ACT businesses driven to 'crunch point' in federal government contractor crackdown

Business groups and advisors have reported that work for many small and medium enterprises is "drying up" as departments cut back sharply on external contractors.

Canberra Business Chamber chief executive officer Greg Harford said the situation had "reached a crunch point".

"We have got many small and medium businesses who primarily service the federal government and the message we are getting is that work is drying up," Mr Harford said. "We are in a position where businesses are looking to downsize or are asking staff to take leave without pay until business improves."

"There are potentially hundreds of people across the ACT who could find that they are affected by this."

Business strategist Ryan Murphy, managing director on Canberra-based Australian Corporate Advisory, said one of his clients had been forced to lay off a third of its 30 staff.

Mr Murphy said 80 per cent of his clientele was in Canberra, including some employing up to 50 workers, and many derived most or all of their business from the government.

"What we are seeing is that there are delays [in awarding work] as a result of policy changes in procurement," he said.

"Things have just stopped or firms are having to re-tender. Federal government policy allows them to source work up to a certain value without needing to go to open tender and that is not being used much any more.

"Where this hits the road for our clients is that it puts significant strain on their cash flow. Consulting businesses generally have high direct labour costs that are not easy to switch off overnight:"

Labor came to office with a policy to reduce the government's reliance on external consultants which Public Service Minister Katy Gallagher said had got "out of balance" under the Coalition.

An audit found the previous government spent $20.8 billion outsourcing a third of public service operations in 2021-22, alone, including engaging consultants and contractors the equivalent of almost 54,000 full time staff.

The Albanese government abolished the average staffing level cap and in the May budget it announced the conversion of 3300 external roles into public service positions which Senator Gallagher said would save $811 million over four years.

And late last month the government unveiled the APS Strategic Commissioning Framework to "wind back excessive outsourcing and its impacts on the skills held and used in APS agencies".

"All agencies must move away from outsourcing work that is the core role of the APS ... to prioritise direct employment, strengthen capability and ensure any use of external expertise enhances the work and knowledge of the APS," the framework said.

READ MORE:

The push has come amid the scandal that engulfed consultancy PwC after it was revealed it used confidential government information to advise clients on managing their tax liabilities.

A spokesperson for Senator Gallagher said the government had been upfront about its plans to reduce the APS's reliance on consultants and contractors and "we are now delivering on that promise".

The spokesperson said the government would outsource work in some circumstances but under the former Coalition government "this got completely out of balance and was costing taxpayers billions of dollars".

The government changed procurement rules last year to ensure more opportunities for SMEs, requiring they be awarded 20 per cent of business by value and this was also a key pillar of its Buy Australian Plan, the spokesperson said.

But Mr Harford small and medium enterprises were being hit by the "fallout" from the government's crackdown on the use of major consultancies like the big four, including PwC, KPMG, Deloitte and EY.

"I don't think the federal government has been intending to put the squeeze on SMEs in Canberra," he said. "I don't believe the government has been actively meaning to do this, but there has been some over-zealous interpretation of their message [by departments and agencies]."

The business leader detailed the sector's concerns in a letter to Senator Gallagher on November 7.

Mr Murphy said the government's policy could ultimately prove costly to taxpayers.

"The impact on the taxpayer in the long term will be the loss of SMEs who are essential as they apply pricing pressure to the market," he said. "Only the big four and large firms have the cashflow to sustain this policy change, and it will be those firms that set the prices on the other side."

He warned that the impact on ACT business could be significant, "given the concentration of businesses who support government here. That should be concerning for all businesses in the ACT in what is a tightknit economy".

Mr Murphy urged the government to amend its approach to procurement to include a "carve out" for small enterprises.

"I've read the Government's APS Strategic Commissioning Framework that aims to reduce the reliance on contractors and consultants," he said. "It would be great to see that updated with a carve out for the SME sector who have spent decades supporting government."

Our journalists work hard to provide local, up-to-date news to the community. This is how you can continue to access our trusted content: