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Procurement strategy for Indigenous business: the Canadian experience, and lessons for Australia

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Procurement strategy for Indigenous business: The Canadian experience,

and lessons for Australia Posted 27/03/2015 by Philip Hamilton

It has been estimated that, in 2012-13, Indigenous businesses secured only 0.001% of the overall

Australian Government spend (around $6.2 million of the $39 billion spent). This is despite a specific

provision in the Commonwealth Procurement Rules (CPRs) to encourage procurement from Small and

Medium Enterprises (SMEs) with at least 50 per cent Indigenous ownership. The ANAO will report on the

administration of current procurement initiatives in support of Indigenous Australians in a performance

audit to be tabled around June 2015.

Following up on a recommendation made in Creating Parity (the Forrest Review), on 17 March the

Government announced that by 2020 the Commonwealth will have three per cent of its procurement

contracts with Indigenous suppliers.

The Government has indicated that Canada has ‘successfully used procurement to significantly drive

economic development for First Nations people.’ Since 1996, the Canadian Government has operated a

Procurement Strategy for Aboriginal Business (PSAB). How does the PSAB work? What are the lessons for


The aim of Canada's Procurement Strategy for Aboriginal Business (PSAB) is to increase the number of

Aboriginal firms participating in federal government procurement processes. The PSAB applies to all

federal government departments and agencies. Federal Crown Corporations (such as Canada Post and the

Canadian Broadcasting Corporation) are encouraged to adopt similar measures.

Under the PSAB, there are three categories of procurement, two of which involve ‘set asides’, that is, where

a percentage of opportunities (for example, jobs or funding) must be reserved for a disadvantaged or

minority group:

1. contracts that serve a primarily Aboriginal population are set aside for competition among qualified

Aboriginal businesses;

2. Federal employees are encouraged to voluntarily set aside opportunities for competition among

Aboriginal businesses whenever practical; and

3. in addition to PSAB set aside opportunities, Aboriginal businesses can also compete for federal

contracts that are open to all qualified suppliers.

The PSAB is open to all Aboriginal businesses (sole proprietorships, limited companies, co-operatives,

partnerships, and not-for-profit organisations) that meet the following criteria:

 at least 51 per cent of the firm must be owned and controlled by Aboriginal people; and

 if the firm has six or more full-time staff, at least one third of the employees must be Aboriginal.

For the PSAB, an ‘Aboriginal person’ is a Canadian citizen ordinarily resident in Canada, who can fulfil one

of six tests (for example, the person is acknowledged by an established Aboriginal community in Canada

as having Aboriginal ancestry). Aboriginal businesses that meet eligibility requirements are encouraged to

register in the Aboriginal Business Directory (ABD), which is subject to audit.

Based on data from 1996 to 2006, a review of the PSAB in 2007 found that the participation of Aboriginal

firms in Canadian federal government procurement processes had improved in relation to three key


 in 1996, the percentage of contracts awarded to Aboriginal firms was less than one per cent, but by

2003 the percentage had increased to four per cent, and had remained at that level to 2006;

 in 1996 and 1997, the proportion of contracting dollars to Aboriginal firms was negligible, but in 2006

the proportion was five per cent; and

 from a high of 72 per cent in 1998, the share of PSAB set aside contracts in awards to Aboriginal firms

had declined to six per cent in 2006, suggesting that set asides had become less important in

supporting the activity of Aboriginal businesses in federal contracting.

Lessons for Australia?

The results in the 2007 PASB review suggest that the Australian Government’s aim (three per cent of

Commonwealth procurement contracts with Indigenous suppliers by 2020) is ambitious, but not

unreasonably so. The review also highlighted design aspects that could be relevant to the implementation

of a similar program in Australia.

Compliance by government agencies

It would appear that larger agencies can more easily meet targets than smaller agencies. This may not be a

problem if the focus is on portfolio-level or whole-of-government targets. However, realistic targets for

smaller agencies could be more challenging to set because smaller agencies:

 are less likely to require the range of products and services required by larger agencies;

 may operate in geographic areas where relevant Indigenous suppliers are not active; and

 may be more likely to require specialist products and services (in Canada, challenges were reported in

sourcing Aboriginal suppliers in the fields of architecture, engineering, medicine, and surveying).

In Canada, each federal department or agency that purchases in excess of $1 million worth of goods,

services, and construction annually has agreed to establish performance objectives related to the PSAB.

However, the 2007 PSAB review noted that there were no institutionalised consequences for departments

that failed to set aside contracts, or that failed to achieve their targets.

Compliance by Indigenous suppliers

The 2007 review noted that, while only a minority of Aboriginal firms audited were found to be non-compliant, the consequences of non-compliance were unclear and were not institutionalised.

Achievement and reporting of wider benefits

Although both the number and dollar value of contracts awarded to Aboriginal firms had increased under

the PSAB, the 2007 review noted a paucity of data about the achievement of expected indirect impacts,

such as:

 the number of jobs and training and apprenticeship opportunities created;

 the number of employees hired who were previously on social assistance;

 whether and to what extent sales and profit margins increased; and

 whether and to what extent businesses have been able to expand.

In the Australia, a PSAB-type program could probably be established by means of an amendment to the

Commonwealth Procurement Rules (CPRs). The CPRs are a non-disallowable legislative instrument issued

and amended by the Minister for Finance.