STIMULUS MEASURES MUST NOT FAIL SMES
It’s no secret that infrastructure spending is being viewed as a critical part of the post COVID economic recovery. The Government has already announced a $220 billion infrastructure pipeline with further infrastructure spending expected to be announced in the October budget.
Mega-projects, including high-speed rail, water supply and storage, renewables and port expansion are on the table, with the aim of sustaining the national economy in the coming years. While high-profile projects such as these may give business (and the nation) hope, it is the smaller scale building projects that have more chance of delivering the economic boost much needed by SMEs.
We absolutely applaud the work that that Government has done to avert economic disaster wrought by COVID-19. Infrastructure spending and opening up business opportunities and government contracts to SMEs has the power to significantly impact SMEs, however, access and timeliness will be key.
THE THREE T’S
It is generally acknowledged that for stimulus packages to be effective, they should be:
Timely addressing the economic downward spiral quickly
Targeted funds should fall into the right hands
Temporary stimulus spending should be limited to maximise impact
In addition to large stimulus project contracts, there are many existing projects as well as a backlog of infrastructure upgrades within the state capitals and larger regional centres that could deliver work now. Timeliness and access to the projects are the critical factors for SMEs already struggling in the COVID induced downturn.
GUARANTEES AND SURETY BONDS, ANOTHER HURDLE FOR SME’S
Changes in insurance and surety requirements for subcontractors are another issue hampering SMEs hoping to capitalise on infrastructure opportunities and stimulus project contracts.
In the past, businesses were required to agree to retention clauses, where somewhere around ten percent of their earnings were held back by the main contractor. Now, however, they are also often required to provide a bank guarantee or a surety bond to the value of ten percent of the contract.
“With some contracts sitting at $20 million and above, spanning over a two-year period, this requires SMEs to have $2 million sitting in a bank account for the period. The number of businesses able to do this is very limited.”
Linden Toll, CEO Apricity Finance
In addition, the market for surety bonds has become tougher for businesses with conditions such as three years profitable trading with revenues greater than $20 million required.
So, while the stimulus measures and infrastructure spending may offer great opportunities for SMEs – the presence of onerous performance and insurance requirements may leave many businesses out in the cold. Certainly, the presence of these hurdles seems to have the potential to stall the great promise that infrastructure spending can build us out of recession.
Has your business faced challenges gaining access to contracts due to bank guarantees and surety bonds? We’d love to hear from you, please contact us here to tell us more.