Finance and Public Service Minister Katy Gallagher is preparing to ring in the new financial year with a fresh crackdown on entrenched major suppliers, contractors and consulting firms feeding on the government’s $70 billion annual purchasing spend, tweaking a raft of targets and thresholds in the hope smaller businesses can finally compete with big incumbents.
Updates to the Commonwealth Procurement Rules (CPR) — set to come into force on July 1, 2024 — outlined by Gallagher on Monday reveal that the government will boost the target for sourcing from small business for contracts under $1 billion from 20% to 25%, while the small business target for deals below $20 million is rising from 35% to 40%.
A full list of what’s actually changing in the Commonwealth Procurement Rules on July 1 has also been released by the Department of Finance.
The head and shoulders of the CPR changes for July 1 is the inclusion of the new mandated Supplier Code of Conduct that, among other things, requires suppliers to “emulate” Australian Public Service Values when on the government coin and essentially bans former Australian Public Service Code of Conduct violators or other adversely named individuals returning as consultants or suppliers.
It also specifically disallows employers supplying government to discriminate against unionised employees or union activity, not something all employers would welcome, with the small businesses sector maintaining a vigorous discourse over industrial relations and legislative compliance.
Gallagher’s move to increase and ease access for small businesses also comes amid growing unease in the services sector over many of the government’s procurement reforms and its overt commitment to insourcing work and culling contractors from so-called “core” government and public service tasks.
“The Albanese government has listened to industry and small and medium businesses and is taking action to improve their participation and competitiveness in Government procurement,” Gallagher said.
“When used effectively, government procurement supports Australian businesses, and can stimulate growth in small and regional businesses and across industry sectors.”
Also in the package of tweaks is a reduction in the threshold “for procurements that require an economic benefit assessment from $4 million to $1 million, meaning more procurements will be subject to an assessment of the benefit to Australian economy in the context of determining value for money”.
That could, in theory, allow agencies to choose more Australian, home-grown and First Nations suppliers by factoring benefits like local job creation and sustainment. This said the official guidance is still out for consultation with submissions not due back until July 3, 2024.
On the exemptions front, small businesses get a boost with the threshold for permitted direct engagement rising from $200,000 to $500,000, a lift that brings the rest of the government into line with Defence’s threshold.
Larger suppliers to government have historically been resistant to the imposition of local industry quotas for procurement, arguing that large primes are best placed to deliver value at scale while smaller firms get cut-in via subcontracting arrangements.
Local firms obviously don’t see it that way, even if they do partner with large consulting firms and outsourcers selling or reselling their product.
A notable tweak in the CPR is an “amended definition” of small and medium-sized enterprises so that they “must be an independent entity, rather than a small or medium-sized entity supported by the resources of a larger entity”.
What is still unknown is how successful the great government insourcing push will be, especially in areas of chronic skills shortages like IT and systems design, integration and delivery.
A major problem has been that thousands of contractors, many of whom are essentially contingent workforce, are likely to be displaced, making it far harder for recruiters on panels, or individuals contracting directly with agencies, to stay on the books.
A further headache for the services sector is that both New South Wales and Queensland are now emulating Canberra’s lead on culling contractors and outsourced labour, potentially putting a dent in future numbers target if small businesses are hit harder than big ones, a potentially perverse outcome.
In the consulting, tech and transformation space there has been serious concern that smaller and more nimble competitors would be the first to go under mandated insourcing, because their contracts were smaller, shorter and easier to offload than large players like the Big Four, not to mention disproportionate lobbying clout.
There is also a separate question whether governments, federal and state, will be able to attract the necessary talent to backfill removed contractors and consultants, and what happens if they fall short.
One answer is that agencies make do with what they have and make it work, a situation that could create a big productivity windfall.
This article was first published by The Mandarin.
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