Time for a rethink on government tenders and SMEs 

Natalie Chapman

Winning a government tender can be life-changing for an Australian small business. With recent moves to review government agency procurement, we have an opportunity to improve how the government can better engage with SMEs. 

Successful government tenders can often make or break a business and transform a small business into a medium one and, eventually, a large one to benefit countless employees and the wider Australian economy. 

It also ensures niche, on-the-ground expertise is involved in government projects, with taxpayer dollars being spent efficiently and reinjected into the local economy rather than going offshore. 

But a perfect storm of conditions, including the crossfire of a crackdown on large consulting firms behaving badly, global economic headwinds and new/ever-changing tendering rules have made accessing government work virtually impossible and not viable for many local small businesses. 

Caught in the crossfire 

When big companies are found to have acted poorly, understandable outrage can lead to knee-jerk responses that have widespread unintended consequences. 

We’ve seen this with the federal government’s recent efforts to move away from its reliance on the big four consulting firms and their attempts to bring more skills in-house in the form of full-time public servants. 

This is an admirable goal, but its implementation has replaced government contractors and consultants with specialist knowledge with in-house generalists.

gemaker managing director Natalie Chapman

Small consulting firms, such as mine, can offer niche expertise for government projects where it is not viable to employ a full-time specialist within the public sector. 

There’s still a place for consultants to work on government jobs, but with the shift away from large consultancies, we’ve gone from one extreme to the other — and locked out many small businesses from accessing government work. 

This will undoubtedly lead to many small businesses shutting down, creating job losses, less economic spending, and less tax being paid to the government. 

Unfortunately, we’ve seen this in recent months. In the last year, more than 15 percent of Australian businesses failed, the worst rate since the Global Financial Crisis. And ABS data shows that half of the new businesses established in 2019 were shut down in the following four years. 

According to ASIC, small business failures have jumped by more than 33 per cent this financial year. 

It takes a lot of time, money and resources for a small business to go through the tendering process. Unfortunately, the equation is now tipped too far away from SMEs, and I typically shy away from going for them. 

We’ve found that nine times out of ten, we waste an awful lot of team time and, therefore, money, putting together excessive amounts of documentation to apply for a tender for the very slight potential of making it to the next stage (as there continues to be a bias against engaging with small businesses). 

If we were a larger company, we’d have a whole department responsible for this tendering process. We could bear all the costs for the potentially huge benefi, but we cannot afford to do that without a realistic chance of getting work. 

What needs to change 

The federal government could make several simple but meaningful changes to open tenders to smaller businesses for their benefit and the wider economy. 

These changes can be made quickly and would benefit the quality of work received, helping to grow Australia’s small businesses into the next powerhouses of the economy. 

One way to improve tender access for small businesses would be to reduce the size of the projects and split them into smaller packages to make the process more accessible. This would require a decrease in the value of work packages from tens of millions to millions.  

The introduction of panels with organisations of all sizes to be represented for their niche expertise allows both a diversity of service providers and the government to have pre-qualified access to the right group for the right purpose. 

The inclusion of short project briefings would provide context and clarify information in tender documents to understand their intent and purpose better. This would result in the government receiving more targeted quotes and delivery. 

Better efforts to ensure the insurance and policy documentation required for a tender is proportionate to the risk of the work involved would also make a significant difference. Improved government assessment of the actual risk of project non-completion (particularly for research and advisory projects) would mean that small businesses would carry more appropriate affordable insurance and not be seen as unreasonable and unnecessary overhead costs in the hope of winning work in the future. 

Economic headwinds worldwide have led to departments becoming risk-averse and acutely conscious of not spending more taxpayers’ money than needed. This often leads to small tenders that require at least three quotes. 

While this seems like a smart move on the surface, with the organisation appearing to be doing the right thing, it can be highly damaging for small businesses if they are selected to make up the numbers in seeking three quotes.  

On multiple occasions, my company has spent time and money on quoting for a job and then had the organisation take that scope and use it to go-to-market and source other quotes. This means we’ve already sunk thousands of dollars to help our rivals, unknowingly putting ourselves at a disadvantage. This sort of thing can put a small business out of business. 

The focus on short-term “value-for-money” should also be reevaluated in favour of a longer-term view that considers the benefits that working with local small businesses brings to the broader economy, whilst still delivering value. 

Seeking the cheapest quote is not always best for the country or homegrown small businesses, and more flexible value-for-money requirements are needed. 

Government procurement is an important lever for growing the economy and transforming small businesses into larger ones.  

We need to take the time to get any potential changes right and avoid knee-jerk responses to a few bad actors, ensuring local small businesses with niche expertise aren’t shut out entirely.  

Natalie Chapman is Managing Director for gemaker. 

This article was produced by InnovationAus.com in partnership with gemaker.

Do you know more? Contact James Riley via Email.

Leave a Comment

Related stories