and regional development would take the view that the global forces impacting on rural and regional Australia are many times greater than the likely impact of policy reforms such as CCT. These changes include advanced telecommunications, globalisation of the economy, continual rationalisation of business enterprises in the quest for greater efficiencies and competitive advantage, faster transport, longer shopping hours, more flexible working hours, the demand by consumers for more sophisticated goods, services and lifestyles, reform of the banking and financial services industry, reforms and efficiencies in agricultural practices, rationalisation of government services; and many others.

The effects of these forces are being manifested in rural areas through symptoms such as:

highway bypasses;
loss of passenger rail services (and often rail services totally);
closure of banks;
rationalisation of schools and hospitals;
farmers being forced financially off the land or having to rationalise holdings into much larger units;
the exodus of doctors and health specialists from rural areas to the city and an inability of country towns to attract doctors.

During the Study, individuals in several Shires communicated their perception that parliamentary representatives appeared to have an “attitude of inevitability” about rural decline. This attitude was said to be serving to increase the sense of pessimism amongst country people, lower morale, and reinforce the sense of cynicism towards the government as not caring about rural communities.

9. The Region

Loddon and Buloke Shires are located in north-western Victoria (roughly between Bendigo and Mildura but closer to Bendigo) and are part of the large Western Murray region covering north-western Victoria and South-western NSW. This region has:

an economy based on export-oriented agricultural and horticultural industries, with 30% of the workforce employed in this sector;
a population growing slowly overall (2.5% between 1986 and 1991), but with declining populations in dryland cropping areas (15 to 25% between 1981 and 1991) and growth along the rivers;
an average population density of around one person per square kilometre;
a relatively small manufacturing and services sector, with most enterprises associated with agricultural production;

The region’s further growth and development is impeded by:

ageing population (due to young people leaving for work in the city and retirees moving into the region);
low level of skills and education;
water quality and quantity problems;
high unemployment levels in some centres;
low average incomes;
decline in services provided by the public sector, especially social services;
less than adequate quality of infrastructure (including irrigation infrastructure, education, training opportunities, transport, telecommunications, electricity and gas).

Many of the rural areas and dryland farming areas have lost population over the last decade while some of the larger centres such as Bendigo, Swan Hill and Mildura have grown significantly.

Paradoxically however, the region is highly significant as a contributor to the nation’s - and Victoria’s - export income. It produces over a billion dollars of agricultural commodities each year, is the nation’s largest producer of grapes and grape products, one of Australia’s largest producers of dryland cereals and produces over 90% of Australia’s dried vine fruits. As well, there is significant production in meat, vegetables and other commodities.

10. The Shires

The following points help characterise the two Shires:

Loddon:

No towns have more than 1000 people.
Agriculture is the foundation of the economy.
Growth potential in the south-east due to proximity to Bendigo.
Retailing is under threat from Bendigo.
Unemployment at around 14% is a key problem.
High proportion of employed residents are on low incomes.
Social infrastructure is declining; and physical infrastructure is deficient in parts.
Agriculture, tourism, gold mining, residential growth and retirement are key economic opportunities.
Despite major infrastructure investment needs, the Shire is required to reduce its overall rate income by 20% over a three year period and direct three quarters of the saving into rate reductions.

Buloke

Dryland agricultural and pastoral industries.
Customer service approach by Council in retaining district offices.
Southern Mallee - Northern Wimmera diversity.
Rural development focus on value-adding and diversity.
Council expenditure reduced by around 10% over two years through organisational restructure, improved work practices and strategic planning.
High Council priority on economic development.

11. CCT Within The Two Shires

The anatomy of CCT within the two shires is described in the full report. Key issues and findings include:

a sense among Council staff that it is imperative to be successful in securing a significant workload of road contracts in order to maintain staff levels;
a sense that the private sector specialists and larger Councils with business units developed for the role will be increasingly aggressive competitors for the available work;
a sense that contracting skills need to be developed quickly so that external work can be won to compensate for local work which may be lost;
a concern that the reasons for the CCT guidelines being so strict is in order to ensure that government is downsized to the maximum extent, and that in the end it will be futile for Local Government to strive for sustained competitive survival of in-house services as the rules will be changed and tightened whenever such a prospect is in view;
a tension between the desire of some Councils to retain employment within the Shire through encouraging competitive capacity, while Council staff are subject to pressure and audit from State Government to award on the basis of lowest cost bids irrespective of employment considerations.

Road maintenance is a particularly crucial issue:

Road maintenance is the biggest single expenditure category for both Shires and takes in two thirds of the Council workforce;
Both main and local roads are largely funded through VicRoads by State and National government;
The contracting of road maintenance raises serious issues as to the future role and viability of Shires such as these;
Some scope exists to retain further work locally by capability improvement;
Modest changes to CCT guidelines would enable Councils to retain more local employment, thereby strengthening the economic and social fabric of small towns.

These preoccupations contribute to a pessimism among Council engineering staff as to the future viability of the functions they manage. In turn this raises the issue of what the core role of small Councils in future may be, since if during the next decade the road function is lost to Council employed staff, the remaining activities will be slender indeed and no doubt below critical mass in many instances.

A detailed case study was also undertaken for Towong Shire and is documented in the full report.

12. CCT Across Rural Victorian Councils

A questionnaire forwarded to 38 non-metropolitan municipalities in Victoria (including most provincial cities and rural LGAs) seeking responses in relation to the implementation of CCT. A 47% response rate was forthcoming. Approximately two thirds were rural LGAs and approximately one third provincial centres of varying sizes.

Some Councils verbally declined to respond (even with the assurance of confidentiality) since documents could be obtained under Freedom Of Information provisions and there was a fear of retribution by the State Government against Councils which were seen to be critical of the government’s implementation of CCT.

The questions covered issues including cost savings or increases due to CCT, nature of tenderers, internal vs. external contracts, capacity of local firms to compete, whether Council was able to provide better services, what impacts CCT had on the organisational dynamics, what impacts on regional economic and social development etc.

Findings

1. In virtually all cases, CCT has imposed additional costs on Councils. In 40% of cases these costs are outweighed by definite overall savings from CCT, but in around 50% of cases these costs exceed the savings (at least at present) resulting in a nett cost to Councils.

2. The most prevalent and largest savings are to be found in some - but not all - of the larger provincial cities.

3. There is no overwhelming pattern of in-house bids influencing the competitiveness of external tenders, but 16% of respondents report in-house bids being significantly cheaper than external tenderers or clearly resulting in more cost-competitive bids from external tenderers.

4. At this stage there is no significant picture of local job losses resulting from CCT, however many “big ticket” contracts have not yet been let by rural councils and the full social and economic impacts are yet to occur, much less be noted or analysed. (See Chapter 10 for further discussion.)

5. Although CCT is forcing businesses to “lift their game”, the large majority of local firms are not well equipped to compete under CCT, with firms in urban areas having an advantage. (See Chapter 9 for further discussion.)

6. Around two thirds of respondents reported being able to provide better services through CCT (expressed through quality, efficiency, price, industrial relations, flexibility, customer focus, specification of standards) with one third reporting no improvement (principally because of lack of competition, excessive focus on cost reduction resulting in unsustainable prices and likelihood of service failure; and reduced flexibility of Council organisation).

7. 25% of respondents reported overall positive impacts of CCT. Overall negative impacts were cited by 65% of respondents.

8. The positive impacts of CCT are seen to be improved focus on core business and outcomes, more money for capital works, appreciation of cost, corporate efficiency, better business planning, reporting, benchmarking and performance measures, cultural change and access to innovation and technology.

9. Negative impacts include loss of economies, demarcation and morale problems caused by the client/provider split, deskilling of Councils, excessively pressured implementation time frames and performance targets, cumbersome processes, excessive paperwork and government reporting, organisational stress, low morale, dual accounting systems and inappropriateness of percentage targets as an implementation tool.

10. Most importantly however, an overall pattern of the responses is that both the negative impacts of CCT and the inability of it to produce savings are significantly more prevalent amongst rural Councils; whilst the positive impacts of CCT and the frequency and size of the savings are significantly more prevalent amongst larger provincial cities (though not all). When coupled with other evidence and findings compiled throughout the study, it forms one component of a strong case for a modified approach to CCT implementation in rural Shires.

13. CCT and Small Business

A key rationale for the introduction of CCT has been to improve opportunities for the private sector in innovating and delivering services. Small business has been cited as a particular beneficiary.

Our investigations showed, however, that small businesses are being particularly disadvantaged by aspects of CCT and, in addition, are inadequately prepared - in organisation, attitude, culture and quality - to participate in the new system. Because of the particular factors facing small rural towns, small businesses in those towns face multiple disadvantages. It is far from a level playing field.

Shires reported significant lack of awareness and cultural readiness for competition by many small businesses. Many do not want to compete or are unaware of the quality of service being offered by competitors in the larger towns, and some are “just not up to scratch”. In Towong, similar observations were made. In addition there is the phenomenon of local firms or contractors being quite satisfied with their current level of work and (for quite legitimate lifestyle reasons) not wishing to bid for additional work.

The key small business issues appear to be:

Lack of Skills in Tendering

Bidding for tenders often involves a different set of skills to those needed by the firm to actually undertake the work. Successful tendering requires skilful submission writing, costing, financial planning, marketing and a range of other skills. They are not the skills typically held by small firms specialising in trades and services. Take cleaning for example. A small business may perform first rate cleaning services and have a history of successful work for a municipality, but lose out under CCT because they are not geared up to cope with the tendering process.

Contract Managers Are More Conscious of Risk

Because contracting out is becoming so prevalent, a new “profession” is emerging of contract managers and purchasing and tendering specialists. These people are becoming more highly trained and occupying increasingly influential and senior positions in organisations, dealing with increasingly large amounts of money and extensive purchasing responsibilities. This increased responsibility and accountability drives contract managers to apply much higher scrutiny and tougher standards in awarding tenders (partly for their own protection) with the result that larger, more established firms have an advantage over smaller firms.

Complexity of Tendering Process Discourages Small Operators

Psychologically, small operators tend to be daunted, confused and discouraged by the large amount of paperwork associated with tendering. One example cited was 80 pages of documentation for a tender involving two hours per week cleaning public toilets. In many cases, tradespeople who previously performed high quality work for Councils were not bidding under CCT because of the complexity of the system. Simplification of documentation should be a priority.

Local Suppliers Bypassed in Favour of Bulk Purchasing Schemes

Because of the pressure on Councils to meet CCT percentage targets within very tight timelines, many are sourcing supplies through the MAPS and other industry-wide purchasing schemes which qualifies them for CCT points, enabling Councils to quickly and painlessly accrue CCT credits. But in doing so, local suppliers are being by-passed and thereby losing business, since preferred suppliers to MAPS more commonly are larger city-based firms. In many cases, Councils want to support local businesses, but the time pressures imposed by CCT predominate and already pressured Council staff will tend to take the easier option.

Price Undercutting by Larger Firms

CCT appears to be driving market prices down. Whilst in a global sense, this is good for consumers and customers, there is a risk that many low prices are unsustainable. (A number of Councils indicated in the survey that they feared some contract prices awarded were unsustainable and would result in lower service quality or even failure during the term of the contract.) Where low tender prices are sustainable, this is in part due to the capacity of larger firms to absorb an initial loss in order to win the business, knowing this can be absorbed in subsequent contracts. Smaller firms do not have the capacity to undercut and absorb losses in this way.

Lack of Training and Support Services

There appears to be little if any funding earmarked by government bodies such as AusIndustry, DEETYA, Small Business Victoria,Office of Local Government and Councils themselves for small business training courses and in providing professional assistance to firms in preparing tenders.

Lack of Organisational Structures and Frameworks

Many small firms are disadvantaged in tendering because they do not have systems in place internally to address Equal Employment Opportunity, Quality Assurance, Occupational Health and Safety, Risk Analysis, Project Management and the like. Obtaining Quality Assurance is expensive for small firms. Furthermore, there appears to be no longer any lobby group specifically directed to representing the interests of small business.

The above observations confirm the tendency of CCT implementation policy to create a dynamic where business is taken from small businesses in rural communities and this portion of the market transferred to larger concerns in provincial cities and capital cities. Smaller businesses (like smaller communities) are losing to larger businesses and larger communities.

The Victorian Government’s Small Business Policy aims, inter alia, to “...increase jobs, business and educational opportunities for all Victorians, to reduce the cost of living; and to provide quality services at local community level that underpin a secure, safe and stable society”. Contracting out of many government services is said to have created new opportunities for small business.

The Policy recognises that small business remains the most vulnerable sector of the economy, sensitive to external changes, not having the reserves to cope with the demands of growth or changes in market requirements and having a weaker representative voice.

Of particular relevance to this Study is a stated commitment in the Policy to strengthen the relationship between Local Government and small business, outsourcing government services and the further reform of government purchasing policies to assist small business.

The Government states it intends to:

facilitate and guide the development by local Councils of Small Business Statements (outlining how Councils are able to assist small business development); and
encourage Councils to strongly promote and support small business development in their municipalities;
conduct a Local Government Small Business Forum Series to promote the development and use by Councils of the Small Business Statements and ensure effective representation of small business concerns. The Forum series will address sector concerns regarding greater equity in municipal rating, Local Government charges and levies on business, experience of competitive tendering and the particular problems faced by small traders in strip shopping centres;
develop a Small Business in Government Tendering and Purchasing Program to improve small business’ awareness of government purchasing opportunities, encourage them to respond to Council and government tenders, ensure that government purchasing programs do not set hurdles in the way of small business responses, provide support to small business in preparing tender documentation; and give preference to small business in government outsourcing to ensure small business are given sufficient opportunities.

Whilst all these initiatives will assist small business, it seems that an urgent review needs to be undertaken of both CCT and Small Business policies to ensure they are working consistently as an integrated package. At present, on the available evidence they are working in contradiction, with many small businesses at a distinct disadvantage in responding to tenders under CCT.

14. CCT, Small Towns and Regional Development

The dynamics of regional Victoria are clearly different from those of the metropolitan area; and the differences are starkest in more remote and sparsely settled areas such as are characterised by Buloke, Loddon and Towong Shires.

Commentators frequently highlight the resilience, pioneering spirit and creativity of the people of this vast and remote region. These human qualities coupled with the particular geography and isolation have led to innovative service delivery, community development and partnership strategies over the years. Whilst this human strength and resilience must not be overlooked, it needs to be remembered that economically the region is fragile.

For example:

Household income of many farming families is well below the state average;
Population in this part of the State is declining, and projected to continue to do so;
Small towns (those between 1000 and 10,000 in size) will be the big losers in this decline, with growth going to the larger centres. (Over the last 20 years, small rural towns have seen their catchment and “critical mass” fall below a level which can sustain many services and functions, such as schools, hospitals, retail outlets, local volunteer groups and sporting groups. The dismantling of much of the State’s railway infrastructure had a big impact on small towns; and now the rationalisation of the banking and financial services industry is resulting in closure of banks in many small towns. In more recent times the rationalisation of many government services such as hospitals and schools is adding to the strain.)
People are becoming trapped in towns because of declining property values, unable to finance relocation elsewhere;
The increasing move to fixed term contract employment of many professional positions makes appointees more reluctant to purchase housing locally and “put down roots” in the towns. It all makes for a less cohesive and more fragile community.

The Added Pressure of CCT

CCT brings with it the prospect of substantially increasing these pressures through local jobs being lost in many of these small towns if a significant number of contracts are won by non-local firms. This concept is illustrated in the Figure below.

However it would not be stretching credibility to predict a significantly greater impact on the towns, since loss of residents reduces the viability of other support services and businesses, creating an accelerating downward spiral.

As we noted earlier in Section 5.5 “The multiplier effect means that each dollar spent in this way effectively ripples through the community: the Council pays the service station, the service station pays the mechanic, the mechanic pays the butcher, and the butcher deposits his money in the bank branch. A small community pays many times over for each dollar it loses under CCT and, in contrast to the position in provincial cities or the Capital, there is no compensating inward flow to make up the loss.”

If this scenario is coupled to the already strong pressures of decline on small towns, the future for many small towns is bleak indeed, and raises further questions about the future role and viability of Local Government in these areas.

Implementation of CCT should be tailored to reflect the particular economic development needs of regions and better integrated with broader regional and small business policy.

Some commentators view the pattern of settlement in many parts of rural Australia as simply archaic, in the sense that it reflects the “horse and buggy” era and has not adjusted to the new economy. The trend towards centralisation away from small settlements and into larger provincial centres, they would say, represents a natural progression and reflection of consumer demand. Whilst in one sense this might be true, it does not deal with the very real economic and social issues bearing down on small towns. If the issues are ignored, we risk weakening the economic and social fabric of the State and its capacity to compete.

Victoria places critical importance and great expectations on its agricultural regions to increase and value-add the production of high quality food and other commodities. Clearly there is enormous potential to Australia and Victoria in the growing demand for clean, quality food. But for this to occur the rural communities which make this production possible require a viable network of towns to provide goods an services, a stable and strong economic and social fabric; and strong Local Government with the capacity and freedom to invest in the future of their communities.

It is vital that the implementation of CCT be undertaken in a way which enables, rather than prevents, these goals being realised. A whole of government approach is desperately needed in order to achieve these aims.

15. The Government Policy Framework: Is It Working?

We examined the Victorian Government’s main regional and rural development policies with respect to the issues raised in relation to CCT. Key conclusions from this examination were:

While the policies promise new business opportunities, they do not indicate the distribution of those opportunities. In general, it is clear that the new business opportunities are occurring in Melbourne and the provincial cities; smaller communities are losing a significant share of the trade their Councils formerly brought to them: indeed it is clear there is a negative multiplier effect at work. In other words, local business is losing, and so are the service industries from banking to printing which depend on local business for their survival. The policy settings are having discriminatory effects.

Whilst the government’s stated aim is the development of new business opportunities in rural areas, most small businesses appear to be unprepared and inadequately equipped to respond to the CCT system. Without (modest) policy changes and substantial investment in training and equipping small business to respond to the opportunities, CCT may well act against the interests of small business by transferring income from smaller country communities to provincial cities and to Melbourne, without an overt decision to do so ever having been made.

There is little evidence of capacity for rural Shires to reduce rates by the 20% government directed target without seriously compromising their viability as Shires, the quality of services provided and the capacity to maintain and develop infrastructure necessary to stimulate economic development; in fact the opposite seems to be the case. The combination of rate reductions and CCT might be superficially attractive in metropolitan Melbourne, but is not always in the best interests of rural communities.

There is a need to effectively integrate CCT policy with policies for regional economic development and small business; and with the charter of Councils set out in the Local Government Act. They need to work as an integrated, consistent package of initiatives.

16. Competition Policy in the Context of (Local) Government

Both the National Competition Policy and the Victorian Government’s CCT Program cite efficiency in the delivery of services and the efficient allocation of society’s resources as core objectives.

Clearly, one of the important roles of government is the efficient allocation of resources; but there are other equally important functions of government. In itself, CCT is completely consistent with one of the roles of good government, but needs to be applied in the context of the complete “set” of government roles.

For example, CCT has the potential to enhance some of the functions of local government, but equally the potential to work against other functions (for example “to facilitate and encourage appropriate development of its municipal district in the best interests of the community” and “to represent and promote the interests of the community and to be responsive to the needs of the community”

The Victorian Local Government Board’s report on the Role and Function of Councillors (August 1995) discusses at length the new roles and challenges facing elected representatives in Victoria’s newly restructured Councils. In noting that CCT, deregulation of the labour market, improved financial management, new reporting provisions, bench marking and FOI will all require Local Government to operate quite differently in the future; the Board pointed out that these factors will lead to far greater responsibility for elected representatives who will in future have to undertake their role in a more strategic way...”pursuing the best interests of their communities, a role enhanced by recent amalgamations and reforms. Local Government reforms have created the potential and capacity for Councils to be more pro-active in providing leadership to enable local communities to take control of the quality or their life in a far more effective way.”

It appears, for some rural Councils at least, that aspects of the implementation of the CCT program are potentially inconsistent with both the broader charter of Councils set down in the Local Government Act and with the vision and roles laid out by the Local Government Board. For example:

the legislated requirements of CCT require Councils to market test a very high percentage of services (and, where in-house bids are unsuccessful, contract them out) without providing Councils with sufficient flexibility to consider issues including the suitability of the service for contracting, the absence of competition, whether it will result in improved quality, or in broader social and economic impacts on communities, businesses and towns;
the indirect impact of contracts being awarded to non-local firms has a potentially much greater impact on the viability of local and regional economies in rural and remote areas than in the metropolitan economy;
the downsizing and de-skilling of Councils through contracting out raises questions about the future viability of smaller rural Shires;

The mandatory, inflexible and time-pressured nature of CCT implementation is making it difficult for some Councils to perform one of their key functions conferred under the Local Government Act - namely to govern effectively in the interests of their community. It seems that on the one hand Councils are being told they have a key responsibility for the leadership, strategic direction, integrated planning, economic prosperity, social cohesiveness and delivery of excellent services for their local communities; yet on the other hand required to implement competitive tendering within a framework and timeframe which reduces the flexibility of their organisation and compels them at times to act against the economic interests of their local businesses and community. In some cases, it means Councils having to consciously set their municipalities into decline in order to comply with CCT requirements.

17. Conclusions

The conclusions of the Study are detailed in the full Competitive Communities...?? report, and reflect the findings discussed in this paper. The conclusions should be taken in the context of the following limitations:

1. they are focussed on the situation in rural Victoria only, and do not necessarily apply to the metropolitan area or some provincial cities.

2. the difficulty in distinguishing clearly between the impacts of CCT and the effects of other elements of the Local Government reform program - especially amalgamations, prescribed income limits and rate reductions.

3. the difficulty in distinguishing between the current or potential impacts of CCT and the other forces of decline acting on small towns;

4. the fact that the CCT program is still in its early days of implementation and in many cases the “jury is still out” on determining the full extent of impacts the program is having.

Some changes have been made to CCT policy since this study was complete.

18. Recommendations

The study concludes with a package of action recommendations, based around a three dimensional approach shown in the diagram below.

LEADERSHIP AND GOVERNANCE

Defining the role of Local Government and balancing governance with CCT responsibilities.

Seven recommendations were made in this regard, and can be found in the detailed report.

They focus on changing grants formulae, removal of rate capping, Councils concentrating on leadership, governance, vision and core business, regional cooperatives and resource sharing, changes to NCP legislation, training courses and the like.

ECONOMIC DEVELOPMENT

Actions to respond to and limit the impact of rural decline.

Fourteen recommendations were made in this regard, and can be found in the detailed report.

They focus on making rural development a government priority, RAS assistance for small towns, a national study on rural decline, reviewing and aligning CCT, small business, rural and regional development policies, training for small business, regional economic development strategies, local economic development staff, local preference schemes, local capability assessments, local employment targets, strategic business alliances, priority for road construction and maintenance functions, the role of regional and community employment councils and training of local people.

CCT MANAGEMENT

Actions to optimise CCT outcomes and make the CCT process work better.