The Indigenous Business Exemption

Pacific Services Group Holdings recently signed a first-of-its-kind contract with the Department of Defence, which could set a precedent for the way some government contracts are awarded.

The $6M contract is the largest single contract signed by the Federal Government with an Indigenous owned business and will see Pacific Services Group Holdings (PSGH) construct berthing, training, maintenance and storage facilities for new navy landing craft at HMAS Waterhen. The contract was awarded through the little known and never previously used Indigenous business exemption 17  of the Commonwealth Procurement Rules (CPR). After 2 years of negotiations, dead ends and steep learning curves, PSGH finally managed to sign this contract with Defence. The learnings from this process are incredibly valuable to both Members and Suppliers.

The Indigenous Business Exemption

The CPR is split into two divisions. Division one contains the basic principles of government procurement, including; value for money, encouraging competition, and transparency. Division one rules must always be followed. Division two contains the rules surrounding the full tender process, where government departments or agencies release a Request for Tender (RFT) on AusTender. There are a number of different exemptions to division two, including for competitive disability enterprise, small and medium businesses, and Indigenous businesses.

Exemption 17 says that a government department or agency can skip the full tender process if they award the contract to a small or medium business with at least 50% Indigenous ownership and that they still comply with the division one rules. Every Supply Nation Certified Supplier meets this criteria if they can also comply with division one.

However, exemption 17 has come under fire for not having sufficient framework, point by point instructions, or a target spend. Government procurement officers are naturally risk averse, and are less inclined to use exemption 17 because of this. The exemption had never been utilised prior to early 2014.

How to use exemption 17

PSGH, a Supply Nation Certified contracting company, signed a ground breaking $6M contract with the Department of Defence earlier this year using exemption 17. It was a long road for PSGH, who came up against risk adverse procurement officers in multiple agencies and departments before establishing a strong relationship with Defence. ‘Defence were champions of this,’ said Shane Jacobs, Director of PSGH. ‘They were happy to sit across the table and do business with us. But not every department or agency is as enthusiastic.’

Mr Jacobs and the PSGH team have been travelling to Canberra since mid 2013, negotiating with different agencies and departments. Although they were buoyed by support from agency and department heads, often the enthusiasm or knowledge of exemption 17 tapered off with less senior staff.

On two occasions PSGH wrote to government agencies identifying opportunities, which they could complete on budget and using exemption 17. Both times they had to explain further what exemption 17 was and why they should use it.  Exemption 17 can only be used when an opportunity is still on the Annual Procurement Plan list. When that opportunity is dropped into AusTender, the regular tender process must proceed. Unfortunately the jobs in question were prematurely dropped  into AusTender – thus negating the possibility of PSGH being able to negotiate through exemption 17.

“We wrote to them both when they were in planned procurement and then they immediately and prematurely dropped them into AusTender. They didn’t even have documentation ready,” Mr Jacobs explained.

But it was really those agencies that were missing out, claims Mr Jacobs. ‘They didn’t realise the value and time they would be saving by going down this road. For one of the jobs, we could have had it finished within a month and yet they are going to be stuck in a tender process until the end of the year.’

In Defence however, PSGH found a willing partner. They understood the benefits of utilising exemption 17 and were willing to be its pioneers. After sitting down together they identified a few projects, negotiated and outlined the risks. Eventually they settled on the project at HMAS Waterhen, in Sydney Harbour. After that there is a process that must be followed in order to comply with the CPR:

PSGH wrote a letter to the Department of Defence outlining the following:

  • Their capabilities.
  • Their ability to complete the project within the budget (shows compliance with Division one).
  • That they comply with and wanted to use exemption 17 under the CPR.
  • The additional benefits to using exemption 17 (that it complies with the governments commitment to ‘closing the gap’).
  • Department of Defence then replied to PSGH signifying their willingness to negotiate under exemption 17.
  • The two parties then went into a negotiation process until a contract was able to be drawn.

Since winning the contract, PSGH has announced that it is using at least 5 Certified Suppliers in their supply chain for this project, spreading the benefits of this project to Indigenous communities even further.

This project has proven that using exemption 17 can directly save government time and money, while also giving Indigenous business a leg up and moving Australia closer to the Close the Gap targets. Government agencies and departments that procure using exemption 17 are proving they are willing to innovate and cut bureaucracy while simultaneously using their procurement spend strategically, to the benefit of all Australians. PSGH and the Department of Defence have set the precedent, now it is for other departments, agencies and Indigenous businesses to pick up where they left off.

For more information on utilising exemption 17, please call Supply Nation: 1300 055 298.