16 May 2024

The Australian Small Business and Family Enterprise Ombudsman, Bruce Billson, acknowledges the public release and response by the Australian Government of his inquiry into the effectiveness of Commonwealth procurement rules for small businesses.

The Ombudsman described the Government’s response as “underwhelming” and a “missed opportunity to meaningfully improve the opportunity for competitive small and family businesses to be a supplier to the Commonwealth”.

“Winning a government contract can be life-changing for a small business,” Mr Billson said. “As all businesses know, there is no substitute for good customers.”

“But the overwhelming response from our consultations with Australia’s small business community is that too many feel excluded from the chance to tender for government contracts because they are not part of the ‘in-crowd'.

“Repeatedly, small suppliers told us the existing system is just not working as the process involved in bidding is too complicated, not conducive to competition, opaque, inefficient, and incongruent with private-sector processes.

“This is why there has been a bipartisan view and requests from successive Governments for me to independently examine how procurement rules and processes are working for existing and potential small business suppliers and what improvement could be made.  

“Given this clear appetite for reform and apparent desire to address failing processes and missed opportunities to embrace Australian small businesses, we took this important tasking seriously.

“And just as small businesses face obstacles selling to government, so too do many officials encounter frustrations and impediments.

“The Government’s initial response to our inquiry is underwhelming and I was surprised that several of the substantive recommendations and proposed reforms that have not been embraced, were rejected without any discussion at all. For the recommendations where the response ‘agrees’ or ‘agrees in part’ we are happy to continue to engage constructively and collaboratively so that some urgent improvements can be made for small suppliers.

“It is a disappointing response and at odds with the evidence, research and reference group input, and the clear view of those who made submissions about their direct experience trying to navigate the existing system.  

“The sentiment that it is ‘all sorted” or more of the same with a minor tweak here and there, was not reflected in any of the submissions, research or reference group input. 

“There will be great disappointment by those participating in the inquiry process, hopeful for substantial improvement in the way the Commonwealth deals with current and prospective small business suppliers,” Mr Billson said.

The Australian Government procured goods and services worth $75 billion in 2022-23. Despite making up 97% of all businesses, procurement from small business suppliers accounts for only $8 billion (11%) by value.

The Ombudsman’s report makes 11 specific, constructive and practical recommendations.

“Together, these actions can achieve the profound change in incentives and behaviours required to address persistent problems and realise the full benefits of government spending through a genuine embrace of small businesses in the supplier community and procurement processes,” Mr Billson said.

“It’s abundantly clear that the existing system isn’t working as intended for many small businesses and the steps already taken have not shifted the dial to achieve the Government’s own stated objectives.

“We were encouraged to be bold and bring fresh thinking and new ideas to this long-standing area of contention and frustration for small business.

“We consulted extensively with government departments and agencies throughout the inquiry and in developing the recommendations.

“It is encouraging that the Government concurs with our recommendations to better support procurement officials and advance women’s entrepreneurship; and has agreed in part or in principle to many other of our recommendations. 

“Those recommendations which the Government has not fully embraced or will consider further, provide new thinking and approaches, based on what is working elsewhere that can help genuinely shift the dial to better realise the Government’s goals.

“It is important that we continue to consider these additional recommendations and the benefit that they can deliver for small business engagement in Commonwealth procurement. More of the same is not going to bring about the change in confidence that prospective small business suppliers are looking for to engage in a complicated, costly and time-consuming process.

“Dismissing considered and evidence-based reforms as potentially expensive, inefficient or duplicative without any meaningful examination to justify retaining current and known-to-be ineffective and perfunctory arrangements, is at odds with the stated ambition of successive governments to improve Commonwealth procurement for small business suppliers. 

“We welcome the ideas that have been adopted and will continue to encourage the Parliament and the community to see the merit in the other recommendations and adapt them to benefit small business, the taxpayer and the Commonwealth alike.”

Mr Billson said the report outlined a package of reforms that would re-purpose existing funding and resources – not duplicate it – to produce an efficient and easy to navigate procurement framework that would make a significant difference.

“It involves a step-change in approach,” he said. 

“Introducing ‘retained economic value’ as the evaluation framework where ‘price’ alone can undermine ‘Future Made in Australia’ objectives, is a crucial recommendation that is too important to dismiss.

“Active stewardship is essential to ensuring that the Australian Government operates as a model customer, secures better value for money for taxpayers, and achieves its ambition to provide more opportunities for Australian small businesses and First Nations businesses.

“The extent of the challenge is revealed by analysis by the e61 Institute, which found that Commonwealth procurement has increasingly favoured large and existing suppliers since 2014.

“What we need is real engagement and commitment to improving procurement outcomes, with support for officials and consistent monitoring of what actually occurs.”

As part of the inquiry, in-depth interviews with 22 senior officials (conducted by the Social Research Centre) revealed that the increasing complexity of procurement priorities and connected policies are adversely affecting officials in line areas who undertake procurements as needed.

Similarly, an online survey of 112 operational staff indicated that their main frustrations are manoeuvring through policies when dealing with complex tender processes (71%) and additional administrative burden (69%).

78% of operational staff cited difficulty of identification as the most common barrier to them approaching or using an SME.

“One of our recommendations was to abolish the Procurement Coordinator function and replace it with a Procurement Commissioner, who would have independent processes for resolving complaints and the ability to synchronise and support procurements," Mr Billson said.

“Why wouldn’t you create a Commissioner like occurs in so many other policy areas with focus, authority, drive and independence? The current Procurement Coordinator complaints function is neither timely nor consequential, with the Coordinator having no authority to compel an outcome. Only three complaints a year on average have been lodged since 2011 and the results of these complaints are not transparent. 

“During our inquiry, no small business supplier was prepared to go on record because of fear of retribution.

“Let’s be clear. A small business is not looking for a belated, legal victory through a judicial review. That brings no comfort. They want a fair opportunity to compete to be the supplier,” Mr Billson said.

The Ombudsman’s report also makes recommendations aimed at improving Defence procurement, making AusTender fit for purpose, supporting procuring officials to identify and use small businesses, reforming government panels, boosting women-owned business opportunities and improving payment times.

 ASBFEO is encouraged by the Government’s decision to consider the potential for use of a ‘sourcing strategy checklist’ and ‘assessment outcomes checklist’ as part of ongoing resource development.

“Capturing broader value-for-money considerations through these checklists would encourage more consistency in procurement deliberations across departments and more transparent and comparable reporting within government,” the Ombudsman said.  

“Further, employing a ‘retained economic benefit’ approach would be a game changer driving ‘Buy Australian’ ambitions and allow the Government to quantify (without prescribing) the contributions of procurements, in terms of value of expenditure on goods and services supplied by domestic firms, labour provided by residents and First Nations Australians, and investment in capital and social infrastructure” Mr Billson added.

The report and recommendations are available at: www.asbfeo.gov.au/procurement

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