Finance minister Katy Gallagher has cracked the whip over the federal government’s $80.8 billion annual procurement market, arming the Australian Small Business and Family Enterprise Ombud with a specific inquiry to determine whether reforms aimed at letting in small businesses are working — or not.
Bruce Billson has been tasked with running the rule over whether changes mandated for commonwealth procurement in July 2022 have yet to make an impact and whether SMB participation in government contracts has increased.
At last count, just 30.8% of government deals went to SMBs, though this figure is a little skewed by big infrastructure and defence procurements. Even so, it’s painfully low.
The procurement probe comes as the Albanese government figures out what to do about the report from the Watt inquiry into allegations of lobbyists influencing government agency spending and selection of bidders for contracts at Services Australia and the National Disability Insurance Agency.
The review penned by former Defence and Finance secretary Ian Watt probed 95 deals worth $618 million and found 19 warranted further investigation, but pulled up short of finding specific instances of misconduct.
The perception of systemic bias towards large and usually incumbent providers to government has long been a bugbear of the small business community in both federal and state jurisdictions, not least because of the amount of red tape and costly process involved to win work.
In 2021-22, the Australian government awarded $80.8 billion in procurement contracts, of which 30.8% or just under $25 billion by value, was awarded to small and medium-sized enterprises.
“For many small and family businesses, identifying and securing commonwealth procurement contracts can be complex, costly, confusing and time-consuming,” Billson said, adding that the competitive pressure SMBs exerted helped “to ensure full value for money, vitality in the economy, support for local businesses to scale and can enable innovation”.
“Where there are procurement impediments, it can diminish opportunities to encourage entrepreneurship and competition and means the taxpayer and the nation may not be getting the most value for money,” Billson said.
Procurement processes have long been the bane of those keen to bring innovation and reform to government, especially around technology where risk mitigation criteria and insurances often make it unprofitable for smaller suppliers and start-ups to bid.
A case in point was a highly critical report into Defence’s Capability Acquisition and Sustainment Group that found a culture of awarding contracts to former Defence staff to the exclusion of others.
Similarly, a shocker of an audit into the Digital Transformation Agency’s (DTA) procurement practices last year failed the agency on all nine of the procurements the Australian National Audit Office examined.
The founder of the original Digital Transformation Office, the late Paul Shetler, was a sharp critic of the regimented audit compliance culture that he felt that many agencies were impeded by because he felt the so-called tick-box mentality smothered innovation, reform and controlled risk-taking needed to improve outcomes and entrenched mediocrity.
Shetler’s core argument was that in private enterprise poor performers went out of business because of competition absent in the public sector, thus removing the impetus for continuous improvement.
The scope of the Small Business and Family Enterprise Ombudsman’s probe is set to dig into some of those long-running concerns.
In particular, it will look at:
- bundled procurement contracts or large work packages that make it difficult for small businesses to compete for tenders
- unnecessarily prescriptive contract requirements that impede small business access to procurement opportunities
- numerous panels and standing offer arrangements across the commonwealth; all with different application requirements (to get onto these panels), and
- different ‘piggybacking’ arrangements between agencies.
It will also look into “how many small businesses are securing and retaining procurement opportunities, noting current reporting groups SMEs together. That is, employers of less than 200 full-time-equivalent staff.”
The procurement probe will also gauge the extent to which large projects have been disaggregated (chunked down) to create SMB opportunities and whether insurance arrangements are “right-sized” to facilitate small business participation.
Defence gets a special mention, with the probe putting the issue of “tenders for Defence contracts worth up to $500,000 have been limited to SMEs”.
Billson will now consult with stakeholders, with a report to be handed to the Finance Minister no later than December 15.
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