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Competitive Neutrality and Pricing Policy

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Purpose | Scope | Principles | Policy statements | Policy owner and contact | Definitions | Approval information | Version history | References

1. Purpose

1.1 The Competitive Neutrality and Pricing Policy (the policy) has been developed to ensure that prices charged for UTS commercial activities reflect the full cost of those activities. In accordance with the principles of competitive neutrality:

  1. business activities of government-funded institutions, including UTS, should include all costs incurred and any set margins as applicable to ensure competition in an open and fair manner
  2. there is fair and effective competition in the management and delivery of all business activities
  3. UTS does not look to use its position to distort or disrupt the market for the commercial activities it undertakes.

1.2 This policy should be read in conjunction with the Commercial Activities Policy.

2. Scope

2.1 This policy applies to all commercial activities, and all staff and affiliates involved in the development, approval and management of commercial activities at UTS.

2.2 Under certain circumstances, government-funded institutions may supply particular goods and services, including research, or expert advice at or below cost on public policy grounds, including where activities are undertaken for community benefit and are therefore not required to be commercially profitable or competitively neutral. These services are part of the university’s normal business activities and are out of scope of this policy and the Commercial Activities Policy.

3. Principles

3.1 The National Federation Reform Council implements and continuously reviews recommendations with respect to competitive neutrality that apply to government-funded institutions including universities.

3.2 The principles of competitive neutrality require that UTS commercial activities charge a competitive amount for their services, rather than a reduced price based on cost advantages that arise from being part of a large government-funded institution.

3.3 It is expected that commercial activities ensure accountability, transparency and contestability as part of their establishment, operation and reporting processes in line with this policy.

3.4 Commercial activities must identify all costs associated with the performance and delivery of the activity by the university and its controlled entities including all direct costs and the associated proportion of indirect costs as outlined in this policy.

4. Policy statements

Full cost recovery: Direct and indirect costs

4.1 The cost of a commercial activity is the sum of the full direct and indirect costs. The full cost (which contributes to the resulting price) of a commercial activity must be no less than the total sum of the direct and indirect costs to the university.

4.2 Direct costs are those costs that are directly attributable to the activity, including but not limited to:

  1. salaries and on-costs of staff, including the principal investigator/consultant
  2. stipends of research assistants
  3. information technology resources
  4. materials and supplies
  5. equipment and components
  6. brokerage and freight
  7. large volume communications (telephone, courier, postage)
  8. photocopying, printing and report production
  9. external consulting services
  10. workshop, laboratory and other scientific services
  11. travel costs and living expenses.

4.3 Indirect costs (overhead or infrastructure costs) are the costs to the institution that cannot be easily allocated to single projects but must be recognised in line with competitive neutrality principles. The indirect costs for which commercial activities must charge are:

  1. provision and maintenance of buildings and physical infrastructure
  2. university-wide information resources and technology
  3. basic telecommunications
  4. insurance (or cost to cover any uninsured risk exposure) and legal services
  5. financial management services
  6. security
  7. non-faculty administrative services.

4.4 Indirect costs may be estimated in line with an appropriate formula developed by the Finance Unit and approved by the Chief Financial Officer (CFO).

4.5 Where full costs associated with commercial activities are not recovered, another part of the university will be providing a subsidy. This is both in contravention of the principles of competitive neutrality and also inappropriate and short-sighted of UTS to subsidise commercial activities undertaken on behalf of external agencies and clients.

Pricing

4.6 The price of a commercial activity is the number provided to the client made up of the full cost of the activity:

  1. excluding any consciously applied subsidy made by the university on strategic, competitive or community benefit grounds in line with the Commercial Activities Policy, or
  2. including any appropriate financial margins to enable UTS to earn a financial return/profit on the activity to sustain the operation or to invest in other activities in the university.

Subsidising commercial activities

4.7 The NSW Government’s Policy Statement on the Application of Competitive Neutrality (available at NSW Treasury Competition Policy) recognises that pricing at less than full cost in the short term imbues government businesses with the same flexibility as their private sector counterparts in engaging in loss leader activities.

4.8 Engagement in such activities should be restricted to special market circumstances and must not contravene the Competition and Consumer Act 2010 (Cwlth). Accordingly, in exceptional circumstances, it may be appropriate to provide a price reduction for a commercial activity, for example, to take account of intellectual property or other benefits that will accrue to the university, or where, on entry to a new market, it is judged to be in the university’s interest.

4.9 Any university subsidy of commercial activities undertaken on the basis of demonstrable strategic or competitive interest or community benefit must be transparent, clearly identified and costed with support from the Finance Unit and the source of funding approved in line with delegated authorities and reported to the Chief Operating Officer with an aggregated report provided routinely to Council via the Audit and Risk Committee.

Policy breaches

4.10 All staff and approvers must ensure that UTS commercial activities are conducted in accordance with this policy and the Commercial Activities Policy.

4.11 Any issues relating to administrative transparency, accountability and contestability as well as efficient allocation and use of public resources or any other identified breach of this policy should be reported or managed in line with the Commercial Activities Policy.

4.12 Complaints about failure to comply with competitive neutrality principles may also be referred to the Independent Pricing and Regulatory Tribunal of New South Wales.

5. Policy owner and contact

5.1 Policy owner: The Chief Operating Officer (COO) is responsible for the enforcement of and compliance with this policy, ensuring that all its principles and statements are observed and is responsible for the approval of any associated university level procedures.

5.2 Policy contact: The Chief Operating Officer has accountability for coordinating the implementation of this policy in line with the Commercial Activities Policy.

6. Definitions

The following definitions apply for this policy and all associated procedures. These are in addition to the definitions outlined in the Commercial Activities Policy. Definitions in the singular include the plural meaning of the word.

Affiliate is defined in the Code of Conduct.

Approval authority (or approver) is defined in the Commercial Activities Policy.

Commercial activity (or activities) is defined by the University of Technology Sydney Act 1989 (NSW) and the Commercial Activities Policy.

Competitive neutrality means the principle that government should compete with private business on an equal footing.

Contestability is defined by the Australian Government Department of Finance: Contestability in the public sector.

Cost advantage means any advantage arising from the university’s tax-free status and shared infrastructure and resources funding, which can underwrite the indirect costs of projects.

On-costs mean cost of labour not including salary or wages. This includes superannuation contributions, payroll tax, workers compensation insurance, annual leave loading and provisions for long service leave. On-costs are approximately 26 per cent of base salary (depending on the superannuation scheme).