Too many small businesses are hurt by not being in the 'in-crowd'

The Australian government procured goods and services worth $75 billion in 2022-23. Despite making up 97 per cent of all businesses, small business suppliers accounted for only $8 billion, or 11 per cent, by value.

My agency was asked by successive Coalition and Labor governments to independently examine how procurement rules and processes are working for existing and potential small business suppliers and what improvement could be made.

We were encouraged to be bold and bring fresh thinking to this long-standing area of contention and frustration for small business because actions already taken have not shifted the dial.

The overwhelming response from our consultations with Australia's small business community was 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.

If you run a small business that hasn't previously been a supplier to the government, this is a bewildering space. It is really hard to understand how to get involved.

And even rules designed to boost opportunities for First Nations enterprises and small businesses are tricky for procuring officials to navigate.

As part of our inquiry, a survey of government officials (who undertake procurements as needed) found many were frustrated by the increasing complexity of procurement priorities and connected policies and difficulty identifying SMEs was a common barrier to them being selected.

Analysis by the e61 Institute agreed, showing 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.

We consulted extensively with government departments and agencies throughout the inquiry and in developing 11 specific, constructive and practical recommendations in our report handed to the government last December.

These included targeted steps to:

Earlier this month our report was publicly released with a response by the Australian government that was quite frankly disappointing and at odds with the evidence, research and clear view of those who made submissions about their direct experience trying to navigate the existing system.

It was a missed opportunity to meaningfully improve the ability for competitive small and family businesses to be a supplier to the Commonwealth.

I was surprised several of the substantive recommendations and proposed reforms that have not been embraced, were rejected without any discussion at all.

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.

More of the same is not going to bring about the change in confidence 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.

Our package would repurpose existing funding and resources - not duplicate it - to produce an efficient and easy-to-navigate procurement framework that would make a significant difference.

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 encouraging the government concurs with our recommendations to better support procurement officials and advance women's entrepreneurship.

The 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.

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We recommended abolishing the procurement coordinator function and replacing it with a procurement commissioner, who would have independent processes for resolving complaints and the ability to synchronise and support procurements.

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's 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 for 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.

Our report also outlined recommendations to improve defence procurement, make AusTender fit for purpose, support procuring officials to identify and use small businesses, reform government panels, boost women-owned business opportunities and improve payment times.

We found active stewardship is essential to ensuring 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.

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

In fact, 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.

We will continue to encourage the Parliament and the community to see the merit in our recommendations and adopt them to benefit small business, the taxpayer and the Commonwealth alike.

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