The ANAO finds there is room for improvement in the implementation of, and compliance with, the Indigenous Procurement Policy.
The Commonwealth Indigenous Procurement Policy (IPP) was introduced in May 2015. The policy applies to all Commonwealth non-corporate entities that are subject to the Commonwealth Procurement Rules (CPRs), with other entities encouraged to adopt the policy as best practice. The IPP includes mandatory minimum requirements (MMRs), which apply to domestic contracts valued at $7.5 million or more in 8 industry sectors, and requires entities to ensure contractors commit to either contract-based or organisation-based Indigenous participation targets.
The Australian National Audit Office (ANAO) recently conducted an audit into the effectiveness of the MMRs, and compliance with the MMRs by a select group of entities (see Auditor-General Report No.25 2019-20 Performance Audit "Aboriginal and Torres Strait Islander Participation Targets in Major Procurements"). The ANAO found that there is room for improvement in the implementation of, and compliance with, the MMRs. Unfortunately most contracts assessed failed to comply with required steps.
With application of the MMRs expanding from 8 to 19 industry sectors from July 2020, it is a good time for entities to tighten up their policies and processes around the administration of the IPP in preparation for this expansion, and to ensure that the requirements of the IPP are well understood within the entity. The MMR industry sectors are:
From 1 July 2015
1. Building, construction and maintenance services
2. Transportation, storage and mail services
3. Education and training services
4. Industrial cleaning services
5. Farming, fishing, forestry and wildlife contracting services
6. Editorial, design, graphic and fine arts services
7. Travel, food, lodging and entertainment services
8. Politics and civil affairs services
…and from 1 July 2020
9. Financial instruments, products, contracts and agreements
10. Mining and oil and gas services
11. Industrial production and manufacturing services
12. Environmental services
13. Management, business professionals and administrative services (sub-category exemptions apply)
14. Engineering, research and technology based services
15. Financial and insurance services (sub-category exemptions apply)
16. Healthcare services
17. Personal and domestic services
18. National defence, public order, security and safety services (sub-category exemptions apply)
19. Organisations and clubs
In this article, we outline some of the key areas for improvement raised by the ANAO that will be relevant to entities where the MMRs apply to a procurement.
Note that there is also a mandatory set-aside for certain Commonwealth contracts under the IPP which we do not focus on in this article, and where the MMRs do not apply, domestic approaches to market and contracts should include a requirement for the contractor to use reasonable endeavours to increase the employment of Indigenous Australians and use of Indigenous suppliers in the supply chain.
Key steps to compliance for entities
Where the MMRs apply to a procurement, the entity must:
- include the MMRs in the approach to market documentation;
- require tenderers to submit an Indigenous Participation Plan setting out how the tenderer intends to meet the MMRs, and an outline of past experience in increasing Indigenous participation (including performance against any previous MMR contracts); and
- assess the Indigenous Participation Plan and past performance and compliance as part of tender evaluations.
At the contract phase, the entity must include the Indigenous Participation Plan in the contract (including the MMR targets) and the contract must require the contractor to meet the MMRs and report on compliance with the Indigenous Participation Plan at least quarterly. Where a component of the contract will be delivered in a remote area, the contract must also deliver "significant Indigenous employment or supplier use outcomes in that area".
The contract should also contain any other documentation and auditing rights and requirements that will enable the entity to monitor compliance with the MMRs. The National Indigenous Australians Agency (NIAA) provides model IPP clauses for approach to market and contractual documentation to assist entities to comply with the IPP requirements.
The ANAO found that while most entities recognised when the MMRs applied to a procurement, problems arose when implementing the policy, particularly at the contract management phase.
MMR reporting requirements
Entities are required to report on contracts to which the MMRs apply. Then at the end of the contract term, the entity must report on compliance with the Indigenous Participation Plan and whether the MMRs were met.
The Department of the Prime Minister and Cabinet established the IPP Reporting Solution, a central database aimed at monitoring compliance and reporting on implementation of the MMRs. The IPP Reporting Solution compiles information generated from AusTender and information provided by entities on their MMR contracts (which should include a final report on compliance against the MRRs). There is also a Contractor Portal through which contractors should submit quarterly performance reports. The ANAO found that:
- Entities are not consistently using the IPP Reporting Solution to submit quarterly performance reports, or to provide final compliance reports.
- Most contracts identified in the IPP Reporting Solution as active MMR contracts had not been set up or excluded by entities, which means that entities are not responding to automated system notifications requesting that they set up or exclude potential MMR contracts.
- Many contractors are reporting without using the IPP Reporting Solution, and that information is not being entered into the system by the entities.
The ANAO has recommended that the NIAA provides additional guidance on managing MMR performance reporting through the IPP Reporting Solution as it has not been well implemented, but that entities also need to take greater responsibility for complying with the MMR reporting requirements.
Contractual rights and obligations
In order to satisfy the MMR reporting obligations there must be rights and obligations in MMR contracts that enable the entity to gather appropriate information and to ensure that the information is accurate and complete. To this end, the contract should:
- Require the contractor to report to the entity on a regular basis (i.e. quarterly and at the end of the contract term) on its compliance with its Indigenous Participation Plan and whether it met the MMRs.
- Require the contractor to provide to the entity such reports and evidence of its compliance with its Indigenous Participation Plan as required by the entity, and to comply with all reasonable directions of the entity in relation to implementation of the Indigenous Participation Plan.
- Allow the entity to publish the contractor's report in the IPP Reporting Solution.
- Include rights for the entity to conduct audits and verification activities (eg. site visits and desktop audits) to confirm contractor compliance with the requirements.
Entities should use these contractual mechanisms when required to confirm the contractor's performance against MMR targets and compliance with its Indigenous Participation Plan. The ANAO recommends that, as a minimum, entities conduct occasional reviews of MMR documentation, which may include:
- timesheets and payslips that demonstrate hours worked by staff on the project;
- evidence that staff have self-identified as Aboriginal and/or Torres Strait Islander;
- invoices from suppliers or subcontractors; and
- evidence that suppliers or subcontractors are Aboriginal and Torres Strait Islander businesses.
To the extent such documentation is relevant to monitoring MMR compliance, it would be sensible to expressly require provision of the documentation to the entity in the contract.
More compliance needed – and more guidance material on the way
The IPP aims to provide opportunities and growth for the Indigenous business sector and provide Indigenous Australians with more opportunities to participate in the economy. In September 2019 the NIAA reported that the IPP has generated $2.5 billion in economic activity for Indigenous businesses. The key tool for encouraging compliance with the MMRs is the requirement for entities to consider an organisation's past performance against the MMRs in future procurements where the MMRs will apply. Critically, entities need to ensure that they monitor and report on compliance with the MMRs appropriately, to enable the Government to review the effectiveness of the IPP and to encourage contractors to meet the requirements.
In response to the ANAO report the NIAA has agreed to publish a revised IPP policy document and new guidance materials, which will include tailored guidance on the implementation of the MMRs. Entities should watch for the release of this new material and update their policies and processes as required. Entities should include specific guidance to its staff on managing compliance with the MMRs.