Indigenous procurement targets ‘smashed out of the park’

The Commonwealth’s Indigenous Procurement Policy has clearly achieved the key policy goals but its broader success is harder to evaluate, writes Jonathan Dutton in GOVERNMENT NEWS:

On a Friday night in late June 2015, the high-profile announcement of a new carbon tax price took much of the focus away from another, more unexpected announcement – that of a new Indigenous Procurement Policy (IPP).

The Abbott government was on the record as saying it intended to individually review all the previous procurement connected policies with a hint the government would amend or even mostly abolish them.

Jonathan Dutton

The rumour within the civil service at the time was that the new IPP had been prompted directly by the then prime minister. Tony Abbott, perhaps inspired by his annual camps in Arnhem Land, had personally bolstered the new IPP and given it its teeth – a commitment that the Federal Government would allocate 3 per cent of its annual contracts to businesses that were indigenous owned SMEs (under 200 employees).

Nobody expected such commitment.

Indeed, the immediate question was whether existing indigenous-owned business might have the capacity or capability to handle such largesse? Fortunately, Supply Nation was able to help.

Supply Nation is the leading not-for-profit organisation facilitating and supporting indigenous businesses and the integration of them into the supply chains of its members. Its membership of around 350 government, corporate and not-for-profit organisations commit to engaging with indigenous businesses. Supply Nation is modeled on the National Minority Supplier Development Council in the US, which supports minority-owned enterprises.

Supply Nation’s five-step verification process validates that all businesses listed on the Indigenous Business Direct database are not only indigenous-owned but are also regularly audited for changes in company structure and ownership – authenticating the policy direction of the IPP.

Before the IPP, the Federal Government calculated that it spent just $6.2 million with indigenous-owned businesses in 2012-13. According to a Federal Government spokesperson, in FY 2016-17 that figure had grown to $345 million spent on 3,748 contracts with 726 indigenous-owned suppliers – some 2,211 contracts over the target of 1,537 (244 per cent).

By July 2015, two and a half years after the IPP’s implementation, some 6,849 contracts worth over $871 million had been awarded by the Commonwealth to over 1,000 certified suppliers. In February this year, the government said that mentioned had crept over $1 billion. These contracts cover the supply of a wide range of goods and services in sectors including construction, facilities management and catering as well as professional services, fire safety and even cryogenics.

Importantly, state governments now seem to be following suit. Victoria had a 1 per cent target, Western Australia and Queensland are shooting for 3 per cent, and now NSW too. Many underestimate the leadership effect of Federal Government procurement policy and the Commonwealth Procurement Rules. A number of leading ASX firms and others in the private sector now have spending targets for indigenous-owned suppliers or at least have firm reconciliation action plans within their business.

Does this mean IPP is a standout success? Well, yes and no.

In terms of hitting targets, the policy’s goals have been smashed out of the park. And indigenous-owned businesses have certainly thrived under this policy. The real question is: how much have indigenous Australians benefited, if that was the aim of the policy in the first place?

Which makes you wonder who other than company directors (indigenous or not) have benefited directly or indirectly from the IPP? Supply Nation says that of its “nearly 1,500” registered businesses, 43 per cent of the employees are indigenous Australians – with many likely to be supporting families or dependents. That’s a key part of the success then, as apparently indigenous-owned businesses are 100 times more likely to employ Aboriginal staff than non-indigenous owned businesses.

Some cynics have suggested, however, that some suddenly indigenous companies are really just a sham; established only to secure an ‘easier’ pathway to government contracts maybe. That perhaps only a token presence of indigenous people on the board legitimises the business?

But, in the end, it may not matter so much. Some benefit to indigenous individuals and their dependents is better than none. And, ultimately, any non-legitimate business should be weeded out by Supply Nation or by the government client raising questions.

Roy Ah-See, chair of the NSW Aboriginal Land Council, recently pointed out in The Australian that all is not yet won. He quoted the annual Closing the Gap report and noted that “the target of halving the gap in employment between Aboriginal people and other Australians by this year is not on track.”

Indeed, he added: “We have slipped backwards. Aboriginal and Torres Strait Island employment fell from 48 per cent to 46.6 per cent.”

Yet more government business for indigenous owned suppliers is perhaps required. Or is there a limit to what supply side driven policy can achieve? For sure, an economic growth rate among Supply Nation registered suppliers of around 12.5 per cent brings its own set of business problems.

Jonathan Dutton FCIPS is an independent management consultant specialising on procurement and was the founding CEO of CIPS in Australia from 2004-13. He writes a monthly column on procurement for Government News.

Last month’s column: Sustainable procurement: bottom-up efforts gain momentum.