Indigenous Procurement Policy makes ticking boxes easy

The federal government’s Indigenous Procurement Policy (IPP) is regularly touted as ‘supercharging’ the Indigenous business sector. But the flawed way in which its success is measured could mean the only thing that gets supercharged is the bureaucracy’s feel-good factor.

Since July 2015, the IPP has committed federal government departments to awarding 3% of all new procurement to Indigenous-owned small businesses by 2020; and the touted ‘success’ of the policy has seen that target date brought forward to the end of 2016–17.

The rationale behind the policy is sound — that promoting Aboriginal businesses will help overcome ongoing economic disadvantage. This will help reduce welfare dependency, with research from Deloitte suggesting that Indigenous economic parity with the rest of Australia could see the Aboriginal and Torres Strait Islander social security bill halved.

However, new CIS research shows that weaknesses in the IPPs design are allowing for the policy’s success to be overstated — significantly.

The problem lies in how the 3% procurement is reported: by contract numbers, rather than contract monetary value.

By this measurement, the IPP appears to be an overwhelming success. In 2015–16 a target 0.5% of contracts were to be awarded to Indigenous businesses (with the figure increasing incrementally to 3% by 2020). However, the government reported 2.9% of contracts were awarded to Indigenous suppliers in that year — and this purported success sparked the date fast-tracking.

On face value you would think the IPP had reached policy nirvana.

But analysing the IPP by actual monetary value, rather than contract numbers, paints a grimmer picture.

Measuring the target as contract numbers allows figures to be boosted with large numbers of small contracts. While 2.9% of 2015–16 contracts were awarded to Indigenous businesses, this represented less than 1% of actual federal government procurement spend in dollar terms.

Every portfolio’s figures were enhanced by this measure.  Indeed, the Department of Human Services awarded 7.2% of contracts to Indigenous suppliers, but that accounted for only 0.5% of spend — and that was a boost of 6.8%.

While many Aboriginal businesses have undoubtedly benefitted from the IPP, these numbers suggest that we shouldn’t get too caught up in the government’s self-congratulations.

At the heart of this situation lies a deeper issue around the construction of government policy — it is those who make it that define its success. Ministers and bureaucrats set the parameters of what must be achieved, and in some cases policies may be designed to not fail in meeting targets — a policy that achieves targets is reported as ‘successful’.

However, there is a difference between a successful policy and a good policy; the latter being one that achieves tangible outcomes for the target group.

Reporting by contract number, rather than monetary value suggests that policy makers are scared of failure. If a department is struggling to meet targets they could simply award a large number of small value contracts.

It appears this might already be happening. While the number of IPP contracts awarded has more than doubled from 1509 in 2015–16 to 3748 in 2016–17, the amount spent has remained the same.

Indigenous economic policy is a tricky business and government procurement will not solve Indigenous economic disadvantage. Nonetheless, the IPP can have a positive impact.

The policy has changed the conversation — Indigenous people are starting to talk about entrepreneurship, and leading companies in the private sector have recognised the unique competitive advantage partnering with Aboriginal suppliers can provide.

Although it is the IPPs targets — not Indigenous businesses — that have been supercharged, the change of attitudes motivated by the policy have been vitally important and can be celebrated as its greatest success.

Charles Jacobs is a Policy Analyst in the Centre for Independent Studies Indigenous Research Program and author of the report: Risky Business: the problems of Indigenous business policy.