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Ombudsman Bruce Billson at The Tax Summit 2023. Credit: The Tax Institute of Australia

Government procurement rigged against SMEs, says ombudsman

Australia’s dream of a thriving small business sector is being hampered by a government procurement system stacked against them, according to a scathing new report by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO). 

The report paints a grim picture, revealing a system riddled with risk aversion that discourages small businesses from even attempting to compete for government contracts. This not only stifles the growth of small businesses, but also hurts taxpayers in the long run. 

“The existing system is just not working… the process involved in bidding is too complicated, not conducive to competition, opaque, inefficient, and incongruent with private-sector processes,” ASBFEO’s, Bruce Billson said. “The Government’s initial response to our inquiry is underwhelming… several of the substantive recommendations and proposed reforms that have not been embraced, were rejected without any discussion at all.” 

The report, which investigated the effectiveness of Commonwealth procurement rules for small businesses, found a system riddled with problems that leave small suppliers feeling excluded. The Ombudsman’s inquiry wasn’t just critical of the status quo, it also took aim at the government’s initial response to its recommendations for reform, calling it “underwhelming” and failing to address the core issues. 

“It’s abundantly clear that the existing system isn’t working as intended for many small businesses… The steps already taken have not shifted the dial to achieve the Government’s own stated objectives. Introducing ‘retained economic value’ as the evaluation framework… is a crucial recommendation that is too important to dismiss.” What we need is real engagement and commitment to improving procurement outcomes… Why wouldn’t you create a Procurement Commissioner… ?” Billson calls for a more committed approach to improving the system and proposes the creation of a Procurement Commissioner.”

Moreover, the inquiry, investigating the effectiveness of Commonwealth procurement rules, found a system riddled with complexities that unfairly disadvantages smaller players. Not only did the ASBFEO criticize the current state of affairs, but it also slammed the government’s initial response to its reform recommendations as “underwhelming” and failing to address core issues. Billson argues the government hasn’t adequately addressed the core issues and dismissed valuable suggestions without proper consideration. The report highlights a significant gap between government spending on small businesses as suppliers (around 11%) and their overall representation in the Australian economy (97%). This translates to a missed opportunity for both economic growth and supporting local businesses.

Broken system excludes SMEs

The Ombudsman’s investigation revealed a system riddled with problems:

  • Overly Complex: The current procurement process is excessively complicated, deterring many small businesses from even attempting to participate.
  • Lack of Transparency: The system’s opaqueness creates an uneven playing field, favoring established suppliers familiar with its intricacies.
  • Stifling Competition: The existing rules are seen as hindering fair competition, potentially excluding qualified small businesses from consideration.
  • Inefficient Processes: Bureaucratic hurdles slow down the process, making it time-consuming and resource-intensive for smaller businesses.
  • Private Sector Disconnect: The procurement process is out of sync with typical private sector practices, further disadvantaging small businesses accustomed to those methods.

Ombudsman proposes reform package

Billson’s report outlines a reform package that aims to create a more efficient, transparent, and small business-friendly procurement process. These reforms wouldn’t require additional funding, but rather a shift in approach and focus on:

  • Streamlining Processes: Simplifying the bidding process to make it more accessible for smaller businesses.
  • Transparency and Fairness: Ensuring a level playing field by increasing transparency in the evaluation process.
  • Focus on Value: Going beyond just price to consider broader economic benefits, such as supporting local businesses and innovation.

Billson urges the government to seriously consider all the recommendations and their potential to improve the system. He emphasizes the need for a “step-change” in government procurement, advocating for a system that fosters a fair and competitive environment for small businesses to contribute meaningfully to the Australian economy.

The report and recommendations are available at: www.asbfeo.gov.au/procurement

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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