Private sector will build Indigenous construction industry

The government’s new  $20 million program to help Indigenous construction businesses stump up the hefty bonds often required to guarantee project delivery creates a significant dilemma.

While the announcement is good news for some Indigenous contractors, harnessing the growing support of the private sector would make such a plan more sustainable.

Aboriginal business people have been increasingly flocking to the construction industry since the introduction of the Indigenous Procurement Policy (IPP) in 2015. This isn’t a surprise — $124 million (60%) of major IPP contracts awarded in 2015-16 were in construction.

In this regard, it seems that the government’s new financing program is targeting the right areas. However, such a strategy has a limited lifespan.

Changes of government, reallocations of funding and the limited number of businesses the program can support will ultimately restrict its efficacy. Indigenous supplier shouldn’t develop  reliance on the government underwriting bonds to win contracts, and could also have the support pulled from under them several years later.

In reality, the majority of Indigenous construction companies will do business with the private sector. It is here that they should look for support in the financing of bonds and loans.

Many corporates are already looking to engage with Aboriginal suppliers. There is a business case for this. Demonstrating a commitment to Indigenous companies provides a point of difference that can help one stand out from the crowd.

Herein lies the solution for Aboriginal construction firms. By leveraging this growing support they will not only win contracts, but can also receive assistance with financing and business development.

This is already happening. In late 2017 Fortescue Metals Group signed a deal with ANZ Bank to act as a guarantor for loans to the Western Australian mining companies’ Indigenous contractors.

Similarly, joint ventures between Indigenous and non-Indigenous construction companies can be mutually beneficial. Indigenous suppliers can access equipment, employee expertise and equity, while the senior partners gain greater competitiveness by demonstrating their commitment to Aboriginal business.

In the long run, building relationships with the private sector will have far greater benefits for Indigenous suppliers. Partnerships will not only provide business support, but bring significant commercial opportunities — and are a stronger solution than reliance on government funding.