25th July, 2016
The business of selling goods and services to government agencies is one area where small businesses can establish a name, a cash flow and a future. Government contracts can be lucrative, carry cache and provide great cash flow.
The value of government contracts has more than doubled since FY 2006/07. In 2014/15, there were almost 70,000 government contracts awarded. Services make up two thirds, and the top three contractors are Defence Material, Defence and Employment.
Scope for local small business is vast. The Federal Government has a policy of SME participation by total contract value of 10 percent, but it went up as high as 39 percent in FY2011/12.
Last financial year over 41,000 SMEs earned $16.7 billion in government contracts, with billions more available at a state level.
Queensland-based consultancy firm Pinnibar Pty Ltd knows all about this. Pinnibar was started up by a savvy group of professionals with experience in government procurement across a huge range of industries from aged care to construction. They say that the trick to responding to government tenders lies in knowing what government wants, and ticking off the compliance requirements in advance so you are ready to go when opportunities arise.
“SMEs who want to get some government work need to not only provide a high quality service at a competitive price,” said Naomi Main, Pinnibar Director, “but also need to meet the prerequisite compliance requirements.”
“Odds are that they will all require different levels of certified quality, safety and environmental management systems. There will also be fairly common requirements for professional indemnity, public liability and workers compensation requirements.”
So how can your business get up to speed? There are generally three types of tenders:
These tell you who is eligible to apply, and while there are nuances, most have a local or small business baseline policy.
On top of this, there are the requirements (or Procurement Rules) that you will always need to meet. Pinnibar suggests that no hoop is worth jumping through for its own sake. Instead, you have to assess the other benefits across your business when complying with these rules.
This is more than just financial. It’s about the market’s capacity to be competitive, the potential entity’s financial position and the scale of the tender.
This rule is designed with SMEs in mind. It clearly states that “officials should apply procurement practices that do not unfairly discriminate against SMEs and provide appropriate opportunities for SMEs to compete”.
Small businesses should make the most of this clause, highlighting the small businesses or local produce they use in their supply chain, as well as their own status.
Small businesses have an advantage here. Being smaller, their organisational culture is less complex, making it easier to demonstrate authenticity versus ‘we have the buzzwords in our values statement’.
This is where SMEs need to display a high level of accountability and transparency measures. Areas such as record-keeping, reporting, confidentiality and disclosure methodologies will be considered under this rule.
Getting it right for government business means you are also getting it right for you, so this step is well worth the work.
This requires that businesses adequately identify and allocate resources, and analyse risk parameters in all contract operations.
Creswick Woollen Mill, one of the few mills of its kind left in Australia, has experienced this firsthand. Hit hard by overseas markets, they were able to secure contracts to supply the fire crews in Victoria and New South Wales with 100 percent Australian wool fire blankets because they kept their standards up to scratch.
Initially the local CFA purchased off-the-shelf products which met standards, but later this led to Creswick Woollen Mill securing bigger contracts both in Victoria and New South Wales.
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These are just the basics.
There is a comprehensive resource portal to help you further along the way – but remember it’s a process. With government business you have to take a long term perspective because it’s highly competitive. Your first win might be built on a few previous failures, but when you land that big contract, the end results will be worth the journey.