“Shut out”: Small businesses locked out of $81 billion government contracts urged to come forward

Small business operators who believe they have been locked out of lucrative government contracts have been invited to share their views with a formal inquiry into the multi-billion dollar system.

In March this year, the federal government tapped the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) to investigate the challenges keeping small businesses from participating in government contracts.

Although small and medium-sized businesses count for upwards of 97% of businesses in Australia, the ASBFEO estimated they were awarded 55% of government contracts by volume in 2021-2022.

They were awarded $25 billion of those contracts by value, or 31% of the overall $80.8 billion which flowed from government coffers to private enterprises over the financial year.

The Ombudsman was also tasked with assessing if new Commonwealth Procurement Rules (CPRs), which were adjusted in July last year, are making it easier for small businesses to compete for major tenders.

On Wednesday, the ASBFEO formally released its issues paper for public consultation, inviting small business practitioners and other stakeholders to have their say.

“Since beginning the inquiry in March, many small businesses have told us they feel shut out of the process or they simply find it too hard to navigate,” Ombudsman Bruce Billson said.

“They have low awareness about procurement opportunities unless they are already part of the ‘in-crowd’ through existing relationships with procuring agencies, or previous experience in government procurement.”

The issues paper seeks to “draw out more experiences and insights”, Billson added, empowering the ASBFEO to assess what is working and what is not.

The Ombudsman will welcome submissions until September 15, before presenting its final report to the federal government in December.

The inquiry will investigate long-held concerns from the small business community, including the use of procurement ‘panels’ which repeatedly overlook small businesses.

The high costs and personnel hours required to complete a tender, insufficient feedback to failed candidates, and expensive insurance rules will also come under the microscope.

More specifically, the ASBFEO will assess if the tweaked CPRs are fit for purpose.

The headline change was that at least 20% of Commonwealth procurements by value go towards SMEs, on top of a new allowance for the Department of Defence to source directly from SMEs on contracts valued up to half a million dollars.

The changes also sought to “right-size” insurance requirements for small businesses, which might have otherwise made tendering for a government contract unprofitable.

Further, the inquiry is seeking feedback on the $18.1 million Buy Australia Plan.

Announced in the 2023-2024 federal budget, the plan intends to “open the door to more government work for more small and medium businesses by decoding and simplifying procurement processes,” according to the Department of Finance.

The plan also intends to focus on providing First Nations-led businesses access to government contracts, while also considering the role of government spending on climate change and energy transition projects.

More information can be found on the ASBFEO website.