Australia: How does the CIPP affect your procurement process?

Last Updated: 1 November 2015
Article by Amelia Abbott and Richard Morrison

The Commonwealth Indigenous Procurement Policy (CIPP) initiative will change the way government procurement is approached at all stages and by all parties. The changes were introduced by the Department of the Prime Minister and Cabinet (PM&C) earlier this year. The Indigenous Opportunities Policy, the CIPP's predecessor, encouraged the involvement of Indigenous Australians in Commonwealth endeavours, while the CIPP has introduced components designed to ensure, one way or another, that applicable projects will involve Indigenous Australians.

Summary of the changes

There are three distinct requirements mandated by the CIPP. At a high level, the requirements are:

  1. A department-specific, overarching, annual target for contracting with Indigenous Enterprises (IEs), measured either by the number of contracts awarded or a converted value target, which will increase each year.
  2. A pre-tender due diligence (or mandatory set-aside) process for all remote procurements and procurements between $80,000 and $200,000, where contracts are to be awarded to an IE if they offer value for money.
  3. Supply chain minimum participation requirements for engaging Indigenous Australians and IEs throughout the life of a contract, with associated reporting requirements for Commonwealth entities and contractors.

Under the policy, IEs are businesses that are more than 50% Indigenous-owned. A working list of IEs can be found on Supply Nation's website.

The target is measured in a way that it can be achieved through the pre-tender due diligence process and the supply chain participation requirements.

If a contract is formed through the pretender due diligence process, Commonwealth entities must oblige a contractor to meet the supply chain participation requirements (directly or through subcontracts), which will also count towards an entity's target. Even if the participation requirements don't apply, contracts must include drafting requiring "best endeavours" to use IEs and Indigenous Australians on the project.

Although achieving one requirement may assist with achieving another requirement, none of the requirements are mutually exclusive.

Achieving the target will become part and parcel with complying with "subsidiary" requirements (particularly because subcontracts also count towards the target). Below is the substance of the pre-tender due diligence process and the supply chain participation requirements as they currently apply.

Pre-tender due diligence

If applicable to the procurement, due diligence searches must be conducted to see if there is an IE that can offer value for money before the procuring officer makes an approach to market. If a suitable IE is found, the entity must contract with that IE.

This requirement applies to:

  • all remote procurements (that are not paid for by credit card), which are defined as remote areas identified on the map on the Indigenous Procurement Policy's website, and
  • all other new domestic procurements where the procurement's estimate value is $80,000 to $200,000 (GST inclusive).

If either of these criteria apply to the procurement, the pre-tender due diligence activities must be conducted. In this light, entities should keep adequate records of conducting these searches, particularly regarding the value for money assessment if a contract is not going to be awarded to the IE.

The CIPP has introduced components designed to ensure, one way or another, that applicable projects will involve Indigenous Australians.

There are some exceptions, most notably if the Defence exemption applies or if there is a government mandatory panel in place for the goods or services being procured.

Supply chain participation requirements

These requirements are two-fold; contractors are required to ensure Indigenous participation in their supply chain and workforce, and to submit an Indigenous Participation Plan detailing how they will achieve this.

Application

The requirements apply to all new contracts delivered in Australia valued at $7.5 million (GST inclusive) or more and where more than half of the contract's value is being spent in one or more of the following industry sectors:

  • building, construction and maintenance services
  • transportation, storage and mail services
  • education and training services
  • industrial cleaning services
  • farming, fishing, forestry and wildlife contracting services
  • editorial, design and graphic and fine art services
  • travel, food, lodging and entertainment services, and
  • politics and civic affairs services.

The PM&C's fact sheet refers to the United Nations Standard Products and Services Code to define these nominated industry sectors. It has also released model clauses to assist with tailoring these requirements to your particular project.

Where the supply chain participation requirements don't apply, entities must still include drafting that requires contractors to use "best endeavours" to meet the requirements.

Elements of the requirements

The requirements are to be negotiated as either "contract-based" or "organisationbased" but are in essence the same. They require that 3-4% of the workforce deployed on the contract, supply chain or full-time workforce be Indigenous Australians/IEs. We consider that, to an extent, these quotas may be met simultaneously.

From this, tenderers must be required by the entity to submit an Indigenous Participation Plan outlining how they will comply with the CIPP. Commonwealth entities must also seek information from the tenderer about current Indigenous participation in their business. The Plan must then be included in the resultant contract. The contract manager is responsible for ensuring compliance with the Indigenous Participation Plan during the contract term.

The exact approach taken to ensure compliance with the CIPP will depend on the existing internal procedures used, particularly with the entity's current approach to complying with the Indigenous Opportunities Policy.

The contract must require the contractor to report on compliance with the Plan at least quarterly. At the end of the contract term, the contractor must submit a final report against the Indigenous Participation Plan, identifying whether the supply chain participation requirements were met and whether the Plan was complied with.

Recommended approach to compliance

The exact approach taken to ensure compliance with the CIPP will depend on the existing internal procedures used, particularly with the entity's current approach to complying with the Indigenous Opportunities Policy. That said, the CIPP is significantly more robust than the Indigenous Opportunities Policy and will require a "ramp-up" of those existing procedures.

We recommend:

  • developing a template checklist to be used when conducting pre-tender due diligence, which should at least record the IE's current employment of Indigenous Australians and previous experience with supplying the good or service required, and
  • familiarising relevant staff with the policy requirements, particularly how to measure compliance with Indigenous Participation Plans and the importance of that compliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Amelia Abbott
 
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