Indigenous procurement rules: what you need to know

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The release of new indigenous procurement policy with a mandatory 3% target and compulsory set-aside for indigenous business contracts create major new opportunities for indigenous suppliers and their delivery partners.

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 United States experience is anything to go by, this fundamental change has the potential to create a major and sustaining economic development model for indigenous communities. A four-part interview series follows …

Tom Burton: Could I get you to introduce us to PwC Indigenous Consulting, how it came to be and the nature of its work?

Jason Eades: So PwC Indigenous Consulting is an Aboriginal business that’s focused on the full spectrum of management consulting where new business that is 51% owned by myself and three other indigenous people and 49% owned by PwC Australia. We were set up to really bring into life PwC’s societal relevance at work but from our perspective it’s also about having impact on issues that matter for indigenous Australians.

Tom: The new procurement rules which have just recently being developed and published out of Canberra for indigenous businesses, what do you say are the main opportunities for indigenous businesses coming from those rules?

Jason: There’s three main areas of opportunities. Firstly, to win business direct from governments, particularly where the targets have been set around the number of contracts to be awarded to Aboriginal businesses. Secondly, through the supply chains of our businesses who are delivering work to the Commonwealth and finally I think the other big opportunity is through very large contracts, and again through the supply chain mechanisms especially as they relate to remote Australia.

Tom: And we’ve had previous rules in this space but they didn’t really work. What makes you excited by these new rules?

Jason: I think the old rules still apply, interestingly enough or parts of them do. So the exemption 17 still applies and the Commonwealth is able to access and use that just to purchase up to any value of work. The part of the policy that didn’t work before though was the performance outcomes. There’s no real life behind them. There was no repercussions if people weren’t meeting those and I think the other thing that’s different is there’s a clear set of instructions that are being issued for public servants, actually understand how the rules apply and how to use them in a day to day decision making which wasn’t there before.

Tom: And as you reflected on these rules, what do you think, as we kick off into a what’s going to be a very large program, from an almost design perspective, what are some of the observations you have about optimising the whole program to really get the benefits we’re trying to get for indigenous businesses?

Jason: I think there will be some early wins that can easily be made from some existing indigenous businesses that will be able to take up the opportunities almost immediately. There’s further opportunities to actually work with businesses who might be on the cask of being ready, so helping them develop and I think the big opportunity is to actually the capability building through either new businesses being formed, say like we’ve done in our own business where we have brought capability in from PwC or having joint ventures. And the joint venture aspect is actually outlined in the policy itself and it allows for joint ventures where there’s 25% indigenous ownership.

Joint ventures between government and indigenous business

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Tom Burton: How do indigenous businesses start to find that partnering arrangement? How do they seek out those partners. Have you got advice on that?

Jason Eades: I think it’s really understanding the segment of the market that you’re working in — who are those players. So identifying very early on who are capability partners that can assist you in delivering that. We’re very fortunate in that the government have previously, sorry, does continue to, invest in Supply Nation, whose members are corporate Australia or in government agencies who are seeking to bring in Aboriginal businesses into their supply chain. So they have been very active out there looking for Aboriginal businesses and in some cases are having those discussions around either how they work with those businesses to lift their skills, to bring them into the business – businesses supply chain, or how they might actually form new either joint ventures or new business structures.

Tom: Where do you see these early opportunities for current indigenous businesses as the rules currently stand?

Jason: In the first year, it’s 0.5% of contracts across the various agencies that have to deliver, the number of contracts they have to deliver to Aboriginal businesses. The big agencies, at the top of that, Defence is the largest with having to reach the target of 70. I think for early opportunities are obviously going to be within Defence itself and we’ve already seen Defence be very active in this space, and they’ve rewarded contracts over the last 12 months to 18 months to Aboriginal businesses. They have some expertise and they will be looking very closely what other opportunities there are.

Tom: And for the indigenous businesses themselves, what advice have you got? You’ve had some experience in WA I think around procurement practices. What advice would you give as they consider this whole space?

Jason: I think it’s a clear understanding that this provides an opportunity for their business and provides an opportunity to win work. But the big lesson from other market places or what we are seeing play out through other instruments is that if you become too dependent upon one source, it’s actually not good for your business nor is it good for the people that you’re purchasing or delivering services to. So in Western Australia with the mining sector, we saw the boom period in which the construction phase resulted in a lot of small Aboriginal businesses being setup. They were moved in or part of the supply chains to very large providers on mining sites.

As the sector has moved out of construction phase into one of business as usual, and of course the resources has fallen through the floor in terms of price, it does have a flow-on effect then, many of those businesses are no longer surviving and having to either liquidate or find other areas in which they can deliver services to. So it’s a real message about don’t be too dependent upon any one purchaser of your goods and services.

Tom: And these rules mimic or copy in some regards, rules from other countries particularly United States. Are there any lessons from there as you look at the whole system?

Jason: I think the whole movement around supply and diversity has been running in the US for a very long time. Some 40-years of experience in this space and they have had government rules in place that are about 5% of minority, sorry 5% of procurements going to minority business. And that definition of minority businesses is quite broad as you would expect but the US is a much larger marketplace as well. But what we have saw is a number of businesses that have grown in size and style. They have billion dollar enterprises that are tier one providers to the federal government in America.

So here, it’s very early days. We won’t expect to see businesses of that magnitude immediately. But I do hope it’s seen as a catalyst and that others will look at us and why it’s important to actually do this, particularly corporate Australia will do more than what it’s currently doing. They’re doing some great work but it’s building upon that. So it’s becoming the incentive.

I think the thing to understand about this is that it’s not just about creating Aboriginal businesses. At its heart, this is about creating jobs. So what is recognised and understood, and it’s mentioned in the Forrest review is that Aboriginal businesses are 100 times more likely to employ Aboriginal people. So this is one mechanism to actually drive aboriginal employment and that’s the reason why the policy is being created. It’s an underlying desire to increase the number of Aboriginal people who are employed.

How agencies and indigenous businesses work together

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Tom Burton: I want to revisit the capability question. I suppose at one level, this could just be a dating service I suppose. To reflect on that, how do we ensure this sort of capability drive actually brings to fruition real gains?

Jason Eades: There is one thing that we know about the free market is that when the conditions are there and they right in terms of the policy environment and they right in terms of the mechanisms for making sure that they are achieved that the free market kind of takes care of itself. So there will be people who will see that this is a real opportunity, it is an opportunity to set yourself aside and have that little bit of edge over competitors. So people start looking for those more little gains that they can make. They will seek out Aboriginal entrepreneurs and vice versa, Aboriginal entrepreneurs who can see this as an opportunity, will look at how they can position themselves.

So I’m confident there’s enough people who are in this space that will be able to take up some of the immediate opportunities. The part that really interests me in most though is not so much those that are ready and capable right now, but how we bring the next generation of those businesses along and how we develop them. I think hand in hand with this policy is a need to invest in that space, invest in capability building. In some instances creating networking opportunities that allow people to meet one another. You don’t go into business with someone without knowing who these people are and networking events are a great way of bringing different business sectors together so that people can meet. If there’s mutual interest then they can look what opportunities there might be for them.

Tom: So the traditional rules apply in many ways …

Jason: Relationships matter I think in all aspects of business, as it matters in all aspects of life.

Tom: Tell me about the whole procurement piece from an agency perspective. Do you have any observations there how agencies can really maximize the benefits of the new policy?

Jason: I think first people will look at this policy and they’ll think about the big contracts. They’ll think about, the policy itself talks about mandatory set asides, from work that’s valued between eighty to two hundred thousand (dollars) . But for most people, they can make a difference by the small decisions that they make. Whether that be from the catering that they purchase for a meeting, whether it be who prints a particular policy document, relatively small value jobs and in some cases will be sub one hundred thousand (dollars), but they can have a big impact for those Aboriginal businesses. I think having a much bigger impact than what people would realise.

Most businesses in Australia are small and the Aboriginal community is no different to that. What there is of the Aboriginal business sector is largely made up of small enterprises. So making sure that we don’t leave that behind in creating rules that really take care of the larger ones and the opportunities that come from them, but also not missing out on the other end.

Tom: Federal procurement is a pretty sophisticated business as we know, and there’s tight rules around that. How do indigenous businesses get that sort of skill set? What is your advice?

Jason: I think this really drives to finding a good capability partner or somebody who can mentor you through that process. What we have seen today is the most successful Aboriginal businesses today have done that really well. They have found people who were willing to coach them through the process, help them as a business, understand what they need to meet to win that work, and help them actually find ways in which they can develop that skill set. So that’s been the real key to success.

I think the only way to really build that is to find good mentors or good capability partners, because it’s not something that comes natural, the details and the things you have to know in terms of procurement. It varies of course, depending on the size and style of the work you’re trying to win and the nature of the work you are trying to win. So it’s always best to find people who know the sectors.

Tom: And that’s where Supply Nation comes in, in terms of marrying those sort of corporates wanting to engage indigenous businesses and indigenous businesses wanting to be part of that.

Jason: I definitely see that as one of the opportunities. The corporates of course are looking for opportunities to bring Aboriginal businesses into their supply chain, diversity matters and we know that diversity actually adds a lot of value for companies. It’s also in their interest to make sure that a provider that they bring to a supply chain is capable of being in that supply chain. It’s in their interest and it’s in the interest of that business. And we’ve seen here in Australia a real willingness to coach and mentor people along so that they are able to meet those conditions, and certainly internationally that’s the success ingredient really, where many larger corporates understand that it’s in their interest to get a good stable business into their supply chain, and that means taking the time to invest from a capacity building, capability point of view.

Tom: And in terms of understanding the opportunities, AusTender is the main vehicle where these are found, but it is a difficult beast to navigate. Do you have any recommendations around how indigenous businesses can think about, if they like the opportunities, the deals that are coming through, the contracts that are likely to come up.

Jason: I think it’s fair to say whilst AusTender is the platform that where you find the opportunities, relationships matter when it comes to awarding contracts. If you out of the blue apply for a AusTender and nobody within the department actually knows who you are, how do you give confidence that you can actually do that? So relationships and building, reaching out to those departments, making them aware of what you actually do, building that confidence that you can actually deliver upon what you say you can, it really enhances your chances of being successful and winning.

So AusTender is a platform to find all these different opportunities and there are, depending on your industry, you can get thousands of listings out of there. There’s value in actually having a look at the past in AusTender because successful tenderers look at pricing, what people have actually won, what they’re delivering and how do you compare to that. So if you’re going to compete in a market place, the first thing you do is do your research, and AusTender can actually help you pull together the information. But fundamentally it’s all about relationships. If you don’t have them then you really won’t have much an opportunity to win them.

Getting the most out of the new procurement practices

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Tom Burton: I think agencies are required to put there forward their big spends, put the big contracts up earlier, or give notice ahead of the time. So we see some quite good intelligence reside in the system bit it is actually building those relationships (that matter). On the procurement side, are there practices you see within the current, if like in the federal sphere, that could be problematic here as agencies themselves gear up?

Jason Eades: I think it’s often understanding that what they take to market and the size and scale of it sometimes is so big that it’s outside of the reach of most businesses, it doesn’t matter if they’re Aboriginal or not. And there’s been a real effort to try and break some of that down or at least encourage those big bidders to think about what they’re doing in this space. I think Aboriginal businesses are no different. They all want to get in into the supply chain but most of the opportunities are actually not going to be at the tier one level, they’re going to be further down in the chain.

So impressing upon those big businesses that are winning that work, the importance of this policy to the government and making sure that all the accountability measures actually appear in those contracts because that will change behaviour. Again to use another example from Western Australia, the reason why you saw so many Aboriginal businesses form over there, it was a key requirement of all the big resource contracts going to market was that you had to address 10% Aboriginal employment and/or procurement — Aboriginal businesses in your procurement chain. If you couldn’t, that was heavily weighted on those contracts, 10%. If you’re not addressing that, you’re behind all the rest of those that are. So it’s in their interest but it only works when they’re enforced.

Tom: Follow up question. You’ve mentioned the value of diversity in the supply chain, what is that value?

Jason: I think most businesses have been on this journey of diversity within. So finding and making sure that they’re diverse and inclusive in terms of their work force, and that flows right through to supply chains. If you’re not getting the same through there then you’re not getting the best value in that. What research shows is that work places that are more diverse and more inclusive, one are commercially more successful and so the returns to shareholders are a lot higher, but also are more likely to be driving innovation because there’s different thinking and that just mixes up the whole environment really.

As I said earlier, the US has recognised this for a long time. Australia is playing a bit of a catch up if you like, we have some real opportunities to really embrace this and do something quite different and see where it takes Australia. But I think it’s also a way in which we can address Aboriginal employment outcomes, and it’s not a government responsibility in its totality.

It’s not something that the Aboriginal community can solve on its own, but collectively, we have corporates and with other businesses, we actually can help close the gap on employment at least and the flow-on effects from that unto other headline indicators like life expectancy will be huge.

Tom: Thank you Jason for sharing those thoughts. It’s very exciting initiative I think. Everyone is really watching this new program to see how it goes and we’ will be coming back and perhaps talk to you at a latter stage.

Jason: You’re most welcome. It’s early days so let’s hope it drives some change.