Big consulting firms EY and PwC incorrectly classified as “SMEs” for government contracts, report reveals

A report from the National Audit Office has revealed government departments have been classifying large consulting firms like Ernst Young and PriceWaterhouseCoopers as “SMEs” when they have won government contracts.

According to Fairfax, the review of government agency tender processes reveals significant flaws in the way contract suppliers are recorded, which could be skewing the numbers about who is winning contracts.

The federal government has previously set a target for Commonwealth agencies to grant at least 10% of contracts by value to companies with fewer than 200 employees.

However, the audit office’s review, which included a breakdown of government agencies that reported very high levels of SME contract wins, “identified a number of businesses with large numbers and values of contracts in 2016–17 that appeared to have been classified as SMEs. These included major consultancy/accountancy firms and other Australian arms of large global business with thousands of employees”.

It found that in 2016-17, the types of companies that were recorded as “SMEs” winning government tenders included PwC, EY and Charter Hall Real Estate Management services.

One example of a contract that the audit office uncovered was $636,000 for work to be completed for the National Health Funding Body. PwC completed the contract and was classified as an “SME” supplier, the report found.

A “disgrace”, says COSBOA

The federal government has long championed higher getting more small businesses working on government contracts, with former small business minister Michael McCormack writing for SmartCompany last year “government procurement contracts [are] a focal point of mine as a minister”

However, Council of Small Business Australia (COSBOA) chief executive Peter Strong says news that government departments might be misclassifying who wins what contracts is a “disgrace”.

“It’s one of the most ridiculous things I’ve heard in a long time, because how anyone could see those organisations as anything less than large is beyond me,” he says. 

The audit office’s report highlights that it is challenging to break down in detail which contracts go to smaller operators and larger businesses across all government departments because “the absence of information regarding classification of suppliers as either SME or ‘Other’ (large) prevents an in-depth analysis of procurement with SMEs”.

However, when it put examples to the Australian Bureau of Statistics (ABS) of so-called “SMEs” having completed government work, the ABS said misclassifications may have occurred when big businesses used multiple Australian Business Numbers when undertaking the work.

“The ABS advised it has revised its methodology relating to ‘the classification of large businesses operating under multiple ABNs and the potential for these businesses to be incorrectly classified as Small to Medium Enterprises,” the report says.

In a statement to Fairfax, a spokesperson for PwC said any suggestion that the consultancy firm was winning contracts under a specific SME category was incorrect, and any classification as such was a clear error.

EY said in a statement the organisation wins government tenders because of “global knowledge [and] deep public-sector expertise”.

SmartCompany contacted both firms, as well as Charter Hall for further comment but did not receive a response prior to publication.

SmartCompany has also contacted Small Business Minister Craig Laundy for comment.

Tender processes still “ridiculous” for SMEs

Strong says the suggestion that tender data is being misclassified is “disappointing” for SMEs, because they need to see clearly where government contract money is going.

“Obviously we can say with certainty that some of these figures are wrong, and it really does need to be measured properly,” he says.

While the government has earmarked SME procurement as a priority, Strong observes the system is still weighted to favour larger consultancy firms with the resources to employ entire teams just for tender writing.

“The process really is ridiculous for a small businesses, who have to employ a team just to write a tender,” he says.

“Applications are written for big businesses, who can deal with ridiculous complications.”

Off the back of the audit office’s report, the federal Parliament’s Joint Committee of Public Accounts and Audit has launched an inquiry into government contract reporting. Submissions are open until February 16 for any parties wanting to make comment on the report and the government’s procurement practices

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