How Accessible is Tendering for Smaller Businesses
The good news is that tendering is accessible for businesses of all sizes – especially small businesses. Governments across Australia readily understand that small businesses represent approximately 97% of all businesses and therefore are significant to Australia’s economy.
However, before making a decision on a tendering opportunity, it is important to be aware of some key tendering considerations that principally affect small business.
Most tenders for government work in Australia require businesses to have an Australian Business Number (ABN) and to be registered for GST as a key eligibility condition. They may also have other requirements in relation to contractor business structures. Every tender is different and therefore to find out if your business is eligible before submitting a tender, it is best to check the tender documents. Information about eligibility is most likely to be in the Conditions of Tender document or if you are still unsure, get in touch with the tender contact person listed in the tender documents to confirm the eligibility requirements.
Payment terms for small business
Some smaller businesses shy away from tendering for government contracts as they have concerns about the timeliness of invoices being paid. Governments across Australia readily recognise this has been a problem in the past and as a result, have set up speedier payment policies to benefit smaller businesses. These include payment policies and terms in the following Australian states:
- NSW – The NSW Government has the Faster Payment Terms Policy which requires that all registered small businesses must be paid within 5 business days for goods and services worth up to $1 million, upon receipt of a correctly rendered invoice.
- VIC – With the Covid-19 pandemic, the Victorian Government now pays its suppliers within 10 business days of receiving a correct invoice as part of its Fair Payment Policy.
- QLD – The Queensland Government has also introduced faster payment terms in response to the Covid-19 pandemic. The On-time Payment Policy ensures that small business customers are paid within a maximum of 20 calendar days. Also, the Government will pay penalty interest to small businesses for invoices that are undisputed and correctly rendered if they are paid after 20 days.
- SA – The South Australian Government aims to pay all invoices within 30 calendar days from the date the invoice is received.
- WA – The Western Australian Government has a policy which ensures that payments of less than $1 million for goods or services, excluding construction works, must be made within 20 calendar days of receiving a correct invoice, or when the goods or services are provided (whichever is later).
- TAS – All Tasmanian Government agencies must pay invoices of less than $50,000 within 30 days, or by a shorter term if agreed. For invoices more than $50,000, invoices must be paid according to agreed terms and by a due date.
The Australian Government has also made significant steps to increase the speed at which invoices are paid. In the 2019/20 financial year, Government entities paid approximately 90% of invoices for contracts less than $1 million within 20 calendar days as part of the Australian Government’s Supplier Pay on Time Policy. This was up by 30% on the previous financial year.
Government Policies to Encourage Participation in Procurement for Small Businesses
Many governments across Australia have established policies and systems to ensure that Small to Medium Enterprises (SMEs) gain a greater share of government spending. Using terminology set by the Commonwealth Procurement Rules - a SME is defined as a firm with fewer than 200 full-time equivalent employees. A small business is defined as a business with fewer than 20 full-time equivalent employees.
The Australian Government has a commitment to source at least 10% by value of all procurement from SMEs. Additionally, in 2018 the Australian Government made a commitment to source at least 35% of contracts up to $20 million from SMEs.
Many of the state governments across Australia also have policies which aim to increase opportunities for SMEs to compete for government contracts, with some of them implementing strict targets to increase the share of procurement spend with SMEs. One of the more interesting strategies to increase SME participation is from the NSW Government which has just released its 2021 SME and Regional Procurement Policy. As part of this policy:
- NSW Government agencies may negotiate directly with and engage an SME for goods and services up to $150,000
- NSW Government agencies must first consider purchasing from an SME for procurements up to $3 million, where the agency is permitted to directly purchase goods and/or services from a supplier
- For goods and services contracts valued at $3 million or more, a NSW Government agency must allocate 10% of the non-price evaluation criteria in the tender to SME participation
- Suppliers for contracts over $3 million have to develop a participation plan which explains how they will work with SMEs.