With offers for SAI Global closing this Friday,  upcoming renegotiations of the company’s publishing contract with Standards Australia, which develops Australian standards including those applicable in the sustainability sector, such as for domestic grey water recycling systems and commercial building energy audits, may impact on the company’s future growth and profitability, sources suggest.

SAI was a subsidiary of the independent standards development organisation until 2003, when it became a separate entity providing standards publishing, training and conformity assessment services. It was floated on the ASX in November 2003, and Standards Australia retained a 40 per cent shareholding stake in SAI Global, however this has been sold down over time and it is no longer a direct investor in the company.

A publishing licence agreement between the two saw SAI granted exclusive rights to publish all Australian Standards and other materials for a period of 15 years, with an annual royalty fee payable of 10 per cent of net revenue from sales of licensed material, and a bonus royalty of 15 per cent, decreasing over time, applying to new material.

SAI is also required to maintain a pricing structure for standards that is in conformity with Standards Australia policies, as they were at the time, and that caps price increases at Consumer Price Index plus five per cent, subject to cost increases.

For its part, Standards Australia committed to continual development of new standards, and to review standards regularly, using its best endeavours to ensure no more than 30 per cent are more than 10 years old. The standards body also committed to maintaining membership of the International Standards Organisation, which leverages SAI Global exclusive rights to retail ISO publications in Australia.

This agreement expires in November 2018, and while there is an option to renew for five years, this is subject to SAI shareholder approval and other conditions.

“Our core focus is on developing internationally aligned standards in the national interest,” a spokesperson for Standards Australia told The Fifth Estate.  “Our board and executive are closely watching the SAI Global sale process as it relates to Standards Australia, with the best interests of our members and stakeholders front of mind.”

Australian Standards are used across the planning, design, construction and operations and maintenance of built assets. There are two types, mandatory standards, such as those relating to electrical safety, indoor air quality and concrete strength, and benchmarking standards, such as those relating to the VOC content in paints, environmental management systems and solar hot water systems.

Currently, a number of standards are under development with specific relevance for the sustainability sector. These include standards for domestic grey water recycling systems and standards for commercial building energy audits, the final versions of which are soon to be released.

The standards are developed by individual technical committees comprising technical experts and industry stakeholders. One of the benefits of standards is they can reduce the legislative burden, through delivering consensus-based performance benchmarks.

In the original prospectus for the SAI Global IPO handled by Macquarie Bank, an ending of the contractual relationship between the two was identified as a major risk to SAI’s ongoing financial viability, with the sale of standards forming a substantial share of the company’s revenue.

“SAI Global’s commercial relationship with Standards Australia will be a crucial element to SAI Global’s businesses. SAI Global will rely on Standards Australia for the provision and supply of new and revised revenue-generating standards,” the prospectus states.

“The relationship between SAI Global and Standards Australia will be governed by contractual arrangements There is a risk that, in the future, these arrangements may be terminated or may not be renewed on current terms. Any change to the relationship between Standards Australia and SAI Global may have a material adverse effect on SAI Global’s financial position, financial performance, cash flows, ability to pay dividends and share price.”