Defence procurement from Indigenous enterprises

In late October 2016 the Australian Government issued a media release highlighting the ‘spectacular success’ of its Commonwealth Indigenous Procurement Policy (CIPP), established just over 12 months prior. The Department of Defence has played a key role in this policy achievement, through its high level of engagement with the program and its status as the government department with the highest level of procurements.

According to Austender, in 2015–16 the Department of Defence (Defence) had almost 13,000 domestic contracts in progress for procuring goods and services, worth a total value of approximately $78.8 billion. As identified in the Defence Procurement Policy Manual, Defence aligns with all other Commonwealth non-corporate entities in adhering to the CIPP. This policy was established in July 2015 following publication of the Creating Parity report (Forrest Review) which recommended that Commonwealth Government procurement from first Australian businesses be increased. The CIPP replaced the previous Indigenous Opportunities Policy (IOP) established in 2011 as part of the Government’s Closing the Gap program of initiatives. The IOP essentially mandated that organisations tendering for procurements valued at more than $5 million were required to produce an Indigenous Training, Employment and Supplier Plan, formed from a generic template.  

In contrast, the CIPP has sought to significantly increase incentives for tendering organisations to procure from Indigenous enterprises. Alongside obligations for certain contracts to either be directed to Indigenous enterprises or involve minimum levels of Indigenous participation, the CIPP established targets for Commonwealth procurement from Indigenous enterprises. To be classified as an Indigenous enterprise, a business must be at least 50 per cent owned by Indigenous Australians.

Within the CIPP, the Commonwealth Government established a target to award three per cent of its total domestic contracts to Indigenous enterprises by 2019–2020, from a base target of 0.5 per cent in 2015–16. Commonwealth agencies’ progress in meeting these targets is reported on the Department of the Prime Minister & Cabinet website. For Defence, this represented a target of 70 new procurement contracts for the 2015–16 financial year. The Deputy Secretary for the Estate and Infrastructure Group within Defence, Steve Grzeskowiak, informed the Defence Estate and Base Services Summit in September 2016 that Defence had substantially exceeded its base target in relation to procurement from Indigenous enterprises, with 294 contracts awarded during 2015–16, worth a total value of approximately $146 million. Two years prior, the value of new contracts signed between Defence and Indigenous enterprises was reportedly just $1,820.

Another mechanism supporting Defence procurement through Indigenous enterprises is Exemption 17 of the Commonwealth Procurement Rules (CPR). Exemption 17 asserts that certain mandatory procurement procedures in the CPR do not apply if the procurement is from a small to medium enterprise (fewer than 200 full-time employees) with at least 50 per cent Indigenous ownership. Defence was the first government department to use Exemption 17, when it announced in June 2014 that the Indigenous enterprise Pacific Services Group Holdings had been appointed as the head contractor for refurbishment works at the Sydney naval base HMAS Waterhen. This contract, worth up to $6 million, also reportedly benefited at least five other Indigenous enterprises which formed part of the contract’s supply chain.

Defence’s increased emphasis on procurement from Indigenous enterprises has also been demonstrated in its most recent Reconciliation Action Plan (RAP) 2015–2018. While the previous 2010–2014 RAP made no reference to Defence procurement through Indigenous enterprises, the current version specifically highlights ‘providing Indigenous businesses with contracting opportunities’ as a key area in which ‘Defence can contribute to the national efforts in closing the gap of Indigenous disadvantage’. The RAP also committed Defence to establishing a Defence Indigenous Procurement Working Group by March 2016. Additionally, in its response to the 2015 ANAO report Procurement Initiatives to Support Outcomes for Indigenous Australians, Defence noted its development of an Indigenous supplier engagement strategy and establishment of a single access point for Indigenous suppliers into Defence.

The growing relationship between Defence and Indigenous enterprises has been particularly supported by the organisations Supply Nation and the Indigenous Defence Consortium (IDC), which work to promote Indigenous businesses and facilitate opportunities for them to connect with Defence. In mid-2016 the IDC strengthened its presence in South Australia, signing memorandums of understanding with the University of South Australia and the SA Defence Teaming Centre. At this time Prime Minister Malcolm Turnbull acknowledged the CIPP’s progress as being ‘particularly driven by Defence’, and specifically highlighted the IDC’s role in furthering this engagement.

Ultimately, Defence will be required to establish 420 contracts with Indigenous enterprises by 2020 to achieve its three per cent goal. Given Defence’s initial success in increasing engagement with Indigenous enterprises, it is well on the way to attaining this goal. The full list of current and future CIPP procurement targets/achievements by portfolio is published on the Department of the Prime Minister and Cabinet website.        


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