Let's get down to business: the Indigenous Procurement Policy

What You Need To Know

• The Department of Prime Minister and Cabinet (PM&C) has released the Commonwealth Indigenous Procurement Policy (IPP), aimed at creating opportunities for growth in Indigenous business and employment.
• The IPP will commence on 1 July 2015 and will replace the Indigenous Opportunities Policy (IOP).
• As of 25 May 2015, the IOP is no longer required to be considered in new approaches to market or contracts.
• The IPP imposes more rigorous requirements than its predecessor by introducing a target for purchasing from Indigenous enterprises and a mandatory set-aside for new procurements, and heightening mandatory minimum requirements in high value contracts.
• The IPP is mandatory for non-Corporate Commonwealth entities. All other Commonwealth entities are encouraged to use their best endeavors to comply.

What You Need To Do

• Review your internal departmental procurement procedures, policies and templates.
• Consider any changes required to your current arrangements to ensure they comply with the IPP.
• Update your departmental procurement procedures, policies and templates.

Background

The Government has released the Indigenous Procurement Policy (IPP), replacing the Indigenous Opportunities Policy (IOP), which sets new requirements for Commonwealth procurement.

The IPP seeks to harness the Government's purchasing power to create opportunities for Indigenous businesses to grow and increase Indigenous employment. The IPP seeks to achieve this by setting a purchasing target for Indigenous businesses, providing Indigenous Small and Medium Enterprises (SMEs) with the first opportunity to bid for many Commonwealth contracts. The IPP also imposes mandatory minimum requirements on high value contracts regarding Indigenous employment or supplier use.

The Government will hold itself to account against the IPP by publicly reporting on its performance on the Indigenous Procurement website (available at: https://www.dpmc.gov.au/indigenous-affairs).

Is it an entity an 'Indigenous enterprise'?

The requirements of the IPP are directed towards 'Indigenous enterprise', which is defined as "an organisation that is 50% or more Indigenous owned that is operating a business" (paragraph 1.9).

Supply Nation maintains a list of Indigenous enterprises that meet this definition (available at: http://www.supplynation.org.au/). However, not all Indigenous enterprises will be listed on Supply Nation. If an entity is not listed, the procuring officer must take steps to assure themselves that an entity falls within this definition. This may include:

• requesting that the entity's owners provide evidence of Indigeneity (for example, a statutory declaration or a letter of Indigeneity provided by an Indigenous organisation such as a land council);
• checking whether the entity is listed with an Indigenous chamber of commerce or the Office of the Registrar of Indigenous Corporations.

Target for purchasing from Indigenous enterprises

Commonwealth target

The Commonwealth has committed to awarding 3% of its domestic contracts to Indigenous enterprises. This applies to the number of contracts, not the total amount of contracts entered into. A 'domestic contract' is defined as "a contract that results from a procurement exercise conducted in Australia, even if some or all of the goods or services that are purchased may be used or delivered overseas" (paragraph 1.9).

The imposition of the 3% target has been staged over the next five years as follows:

Financial Year	Target
2015-16	0.5%
2016-17	1.5%
2017-18	2%
2018-19	2.5%
2019-20	3%

This target will be calculated as a numerical figure for an upcoming financial year, based on the average number of domestic contracts entered into over the previous three financial years.

Portfolio target

Each portfolio will be allocated a target for the upcoming financial year in April each year on the Indigenous Procurement website, as calculated by PM&C in consultation with the Department of Finance.

As with the overarching Commonwealth target, this will be derived from the number of domestic contracts the portfolio is required to enter into with Indigenous enterprise.

Portfolios may choose to convert this target into a dollar value figure (where the conversion rate for each contract will be the average value of all Commonwealth contracts under $1 million over the previous three financial years), and may choose to meet the target through either measure (or a combination of the two). This means the portfolio can meet their target by awarding fewer contracts but of a higher value.

For portfolios best placed to achieve their target through certain agencies rather than others, the portfolio may allocate the target across its agencies accordingly. Portfolios are encouraged to adopt a higher target where they will easily meet the minimum target.

Contracts that count towards the target

The contracts that count towards the target are not limited to direct contracts between Government and Indigenous enterprise. Subcontracts will count equally towards the target (that is, where a Commonwealth contractor has subcontracted all or part its work to an Indigenous enterprise). In addition, a lower threshold of Indigenous ownership applies for direct contracts with incorporated joint ventures, requiring at least 25% of Indigenous ownership in order to be counted.

Multi-year contracts can be counted towards the target for each financial year where the Indigenous enterprise receives revenue under the contract during the relevant financial year.

Indigenous procurement strategy

The IPP recommends that portfolios develop an Indigenous procurement strategy as best practice when working towards achieving the target, covering matters such as:

• setting a higher target for the portfolio;
• allocating the target across certain agencies;
• engaging with Indigenous enterprises; and
• engaging with representatives of the Indigenous business sector.

Set-aside: direct contracts to Indigenous enterprises

The IPP has introduced a mandatory set-aside for all new approaches to market from 1 July 2015 onwards.

What procurements does this apply to?

The set-aside applies to:

• all procurements where the majority (by value) of the goods or services will be delivered in a Remote Area (identified as Remote Areas on the map available on the Indigenous Procurement website); and
• all other domestic procurements where the estimated value is between $80,000 - $200,000 (inclusive of GST),

other than:

• procurements to which paragraphs 2.6 or 10.3 of the CPRs apply;¹
• procurements where the purchase is made through a mandatory whole-of-government procurement arrangement or through a departmental panel arrangement that is specified as an exclusive purchasing arrangement; and
• procurements where the purchase is made pursuant to an exemption under Appendix A of the CPRs (other than Exemption 17).

What do procuring officers have to do?

Where the set-aside applies, procurement officers must first determine whether an Indigenous SME could deliver the required good or service on a value for money (VFM) basis before following ordinary procurement processes.

To satisfy this requirement, the procuring officer must conduct and document a search for a suitable Indigenous SME on Supply Nation's register of Indigenous enterprises.

If one or more suitable Indigenous SMEs are identified through this process, the procuring officer must take steps to determine whether the Indigenous SMEs could deliver the goods or services on a VFM basis, bearing in mind the scale, scope and risk of the procurement. If the procuring officer is satisfied that VFM can be achieved (and, if there is more than one, that one Indigenous SME best represents VFM), the Commonwealth entity must purchase the goods or services from the Indigenous SME. The Commonwealth entity may use an Exemption 17 of Appendix A of the CPRs to do this.

If no Indigenous SME is identified through this process, the procurement officer may follow ordinary procurement practices.

Minimum Indigenous participation requirements for contracts

The IPP sets mandatory minimum requirements in relation to Indigenous employment and supply for certain Commonwealth contracts.

While this requirement commences on 1 July 2015, it will not become binding on contractors until 1 July 2016 to allow for a transition period.

To which contracts do the minimum requirements apply?

The minimum requirements apply to all new contracts delivered in Australia that are valued at $7.5 million (inclusive of GST) or more, where more than half of the value of the contract is being spent in at least one of the industry sectors specified in paragraph 4.2.1, including:

• building, construction and maintenance services;
• transportation, storage and mail services;
• education and training services; or
• politics and civic affairs services.

This is not limited to direct contracts.

However, the minimum requirements will not apply if paragraph 2.6 of the CPRs applies. ¹

What are the minimum requirements?

The minimum requirements are imposed as obligations on Commonwealth contractors to engage Indigenous Australians as employees or within their supply chains.

A contractor, in consultation with the purchasing Commonwealth entity, may elect to apply either contract-based requirements (imposed on the contract itself) or organisation-based requirements (imposed on the organisation contracting with the Commonwealth entity). The contract may also elect to apply minimum requirements centred on either (or both) the employment or supplier-use of Indigenous Australians.

These requirements, set out in paragraph 4.4, include:

• at least 4% of the full-time equivalent Australianbased workforce being Indigenous Australian on average over the term of the contract; or
• at least 4% of the value of goods and services provided under the contract must be subcontracted to Indigenous enterprises on average over the term of the contract.

Where a component of the contract will be delivered in a Remote Area, the Commonwealth entity must ensure there is a contract requirement to ensure the contract delivers "significant employment or supplier use outcomes in that area" (paragraph 4.4.1).

Enforcing the minimum requirements

Agencies must include the minimum requirements in their approach to market documentation and in the contract itself to ensure compliance.

As part of the approach to market documentation, agencies must require contractors to submit (and be evaluated against):

• an Indigenous Participation Plan (IP Plan) setting out how the tenderer intends to meet the minimum requirements;
• their current rate of Indigenous employment and supplier use; and
• if the contractor is already a party to another Commonwealth contract with the minimum requirements, their level of compliance with those requirements.

Once a preferred tenderer is selected, the contract must include a number of provisions, including the IP Plan and a requirement to report against the IP Plan, along with other contractual rights to facilitate the agency's ability to monitor compliance (such as auditing rights).

The agency's contract manager must record the contractor's performance in a central database accessible by other Commonwealth procuring officers.

Recording and reporting requirements

The IPP sets out recording and reporting requirements against each initiative to measure the Government's performance and to facilitate public accountability.PM&C will collate information collected by AusTender to track each agency's performance, including matching contracts with Indigenous enterprises registered with Supply Nation to measure performance against the target.

In addition, portfolios must manually report to PM&C on a six-monthly basis:

• the details of contracts that contribute towards meeting the target that are not captured by AusTender (such as those with Indigenous enterprises who are not registered with Supply Nation);
• the number of Remote Procurements conducted by the portfolio and the number of resulting contracts awarded to Indigenous enterprise; and
• the details of contracts with minimum Indigenous participation requirements (including the value, term, elected minimum requirements and the contractor's compliance with the IP Plan).

Where the set-aside applies, agencies must also record certain information, namely:

• whether the set-aside process was applied and, if not, the reason why not; and
• if the set-aside was applied, whether the resulting contract was awarded to an Indigenous SME.

What do you need to do?

Commonwealth entities should review and update their internal departmental procurement procedures, policies and templates to ensure they comply with the IPP.

In addition, contract managers should work with their contractors in transitioning from the IOP to the IPP. Where an agency has an existing contract containing IOP obligations, the agency will be responsible for managing compliance with those obligations.

_{¹ Paragraph 2.6 of the CPRs exempts certain procurements from compliance with the CPRs, namely measures determined necessary for the maintenance or restoration of international peace and security, to protect human health, to protect security interests, or to protect national treasures. Paragraph 10.3 sets out the conditions for limited tender in certain circumstances.}