top of page

‘Easy and safe’ procurement doesn’t deliver govt the best value for money

When liability insurance costs more than the work government wants done, that’s a fail for all concerned. Listening to small business would help find where processes are an impediment rather than constructive and fit for purpose.


The latest announcement from the government about expanding the Australian defence industry sector highlights the need to streamline our procurement process and ensure there is opportunity for the great innovators of Australia, small business people.

Procurement for government — federal, state and local — is important. Tax payers’ money has to be spent effectively and value for money achieved. The process also, or should, pass the highest scrutiny from regulators and from the media. So as a result of high scrutiny, public servants will often take the easy and safer path of awarding tenders to large companies with good reputations. That will keep ministers, senior management and senators happy. It will make senate estimates more predictable and, at least in the public servants’ mind, decrease the chance of any problems that come from engaging with smaller firms or those without the resources to deal with government processes.

This approach probably does satisfy the risk management side of procurement processes, but it does not help in accessing the best value for money, supporting local small business or finding the most innovative ways of achieving an outcome or accessing the most innovative products. Innovation will almost always come from individuals in smaller businesses and the public sector must not stifle innovation with poor process and closed minds.

So, there are several issues. Firstly, the tender documents must be clear about the tender outcomes, not exclude any potential tenderers due to overly specific language. The process must not be over complicated and costly for tenderers.

Certainly, the building of submarines and the like would involve complicated process, but I have seen tenders where the winner was required to provide liability insurance to the limit of $20m for a one-day facilitation job that was worth $1200. The cost of insurance was higher than the job itself. In this case the relevant public servant wanted that particular consultant due to their understanding of the subject matter and skills needed. It was the legal section of the department that imposed that rather stupid ruling. As a result, the consultant signed a contract stating that the level of insurance was met but – it wasn’t. The consultant should not have signed that contract but otherwise what would she do? What would the public servant do? Go to a less skilled provider of services? A fail for all concerned.

So, procurement shouldn’t be run by the legal part of any agency, they should advise but not create stupid situations where no one wins. Currently tenders have a bias towards big consultancy organisations or organisations who have sections that are experts in tendering for government contracts — small business cannot compete with them. If small business cannot tender for large contracts then, for example, one condition of the tender is to include local Australian small business, who meet the criteria, as one of their supplier.

Where there are projects where it is obvious a bigger business will win, submarines being a good example, then I believe the public sector must ensure that the big businesses are professional in their dealings with smaller business and indeed that the practices of the big business does not inhibit cost savings or innovation. The good news is that in many areas the relationship between big business and their small suppliers is actually quite good, particularly in defence (not perfect but good).

Where it too often fails is in the sectors of building construction and provision of IT services. The bigger businesses involved in these two areas must be legally bound to pay their suppliers on time and to ensure that the right sub-contractors are chosen; for their capacity not their willingness to follow the big business processes.

There is another area where the views of all business but particularly small must be considered and that is in the transparency and fairness of the process. Many small business people believe there is inherit favouring of some companies, particularly the large ones, over others. We hope and expect that isn’t true but process must be open and there must be no surprises. An example of poor process is the current practice in the ACT where we found out recently that the government has an agreement with the union movement to give them access to tenders made for government projects. This of course is disgraceful as unknown people who do not report to government get to see confidential business information and, as much as it is denied, they obviously have a say in who wins tenders. That sends a loud and clear message in that particular jurisdiction that there is no transparency.

Let’s hope this isn’t what is practiced elsewhere. We hope an anti-corruption watchdog of some sort can sort that out. Having said that the processes of the states and many local governments seem to be of high quality, but all levels of government need to look at ensuring they get best value and the best services and products available by including small business people in the process and making sure that their, the public servants, communications and processes are fit for purpose and constructive not an impediment.

Article published on The Mandarin, 14 February 2018

bottom of page