Indigenous Procurement Policy to drive corporate innovation

The Indigenous Procurement Policy (IPP) launched in July, is beginning to warm up. Government buyers are figuring out how they will implement the policy and are building plans to ensure they meet their targets. However, outside of government, in the private sector, the policy is still relatively poorly understood—which may become an issue for the government if it is to meet its targets.

The IPP has been designed to drive public and private sector purchasing from Indigenous businesses, in order to grow those businesses and, in turn, grow Indigenous employment. Despite this, there are few in the private sector that know about the policy and even fewer that realise it may affect their company directly.

‘For private sector buyers, the understanding of the IPP is that it is for government and government alone,’ said Peter Critchley, Supply Chain Analyst at Transfield Services. ‘There is little appreciation that it might affect their contracts with government.’

Any organisation that contracts directly to government or contracts with companies that are highly exposed to contracts with the Federal Government, are affected by the IPP. There are few, if any, B2B companies not in this bucket.

As covered in last quarter’s Supplier Diversity How, the IPP is broken into three main categories.

  1. Target: by 2020 3 per cent of government contracts will be awarded to Indigenous businesses
  2. Mandatory set asides: For any contract between $80 000 and $200 000 or any contract awarded in a remote area, if there is an Indigenous business that can fulfil that contract and still provide value for money, the contract must be awarded to that business.
  3. Minimum requirements: For any new contract in certain industries at or above $7.5M, the winner of the contract must demonstrate either deliver 4% employment and/or a mix of 4% procurement. Alternatively they can choose to spread the target across their whole business, not just the individual contract, in which case the requirement drops to 3%.

Part three of the policy, is explicitly designed to drive Indigenous procurement down the supply chain and into the private sector. Any organisation hoping to win large contracts in building, construction, maintenance, transportation, storage, education, training, industrial cleaning, travel and many more will have to meet ambitious procurement and/or employment targets that are above the current Australian average.

All tenderers for applicable contracts of $7.5M or more already have to respond to the requirements of this element of the policy, however the regulations won’t be enforced until next year. If the policy applied to a tender your organisation was competing on, you would have to submit a detailed Indigenous Participation Plan that outlines how your organisation will meet the targets. An organisation’s compliance to the Indigenous Participation Plan will be monitored by the government contract manger.

Jason Eades, CEO of PwC Indigenous Consulting, has seen evidence that departments are looking to get wins under their belt before reporting on this starts in earnest next year.

‘In terms of the minimum requirements element of the IPP, despite this being a transition year, we are seeing initial signs that government departments are moving early,’ said Mr Eades, ‘They are very focused on building their programs to meet this element of the policy – they want to demonstrate that they can and that they can get there early.’

In other words, companies looking to win large government contracts should be ready for the IPP to affect their business—and should not be surprised if it comes in to play this year. Companies that aren’t ready may be at risk of losing large government contracts or damaging their relationships with government buyers.

Second Tier Reporting

Another way government portfolios will meet their targets is by reporting on second tier spend with Indigenous businesses. If a department under a portfolio, such as the Department of Human Services (DHS), has a large nationwide contract with a large office stationary provider, such as Staples or OfficeMax, and it purchases paper from an Indigenous business through that tier one supplier, DHS can report on that second tier spend with that Indigenous business.

For large departments, such as the Department of Defence or the Attorney General’s Department, second tiering will have to be core to their strategy to achieve their targets. Defence signs an average of 14 005 contracts each year, which means they will have to sign 420 contracts with Indigenous businesses by 2020. These targets will dramatically increase Defence’s spend with small and medium business, let alone with Indigenous business and will require a strong second tier strategy in order to meet the targets.

Defence and other departments tier one contractors will likely soon be called upon to start reporting their spend with Indigenous business. New contracts signed will start to have stipulations on engagement with Indigenous business in tier one supply chains. Tier one suppliers will have to meet those Indigenous business engagement stipulations and reporting guidelines, otherwise they will be at risk of not winning those government contracts.

Lessons Learned in the West

On face value, it may seem like the IPP places a heavy burden on the private sector and may impact the profitability of contracting to government. However, over the last twenty years in West Australia the mining industry has cultivated a culture of Indigenous business engagement down the supply chain. According to Mr Eades, the government and the private sector can look to this experience for guidance and advice on reaching the targets.

‘The mining giants have been here before. They know how to issue contracts that drive engagement with Indigenous business deep down their supply chains. They know how to establish a reporting system that captures the impact of their procurement spend.’ Said Mr Eades.

The more recent West Australian experience, of slowing investment in new projects and a decrease in new investment, also contains valuable lessons.

‘The mining boom drove a huge growth in small Aboriginal businesses and as that industry has moved out of the growth phase, there are a whole lot of Indigenous businesses going to the wall.’ Said Mr Eades, ‘If this policy is mismanaged or is suddenly changed, it has the potential to do the same type of damage, but on a larger scale. We have to ensure the private sector, government and Indigenous businesses are collaborating to build a framework that grows sustainable Indigenous businesses.’

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