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National infrastructure boom opportunity for Indigenous enterprises

National infrastructure boom opportunity for Indigenous enterprises

by Jay Edmondson and Jodie Sizer

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The Commonwealth Government’s Indigenous Procurement Policy (IPP) seeks to leverage the government’s procurement power to stimulate the Indigenous business sector. It does this by mandating that a target (3 per cent) of its domestic contracts be awarded to Indigenous enterprises each financial year. The current wave of infrastructure spending by state and federal governments will fund major construction projects across many of our major cities, providing an ideal opportunity to realise the goals of the IPP while contributing to the growth and sustainability of the Indigenous business sector. But for this to happen, governments at all levels need to get better at implementing social procurement policies.


While it is difficult to put a precise measure on the number of Indigenous businesses in Australia (due in part to the different definitions of what constitutes an Indigenous business and the varying nature of their incorporation), it is estimated there are between 8,000 and 16,000 nationally.1

The development of a robust and sustainable ‘Indigenous economy’ is an essential component of self-determination for Aboriginal and Torres Strait Islander peoples by facilitating sustainable and independent communities and closing the gap. In line with the principle of self-determination, more Indigenous people than ever are seeking to achieve economic independence by contributing to the economy through the establishment of Indigenous businesses.2

Work by PwC’s Indigenous Consulting (PIC) shows that Indigenous businesses are more likely than non-Indigenous businesses to employ Indigenous workers. It has also shown that successful Indigenous businesses can create a ‘multiplier effect’ that in itself can foster further economic development and wealth creation. Specifically, it can lead to a greater culture of employment and social contribution within Indigenous communities. This in turn fosters an environment which supports further innovation and opportunity by inspiring the next generation of Indigenous business owners.

When it comes to the development of our urban areas, there is a substantial economic incentive to draw on the existing talent pool of Indigenous businesses. There is not only merit in this approach, but also the added social value in the contribution to the economic independence of Indigenous communities. Indigenous businesses such as RAW Recruitment and Services and Intract Australia have been successfully operating in the infrastructure and construction industry. They have both managed rapid growth as they have expanded to work on significant building projects across the country, while also employing a large Indigenous workforce (as an example, over 90 per cent of Intract's workforce are Indigenous). The benefits of engaging businesses like this to not only carry out construction works but to also involve them in the design and development of our cities  is twofold:

  • it empowers the local Indigenous community to create pathways for youth from education into meaningful employment
  • it creates economic development and wealth in the Indigenous community to assist Closing the Gap in education, employment and health outcomes. 

Not only are Aboriginal businesses far more likely to employ Aboriginal people, they also consistently provide a level of pastoral care to their workforce well above their mainstream competitors, giving their workforce every opportunity to grow and prosper in their industry of choice.

Major infrastructure projects, particularly government-funded projects, present a significant opportunity for the Indigenous business sector. The building and construction industry has the highest level of engagement with Indigenous businesses of any sector.3 Additionally, infrastructure spending is currently concentrated in capital cities where the majority of Indigenous businesses and Indigenous people are also concentrated.


Procurement policies across states and territories

Government has an important role in managing the policy settings and providing funding to help develop the Indigenous business sector. At the federal level, the IPP and the Indigenous Business Sector Strategy (IBSS) which was developed in partnership with the Indigenous business sector, are assisting Indigenous businesses access programs and emerging opportunities in construction and infrastructure.

All states and territories – with the exception of Tasmania - have sought to support Indigenous economic development by either committing to or adopting their own procurement policies. They are carrying out considerable and wide-ranging work to support Indigenous employment, education and training. 

The Victorian government released a new Social Procurement Framework in 2018 that seeks to encourage its agencies to factor in social objectives when making purchasing decisions, including from Indigenous businesses.4 Similarly, the South Australian government has now consolidated opportunities for Aboriginal business procurement across all procurement levels under a single, comprehensive framework.

The available evidence suggests that these programs are having a positive impact. For example, since its introduction, the IPP has resulted in a significant increase in the number and value of federal government contracts awarded to Indigenous businesses. According to estimates from the National Indigenous Australians Agency (NIAA), since it was launched in 2015 to June 2019, the IPP has resulted in 1,765 Indigenous businesses delivering 16,482 contracts worth over $2.5 billion.5

A significant proportion of these contracts have been in the building and construction sector as the national building boom shows no sign of slowing. The NIAA reports that in 2017–18, contracts for the Infrastructure, Regional Development and Cities portfolio alone totalled $23.6 million. And while this figure is a good start, there is still room for improvement as this represents only three per cent of total possible spend.

For more details on all states and territories procurement policy adoption see this article.

Innovative collaborations are already thriving in Australia

Alongside creating real opportunities for Indigenous businesses, the IPP has contributed to the emergence of a number of aligned supporting programs, including the following two examples. These initiatives benefit Indigenous businesses across all sectors – not just infrastructure – as well as providing an important economic contribution to the cities in which they are based.

Aboriginal Entrepreneur Hub supporting innovation

The Aboriginal Entrepreneur Hub (AEH) which is being established at Lot Fourteen, is the new innovation neighbourhood on the site of the former Royal Adelaide Hospital. This hub is making it easier for Indigenous start-up businesses and entrepreneurs to get the support and advice they need to negotiate the challenges that face new businesses. The role of the AEH, and similar hubs across Australia, is to accelerate Indigenous businesses to become competitive suppliers not just locally, but overseas too.

By connecting Aboriginal entrepreneurs in regional locations through webinars or video conferences, the AEH will boost networking and mentoring opportunities for Aboriginal people wanting to start their own business in Adelaide and regional South Australia. By integrating the AEH with the broader Lot Fourteen innovation hub, the intention is to ensure integration with the existing start-up community. Feedback from stakeholder focus groups and co-design workshops showed that there was a preference for collaborative rather than segregated services. It is proposed that AEH participants will be able to participate in Lot Fourteen’s incubator and accelerator programs and networking events at a subsidised cost.

The hub will include an educational component to provide opportunities for young Aboriginal people who are seeking pathways into business and entrepreneurship. It will also serve as a contact point for local industries – particularly the major employers in Adelaide and South Australia such as infrastructure, defence and technology – to engage with the Indigenous business community.  

First Australians procurement accelerator program

Another initiative that endeavours to address some of the relational and educational gaps currently within IPP is the Meereeng 50 procurement accelerator program. A collaboration led by PIC, Kinaway Aboriginal Chamber of Commerce and the University of Melbourne, the program seeks to break down some of the barriers to growth facing Indigenous businesses that have particular challenges in navigating the complex procurement systems.

Meereeng 50 brings together representatives from Victorian Aboriginal business, some of Australia’s largest companies, including Lendlease and National Australia Bank, academia and government to deliver an accelerator program for mature businesses aspiring to develop relationships with major companies.

Kinaway Chair, Karen Milward, sees Meereeng 50 as a significant step forward for Victorian Aboriginal and Torres Strait Islander businesses. “We’re committed to increasing Aboriginal businesses involvement in the Victorian economy and believe this fantastic new initiative will help achieve that,” she said in a media release for the program’s launch.

"Many businesses have not had the opportunity to present their capabilities to major corporations, so identifying potential contract opportunities is a brilliant way to ensure participants will not only get the theory, they’ll also be able to apply what they learn in practical terms."

Karen Milward

How government can better support Indigenous businesses in the construction sector

There is more that can be done in designing and implementing procurement policies to make them more effective in addressing existing barriers faced by Indigenous businesses, particularly those operating in the building and construction sector. 

The change to the IPP announced by the Department of Premier and Cabinet earlier this year now includes a target that is based on the value of contracts. Rather than the number of contracts awarded, this new target ensures Indigenous businesses win higher value contracts at a level closer to those of non-Indigenous businesses. The target, which will be set at 1.0 per cent in 2019–20, will increase by 0.25 per cent each year until it reaches 3.0 per cent in 2027.6

Additional ideas to help make these procurement policies more effective in the building and construction sector in particular include:

  1. Breaking up or unbundling contracts, particularly large contracts (a feature of the building and construction sector), will make it easier for Indigenous businesses to meet the compliance requirements. By their nature, Indigenous businesses tend to be small and medium-size enterprises (SMEs), which means they do not qualify under the more onerous contractual requirements imposed on higher-value projects. Breaking up contracts will also potentially reduce the number of instances where Indigenous businesses find it necessary to enter joint-ventures with larger companies in order to meet the selection requirements. 

  2. In addition to breaking up larger contracts into smaller scopes of work, governments should review the conditions in their existing contracts to better suit SMEs. For example, discussing the option for shorter payment terms that align to the needs of small business. Additionally, government could incentivise tier one organisations to engage Indigenous businesses through a 10 per cent provisional sum to cover specific costs such as pastoral care requirements of staff within Indigenous businesses.
  3. By coordinating services in a culturally appropriate manner so that they work together (similar to the AEH in Adelaide), governments could provide a focused, one-stop-shop approach to providing all the information and services Indigenous businesses need. This could be facilitated by engaging the local Aboriginal chamber of commerce, or each local example, to act as an intermediary. Businesses would then be vetted for capacity and capability to assist in streamlining contract engagement.

Benefits of including and supporting Indigenous businesses

Budgets for governments at the federal and state level indicate that infrastructure is going to continue to be a key area of spending in the coming years. The Commonwealth Government has promised a spend of $100 billion over the next decade, while New South Wales has committed another $80 billion over the next four years. Thanks to the new IPP guidelines, Indigenous businesses are now able to more easily access some of this spending – but only if governments work with them.

While the IPP has laid out clear guidelines and, more importantly, mandated targets to be reached, government departments must also recognise the need to work with Indigenous business in a way that differs slightly from other construction and infrastructure companies.

As they are predominantly SMEs, Indigenous businesses need a different approach when it comes to the set-up of contracts to ensure they are suited to the needs of smaller businesses. Crucially, government departments must ensure that all services working on their infrastructure projects are coordinated in a culturally appropriate manner.

Of course, these ideas are not only relevant for infrastructure projects, but right now it’s an ideal time for Indigenous businesses to capitalise on the opportunities this major infrastructure spending affords. Government departments will also benefit from this approach as it will aid them in meeting their IPP obligations while simultaneously contributing to the growth and sustainability of the Indigenous business sector.


References

1  Department of the Prime Minister and Cabinet, Indigenous Business Sector Strategy (IBSS): building the Indigenous business sector, final report, 2016.

2  PwC’s Indigenous Consulting & PwC Australia, The contribution of the Indigenous business sector to Australia’s economy, 2018. Available: https://www.pwc.com.au/indigenous-consulting/assets/the-contribution-of-the-indigenous-business-sector-apr18.pdf

3 DPMC, Indigenous Business Sector Strategy.

4  PwC’s Indigenous Consulting & PwC Australia, Rail Projects Victoria Phase 3 - Draft Report, 2019. Available: https://www.pwc.com.au/indigenous- consulting/assets/the-contribution-of-the- indigenous-business-sector-apr18.pdf.

5 National Indigenous Australians Agency, Indigenous Procurement Policy May 2019. Available: https://www.niaa.gov.au/indigenous-affairs/economic-development/indigenous-procurement-policy-ipp.

6 National Indigenous Australians Agency, Indigenous procurement policy, May 2019. Available: https://www.niaa.gov.au/indigenous-affairs/economic-development/indigenous-procurement-policy-ipp

 

Contact us

Jay Edmondson

Director, PwC's Indigenous Consulting

Tel: +61 8 8218 7199

Jodie Sizer

Owner & Co-CEO, PwC's Indigenous Consulting

Tel: 1800 992 533

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