The Mandarin - Abbott's new procurement game changer

By Tom Burton

The release of the detail of the new indigenous procurement policy with a mandatory 3% target and compulsory set-aside for indigenous businesses contracts is a game changer for Commonwealth procurement and indigenous development.

For the first time ever, there is a hard mandated target, detailed rule changes for a large swag of contract opportunities and mandatory employment requirements for contracts above $7.5 million for a wide range of contract types.

If the US experience is anything to go by, this fundamental change has the potential to create a major and sustaining economic development model for indigenous communities.

The policy is revolutionary, the first time at Commonwealth level where a mandated procurement target has been created to drive a broader development objective. It represents a far more activist approach to using Canberra’s $39 billion procurement budget as a driver of economic development and is a landmark change for the indigenous community. It is also a clear example of the priority Prime Minister Tony Abbott has given to aboriginal development.

The targets are similar to those in the US and Canada and one lesson learnt from North America experience has been to create a ramp up, rather than mandate a high initial target, agencies and indigenous businesses will struggle to reach.

The target begins at half a per cent from July 1, and if successful will see the number of contracts going to indigenous businesses, rise from 250 domestic contracts, to over 1500 contracts a year by 2020.

An indigenous business is any business that is 50% or more indigenous owned, and now includes franchises. The previous definition required 51% indigenous ownership and control, which ruled out mum and dad businesses and many joint ventures.

Importantly the target is broken down for every Commonwealth portfolio, with every portfolio secretary responsible for reaching their individual targets. This will be what generates much of the early change, with agencies required to reach specific numeric targets in the coming financial year.

But arguably more important will be the mandatory set-asides. These require agencies to check if an indigenous business can deliver goods and services on a value for money basis, before approaching the market, for all contracts valued between $80,000 and $200,000. The same rule applies to all remote area contracts — the big Defence bases and immigration facilities.

For the real world of government procurement this new rule will almost certainly see a paradigm change in how agencies think about their procurement. Broad based policies and targets are one thing, but the procurement rule book now requires all agencies to look at indigenous business first, and as long as they have the capability and offer value for money, they are in.

The list of these indigenous businesses is to be held on the website of Supply Nation, an NGO which connects indigenous business with corporates seeking to ensure indigenous diversity in their supply chain.

The new policy has been prepared by the Prime Ministers department and confirms Speaking at Supply Nation’s Connect conference today, Prime Minister and Cabinet assistant secretary, Maya Stuart-Fox, said the mandatory set-aside for contracts between $80,000 and $200,000 applied to 14% of Commonwealth spend.

Stuart-Fox also highlighted the opportunity to drive indigenous employment through a new provision that requires contractors tendering for contracts above $7.5 million in value, to have 4% indigenous employment over the contract or for the organisation itself to have 3% indigenous employment. She told the conference this represented around 150 contracts.

Under the same rules in North America, large scale indigenous businesses have emerged over the last 20 years. The poster child is NANA, the development company set up by the Inupiat people of Alaska which these days books $1.7 billion in annual revenues and has contracts which include servicing the President’s plane, Air Force One, at the Andrews air base outside of Washington DC.

The president of NANA, Helvi Sandvik, told the conference it was the mandating of a target in the US which gave NANA its major leg-up and enabled it to build capability and expertise to broaden into the resources sector and the general service sector.

The mandating of targets and clear mandatory set-asides is a historic change for government procurement in Australia, and opens the way to use the multi billion dollar procurement needs of government to drive broader change in other areas such as disability, gender and more broadly smaller to medium businesses.

While each of the states have various policies to promote local businesses none have set high profile targets and altered in detail day to day procurement rules to make it happen.

For larger corporates with mature diversity programs this will confirm their investment in these programs, and should also see a significant number of indigenous businesses reaching out to partner with larger businesses.

A lesson from NANA is that partners are critical to build capability and to de-risk delivery for government.

Critical to the success of the program will be strong accountability. Locking secretaries into delivering the mandated targets is one thing, but there are decades of procurement resistance to giving advantage to any specific group. Before this policy there was a general exemption for indigenous businesses for contracts over $80,000. This is widely accepted to have failed because of reluctance of procurement officials and line manager contractors to embrace the exemption.

Indigenous businesses will also need to become much savvier at understanding government needs and work closely with procurement officials and agency business owners, to comply with their often complex tendering requirements.

This almost certainly will mean establishing a presence in Canberra for many, to make physical contact with agencies, as well as being on top of emerging needs.

The head of Strategy for NANA, Stan Fleming, told the Connect conference NANA had established a Washington DC office. It had identified medical IT and cyber security as two emerging areas of government need in the US.

The use of procurement to drive a more diverse economic development base comes as all governments are looking to better engage with their ecosystem of providers and to spur entrepreneurialism.

http://www.themandarin.com.au/35559-tom-burton-abbotts-new-procurement-game-changer/?pgnc=1