Federal procurement policy can't solve Indigenous unemployment

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Australian Public Service agencies have responded strongly to the Commonwealth’s Indigenous Procurement Policy and the government is very keen to promote the success story, but doubts about its claimed Indigenous employment benefits won’t go away.

Minister for Indigenous Affairs Nigel Scullion complained to The Australian recently when it reported continuing doubts about the IPP expressed by Warren Mundine, who also advocated for more oversight of where the money goes in his former role as chairman of the Prime Minister’s Indigenous Advisory Council.

The minister said the government had policies to promote “direct” Indigenous employment and the IPP was not one of them. The Supply Nation register of enterprises that can and do win contracts via an exemption in the procurement rules shows that many employ few Indigenous staff, but this is measuring its success by the wrong yardstick, Scullion argues.

Mundine was back in The Australian two days later, calling for an independent panel to oversee deals made under the IPP. He reportedly counted up $75 million worth that went to a group of companies with less than 20% indigenous employment.

He first expressed concern that the policy could lead to “black-cladding” — joint ventures designed to put a veneer of indigenous ownership on a large established business that gets most of the financial benefit and has few indigenous employees — a year ago, and other observers have privately shared similar suspicions with The Mandarin.

Mundine said he had seen larger companies form partnerships “with a couple of elders or a smaller indigenous group” just so they could list Indigenous names as directors. He fears this is happening because the policy has created a kind of “demand” for suppliers that fit the bill and thinks its primary aim should be to support Indigenous employment instead of ownership.

But when agencies skip a competitive tender process to award contracts under the policy, the main point is to help a small business, according to Scullion and the Prime Minister’s Department. At the same time, both are expecting a corollary benefit in terms of Indigenous employment to flow through. PM&C told The Mandarin:

“The Indigenous Procurement Policy is a small business policy, not an employment policy.

“However … evidence shows that Indigenous businesses are 100 times more likely to recruit Indigenous workers.”

100 times more likely

This official line first appeared in the Creating Parity report authored by mining executive Twiggy Forrest. The significant correlation between Indigenous ownership and employment comes from analysis of a dataset from the Queensland Industry Capability Network by Dr Boyd Hunter, a senior fellow at the ANU Centre for Aboriginal Economic Policy Research.

Among 124 majority Indigenous-owned companies, Hunter found the Indigenous employment rate was 72.4%. It was 46.9% for another 59 that were half Indigenous-owned (for a combined average of 64%). This compared to 0.7% in the much larger group of 14,495 companies that were anything less than half Indigenous-owned and referred to as “non-Indigenous” for simplicity.

While companies with Indigenous owners clearly hire more Indigenous staff, Hunter doubts the “100 times more likely” statistic will hold true over the long run and points out the government should actually expect it won’t — the ratio would go down as more Indigenous-owned employers entered the jobs market.

“The number sounds very big but in reality, as you scale up the number of Indigenous businesses, they will be constrained in the number of Indigenous employees they can find so the success of the program will mean that this statistic is reduced, in itself,” he told The Mandarin.

Hunter still thinks the IPP is a “worthwhile endeavour” in its current form, even though he also thinks the way it was set up means Scullion’s big statistics are “a bit inflated”.

“The Indigenous Procurement Policy does seem to be increasing the number of contracts to Indigenous businesses, which is a good thing in itself,” he said.

But he can also see why the government might want to put some distance between the IPP and indigenous employment outcomes.

“It is not going to solve the employment problem in the long run, but it’s worthwhile doing, and Indigenous workers actually want to work in Indigenous businesses; these businesses tend to provide better environments for Indigenous workers.”

Hunter and his colleagues have previously put forward eight ways to increase Indigenous employment rates and procurement policies aren’t among them. He told The Mandarin “you’ve got to address why Indigenous people are not being employed in non-Indigenous businesses” at the same rate because that is where “the vast majority of employment is and always will be”.

According to PM&C, the rate is around 42% for businesses who are registered as being eligible to win contracts under the IPP:

“As at 2 February, there were 1116 Supply Nation-registered businesses. In total, these businesses reported 15,077 employees, 6337 of whom were reported as Indigenous (amounting to 42 per cent).”

Mundine, however, believes an Indigenous business that can benefit from federal procurement should be defined by how many Indigenous people it employs, regardless of who owns it.

As well as encouraging agencies to award more contracts to Indigenous enterprises using the exemption to competitive tendering requirements, the IPP also places “Indigenous participation” requirements into nearly all contracts over $7.5 million where more than half of the money is spent in one of eight industry categories:

• Building, construction and maintenance services
• Transportation, storage and mail services
• Education and training services
• Industrial cleaning services
• Farming and fishing and forestry and wildlife contracting services
• Editorial and design and graphic and fine art services
• Travel and food and lodging and entertainment services
• Politics and civic affairs services

These requirements are optional. The prime contractor can either make sure 4% of the goods and services provided come from Indigenous-owned subcontractors or 4% of the workforce on the project is Indigenous. Or they can aim for both, as long as the two percentages add up to four.

Contractors have been required to report against these targets since July 1, 2016 but that data is not yet available, according to PM&C.