In a stunning capitulation to Nick Xenophon, the Coalition has agreed to reverse a long-held policy and give Australian businesses an advantage in competing for taxpayer-funded projects.

Key points: Federal Government concedes to Nick Xenophon in order to get ABCC legislation through

Federal Government concedes to Nick Xenophon in order to get ABCC legislation through New rules will help more Australian businesses get involved in Federal projects

New rules will help more Australian businesses get involved in Federal projects Labor praises rule changes but not happy with likely passage of ABCC legislation

The Government made the surprise announcement in the Senate last night to overhaul rules about how it spends its annual $60 billion procurement bill to maximise local content.

The new rules, which do not need legislative approval, will take effect from March next year.

Bidders for government projects worth more than $4 million will need to show:

How much locally-produced material they will source

How much locally-produced material they will source How they are contributing to local employment

How they are contributing to local employment How they are growing local skills

How they are growing local skills The whole-of-life cost of the project, not just the build cost

The whole-of-life cost of the project, not just the build cost That the materials they use comply with Australian product standards

"This is a big deal," senator Xenophon told the Senate last night.

"This is a massive change to procurement laws in this country."

For years the Government has clashed with Senator Xenophon and the Labor Party over Australian content in government projects.

These are good measures: Opposition

Finance Minister Mathias Cormann has argued a level playing field for all suppliers provided the best value for money for tax payers and helped Australia's reputation as an open economy.

What is the ABCC? A watchdog for the construction industry which came into being in 2005 following the Cole royal commission

A watchdog for the construction industry which came into being in 2005 following the Cole royal commission Coalition argues it will tackle illegal behaviour on construction sites, improve productivity through tougher penalties

Coalition argues it will tackle illegal behaviour on construction sites, improve productivity through tougher penalties Opposition warns it will have increased coercive powers without adequate oversight

Opposition warns it will have increased coercive powers without adequate oversight It was used as a constitutional trigger for the double dissolution election in July

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But the Government has now changed course as part of a deal with Senator Xenophon to win his support for its legislation to reinstate the ABCC building watchdog by the end of the week.

Opposition spokesman for industry Kim Carr, who has spent much of his political career pushing for the policy unveiled last night, praised the move.

"I congratulate the proponents of this measure, it's unusual for me to do that," he said.

He said Labor supports the changes, and made special mention of rules about good corporate behaviour government suppliers will need to demonstrate.

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"Whether or not they're ethical employers, occupational health and safety, environmental impacts, these are very good measures."

But Labor is not happy the changes have come at the price of the likely passage of the ABCC legislation, which aims to tackle union influence on building sites.

"These are good measures, but why should building workers have to pay for them?" Mr Carr said.