Tenderless: How procurement processes are failing small business

Procurement might not sound like the most exciting topic, but winning a government contract can be life-changing for a small business, explains Bruce Billson, Australian Small Business and Family Enterprise Ombudsman.

 As all businesses know, there is no substitute for good customers. The Australian Government has committed to being a bigger customer for small and family businesses and to give them an improved chance of bidding for – and winning – a greater share of the $81 billion it spends every year on goods and services. 

Enabling small and medium-sized businesses to fully compete for Government work helps deliver better value, supports innovation and drives stronger Australian-based capability – all worthwhile and important benefits for the taxpayer and our nation.   

In 2021-22, the government and its entities awarded 92,303 contracts with a combined value of $80.8 billion. 

It is estimated small and medium-sized enterprises were awarded 55 per cent of the contracts by volume or 31 per cent by value, worth almost $25 billion. Small businesses alone accounted for $8.5 billion worth of the work (or 10.5 per cent of all contracts by value). 

Small and medium-sized firms that had the most success in winning work were in Defence, Health, Foreign Affairs, Education, Skills and Employment and Home Affairs. 

How to make procurement better for small business

The government has asked me to have a look under the hood of the Commonwealth Procurement Rules to see how they are being applied, which departments are doing well, and whether there’s further steps that can be taken to improve the system.  

Since launching our 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. 

We have now released an issues paper and extended the deadline for submissions to the inquiry until 15 September so we can get more feedback and ideas from those using the procurement system or those who would like to but do not. Submissions can be made at www.asbfeo.gov.au/procurement and our report will be handed to the government in December. 

We have heard so far that small businesses 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. 

Small businesses wanting to break into this sector to grow and expand their opportunities have told us they have been deterred, discouraged or frustrated by one or more of the following reasons:  

• The cost and time required to tender  
• Lack of consideration by agencies of the high opportunity cost for small business of tendering 
• Limited or no feedback when a tender is unsuccessful   
• Perceived preference for large market suppliers 
• There is not a strong incentive for agencies to seek out opportunities for SMEs as ‘best endeavours’ are deemed to be sufficient.  

The panel problem

A great frustration that has been highlighted to us relates to the use of government panels for awarding contracts. Panels are a short list of providers that departments can draw from to have work carried out up to a particular value.  

Yet being on a panel does not guarantee work. Many small businesses have told us how they have been on panels for years and never been approached for a request to quote.  

They have invested considerable time, energy and resources applying for various government panels and complying with requirements, only to discover that large agencies are using different panels to procure the same goods and services.  Other small businesses have shared how innovations and potentially better value for the taxpayer are locked out because relevant panels have not been refreshed for years. 

There are currently more than 100 government panels that deliver similar or duplicate products and services, and this leaves small businesses with a complex web that is difficult to navigate without specialised knowledge about the inner workings of government procurement.  

Writing tenders for government does not come naturally for many small businesses and they are rarely provided with feedback about how to improve.    

In some cases, they have been told they must have certain kinds of expensive insurances just so they have the chance to do the work – with no guarantees.  In other examples, the ‘guarantees’ imposed on small business suppliers involve responsibilities for warranties and risks over which they have no control. 

ASBFEO calling for feedback on procurement process

These are among the barriers we’ve heard about and our issues paper seeks to draw out more experiences and insights as we hear what small businesses and individuals say about the challenges or difficulties they faced when approaching government for procurement and where things might be improved. 

Equally, we’re keen to hear examples of exemplar agencies or effective processes or approaches, and how we might extend these ‘better practices’ more widely across government. 

One of the changes introduced last year was a requirement for procuring officers where appropriate to break up larger projects into smaller projects that are more accessible for SMEs to bid for, and we want to know if that is happening. 

Increasing opportunities for small and family businesses to compete and participate in supplying goods and services to the government will expand growth opportunities, encourage entrepreneurship, increase competition, strengthen sovereign capability and maximise value for taxpayer’s money.   

The benefits of having the Australian Government as a customer are quite significant. Our inquiry is looking at how we can make sure that opportunity is shared around. 

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