The Australian National Audit Office (ANAO) recently released a Performance Audit Report called Procurement Initiatives to Support Outcomes for Indigenous Australians (ANAO Report No. 1 2015-16). The objective of the audit was to assess the effectiveness of the administration of procurement initiatives to support opportunities for Indigenous Australians.

The release of the ANAO’s report coincides with the coming into effect of the Australian Government’s Indigenous Procurement Policy (IPP) on 1 July 2015. The IPP aims to use the significant purchasing power of the Australian Government to stimulate Indigenous entrepreneurship and business development, providing Indigenous Australians with more opportunities to participate in the economy. The IPP replaces the previous Indigenous Opportunities Policy.

In addition to the IPP, the Indigenous Business Exemption in Appendix A of the Commonwealth Procurement Rules (CPRs) continues to allow entities to exempt procurements of goods and services from SMEs with at least 50 per cent Indigenous ownership from Division 2 of the CPRs.

However, the ANAO found that while the policy’s intent to leverage better Indigenous outcomes from Australian Government procurement activity has been clear, the frameworks developed by Commonwealth entities to achieve the policy objectives of the previous Indigenous Opportunities Policy have not, generally speaking, been effective. The ANAO noted that a number of the issues identified are being addressed in the new IPP arrangements, but that achievement of the intended policy outcomes is likely to require continued efforts by Commonwealth entities.

Where do I find the IPP?

Policy responsibility for the IPP belongs to the Department of the Prime Minister and Cabinet (PM&C). You can find a copy of the policy on the Department’s website.

Why do I need to know about this?

The IPP is a Procurement Connected Policy (click here to view). This means that if:

  • you work in a non-corporate Commonwealth entity (eg a department) or in a non-corporate Commonwealth entity that is required to comply with the Commonwealth Procurement Rules (CPRs)
  • you carry out procurement and contracting activities

you must ensure those activities are not carried out in a way that is inconsistent with the IPP (sections 15 and 21 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act)).

In addition, the IPP imposes requirements on entities to monitor their activities and report against targets for purchasing from Indigenous enterprises, and includes:

  • a mandatory set-aside policy to direct some Commonwealth contracts to Indigenous enterprises
  • minimum Indigenous participation requirements for certain Commonwealth contracts.

What are the targets for purchasing from Indigenous enterprises?

The IPP sets targets at a Commonwealth level and at a portfolio level for awarding domestic contracts to Indigenous enterprises (being an organisation that is 50 per cent or more Indigenous owned that is operating a business).

The targets will be phased in over time. At the Commonwealth level, in FY 2015-16, the Commonwealth aims to award 0.5 per cent of domestic contracts to Indigenous enterprises. This target rises to 2.5 per cent of domestic contracts in FY2018-19.

This Commonwealth target will be allocated across portfolios. PM&C will calculate portfolio targets for coming financial years in consultation with the Department of Finance and in accordance with the formula set out in the IPP. Portfolio targets for the upcoming financial year will be announced in April each year on the Indigenous Procurement Website. The portfolio targets for FY 2015-16 are set out in the IPP itself (see table on page 16). Portfolios can choose to convert their target into a dollar value target for greater flexibility if required. The method for calculating the conversion is set out on page 17 of the IPP.

The IPP encourages entities to set higher targets than those specified, and to develop an Indigenous procurement strategy that reflects their own procurement and purchasing arrangements.

Mandatory set aside of certain Commonwealth contracts

The IPP includes a mandatory set-aside requirement which has been designed to provide Indigenous SMEs with improved access to Commonwealth contracting opportunities such as those in remote areas and of a certain value. It gives Indigenous SMEs the chance to demonstrate value for money first, before the entity makes a general approach to the market.

The mandatory set-aside requirement applies (subject to the exceptions set out below) to:

  • ‘Remote Procurements’ – being procurements where the majority of the goods and services being delivered under the contract will be delivered in a ‘Remote Area’ (as identified on the Indigenous Procurement Website)
  • procurements with an estimated value of between $80,000 and $200,000 (GST inclusive).

The mandatory set-aside requirement does not apply to the following procurements:

  • procurements to which paragraph 2.6 or 10.3 of the CPRs apply (being measures necessary for the maintenance or restoration of international peace and security, protection of human health, protection of essential security interests, or protection of national treasures, or conditions for limited tender, respectively)
  • mandatory whole of government arrangements or exclusive departmental panel purchasing arrangements
  • procurements based on an Appendix A exemption in the CPRs (other than exemption 17).

Under the requirement, entities must, before commencing a procurement, decide whether an Indigenous SME could provide the goods or services required on a value for money basis, before undertaking its usual procurement processes. This initial step requires a search of Supply Nation’s directory of Indigenous enterprises, as well as recording the outcomes of that search (see the details provided at the start of page 27 of the IPP). The IPP contains guidance on how to determine whether a procurement is a Remote Procurement (see IPP, page 26).

If a procuring officer in an entity is satisfied the Indigenous SME could deliver the required goods or services on a value for money basis, then the entity must purchase the goods or services from that Indigenous SME using exemption 17 in Appendix A of the CPRs. If, based on the search of Supply Nation’s database, no suitable Indigenous SME is identified, the procuring officer may follow the entity’s ordinary procurement practices to award a contract.

Mandatory minimum requirements for Indigenous participation

The IPP requires Commonwealth entities to include mandatory minimum requirements for Indigenous participation in all contracts that fall within the meaning of “High Value Contracts” as set out in section 4.2 of the IPP. High Value Contracts are all new contracts delivered in Australia that are valued at $7.5 million (GST inclusive) or more, where more than half of the value of the contracts is being spent in one or more of the following industry sectors:

  • building, construction and maintenance services
  • transportation, storage and mail services
  • education and training services
  • industrial cleaning services
  • farming and fishing and forestry and wildlife contracting services
  • editorial and design and graphic and fine art services
  • travel and food and lodging and entertainment services
  • politics and civic affairs services.

However, High Value Contracts do not include contracts described in clause 2.6 of the CPRs.

The mandatory minimum requirements for High Value Contracts can be met through either contract-based requirements or organisation based requirements at the option of the contractor, in consultation with the purchasing entity. There IPP also contains specific mandatory minimum requirements for High Value Contracts delivered in Remote Areas.

Model RFT and contract clauses

On 25 June 2015, PM&C released model clauses for approach to market documentation and contracts that reflect the IPP.

The model clauses are designed for procurements and contracts that are High Value Contracts, as well as model clauses designed for contracts where the mandatory minimum requirements do not apply.

The latter model clauses include requirements for Commonwealth contractors to use reasonable endeavours when delivering the requirements of such contracts to increase their employment of Indigenous Australians and their use of Indigenous suppliers in their supply chain.

The model clause document published by PM&C also includes suggested criteria for use in the evaluation of submissions lodged in response to Commonwealth procurement opportunities.