The Australian Small Business and Family Enterprise Ombudsman has called on the Federal Government to establish a small business procurement panel. The panel, proposed in ASBFEO’s COVID-19 Recovery Plan, would require government contracts with a value of up to $10 million, to be offered through the small business panel as part of the tender process, before being opened to the wider market.
As a business that deals with SMEs and their cashflow issues every day, we believe this panel is not just a step in the right direction – but an economically essential part of COVID recovery.
Government contracts and large business tenders offer lucrative business opportunities for small businesses. According to Infrastructure Australia’s 2020 Infrastructure Priority List, there are a record 147 nationally significant proposals with a project pipeline of almost $60 billion, designed to guide the next 15 years of Australian infrastructure investment.
Currently, there are some policy initiatives in place to help our SMEs participate in and benefit from government procurement. However, action on this needs to be sped up in order to achieve the economic benefit to small businesses from government procurement activity.
At present, the Australian Government sources at least 10 per cent of procurement by value from SMEs as well as sourcing at least 35 per cent (by value) of contracts up to $20 million. However, should these figures increase, it would provide a reliable and steady source of income for many small businesses.
Benefits and pitfalls
For SMEs to land big clients or business, the positive ramifications can be huge:
- Regular cashflow – typically, the contracts are longer-term and mean steadier cashflow and stability.
- Opportunities for growth – greater certainty around revenue can mean more time to devote to growing your business.
- Greater credibility – landing a large, government can change perceptions of your own business as well as raise your profile in the market.
- Networking opportunities – once you start working for government you may have the opportunity to sell to other divisions, suppliers or new contracts.
However, SMEs need to ensure they are fully prepared if they are to really make the most of the opportunity. There is no point taking on that big contract if it means the rest of your business suffers as a consequence.
- Check your margins – make sure you have done the financial due diligence upfront to ensure not only that you can deliver, but also make a profit.
- Manage your cashflow – tools like invoice finance is an ideal option for businesses scaling up by giving them access to the cash from their invoices faster.
- Enter a contract cautiously – many businesses don’t spend enough time understanding the contract or negotiating terms upfront.
- Check your capacity – ensure you are able to fulfil your obligations. Make sure you consider everything right down your supply chain.
- Don’t under-price – in a tendering or pitch situation it can be tempting to price at the lower end to increase your chances. But this leaves your business and profitability at risk.
There are great tools for small businesses to utilise to locate upcoming tenders, such as government websites as well as services that offer subscription notifications as new projects arrive. The 2020 Infrastructure Priority List, complete with summaries for each project and initiative included in the current edition, is very helpful. Additionally, there are formal training courses and workshops for companies that teach skills on how to develop strong tender responses. Additionally, talking to State and Commonwealth departments about how best to respond a tender can be a great way to get clarity.
Linden Toll, CEO, Apricity Finance