Friday, 15 December 2017

Indigenous Procurement Policy review

In 2015, the Government released its new Indigenous Procurement Policy aims at expanding the take up of government contracts by Indigenous business. The policy is outlined on the PMC website, which provides a very useful introduction to the key objectives, targets and background documents. Link here

As an aside, this web page is admirable for its succinct synthesis of the policy, key data and a sense of what the policy is seeking to achieve. Unfortunately, the same cannot be said for all of the Department’s program web pages.

The Department of Prime Minister and Cabinet has recently published the Year One review of the Indigenous Procurement Policy (link here). This policy appears to be one of the stand out successes of the current Government‘s policy approach in Indigenous affairs.

The review documents significant progress across the board in allocating government contracts to Indigenous businesses, which total close to a quarter of a billion dollars a year,  and confirms that progress has been extremely positive over the past two years. The first two paragraphs of the Executive Summary state:

The detailed analysis of the raw data, in conjunction with the qualitative interviews and surveys, has found that the IPP, in its first 12 months, has exceeded its planned outcomes. The clear majority of contributors expressed a motivation to continue to contribute to the success of the policy objectives, indicating strong alignment with governments’ commitment to Closing the Gap on economic outcomes for Aboriginal and Torres Strait Islander Australians.
All portfolios met the original 2015-16 target of 0.5%, and in total the year one target was exceeded by a significant margin, with 1,509 contracts actually awarded to Indigenous businesses. The original first year target was 256. This is an increase from a total of 78 contracts awarded to Indigenous business in 2014-15.

The Executive Summary goes on to identify a number of potential issues worth considering further. In particular, it notes that the level of achievement across some 19 Commonwealth portfolios was not consistent, that relational approaches to procurement were most effective, that while the average value of contracts issued to Indigenous businesses was around $188k, the median value was $19k, and that there were a very high number of contracts given valued at less than $10k. Finally the summary noted that the profile of Indigenous businesses structures was opaque and there was scope to dig deeper in understanding how they related to outcomes. The heading in the text that ‘Business structure requirements are in alignment with the needs of stakeholders’ does not reflect the text, signalling to me that there are potential issues here.

Finally the report foreshadows an evaluation of the IPP in 2018, and usefully list a range of issues which ought to be taken up and examined as part of the evaluation.
While the story here is largely positive, and the Government’s policy aspirations are clearly worthy of support, there are two high level policy risks which will need to be managed carefully over the coming five years or so.

The first relates to the finding that relationships play a key role in driving better IPP outcomes. The report mentions the focus which suppliers put into building relationships with procurement teams in Canberra and elsewhere, and sees this as a positive. However, there is always the risk that stakeholders and relevant procurement officers will drift into inappropriate activities and even fraud or corruption. Prudent risk management suggests that rigorous fraud mitigation frameworks should be in place in all portfolios.

Second, it is clear that the potential for non-Indigenous businesses to structure activities with an Indigenous ‘front’ or joint venture partner to win government business is a real risk. This is often referred to as ‘black-cladding’ and was part of the review’s terms of reference. The review hints in various places that this may be an ongoing issue, but doesn’t provide any real line of sight to how much of an issue it is, or could become. Again, this is an issue which the forthcoming evaluation of the IPP ought to delve into in considerable detail.

At a much broader level, it seems clear that the IPP is part of the government’s philosophical approach which is aimed at raising the profile and importance of the private sector over the public sector in Indigenous affairs. Clearly Indigenous interests are significantly under-represented in private sector activities, and there is nothing intrinsically wrong with such a philosophical predisposition. Where there is a risk however is in creating private sector expansion by squeezing the public sector, and in particular, the community sector. There may be an ‘infant industry’ argument for supporting Indigenous private sector activities off the back of the public sector, but ultimately, the vast bulk of emerging Indigenous businesses need to sink or swim in the private sector. These are balances and trade-offs which are virtually impossible to objectively assess, but one which nevertheless have important policy consequences over the medium term and deserve our attention.

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