Indigenous Procurement Policy – Delivering Value for Money
The Indigenous Procurement Policy came into effect on 1 July 2015. The idea is to develop, grow and nurture Indigenous Small to Medium Enterprises (SME’s) throughout Australia through diverting a modest chunk of the $1 billion per year Commonwealth spending towards Indigenous SME business. The intent is to close the gap in indigenous economic outcomes by public and private sectors working together.
The question is how to deliver value for money through Indigenous procurement under the Indigenous Procurement Policy?
The Indigenous Procurement Policy certainly creates exciting opportunities for Indigenous SME’s and is a good news initiative. It has not been advertised too broadly and it would appear that even in government agencies, not too many people know too much about it yet.
What is the Indigenous Procurement Policy all about?
If you visit DPMC website, there is almost too much information available. It comes in all forms and shapes, and provides information to all different stakeholders. The idea is not to regenerate all the information in this article.
In essence, the policy has a number of parts to it. The Policy:
sets targets for the number of contracts to be awarded to Indigenous business;
applies mandatory set-aside rules in certain instances;
sets mandatory minimums for Indigenous employment and supplier use in certain Commonwealth agreements;
enables Commonwealth buyers to purchase directly from Indigenous SMEs for contracts of any size and volume for Commonwealth contracts subject to CPR, through using what is referred to as an Exemption 17.
The targets are set until 2020 and work on a sliding scale. The Indigenous Procurement Policy starts with a moderate target of 0.5% for the 2015/16 year. This equates to approximately 250 contracts or approximately $5million for 2015/2016.
The main aim is to get to 3% Indigenous contracts by 2019/2020; which equates to approximately 1500 contracts or $30million per year.
These targets have been included as personal performance targets. The targets will therefore be monitored and measured as part of government agency performance.
Achieving 3% by 2019/20 should be achievable as long as the government procurement teams understand what is required and do not shy away from making value for money recommendations.
In the following instances, government agencies must first and foremost consider Indigenous SMEs before proceeding with an open approach to market:
- Remote areas – all contracts
- Domestic contracts – all contracts between $80,000 and $200,000.
If agencies can show that an Indigenous SME can deliver value for money, there does not have to be an approach to market.
Maps are available to show what is classified as remote areas.
This is a great entry opportunity for incubating Indigenous business but will require significantly more understanding, input, time and effort from agency procurement teams. It will require an attitude of sharing risk with Indigenous business.
In theory, it should also allow a simpler process of getting quotes instead of full-blown tenders. The simplified process should make it easier for Indigenous business to supply goods and services to the government.
However, I think it should not be underestimated just how new the Indigenous Procurement Policy and the value for money process are for the procurement teams and the time it will take to train, educate and align those teams.
Mandatory minimums have been set for Commonwealth contracts in certain specified categories, such as (but not limited to) construction, transport, industrial cleaning and training. Any contracts with a value of $7.5million or more require Indigenous employment or supplier use as an average over the term of the contract:
Contract based – 4% or more
Organisation based – 3% or more
It would be great to see more details and opportunities released when government publishes significant contracts such as with the recent announcement about Leightons/RAAF contract award. The Leightons contract potentially results in about $11million over the term of the contract in Indigenous employment/supplier arrangements.
We can improve the Indigenous Procurement Policy can be further if non-government businesses such as Leightons use the same principles of mandatory set-aside; this creates opportunity to incubate more Indigenous businesses.
Exemption 17 – Value for Money
Where a company shows value for money, procurement can do an exemption removing the need to complete an open market tendering process. In this instance, contract value is not a barrier but requires procurement to complete a specific exemption and recommendation process. This could be an opportunity for Indigenous business to receive follow-up work after a contract well completed.
As mentioned above, the DPMC website contains a fountain of detail and well worth a visit. I included some links below.
The IPP does not mention anything about simplification of contract terms and requirements to date. It would seem as government intends to use the same lengthy and wordy contracts as usual . I find it concerning and in my opinion, it creates a position of risk for the Indigenous businesses that do fall in the real category of SME. It also does not reflect the cultural differences between “business as usual/take it or leave it” and developing and nurturing sustainable relationships.
In my personal experience, dealing with Indigenous business requires time and a different approach. It requires one to build trust and build a win-win relationship before being able to do business as usual.
Value for Money
The CPR and the Indigenous Procurement Policy deeply integrate the term “value for money”.
The CPR explains the concept of value for money in it great detail (and no disrespect meant but one really needs CPR after reading through the CPR!).
To me it simply means two things:
- firstly we make sure that we do value for money procurement for the right reasons; and
- secondly that we follow the right process (that includes both financial and non-financial criteria) to make sure that the procurement results in value for money.
How to deliver Value for Money through the Indigenous Procurement Policy?
Indigenous business has to show that the recommendation to by-pass an open market approach still delivers an effective outcome. Therefore Indigenous business needs to show:
A Competitive Market Position
In the end, it is still someone’s budget and money still matters. Although the Indigenous Procurement Policy allocates a portion of funding as part of the Indigenous Procurement Policy targets, government drives the same boat as everyone else in terms of budgets.
Government needs to find ways to maximise their return on every dollar.
Therefore Indigenous business has to show that it can deliver its goods or services in line with what the general market would ask for the same goods or services.
There may be room for a slightly higher rates but if your business is significant more expensive, it will be difficult to justify a competitive market position unless you can show value for money on the non-financial criteria.
Responsible and Effective Use of Public Resources & Fit for Business Requirement
The goods or services supplied by Indigenous business will have to fit in with government policies and fit the business requirements. The Indigenous Procurement Policy aligns with the CPR; therefore if Indigenous business shows 50% or more Indigenous ownership and employment of less than 200 people on a full time basis, we tick the box.
Accountable and transparent decision making
In the end, relevant government procurement team makes recommendation that shows value for money. The publication of contract award details on Aus Tender or related government tendering site, provides transparency.
Not everyone likes being in the limelight and in order to make it easier, I would recommend that you provide enough information to enable the relevant procurement team to be able to make a value for money recommendation and show a transparent process.
Risk is appropriately understood and managed
If you understand the risks involved and can show that you can manage the risks, you will enable the procurement officer to do a just recommendation. The level of risk and exposure depend on the contract value and complexity.
I would also here caution Indigenous business owners not to accept standard terms and conditions without reading and understanding what you are signing up for – this may expose your business to risks that you do not wish to take on or if you have to take those risks on, you may want to increase your asking price. In too many instances, businesses plainly accept standard terms and conditions without understanding the impact and potential consequences.
Value for money takes into consideration both financial and non-financial criteria. Therefore, where the asking price is higher than the market benchmark, it will be really important to make sure that your business strengthens up in the non-financial areas.
Areas to look into are:
- Quality matters and forms a significant part of the recommendation process. Can your services or goods compete against your competition in the area of quality and innovation?
- Capability – do you have a capability statement that speaks to what makes your business stand out, tells the story of your business’ experience and performance history?
- How flexible and adaptable is your proposal? It is politics after all and things change.
- Do you have the right systems and processes in place such as your health, safety and environmental management plans? Do you employ trained, skilled and competent people? And
- Whole of life cost – how long will your solution last and what are the overall costs over the duration? Will there be additional costs such as maintenance, upgrades etc?
The Indigenous Procurement Policy is an entry gate only.
In order to get in and stay in the playing field, Indigenous business must:
- show value for money
- be found (especially in the lower spending thresholds); and
- make sure that they find and make good lasting government procurement connections.
The Indigenous Procurement Policy recommends Supply Nation as place of registration as Indigenous business. If not already, now is the time to register.
Aboriginal Business Directory WA
In Western Australia, the Small Business Development Corporation/CCIWA/ProjectConnect have done great work in setting up an Aboriginal Business Directory. Hopefully the local government procurement officers and councils use this directory to find Indigenous business.
I think it is an exciting time for Indigenous small and medium businesses; the Indigenous Procurement Policy offers great opportunities as long as politics do not interfere.
We can certainly do more to implement and execute the Indigenous Procurement Policy, especially in terms of finding Indigenous entrepreneurs and guiding them through the procurement process.
The procurement teams need time to work through the value for money requirements. Much work will have to be done to understand what it means to be an Indigenous SME business.
Kylie Agale once told me that along the way, we should:
“Celebrate the small successes.“
And therefore I conclude with two success stories:
33 Creative signed a contract with the Australian Civil Military Centre (ACMC) early November 2015 for producing the ACMC’s upcoming Leadership DVD. At the signing ceremony, Dr Ryan of the ACMC said:
‘The Australian Civil-Military Centre is proud to enter its first contract with an Indigenous firm and we look forward to the delivery of a DVD that will be an outstanding tool to educate future mission leaders in offshore operations.“
The Fields Group has settled a $9,2million contract with the Department of Foreign Affairs and Trade (DFAT). The contract is for providing security/guarding services to DFAT across NSW and ACT over a three year period.
It is a good start and hopefully just the beginning!
For ease of reference, please see more detail on some of the terms used in this article:
The Commonwealth Supply Rules are the Government’s procurement policy framework. The overall objective is to design procurement rules that will ensure value for money through government procurement. You can find it here.
Indigenous Business is a business with a 50% or more Indigenous ownership.
Indigenous Procurement Policy provides the overall framework for the Indigenous SME procurement. You can find it here.
Value for Money – in order to be able to make a recommendation about value for money, procurement must take into consideration whether the procurement will deliver best value for money by considering areas such as stakeholder requirements, budgets, relevant policies and the markets capacity to competitively respond. Therefore, if you pass this gate, then procurement has to consider whether the procurement outcome will deliver value for money. Things to consider:
- Competitiveness/market related
- Use public resources wisely
- Accountable and transparent decision making
- Risks well understood and managed
- Fits within the business requirement.
- Both financial and non-financial criteria such as:
- Quality of the supply
- Fitness for purpose
- Experience and performance history
- Flexibility of proposal and innovation opportunities
- Whole of life cost
Small to Medium Enterprise (SME) is a business with less than 200 full time equivalent employees.
Celia Jordaan is a freelance procurement and risk consultant at Ichiban Commercial Solutions, Perth Western Australia. With over 19 years experience, Celia has worked in different countries, locations and cultures in the areas of procurement, supply chain, contract management, law and risk. She has also worked in the area of risk management, contractor management and safety.