The Australian Infrastructure Audit released last month predicts that Australia’s population will grow by 24 per cent reaching 31.4 million by 2034. The outcome of this will be significant pressure on infrastructure, particularly in our largest cities.
The 2019 Budget saw the Federal Government pledge to invest $100 billion over 10 years to manage the needs of a growing population with a significant number of mega projects underway across the country. Projects such as WestConnex in Sydney, the Melbourne Metro Tunnel, Melbourne to Brisbane Inland Rail will see billions of dollars’ worth of investment, with many more large-scale projects in the pipeline.
Despite what could be seen as a significant opportunity for SME’s Small Business and Family Enterprise Ombudsman (ASFEBO) Kate Carnell states that the percentage of small businesses securing contracts has been in decline over the last three years.
Reasons for this could be attributed to inherent issues within the industry such as chronic late payments as well as the devastating effect of phoenixing. In addition to this, the recent Murray review of the industry found that risk and accountability are routinely pushed right down the supply chain leaving small business contractors exposed.
Other deterrents include;
- Small businesses may not have the resources or the time to complete a burdensome tender process
- Tenders and panels may be limited to exclude SME’s that do not have an existing relationship
- Many SME’s overbid for projects without adequately assessing the risks and requirements to deliver
- The sheer length of commitment to a mega project
- Procurement agencies can ‘bundle’ contracts together to streamline their own processes, meaning they become too large for the SME to bid for.
There is no question that winning a large tender can also be highly lucrative for SME’s. There is the potential to generate cashflow certainty in a known volatile market and secure the growth and future of the business. With potentially millions of dollars’ worth of government procurement contracts to capitalize on, the opportunity is certainly one worth considering. According to ASFBEO Kate Carnell, the current 10 per cent procurement target is too low and should be raised to something similar to that of the UK and other countries (around 30%), any increase here could significantly impact the growth of the SME sector.
While there are policy initiatives in place to increase opportunities for SMEs in major infrastructure projects, there is concern that they may not be happening quickly enough or take into consideration the risk to smaller operators.
With risk becoming the primary consideration for SME businesses looking at working on large projects, due diligence upfront is crucial. Ask yourself;
- Can your business withstand the fallout of slowdowns or stoppages due to unforeseen circumstances?
- Do you have the finances in place to ensure you and your employees get paid (even if the money comes in late)?
- Do you have the ability to scale your business up or down as required?
- Can you meet the terms (and duration) of the contract?
We work with a number of SME’s who are involved in large contracts. Invoice Finance is an ideal solution for businesses working with much larger operators. Our solution allows the business to access funds from their own invoices as soon as they are issued. Getting funds back into the business sooner means more certainty around cashflow and the ability to get your own money working for you. In some cases, we have been involved in the tendering process itself by providing documentation to demonstrate that funding is in place should the tender be successful.
If your business is considering bidding for a large project you may like to read our article ‘Making the most of tendering opportunities’.