Procurement initiatives to support outcomes for Indigenous Australians

This audit assessed the effectiveness of the administration of procurement initiatives to support opportunities for Indigenous Australians. Audit objective, criteria and scope The objective of the audit was to assess the effectiveness of the administration of procurement initiatives to support opportunities for Indigenous Australians. To conclude against this objective the ANAO adopted high-level criteria which considered the effectiveness of the administration by PM&C and Finance of the IOP and IBE respectively. The criteria also considered the application of these policies by selected entities and the overall monitoring and reporting of outcomes achieved. The scope of the audit included: the application of the IOP since 2011 by selected Australian Government entities and its overall administration by PM&C, and formerly by the Department of Education, Employment and Workplace Relations (DEEWR); and the use of the exemption for Indigenous businesses in the CPRs by selected Australian Government entities and the administration of the exemption by Finance since 2011. The application of the IOP and the IBE was examined in the following entities: Department of Defence (Defence); Australian Taxation Office (ATO); Department of Human Services (DHS); Department of Employment (Employment); Department of Industry and Science (Industry); and Department of Education and Training. The ANAO also considered aspects of the Indigenous Procurement Policy which commenced from 1 July 2015, insofar as the experience of the IOP and IBE is relevant to its implementation. Overall conclusion Procurement Connected Policies (PCPs) to improve Indigenous economic outcomes have been used in various forms by the Australian Government since 1998. Through the Indigenous Opportunities Policy (IOP) and the Indigenous Business Exemption (IBE), a two-tiered approach was developed that sought to increase Indigenous involvement in the government supply chain, both directly as suppliers and indirectly through training and employment opportunities. Indigenous organisations have generally played a significant part in the delivery of government services funded through grant programs but the participation of Indigenous businesses in government procurement has remained very low. Overall, while the policy intent to leverage better Indigenous outcomes from Australian Government procurement activity has been clear, the frameworks developed by entities to achieve the objectives have not generally facilitated effective delivery of the outcomes sought. Key factors in this respect include the geographical limitations placed on the application of the IOP, the absence of any requirement for procuring entities to drive or monitor outcomes including those resulting from either their own or their suppliers actions, and the voluntary reporting requirements placed on entities which have hindered the ability of the Department of the Prime Minister and Cabinet (PM&C) and the Department of Finance (Finance) to analyse activity and provide advice to government. A number of these issues are being addressed in the development of the new policy arrangements from 1 July 2015, although achieving the intended policy outcomes is likely to require continued efforts by government entities. In developing the IOP framework, a significant population was defined as being one where the proportion of the Indigenous population of a region was equal to or higher than the national average. This relative approach, however, had the effect of excluding areas, particularly urban areas, where there were significant Indigenous populations in absolute rather than relative terms. As a result, the geographic regions where the IOP applied until June 2015 included only 73 per cent of the total Indigenous population and did not generally include urban and some regional areas where economic activity was likely to be higher and more diverse. The geographic requirements of the IOP also provided practical challenges to its application by entities. Entities were required to determine whether contracts over certain values should have been identified as being subject to the IOP based on the physical location of the main contract activity. IOP regions were determined and publicised by PM&C, and it provided guidelines for entities and businesses. However, in cases where contracted activity occurred in multiple locations, including in both IOP and non-IOP regions, the interpretation of the requirements was not always straightforward and implementation by the entities included as part of this audit was not always consistent. More broadly, the data systems of audited entities often did not sufficiently capture the geographical locations where the main contracted activity was to take place and generally a limited record was maintained of decisions in relation to whether the IOP should be applied to particular approaches to market. In order to minimise the additional workload on procuring entities arising from the introduction of the IOP, entities were required only to take steps to ensure that a supplier has an approved IOP plan in place prior to issuing a contract. These plans were to provide details of the suppliers’ commitments in relation to Indigenous employment, training and business opportunity. Suppliers were required to implement these commitments if awarded a contract. Entities, however, were not required to include any of the supplier’s commitments under the plan into the contract nor to monitor the implementation of any of those commitments as part of managing the contracts. Instead, PM&C—and prior to that the Department of Education, Employment and Workplace Relations (DEEWR)—had the responsibility to monitor that entities are appropriately identifying contracts to which the IOP applied and to receive the required reports from suppliers about the implementation of their IOP plans. While PM&C, and previously DEEWR, made appropriate efforts to fulfil this responsibility, the voluntary nature of entity reporting and data limitations, where the geographical location of contracts is not recorded in the government’s procurement database (AusTender), means that relevant information upon which to assess implementation was not easily accessible. As a result PM&C was not well positioned to advise government on the extent that the IOP contributed to the desired objective of creating economic opportunities for Indigenous Australians, or on the extent that Australian Government entities were appropriately implementing the IOP. To complement the IOP and improve direct access for Indigenous business as suppliers to government, the Indigenous Business Exemption (IBE) allows entities to conduct streamlined procurement processes with Indigenous businesses within the Commonwealth Procurement Rules (CPRs). Although the IBE has been available under the procurement framework since 2011, use of the IBE was low in the entities examined by the ANAO and there is no aggregated reporting by Finance on the use of the exemption by Australian Government entities. Based on available data, the involvement of Indigenous businesses in government purchasing is very limited. Since 2011, 120 contracts with Indigenous businesses certified through Supply Nation have been listed on AusTender. Of these, only 17 were listed as limited tender procurements over the relevant financial threshold and where the exemption may have been applied. Using the IBE requires procurement officers to consider choosing a procurement method on the basis of the indigeneity of the supplier and, at times, with limited information on the strength and distribution of the Indigenous supplier market. These decisions are required early in the procurement process and require entity staff to assess the value for money represented by an Indigenous business proposal in the absence of a competitive assessment process, requiring other information to be sought in order to make an assessment of value for money. While the IBE may shorten the timeframes of some procurements by removing the need for an open tender process to occur, the additional steps (scanning the market for suitable Indigenous supplier(s) and approaching them for a quote) and decisions (assessing the value for money offering of a supplier in the absence of an open approach to market) outside of the more commonly used procedures, may also be contributing to the low levels of application of the IBE. Some Indigenous businesses interviewed by the ANAO reported that use of the IBE was generally only considered by entity staff when support for its use was advocated by a sufficiently senior officer of the entity, and that committed leadership was a key element present in the cases when their approaches to entities resulted in the use of the IBE. However, Indigenous businesses reported that in most cases, their approaches to entities did not result in the use of the IBE being actively considered as a procurement method. From 1 July 2015, Australian Government portfolios are required to report performance against agreed targets for the level of contracting with Indigenous business, and to set aside some contracts for which Indigenous businesses will be approached, on a value for money basis, prior to any approach to the open market. Based on current performance, both in terms of the low level of entity use of Indigenous suppliers and in terms of oversight, monitoring and reporting arrangements, successful implementation of these new policy requirements will need increased promotion and support. The Indigenous Procurement Policy (IPP) introduces flexibility in the way entities can approach their targets including by: setting them at portfolio levels; allowing sub-contracting opportunities to be included; applying a formula to enable the conversion of the target from number of contracts by volume to a target by contract values; and including contracts with Joint Ventures which have at least 25 per cent Indigenous equity. Nonetheless, the targets are ambitious. There are risks in seeking to move quickly to meet the new targets and entities will need to be vigilant to ensure that the requirements of the procurement framework, including achieving procurement outcomes economically and efficiently, continue to be met in addition to meeting the targets. While the IPP is the overarching framework in relation to Indigenous procurement policy, some elements of the IOP have remained, including the use of geographically-defined areas. In view of the experience of entities to date there would be merit in PM&C further reviewing the approach to determine the conditions under which the proposed minimum Indigenous participation requirements may be most effectively applied, particularly those relating to the use of Indigenous businesses by government suppliers. The ANAO has made three recommendations to assist PM&C and Finance to better implement, monitor and report on initiatives seeking to increase opportunities for Indigenous Australians through government procurement