In the recent federal budget, the Government announced significant changes aimed at making procurement contracts more accessible to SMEs. These include a requirement for government departments to split up major projects into smaller components making contracts more attainable for SMEs and encouraging greater competitiveness. Another highly compelling move is a commitment to reduce costs and risks to SMEs working on government projects – this in our opinion is a true game changer.
In recent years, SMEs have found themselves effectively locked out of participation in major government tenders. This has sometimes been due to sheer project scope but more often it has come down to a growing insurance requirement in the form of bank guarantees, performance, or surety bonds. These kinds of financial guarantees, often required to be in place at the tendering stage (and in addition to the 10% of earnings invariably held back until project completion) has made the process untenable for many. Obstacles like these, combined with the pressures of the COVID pandemic and difficulties in accessing finance and insurance have meant that SMEs are often unable to participate in projects that could transform their business.
As a finance provider working closely with SME businesses, we saw the same procurement hurdles coming up time and again, effectively creating a bottleneck between major government funded projects and the businesses that need access to them. We have spent time lobbying local as well as the federal government to draw attention to this issue so the reform announcement has given us real hope for lasting change and long-term opportunities for SMEs.
With barriers lowering and costs of entry more achievable, government spending announced in the 2022-23 budget present significant opportunities for SMEs looking to win tenders in infrastructure or defence.
Infrastructure: The budget announced an increase of $10 billion on existing and new infrastructure projects bringing the rolling 10-year investment to over $120 billion. This, coupled with specific regional investment spend of $7.1 billion could mean a pipeline of opportunities with long-term contracts for SMEs nationwide.
Defence: The Defence Department has also announced more access to defence procurement opportunities for SMEs. An investment of more than $80 million over the next five years is expected to drive opportunity as well as an increased threshold of up to $500,000 (previously $200,000) on limited tenders exclusively for SMEs. Given that the Defence Department in 2020-21 procured goods and services worth $37.4 billion, this too presents a significant opportunity.
Where previously government procurement contracts were for the most part awarded to large businesses (for whom meeting insurance requirements wasn’t an issue). The expectation is that these changes will assist smaller businesses to gain a foothold in government procurement, becoming more competitive against larger bidders and boosting opportunities across the sector.
Additionally, the government’s ‘pay on time’ policy announced last year will be extended to all suppliers. Government agencies are required to pay e-invoices within five days and other invoices within 20 days or pay interest. This will deliver greater cash flow certainty for SMEs looking to expand their operations into the government procurement market.
If your business is considering taking advantage of new government procurement opportunities, below is a list of resources that may be useful.
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