Changes to Commonwealth Procurement Rules to boost SME opportunities

Reform in government procurement practices is being pursued at both the Commonwealth and state levels in Australia, with the aim of elevating the participation of local businesses, particularly small and medium enterprises (SMEs), in government contracts. These initiatives seek to bolster local manufacturing, support economic growth, and ensure ethical and efficient utilisation of public funds.

At the Commonwealth level, Finance Minister Katy Gallagher and Minister for Small Business Julie Collins have announced significant changes to the Commonwealth Procurement Rules (CPRs), scheduled to take effect on 1 July 2024. These changes are designed to facilitate easier access for SMEs to the government’s procurement budget of $70 billion by implementing new measures such as:

1. Establishing concrete targets for SME procurement: at least 25% of contracts below $1 billion and 40% for contracts below $20 million.
2. Increasing the SME exemption threshold to $500,000.
3. Requiring the inclusion of at least one SME in every quote request from the Management Advisory Services (MAS) Panel and the People Panel.
4. Introducing a 5% Flexibility Allowance for sourcing directly from First Nations businesses outside MAS and People Panels.
5. Lowering the economic benefit assessment threshold from $4 million to $1 million.
6. Integrating the Commonwealth Supplier Code of Conduct within the CPRs to enforce high standards of integrity and responsibility among suppliers.

These reforms highlight the government’s intention to capitalise on government procurement as a means to demonstrate support for Australian SMEs and stimulate growth throughout various sectors.

Concurrently, in New South Wales (NSW), concerns about local manufacturing decline have spurred a parliamentary inquiry into procurement practices — an initiative launched by the Standing Committee on Social Issues upon referral from the Finance Minister and Minister for Domestic Manufacturing and Government Procurement, Courtney Houssos. This inquiry aligns with the newly established intentions of the Minns government to rejuvenate domestic manufacturing through solidified support for local production, exemplified by their commitment to a minimum 50% local content in rolling stock contracts by the end of their current term.

The parliamentary committee in NSW, led by Labor MLC Sarah Kaine, will scrutinise procurement practices across various sectors and their impacts on the state, evaluating the effectiveness of government arrangements, contract volume and decision criteria.  The aim is to enforce procurement reforms that drive employment and support local industry, as well as to question the value for money and compliance policies of current procurement strategies.

This is an extension of concerns shown in other studies, such as the 2021 investigation by the McKell Institute, which contrasted the cost savings of outsourcing transport initiatives to foreign companies against the economic and employment benefits that could accrue from awarding these contracts domestically. By scrutinising instances like the Intercity Fleet, ferry services, and Sydney’s new light rail and metro systems, the McKell Institute illuminated a critical tension between immediate fiscal advantages and long-term economic development, noting that 13% of public contracts in Australia are awarded to international corporation

Both the Commonwealth and NSW reforms and inquiries are placed within a similar time frame, demonstrating a nationwide movement to create more equitable opportunities for local businesses in government procurement and to harness such activities for broader economic and social benefits.

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