Commentary: Indigenous Procurement Policy Changes – What Stands to Change?

December 29, 2021

A new article claims MPs from both sides of the political divide have called for stricter criteria for First Nations (FN) businesses applying for federal contracts.

The report is supposedly backed by Liberal and Labor MPs, calling for more rigorous criteria to be applied to those bidding for government contracts under the Indigenous Procurement Policy, which is administered by the National Indigenous Australians Agency (NIAA).

In this commentary article, we’ll explore the recommendations made and key points from Canberra Times’ article “Tighten Indigenous contract checks: report”.

Random audits for businesses that have contracts | Indigenous Procurement Policy

Recommended random audits for businesses that have contracts under the Indigenous Procurement Policy. This is to help ensure that businesses are meeting their obligations.

One of the main reasons for this is because there has been a growing concern of people being taken advantage of and others who are not fulfilling their government contracts, or worse, purposely acting in a fraudulent manner and purposedly stealing from their communities.

I recently received a proposal from a non-FN business that wanted Barayamal to apply for a government grant and receive ALL of the money if successful. It was ridiculous since Barayamal would be the one applying and responsible for the government funding and reporting. However, this ridiculous (real) example is more common than some people would like to think, and there are vulnerable people who get taken advantage of by these “opportunities”.

However, more red tape is not necessarily better since some government contracts already implement risk management methods like milestone funding to decrease the risk of businesses that don’t reach the required targets.

Indigenous businesses are often faced with uncertainty, especially when it comes to government contracts.

FN Businesses with a proven record should be given more freedom and less red tape so they can innovate quickly and make a bigger difference in our community.

To build a trustworthy system, we must be able to eliminate those who abuse the system and allow those who care and do good to thrive. – Dean Foley

51 per cent First Nations ownership

This requires that the business owners verify that Aboriginal and/or Torres Strait Islander people own at least 51% of the business by checking the provided Confirmation of Aboriginality documents and share structures registered with ASIC and/or other documentation (such as partnership documents or trust deeds).

In conclusion, this identification only measures actual business ownership instead of where the money generated or profits will go – it only takes into account who is actually in charge or who has majority “control”. In theory, the 51% FN business could even own 90% of the business but the majority of profits will actually go to the non-Indigenous partners.

Because of this ‘shallow’ tick in the box, this has led to “Black Cladding” (joint ventures) which are providing opportunistic companies/individuals with an opportunity and an unfair advantage to win government contracts.

This is nothing new, I’ve heard from numerous sources that countries in Africa have similar issues with non-African/black businesses using shell companies in partnership with locals to win government contracts. One individual was supposedly the “go-to person” with over 15 businesses (joint ventures).

Instead of ownership and “control” of the business, I believe Indigenous businesses should be priority measured differently.

Just like charities in Australia are given special treatment because they are helping solve social issues which commercial businesses don’t get, Indigenous businesses that operate from an Indigenous entrepreneurship perspective should also receive special treatment based on their community development achievements.

The Australian Charities and Not-for-profits Commission doesn’t cater to Indigenous entrepreneurship which is why there needs to be a separate entity to certify and manage Indigenous-owned businesses that are operating from an Indigenous entrepreneurship perspective.

Indigenous businesses should receive special treatment akin to charities because they are solving community issues that the government and non-Indigenous businesses (including charities) cannot.

“You’ve still got to build entrepreneurs, your community, corporations and your nation’s initiative in a way that reflects who we are.” – Miles Richardson

The proportion of Indigenous employees

The importance of Indigenous employment in the private sector is something that cannot be underestimated. The private sector not only offers an opportunity for self-reliance but provides Indigenous people with greater access to fulfilling careers and higher incomes.

Indigenous-owned businesses are more likely to hire Indigenous workers. This is because they are aware of the benefits of hiring local people, including strengthening the economy and building community. And not only are Indigenous-owned businesses more likely to hire Indigenous workers, but they are also supposedly over 100 times more likely to do so than non-Indigenous businesses!

However, giving special treatment to these organisations just because they employ a certain number of Indigenous people on the surface can be misleading and is not fair on classic small businesses that are the backbone of our economy who may not have the same capacity to expand and employ more Indigenous people.

You don’t have to have a lot of employees to have a big impact on the community. Indigenous businesses are often smaller with fewer employees, yet they can be more impactful through significant community contributions when it comes to direct cash and in-kind support.

Furthermore, the business may look like it employs 90% Indigenous people but the majority of “jobs” could be part-time or not paid well at all.

For example, a university had around 1% Indigenous employees but 80% of them are only part-time. That’s right, full-time jobs account for only .2% of their workforce…

Training and opportunities

Too vague and not worth expanding on…

Use of profits

Government contracts can be lucrative opportunities but the majority of contracts Indigenous businesses as a whole receive are actually too small to sustain a company and “profit” from.

The Mandatory Set Aside gives Indigenous businesses the opportunity to demonstrate their value for money, before being considered in a general approach to the market. This applies to procurements delivered in remote Australia and all other procurements wholly delivered in Australia with a value between $80,000-$200,000 (GST inclusive).

These contracts are not frequently received from Indigenous businesses, and the larger government contracts of $7.5 million or more are out of reach unless one has a joint venture with them aka black cladding…

When we talk about profits from government procurement contracts, a more ironic story are some of the banks who winge about not finding the right Indigenous businesses to increase their procurement spending… It’s like, dude, you have a ton of money that you can lend to Indigenous businesses, why are you focusing on a few procurement contracts.

No matter how many procurement contracts they win, the banks will never make up for the trillions of dollars they’ve loaned to other companies while refusing to invest in Indigenous businesses…

Let’s talk about access to capital before irrelevant “profits” from small government contracts. – Dean Foley

Other revenue sources

A business needs to be able to compete in a market or it’ll fail. A lot of Indigenous businesses don’t have the support and resources they need, with most government contracts already implementing milestone funding so all resources need to be invested in the project, instead of being more flexible and also investing in the long-term sustainability of the business to generate other revenues.

When a company or government entity needs to provide matching funding in order to be awarded a contract or receive government funds, this is a major barrier for the economically disadvantaged.

Western governments need to look beyond sustainability as revenue and focus on other factors including the ongoing costs of the company and who actually owns the technology or Intellectual Property of the company i.e. if the joint ventures runs out of contracts and the non-Indigenous person who owns the tech/IP leaves, will the business be sustainable?

The requirement for matched funding or other revenue sources doesn’t take into account the ongoing challenges from colonization that Indigenous entrepreneurs face.

Runaway Success

The government is promoting procurement as a massive success, but they’re ignoring the obvious flaws. Social and Indigenous procurement contracts are nothing new, but I guess it’s better than nothing at all.

Execution of these policies is tough and fraught with problems. With concerns over black cladding and contract agreements still ongoing, it appears that while this might be a step in the right direction…

This article is a classic example: “Indigenous Procurement Policy: minister finally cracks down on ‘black cladding’”…. glad we solved the black cladding issue in 2018 *jokes*.

Supply Nation

Supply Nation is an online marketplace and certification system for Indigenous suppliers. Suppliers who meet the requirements of the Supply Nation Certification Program will be given a Supply Nation Certificate to share with their buyers as proof that they are Indigenous-owned and operated businesses.

They received only 8 or 9 complaints in the last year, which isn’t much of the surface considering that they supposedly have more than 17,000 Indigenous businesses on their directory.

However, there has been a few directly linked cases of Supply Nation connections that have been linked to black cladding and arguable using their connections at this organisation that has strong ties with the government and large corporations.

There have been a few cases of Supply Nation connections that have been linked to black cladding and arguable using their connections at this organisation that has strong ties with the government and large corporations to win contracts or form joint ventures.

All of this is to say that Supply Nation has been too cozy with those in power and being the middleman for government contracts….

Summary

It’s not enough to just say we want to support Indigenous businesses. We need to take meaningful steps to support Indigenous-led innovation and entrepreneurship, and we can do that by:

supporting Indigenous businesses through less red tape and barriers to entry for those who have a proven record;
making it easier for entrepreneurs and innovators to access the resources they need;
supporting Indigenous entrepreneurship instead of forcing Indigenous-owned businesses to only be successful if they operate from a Western entrepreneurship perspective;

It is important that these Indigenous-owned businesses that operate from an Indigenous entrepreneurship perspective have the opportunities to grow so they can become more economically stable and increase their impact too.