1.1 Reducing the disparity between Aboriginal and Torres Strait Islander³ and non-Indigenous economic outcomes has been a longstanding goal of Australian governments. In March 2008 the Council of Australian Governments (COAG) set a target to halve the gap in employment outcomes by 2018. However, as noted in the Prime Minister’s Closing the Gap Report 2020, the COAG employment target was ‘not met’ (see Figure 1.1).⁴

Figure 1.1: Progress towards halving the gap in employment outcomes by 2018^a

Note a: Data sources used to assess progress against this target include the Australian Bureau of Statistics’ National Aboriginal and Torres Strait Islander Health Survey and Social Survey, which are not conducted annually. Employment data for 2008 and 2012 included participants in Community Development Employment Projects.

Source: National Indigenous Australians Agency (NIAA) internal documentation.

1.2 Reasons for this disparity, identified through research into the determinants of lower Aboriginal and Torres Strait Islander employment rates, include: ‘lower levels of education, training and skill levels (human capital), poorer health, living in areas with fewer labour market opportunities, higher levels of arrest and interactions with the criminal justice system, discrimination, and lower levels of job retention’.⁵

1.3 To address the issue of ‘fewer labour market opportunities’, over the past three decades the Australian Government has sought to use its position as a major procurer of goods and services in the Australian economy to generate economic opportunities for Aboriginal and Torres Strait Islander people. In 2018–19 the total value of Australian Government procurement contracts reported on AusTender (the government’s procurement information system) was $64.5 billion.⁶

Procurement initiatives to support Aboriginal and Torres Strait Islander economic opportunities

1.4 The Commonwealth Procurement Rules (CPRs) outline the rules officials undertaking procurement must follow.⁷ The core requirement of the CPRs is achieving value for money. Price is not the sole factor for assessing value for money — procuring officers must consider other factors such as quality, fitness for purpose, environmental sustainability and whole-of-life costs. For procurements over $4 million (or $7.5 million for construction services), officers must also consider the broader benefits to the Australian economy. In addition, officers must comply with any relevant ‘procurement-connected policies’.⁸ Since the 1990s the Australian Government has implemented several procurement-connected policies to promote economic opportunities for Aboriginal and Torres Strait Islander people.

Indigenous Opportunities Policy (1998–2015)

1.5 In 1993 procurement-connected policies to promote Aboriginal and Torres Strait Islander employment opportunities were introduced in response to recommendations of the 1991 Royal Commission into Aboriginal Deaths in Custody. Revised requirements were developed in 1998, which became known as the Indigenous Opportunities Policy (IOP). The IOP applied to procurements over $5 million ($6 million for construction projects) in locations with significant Aboriginal and Torres Strait Islander populations and limited employment and training opportunities.

1.6 From 1 July 2011 a revised IOP was introduced. This retained the same value threshold as the previous policy but expanded its geographic application to regions where the percentage of population who identified as Aboriginal and/or Torres Strait Islander was equal to or higher than the national average. For government contracts that met the value and geographic criteria, the 2011 IOP required tenderers to: develop an Indigenous Training, Employment and Supplier Plan; obtain approval of the plan from the IOP Administrator⁹; and, if awarded the contract, implement the plan and report annually to the policy owner on outcomes achieved.¹⁰ In addition to the IOP, in 2011 an ‘Indigenous business exemption’ was introduced into the CPRs that allowed officers to undertake a streamlined process for procurements over $80,000, avoiding the need for an open tender if they directly approached Aboriginal and Torres Strait Islander businesses.¹¹

Indigenous Procurement Policy (2015–present)

1.7 In May 2015 the government introduced the Indigenous Procurement Policy (IPP). The objective of the IPP is to ‘stimulate Indigenous entrepreneurship and business development, providing Indigenous Australians with more opportunities to participate in the economy’.¹² Under the IPP, since 1 July 2015 non-corporate Commonwealth entities have been required to:

• achieve annual targets for procuring goods and services from Aboriginal and Torres Strait Islander enterprises;
• ‘set aside’ all remote area procurements, and all non-remote area domestic procurements with a value of $80,000 to $200,000 (other than in certain exempt categories), to determine whether an Aboriginal and Torres Strait Islander business could deliver value for money before approaching the broader market; and
• apply mandatory minimum requirements (MMRs) for Aboriginal and Torres Strait Islander participation to high value contracts in certain industry categories.¹³

1.8 As a procurement-connected policy under the CPRs, compliance with the IPP is mandatory for non-corporate Commonwealth entities under sections 15 and 21 of the Public, Governance, Performance and Accountability Act 2013.

1.9 In February 2019 the Department of the Prime Minister and Cabinet (PM&C) reported that the IPP had resulted in 1,473 Aboriginal and Torres Strait Islander enterprises delivering 11,933 contracts worth over $1.83 billion. Noting that the majority of the contracts won had been low value contracts, it announced the following updates to the IPP:

• from 1 July 2019, additional entity procurement targets based on a percentage of the value of contracts awarded, with new targets increasing from one per cent in 2019–20 to three per cent in 2027–28; and
• from 1 July 2020, expansion of the MMRs to cover additional industry categories.¹⁴

1.10 Responsibility for the IPP transferred from PM&C to the newly created National Indigenous Australians Agency (NIAA) on 1 July 2019 through a machinery-of-government change.

Mandatory minimum requirements for major procurements

1.11 The objective of the MMRs is to ‘ensure that Indigenous Australians gain skills and economic benefit from some of the larger pieces of work that the Commonwealth outsources, including in Remote Areas’.¹⁵ Under the MMRs, for contracts with a value of $7.5 million or above in specified industry categories (see Table 1.1), contractors must achieve over the term of the contract:

• an average of at least four per cent Aboriginal and Torres Strait Islander employment and/or supplier use for the project (contract-based); or
• an average of at least three per cent Aboriginal and Torres Strait Islander employment and/or supplier use across their organisation (organisation-based).

1.12 Contractors must specify how they plan to achieve the MMRs in an Indigenous Participation Plan, which forms a schedule to the resultant contract. Where a component of the contract will be delivered in a remote area, the contracting entity and contractor must also ensure the contract delivers ‘significant Indigenous employment or supplier use outcomes in that area’.¹⁶

Table 1.1: MMR industry category coverage

Note a: Sub-category exclusions apply to these categories.

Source: PM&C, Commonwealth Indigenous Procurement Policy, Commonwealth of Australia, 2015; PM&C, Changes to the Indigenous Procurement Policy [Internet], 13 February 2019.

Previous audit coverage

1.13 Auditor-General Report No.1 2015–16 Procurement Initiatives to Support Outcomes for Indigenous Australians examined the effectiveness of the 2011 IOP and Indigenous business exemption. Issues identified through the audit included:

• practical challenges in determining whether the ‘main contract activities’ were within an IOP region, particularly in cases where contracted activities occurred in multiple locations;
• entities not complying with the IOP requirements for procurements that met the value and geographic criteria;
• entities not being required to include suppliers’ IOP commitments in contracts or monitor their implementation; and
• challenges for the policy owner in centrally monitoring implementation of the IOP and Indigenous business exemption due to AusTender not holding data on the geographic location of procurements or use of the exemption.¹⁷

1.14 The ANAO made three recommendations, which were agreed by PM&C and supported by the Department of Finance, aimed at developing alternative models to the regional approach of the IOP, and better promoting and monitoring of the Indigenous business exemption.¹⁸

2017 Senate Inquiry into the Community Development Program

1.15 In 2017 the Senate Finance and Public Administration References Committee (the committee) held an inquiry into appropriateness and effectiveness of the objectives, design, implementation and evaluation of the Community Development Program. The Community Development Program is an employment program administered by NIAA that requires job seekers in remote areas to engage in ‘work-like activities that benefit their community’.¹⁹ The majority (around 84 per cent) of participants are Aboriginal and/or Torres Strait Islander people, often living in areas with few labour market opportunities.

1.16 Noting the importance of using Aboriginal and Torres Strait Islander employment targets in government procurement contracts as a tool for increasing economic activity in remote areas, the committee made the following recommendation relating to this issue:

Recommendation 17: The committee recommends that the Australian National Audit Office conduct an audit of Australian Government contracts that relate to service delivery in remote locations. This audit should have a specific focus on the use of, and compliance with, Indigenous Employment Targets. As part of this audit, the committee recommends that the Australian National Audit Office include state and territory government contracts where the Australian Government has made a funding contribution for a particular purpose. The audit should also report on how these contracts impact on Closing the Gap employment targets.²⁰

Rationale for undertaking the audit

1.17 The MMRs are the Australian Government’s principal mechanism for applying Aboriginal and Torres Strait Islander participation targets in major procurements. As the MMRs have been in operation since July 2015, and binding on contractors since July 2016, their administration by the policy owner (PM&C until June 2019 and NIAA since July 2019) and application by government entities should be relatively mature.

1.18 This audit was undertaken to provide assurance that the MMRs are being effectively administered and entities are complying with them. The audit includes a focus on the application of the MMRs in remote areas, to address the Senate Finance and Public Administration References Committee’s recommendation that the ANAO conduct an audit of Australian Government contracts relating to service delivery in remote locations. The audit timing also presents an opportunity for NIAA to address any identified areas for improvement prior to expanding the MMRs to cover eleven additional industry categories from 1 July 2020.

Audit approach

Audit objective, criteria and scope

1.19 The audit objective was to assess the effectiveness of the administration of the MMRs for Aboriginal and Torres Strait Islander participation in major government procurements in achieving policy objectives.

1.20 To form a conclusion against the audit objective, the ANAO adopted the following high level audit criteria:

• Are the MMRs designed to achieve the government’s policy objectives? (Chapter 2)
• Are the MMRs being implemented and monitored effectively? (Chapter 3)
• Are entities complying with the MMRs in major procurements? (Chapter 4)

1.21 While the scope of the audit includes examining the design, implementation and management of the MMRs, it does not include examining the operation of other components of the IPP; namely, the operation of the annual entity procurement targets, mandatory set aside and Indigenous business exemption.

1.22 The ANAO is also conducting a related performance audit examining the use of Aboriginal and Torres Strait Islander participation targets in intergovernmental agreements, which is due to be tabled in 2020. The related audit focuses on the use of participation targets for major intergovernmental infrastructure projects, particularly in remote locations, and the Australian Government’s approach to coordinating procurement policies across jurisdictions.

Audit methodology

1.23 Six entities were selected for examination in the entity compliance component of the audit, based on the number and nature of MMR contracts they held: Department of Defence; Department of Education; Department of Employment, Skills, Small and Family Business; Department of Home Affairs; Department of Infrastructure, Transport, Cities and Regional Development; and NIAA.²¹

1.24 The audit methodology included:

• conducting compliance testing of a representative sample of 139 major procurement contracts that had triggered the MMR criteria from the six selected entities;
• analysing relevant datasets and examining other entity documentation;
• interviewing entity personnel, including procuring officers and contract managers for MMR contracts; and
• interviewing external stakeholders, including contractors subject to the MMRs.

1.25 The audit was conducted in accordance with ANAO Auditing Standards at a cost to the ANAO of approximately $316,000.

1.26 The team members for this audit were Daniel Whyte, Lynette Tyrrell, Iain Gately, James Woodward and Deborah Jackson.

2.1 The design of policy settings such as coverage and exemption criteria is important because inappropriate settings can lead to inconsistent application of the policy requirements, unintended consequences and failure to achieve desired policy outcomes. In order to assess whether the policy owner (PM&C until June 2019 and NIAA from July 2019) designed the MMRs to support the achievement of the Australian Government’s policy objectives, the ANAO examined whether:

• the design aligned to the government’s policy objectives;
• the design was informed by stakeholder views and previous experience;
• the coverage of the MMRs supports the objectives; and
• appropriate criteria have been established for setting Aboriginal and Torres Strait Islander participation targets against which to measure performance.

Was the design of the MMRs aligned to the Australian Government’s policy objectives?

2.2 In late 2014, in response to the 2014 Creating Parity – The Forrest Review report²², the government decided to strengthen the Indigenous Opportunities Policy (IOP) by including MMRs in all contracts in regions with significant Aboriginal and Torres Strait Islander populations. Policy documents to support the government’s decision provided limited detail on the policy settings for the MMRs, and noted that requirements would vary based on the value of the contract and potentially on the location and type of procurement.

2.3 The Minister for Indigenous Affairs and Minister for Finance agreed to the approach for implementing the policy in May 2015, and wrote a joint letter to the Prime Minister noting the approach was ‘slightly broader’ than what had been envisaged by the government. Refinements of the policy included: expanding the geographical coverage of the requirements to the whole of Australia; limiting coverage to eight specified industry categories; and applying a contract value threshold of $7.5 million.

2.4 Policy documents for the Indigenous Procurement Policy (IPP), prepared in late 2014, indicate that the policy rationale was to close the gap in employment outcomes between Aboriginal and Torres Strait Islander and non-Indigenous Australians by driving growth in Aboriginal and Torres Strait Islander businesses and employment. The policy objective outlined in the IPP, released in May 2015, is to ‘stimulate Indigenous entrepreneurship and business development, providing Indigenous Australians with more opportunities to participate in the economy’.²³ The IPP also notes ‘Indigenous enterprises are around 100 times more likely to employ Indigenous people than non-Indigenous enterprises and strengthening the Indigenous business sector will also have a significant flow-on impact on Indigenous employment’.²⁴

2.5 The objective of the MMRs is to ensure Aboriginal and Torres Strait Islander people ‘gain skills and economic benefit’ from large projects outsourced by the government.²⁵ The MMRs also have the potential to lead to direct employment outcomes if contractors undertake actions they would not otherwise have taken to achieve a MMR employment target. As such, the design of the MMRs aligns with the government’s policy objectives, which were to drive growth in Aboriginal and Torres Strait Islander businesses and employment.

Was the design of the MMRs informed by stakeholder views and previous experience?

2.6 The Department of Finance’s guidance on developing procurement-connected policies states that the policy owner must ‘undertake appropriate consultation with affected stakeholders’.²⁶ Further, as there has been several previous procurement-connected policies to achieve Aboriginal and Torres Strait Islander economic outcomes, good practice would be to consider lessons learnt from previous experience with these policies in designing the MMRs. This section examines these two components of the design of the MMRs.

Consultation with affected stakeholders

Consultation with government stakeholders

2.7 In developing the IPP, PM&C undertook targeted consultation within government through the Indigenous Procurement Cross Agency Working Group. The working group comprises senior executive officers from PM&C, the Department of Finance (Finance), the Treasury and government entities with significant procurement activities.²⁷ It has continued to meet since 2014 to consider aspects of the design of the IPP requirements, including the MMRs.

2.8 As a result of consultation with the Cross Agency Working Group, ministers agreed to: expanding the geographical coverage of the requirements to the whole of Australia; limiting coverage to eight specified industry categories; and applying a contract value threshold of $7.5 million.

Consultation with stakeholders outside government

2.9 Stakeholders outside of government had been consulted in 2013 and 2014 to inform the Creating Parity – The Forrest Review report, and some provided submissions regarding procurement policy matters.²⁸ Between December 2014 and May 2015, the period during which the IPP was being developed, PM&C consulted Indigenous Business Australia, Supply Nation²⁹ and Aboriginal and Torres Strait Islander businesses about the IPP in general.

2.10 PM&C’s implementation plan for the IPP, developed in December 2014, committed to testing the proposed approach for the MMRs and discussing compliance burden with non-Indigenous suppliers to government prior to finalising the policy settings. As a number of suppliers that would be affected by the MMRs had previously held IOP contracts, there would have been benefit in consulting suppliers or their representative bodies on the proposed policy settings. However, consultation with non-Indigenous businesses that would be affected by the MMRs did not occur.

Previous experience with procurement-connected policies to achieve Aboriginal and Torres Strait Islander economic outcomes

Previous experience with the IOP

2.11 The Creating Parity review found the IOP had ‘failed to deliver meaningful results’ and ‘lacked any kind of accountability, sanctions or incentives to compel agencies or their contracted suppliers to comply’.³⁰ To address this, the review team made a series of recommendations about government procurement, including that government entities require non-Indigenous contractors to commit to meeting minimum Aboriginal and Torres Strait Islander participation targets.³¹ Components of the 2014 Creating Parity review’s recommendations that were integrated into the design of the MMRs include:

• requiring contracting entities to include targets in contracts and enforce compliance;
• setting higher targets in remote areas, having regard to the local Aboriginal and/or Torres Strait Islander population; and
• factoring contractors’ prior MMR performance into future procurement decisions.

2.12 The changes from the IOP to the MMRs also addressed Recommendation No.1 of Auditor-General Report No.1 2015–16 that PM&C review the regional approach of the IOP and advise the government on alternative models for applying minimum participation requirements.³²

Previous experience with implementation challenges

2.13 While the design of the MMRs responded to previous experience with the IOP, and directly addressed issues identified in the Creating Parity report and Auditor-General Report No.1 2015–16, procurement-connected policies to promote Aboriginal and Torres Strait Islander economic development have historically experienced implementation challenges.

• A 1996 evaluation of the procurement-connected policies arising from the 1991 Royal Commission into Aboriginal Deaths in Custody found they had been unsuccessful due to implementation problems, including a lack of accountability, insufficient monitoring and enforcement, and inadequate awareness and understanding of the requirements.³³
• The effectiveness of the 2011 IOP was undermined by entities not understanding or complying with the requirements, and challenges experienced by the policy owner in monitoring compliance and outcomes.³⁴

2.14 PM&C’s implementation plan for the IPP was developed in December 2014, before the detailed policy settings for the MMRs were agreed, and did not contain any detail on implementation and monitoring arrangements for the MMRs. PM&C did not subsequently develop an updated implementation plan after the MMR policy details had been settled. Further, its planning did not adequately address how implementation challenges that had been experienced with previous policies would be managed for the MMRs.³⁵

Does the coverage of the MMRs support the achievement of policy objectives?

2.15 Coverage is an important consideration in developing regulatory policies. If coverage is too broad, a regulation can impose unnecessary compliance burden on businesses with limited capacity to achieve the policy objectives. If coverage is too narrow, a regulation will fail to deliver its intended outcomes. This section examines the coverage of the MMRs, focusing on:

• specified industry sectors;
• the contract value threshold;
• exemption and exclusion criteria; and
• Commonwealth corporate entities and companies.

Specified industry sectors

2.16 When government entities undertake procurements through AusTender, the category of goods or services procured is recorded using the United Nations Standard Products and Services Code (UNSPSC). There is no requirement to record the location where goods or services will be used or delivered, and in many cases supply chains span various locations. Consequently, limiting the coverage of the MMRs by industry category rather than by location presents practical benefits, as it is easier to identify if contracts trigger the requirements.

2.17 In March 2015 PM&C proposed applying the MMRs to industry categories that ‘present strong opportunities for Indigenous participation’.³⁶ It initially suggested five UNSPSC categories that had high levels of Aboriginal and Torres Strait Islander employment or businesses, based on 2011 Census data. Through consultation with the Cross Agency Working Group, the categories were revised to the eight included in the May 2015 IPP (see Table 1.1).

2.18 The IPP states that MMR contracts will be ‘reviewed each year to ensure that the targeted group of contracts are achieving the intended outcome’.³⁷ While such reviews did not occur for the first two years of the IPP³⁸, in 2018 PM&C commissioned a ‘third year’ evaluation of the IPP that considered this question. The draft evaluation report provided to PM&C in November 2018 noted that ‘it cannot be confirmed that the MMR is delivering intended increased business to Indigenous businesses’ due to data limitations.³⁹ Nevertheless, the evaluation team recommended expanding the MMRs to cover all industry categories on the basis that Aboriginal and Torres Strait Islander businesses had demonstrated growth in a broad range of industries.

Expansion of industry coverage from mid-2020

2.19 In late 2018 the government agreed to increase the number of UNSPSC categories relating to the procurement of services that trigger the MMRs from 1 July 2020, with final details to be determined by the ministers for Indigenous Affairs and Finance in the first half of 2019. PM&C analysed AusTender data and consulted with government entities through the Cross Agency Working Group in early 2019, and in April 2019 the Indigenous Affairs and Finance ministers agreed to expand the MMRs to cover 19 of the 20 UNSPSC services categories used by AusTender. Based on consultation with procuring entities, one services category was excluded in full (public utilities and public sector related services) and sub-category exclusions were agreed for three other categories. Appendix 2 provides a full list of UNSPSC categories covered by the MMRs from July 2015 and July 2020.

2.20 Table 2.1 shows the proportion of AusTender contract notices from 2017–18 and 2018–19 that fall within the original eight UNSPSC categories and the expanded set of 19 UNSPSC categories by number and value. This analysis indicates the expansion of industry coverage from 2020 could more than double the number of contracts triggering the MMRs and triple the value of procurement covered. Around half of contracts triggering the MMRs fall within the Defence portfolio (analysis by portfolio is at Appendix 3).

Table 2.1: Number and total value of 2017–18 and 2018–19 AusTender contracts triggering the 2015 and 2020 MMR industry coverage criteria^a

Note a: Some of these contracts will be exempt from the MMRs for reasons discussed later in this chapter.

Source: ANAO analysis of non-corporate Commonwealth entity AusTender contract notice data.

Contract value threshold

2.21 The 2014 Creating Parity review recommended including minimum participation requirements in all government contracts. In developing the MMRs in consultation with the Cross Agency Working Group, PM&C proposed a $7.5 million contract value threshold to achieve the greatest ‘bang for buck’. Its analysis of AusTender data demonstrated that a $7.5 million threshold would capture a relatively small proportion of contracts that account for a large proportion of government procurement expenditure. The $7.5 million threshold was agreed by the ministers for Finance and Indigenous Affairs in May 2015. As shown in Table 2.1, the 176 contracts (0.15 per cent of all contracts) that triggered the MMRs in 2017–18 and 2018–19 account for 10.18 per cent of the total value of contracts. This demonstrates that the contract value threshold achieves broad coverage, which supports the achievement of the government’s policy objectives, while limiting the compliance burden.

Exemption and exclusion criteria

2.22 The 2015 IPP outlines one explicit exemption from the MMRs for contracts that are subject to paragraph 2.6 of the Commonwealth Procurement Rules (CPRs). This relates to procurements:

… necessary for the maintenance or restoration of international peace and security, to protect human health, for the protection of essential security interests, or to protect national treasures of artistic, historic or archaeological value.⁴⁰

2.23 The IPP also states that the MMRs apply only to new contracts from non-corporate Commonwealth entities, which are delivered in Australia, and where the approach to market occurred after 1 July 2015. This creates four additional categories of contracts that are not covered by the MMRs:

• contracts that have an original value below the MMR threshold but subsequently meet the threshold through a contract variation (as these are not new contracts);
• contracts held by Commonwealth corporate entities or companies;
• contracts that are delivered outside Australia; and
• contracts resulting from approaches to market that pre-date the policy requirement.

2.24 In developing the IPP Reporting Solution, an online monitoring system for the IPP launched in 2018 (discussed in more detail in Chapter 3), PM&C built in five categories for exempting or excluding contracts from the MMRs: CPR exemption 2.6; original value below MMR threshold; non-mandated agency; international delivery; and other (which can be used to exclude procurements that pre-date the requirement). As at 30 June 2019, entities had used four of these categories to exempt or exclude 109 contracts from the MMRs through the system, with the majority (76 per cent) using the ‘other’ category (see Figure 2.1).

Figure 2.1: Exemption and exclusion categories used by entities, as at 30 June 2019

Source: ANAO analysis of data from the IPP Reporting Solution

2.25 The categories in the IPP Reporting Solution for exempting or excluding contracts from the MMRs are reasonable and supported by the policy.⁴¹

Commonwealth corporate entities and companies

2.26 Commonwealth corporate entities and companies do not currently have mandated targets for procuring goods and services from Aboriginal and Torres Strait Islander businesses. Under the IPP, annual supplier use targets apply only to non-corporate Commonwealth entities. The IPP states:

Prescribed corporate Commonwealth entities listed in section 30 of the Public Governance, Performance and Accountability Rule 2014 and Commonwealth entities that are not required to comply with the Commonwealth Procurement Rules are encouraged to use best endeavours to apply this policy.⁴²

2.27 Based on a review of the 2017–18 annual reports of Commonwealth corporate entities and companies, only one (Australian Postal Corporation) had a published commitment to an Aboriginal and Torres Strait Islander supplier use target.

2.28 Further, Commonwealth corporate entities and companies do not currently have mandated targets for Aboriginal and Torres Strait Islander employment. On 1 July 2015 the Australian Public Service Commission implemented a whole-of-government Aboriginal and Torres Strait Islander employment strategy, which aimed to ‘increase the representation of Indigenous employees across the Commonwealth public sector to three per cent by 2018’.⁴³ The strategy, which applied to all corporate and non-corporate Commonwealth entities and any other bodies that employed staff under the Public Service Act 1999, expired at the end of 2018.

2.29 Requiring Commonwealth corporate entities and companies to achieve Aboriginal and Torres Strait Islander participation targets, both for procurement and employment, would broaden opportunities for Aboriginal and Torres Strait Islander people to gain skills and economic benefit from large government projects (the government’s objective for the MMRs). Further, if the government establishes a Commonwealth company to deliver a project within the MMR categories rather than outsourcing it to a contractor, an anomaly of the current arrangements is that the Commonwealth company would not have to meet the MMRs.

2.30 Accordingly, NIAA should provide advice to the government on how the policy requirements could be extended to Commonwealth corporate entities and companies. Such advice should have regard to the capacity of the Aboriginal and Torres Strait Islander business sector to respond to increased demand.

Have appropriate criteria been established for setting participation targets?

2.31 In developing regulatory policies, entities should ensure requirements are designed to achieve policy objectives while also allowing sufficient flexibility to account for the varying circumstances of regulated parties. This section examines the appropriateness of the criteria for setting minimum targets and remote area targets.

Criteria for setting minimum targets

2.32 For MMR contracts, over the course of the contract contractors must commit to achieving:

• an average of at least four per cent Aboriginal and Torres Strait Islander employment and/or supplier use for the project (contract-based); or
• an average of at least three per cent Aboriginal and Torres Strait Islander employment and/or supplier use across their organisation (organisation-based).

2.33 The ability to choose between these two options, and to split the target across employment and supplier-use targets, allows contractors the flexibility to nominate targets appropriate to their situation. Contractors interviewed by the ANAO indicated they appreciated having this flexibility, describing situations where it would have been challenging to meet either contract-based or organisation-based targets (for example, where the contract required a small number of staff with specific skills, such as fluency in Mandarin or Arabic, or where there were limitations on suppliers that could be used).

2.34 Box 1 provides two scenarios that illustrate the flexibility of the MMR targets.

Criteria for setting remote area targets

2.35 When the ministers for Indigenous Affairs and Finance approved the approach to implementing the policy in May 2015, it was decided that entities and contractors would need to agree targets higher than the minimum requirements where a part of the contract will be delivered in a remote area. In line with this, the IPP states that, where a component of an MMR contract will be delivered in a remote area, the contracting entity and contractor must ensure the contract delivers ‘significant Indigenous employment or supplier use outcomes in that area’ and targets should ‘have regard to the size of the local Indigenous population relative to the non-Indigenous population and the nature of the contracted goods and services’.⁴⁴

2.36 These criteria provide substantial flexibility to contracting entities and contractors to agree targets greater than the minimum requirements that are appropriate to the services being procured and the remote area in which they will be delivered.⁴⁵

3.1 To implement and monitor a procurement-connected policy effectively, the policy owner should:

• develop an appropriate implementation plan;
• effectively communicate the policy requirements to support implementation;
• establish appropriate mechanisms for monitoring compliance and reporting on implementation; and
• regularly review the policy’s effectiveness in achieving its stated purpose and outcomes.⁴⁶

3.2 This chapter examines whether the policy owner (PM&C until June 2019 and NIAA from July 2019) has addressed these elements in implementing and monitoring the MMRs.

Was an appropriate implementation plan developed for the MMRs?

3.3 Implementation planning is an essential part of the policy design process. The MMRs impose regulatory requirements on contractors delivering a significant volume of services to the Australian Government (approximately 10 per cent of the goods and services procured by non-corporate Commonwealth entities by value). Further, policy owners have previously experienced challenges implementing similar procurement-connected policies to promote Aboriginal and Torres Strait Islander economic outcomes. Accordingly, PM&C should have developed an appropriate implementation plan for MMRs that covered:

• project phases, deliverables, timeframes and resources;
• implementation challenges, risks and mitigation strategies;
• key stakeholders and communication activities;
• governance arrangements; and
• mechanisms for monitoring and evaluating outcomes.⁴⁷

3.4 PM&C developed an implementation plan for the Indigenous Procurement Policy (IPP) in December 2014. As the plan was developed before the detailed policy settings for the MMRs were agreed, it did not contain detail on implementation and monitoring arrangements for the MMRs. PM&C did not subsequently develop an updated implementation plan after the MMR policy details had been settled. Insufficient implementation planning, particularly regarding communicating detailed requirements and establishing a central monitoring system, undermined the effectiveness of the implementation and monitoring of the MMRs.

3.5 In mid-2019 PM&C announced that the MMRs would be expanded by eleven industry categories to cover a total of nineteen services industry categories. The expansion is expected to significantly increase the regulatory scale of the MMRs — more than doubling the number of contracts covered each year, and expanding coverage of non-corporate Commonwealth entity procurement to approximately 30 per cent by value.

3.6 In deciding to expand the MMRs, the government agreed that the ministers for Indigenous Affairs and Finance would develop an implementation approach for applying the expanded MMRs by mid-2019, including identifying the industry categories that would be covered. While the ministers agreed to the expansion of industry category coverage, an implementation approach was not developed.

3.7 In December 2019 NIAA developed an implementation plan to support the expansion of the MMRs from 1 July 2020 that covers the components outlined in paragraph 3.3 and includes implementation activities that address the recommendations in this chapter.

Have the MMRs been effectively communicated to support implementation?

3.8 To support the implementation of a policy requirement, it is good practice for the policy owner to identify who the key stakeholders are, what information they need and how best to communicate with them. If stakeholders lack awareness or understanding of what they need to do to comply with the policy, compliance will be low and intended policy outcomes will not be realised. This section examines the policy owners’ communication of the MMRs.

3.9 Since the launch of the IPP in May 2015, PM&C and NIAA have used various mechanisms to promote awareness and understanding of its requirements, which are outlined in Box 2. While communication activities have primarily focussed on the IPP as a whole, they have generally also included high-level coverage of the MMRs.

3.10 PM&C commissioned a review of the IPP after its first year of operation (2015–16) and an evaluation after its third year (2017–18). Both the ‘year one’ review and ‘third year’ evaluation noted the need for increased education and training for government procuring officers, non-Indigenous suppliers and Aboriginal and Torres Strait Islander businesses. The integration of MMR components into the National Indigenous Business Trade Fair program was designed to address this suggestion, and has been well received by attendees.

3.11 As at October 2019 NIAA’s website provided guidance information on:

• the start date, industry category coverage and contract value threshold for the MMRs;
• steps entities need to follow when undertaking MMR procurements and managing MMR contracts;
• model clauses for inclusion in approaches to market and contracts; and
• how contractors can determine contract-based or organisation-based MMR targets and report against them.

3.12 While the guidance information explains policy requirements and processes at a high-level, it is difficult to navigate and not well tailored for different audiences. For example, all of the IPP information is grouped together with no indication of which guidance is relevant to particular stakeholders and there are no links on the website to guidance on the IPP Reporting Solution.

3.13 As the policy owner, NIAA is accountable for ensuring that the MMRs operate effectively and entities and contractors comply with their obligations. Procuring officers, contract managers and contractors interviewed by the ANAO felt they lacked understanding of the policy requirements and would have benefited from additional guidance. Based on this feedback, and the ANAO’s finding that entities have not been adequately complying with the MMRs (discussed in Chapter 4), specific areas where additional guidance is needed to increase compliance and support effective implementation of the MMRs are outlined in Table 3.1.

Table 3.1: Topics requiring additional guidance for the MMRs

Source: ANAO analysis.

3.14 The ANAO also identified instances where PM&C provided inconsistent or incorrect guidance information and advice about the MMRs, which has caused confusion for stakeholders or led to cases of non-compliance.

• The IPP states the MMRs apply to contracts that meet the coverage criteria ‘where the Approach to Market commences after 1 July 2015’.⁴⁸ However, guidance for the IPP Reporting Solution developed in 2018 stated the MMRs apply to contracts that commence ‘on or after 1 July 2016’, which was inconsistent with the policy.⁴⁹ This caused confusion for one of the selected entities for this audit, which had several MMR contracts that commenced before 1 July 2016.
• While the IPP states the MMRs cover contracts within the ‘education and training services’ industry category, a factsheet published in 2015 (and available on PM&C’s website until 2017) omitted a key sub-category. This error led one of the selected entities to not comply with the MMRs for two education and training services contracts valued over $100 million.
• The IPP only includes one exemption category for the MMRs: for contracts subject to paragraph 2.6 of the Commonwealth Procurement Rules (CPRs). However, the ANAO identified one instance when PM&C advised an entity that contracts with Commonwealth, state and territory entities are not covered by the MMRs, which led to contracts being incorrectly excluded.

3.15 To increase compliance and achieve policy outcomes, NIAA needs to develop a more comprehensive set of MMR guidance information that is tailored to key stakeholder groups and includes coverage of the topics identified in Table 3.1. It should also ensure that its advice to entities and contractors is consistent with the policy requirements and associated guidance information. In developing revised guidance, there is scope for NIAA to further leverage off the Department of Finance’s existing mechanisms for communicating procurement requirements under the CPRs.

3.16 In September 2019 NIAA advised the ANAO that it is working to develop new guidance information for specific stakeholder groups. It will be important to consult with entities and contractors to ensure the guidance meets their needs, and incorporate case studies and worked examples on how the requirements can be operationalised in different contexts.

Have appropriate mechanisms been established to monitor compliance and report on implementation?

3.19 The Department of Finance’s guidance on developing procurement-connected policies states that such policies ‘must be monitored and have an appropriate regime for addressing non-compliance’.⁵⁰ This section examines:

• PM&C’s development of a central database for the MMRs, the IPP Reporting Solution;
• entity and contractor compliance with MMR reporting obligations; and
• the effectiveness of the system in facilitating assessment of contractors’ previous MMR performance and reporting on the implementation of the MMRs.

Development of the IPP Reporting Solution

3.20 PM&C’s March 2015 discussion paper to the Cross Agency Working Group, which outlined the proposed policy settings for the MMRs, included the following statements about the need for an efficient and effective monitoring system for the MMRs:

Effective enforcement of the [MMRs] will rely on agencies assessing Indigenous participation as part of the RFT process, and taking past performance into account. To do this efficiently, there will need to be a central database where contract managers can record performance against the contractual requirements, so that other agencies can assess past performance.

It is proposed that this central database be developed over the 2015-16 FY, so that it becomes available from 1 July 2016…

Agencies will be responsible for monitoring compliance and for entering information into a central database. The system will hinge on how effectively agencies do this.⁵¹

3.21 PM&C started planning the development of a central monitoring system for the MMRs in mid-2016 and briefed the Cross Agency Working Group on options in September 2016. Options considered at that time included: capturing MMR data in an Excel spreadsheet; developing a MMR reporting module through SAP (a software package many entities use for financial reporting); modifying a database used for Indigenous Opportunities Policy; and developing a custom database through PM&C’s Information Services Branch.

3.22 In January 2017 PM&C decided to build a custom database in house to automate the IPP reporting process, including for MMR contracts. It allocated $2 million funding over 2016–17 and 2017–18 for its development. The database, called the IPP Reporting Solution, was developed during 2017 and launched in January 2018. A timeline of key milestones in its development is at Figure 3.1.

Figure 3.1: Timeline of IPP Reporting Solution development, 2015–2018

 

 

Source: ANAO analysis.

3.23 As shown in Figure 3.1, there were two spreadsheet-based data collections for the MMRs in 2017 and 2018. In September 2017, prior to the implementation of the IPP Reporting Solution, PM&C collected 2016–17 MMR reporting data from entities for aggregate public reporting. In December 2017 PM&C asked entities to submit quarterly reports for July 2016 to December 2017, which were entered into the system in January and February 2018. The quality of the reporting received from entities was inconsistent. From mid-2018, two years after the reporting requirement was established, entities were requested to use the IPP Reporting Solution for MMR reporting. The significant delays in establishing the system impacted on levels and quality of compliance with reporting obligations.

Compliance with MMR reporting obligations

3.24 NIAA uses the IPP Reporting Solution to identify Australian Government contracts that have triggered the MMRs and establish what targets have been agreed between entities and contractors. As outlined in Figure 3.2, the process primarily involves: automated system checks of AusTender contract notice data; and entities setting up their MMR contracts in the system.

Figure 3.2: Process for setting up MMR contracts

 

 

Source: ANAO analysis of IPP Reporting Solution documentation.

3.25 The IPP Reporting Solution also includes a Contractor Portal through which contractors need to submit quarterly performance reports outlining performance against their MMR targets for entity approval. When a MMR contract ends, the contracting entity needs to sign off a final assessment of compliance against the MMR participation targets. Figure 3.3 outlines this process.

Figure 3.3: Process for managing MMR performance reporting

 

 

Source: ANAO analysis of IPP Reporting Solution documentation.

3.26 There have been three key issues with the implementation of the IPP Reporting Solution that have limited its effectiveness for monitoring the MMRs:

• automated system checks not identifying all potential MMR contracts;
• entities not setting up or excluding contracts within the system; and
• entities and contractors not using the system to report on MMR performance.

Automated system checks are not identifying all potential MMR contracts

3.27 The ANAO obtained a data extract from the IPP Reporting Solution as at 30 June 2019 and tested its completeness and accuracy. No issues were identified with the completeness or accuracy of data imported from AusTender. However, two issues were identified relating to the automated system tests (see Box 3). As a result of these issues, contracts labelled as ‘Standard MMR’ within the IPP Reporting Solution as at 30 June 2019 were not a complete record of contracts that had triggered the MMR criteria.

Entities are not setting up or excluding contracts within the system

3.28 As at 30 June 2019 there were 265 contracts that commenced in 2016–17, 2017–18 or 2018–19 classified as ‘Standard MMR’ contracts in the IPP Reporting Solution. Of these, 109 had been exempted or excluded by entities and 156 were active MMR contracts. Of the 156 active MMR contracts, 87 (56 per cent) were at the ‘activate MMR contract’, ‘contract details’ or ‘assessment setup’ stages, which means they had not been set up or excluded by entities in the system as at 30 June 2019.

3.29 This finding indicates that most contacts within entities are not responding to automated system notifications requesting that they set up or exclude potential MMR contracts within the system.

Entities and contractors are not using the system to report on MMR performance

3.30 From mid-2018 PM&C required entities to use the IPP Reporting Solution for MMR performance reporting. Based on analysis of the 69 contracts that had been set up in the system as at 30 June 2019, the ANAO found:

• 21 contracts (30 per cent) had at least one quarterly report with performance data recorded in the system;
• nine contracts (13 per cent) had reached their contract end date, but none of them had been finalised within the IPP Reporting Solution; and
• five contracts (seven per cent) had their most recent quarterly report submitted on time.

3.31 These results demonstrate that entity contract managers and contractors have not been using the system. Therefore, it has not been functioning effectively as a reporting portal. In many cases contractors have been submitting MMR reporting outside the IPP Reporting Solution, through bespoke reporting templates developed by entities. Where this has been occurring, contract managers have not been entering performance information into the IPP Reporting Solution. Selected entities’ reporting arrangements for the MMRs are discussed in more detail in Chapter 4.

Assessing contractors’ previous performance and reporting on implementation

3.32 The IPP Reporting Solution has the potential to monitor compliance and report on implementation of the MMRs. However, due to the incompleteness of the reporting data, the IPP Reporting Solution cannot currently fulfil two of its primary purposes:

• providing a database of contractor performance against the MMRs, which could be used to inform tender evaluations for future procurements that trigger the MMRs; and
• enabling NIAA to report on the number and value of contracts with MMR targets and Aboriginal and Torres Strait Islander participation outcomes resulting from these contracts.

3.33 While entities and contractors have a requirement to comply with MMR reporting requirements, it is also clear from the low level of contract set-up, performance reporting and contract finalisation that the current regime for managing compliance is not operating effectively.

3.34 Since mid-2019 NIAA has contacted portfolio managers within entities to prompt them to set up contracts in the system and invested in system upgrades to the IPP Reporting Solution in response to user feedback. Building on these actions, NIAA needs to consult entities and contractors to understand what factors are contributing to the high levels of non-compliance and develop a strategy to address these.

Is the contribution of the mandatory minimum requirements to Closing the Gap being measured?

3.40 Entities managing procurement-connected policies ‘are required to conduct annual reviews of their policy’s effectiveness in achieving its stated purpose and outcomes’.⁵³

3.41 In recommending that the ANAO conduct an audit of ‘the use of, and compliance with, Indigenous Employment Targets’, the Senate Finance and Public Administration References Committee stated that the audit ‘should also report on how these contracts impact on Closing the Gap employment targets’.⁵⁴

3.42 The IPP has been reviewed twice since it was introduced in 2015.

• A ‘year one’ review was commissioned in 2016. The MMRs were out of scope for this review.
• A ‘third year’ evaluation was commissioned in 2018. The evaluation, which was completed in August 2019, noted that:

… performance of the MMR sub-policy cannot be comprehensively evaluated… To date, as only one contract has had a final assessment, and the majority of contracts have not delivered a quarterly performance report, it cannot be confirmed that the MMR is delivering intended increased business to Indigenous businesses.⁵⁵

3.43 As discussed in paragraph 2.4, the policy rationale for the IPP was to close the gap in employment outcomes between Aboriginal and Torres Strait Islander and non-Indigenous Australians by driving growth in Aboriginal and Torres Strait Islander businesses and employment. However, neither the first year review nor the third year evaluation considered the contribution of the MMRs to the Closing the Gap employment target.

3.44 Due to the incompleteness of the performance data reported by entities and contractors for the MMRs, the effectiveness of the policy has not been reviewed. Even with better performance data it would be difficult to measure the impact of the MMRs, due to the challenge of attributing outcomes to the policy (as contractors may have engaged Aboriginal and Torres Strait Islander staff or suppliers without the MMR targets). Nevertheless, it is possible to devise evaluation methodologies to address this.⁵⁶

3.45 To ensure that it can review the effectiveness of the MMRs in achieving their stated purpose and outcomes, NIAA should develop and implement an appropriate evaluation strategy for the MMRs. This could form part of a broader strategy to evaluate the IPP as a whole.

4.1 Managing procurements effectively requires attention across the procurement lifecycle: commencing in the procurement phase with effective planning, tender evaluation and contract negotiation, and progressing to active management of contractors’ performance and compliance in the contract management phase.⁵⁷ To assess whether entities are managing the MMRs effectively in major procurements, the ANAO examined whether selected entities:

• provide appropriate guidance to staff on the MMRs;
• comply with the MMRs in the procurement phase;
• agree appropriate participation targets;
• establish appropriate performance reporting arrangements; and
• gain appropriate assurance over reported results.

4.2 Entities selected for the compliance assessment were: Department of Defence (Defence); Department of Education (Education); Department of Employment, Skills, Small and Family Business (Employment); Department of Home Affairs (Home Affairs); Department of Infrastructure, Transport, Cities and Regional Development (Infrastructure); and National Indigenous Australians Agency (NIAA).⁵⁸

Have entities provided appropriate guidance to staff on complying with the MMRs?

4.3 To effectively embed compliance with the MMRs within procurement practices, entities should provide appropriate guidance to staff on the specific requirements that must be addressed throughout the contract lifecycle. This is particularly important as contracts that trigger the MMRs occur infrequently for most entities, so procuring officers and contract managers need to be alert to the risks that come with undertaking an unfamiliar process.

4.4 The ANAO examined the internal guidance information and advice provided by selected entities’ central procurement teams, to determine whether the MMRs were adequately covered. The results of this testing are presented in Table 4.1.

Table 4.1: Selected entities’ internal guidance and support on the MMRs

Source: ANAO analysis of entity documentation.

4.5 At the time of assessment, all entities provided guidance that outlined when the MMRs applied to procurements. The guidance correctly listed the contract value threshold for the MMRs, as well as the relevant industry categories. Two entities (Defence and Employment) had accurately included the IPP model clauses for the MMRs in their guidance and/or templates. Other entities either included out-of-date model clauses or did not include the model clauses.

4.6 All entities had promoted the IPP to staff through internal communication, although most entities did not specifically reference the MMRs. Defence had taken steps to promote the MMRs through internal communication, including through a national roadshow in 2019 on Aboriginal and Torres Strait Islander procurement for Defence staff involved in procurement activities. In addition, there was evidence that central procurement areas were available to provide advice to procuring officers on applying the MMRs to major procurements upon request.

4.7 As discussed in paragraphs 3.12 to 3.16, to promote consistent approaches to implementing the MMRs and build on entities’ experiences to date, NIAA needs to consult with entities and contractors about developing guidance information to manage the MMRs through the procurement lifecycle (see Recommendation no.1 at paragraph 3.17). Once this guidance is developed, entities should update their internal guidance, templates and processes to ensure procuring officers and contract managers involved with MMR procurements receive appropriate operational support.

Have entities complied with the MMRs in the procurement phase?

4.8 The ANAO conducted compliance testing on a representative sample of 139 major procurement contracts from selected entities, including 70 excluded contracts and 69 active MMR contracts.⁵⁹ This section outlines the testing results for these two categories.

Exempt or excluded contracts

4.9 Of the 139 contracts in the compliance testing sample, 51 contracts had been excluded by entities in the IPP Reporting Solution. For these contracts, the ANAO examined procurement documentation and reviewed reasons recorded in the system to determine whether contracts had been validly excluded. In addition, the ANAO identified 19 active contracts that had not been excluded by entities (because the contracts had not been set up in the system), but had a valid reason for exclusion. No contracts in the sample met the MMR exemption criterion. The compliance testing results for the 70 contracts are outlined in Table 4.2.

Table 4.2: Compliance testing results for excluded contracts

Note: Results are reported based on the entity that was responsible for the contract at the time of exclusion.

Source: ANAO analysis of entity documentation.

4.10 Selected entities excluded eight contracts in the testing sample for invalid reasons. Education misapplied valid exclusion reasons for three contracts, incorrectly stating that two contracts were not within MMR industry sectors and one was under the contract value threshold. In five cases entities used the following reasons for exclusion, which are not covered by the policy:

• the contract resulted from a whole-of-government panel arrangement that pre-dated the policy requirement;
• contracts were with Australian or state government entities (three cases); and
• the contract was delivered in Australia by an international organisation.

4.11 As discussed in paragraphs 3.12 to 3.16, clearer guidance is needed on how to apply exclusion categories for the MMRs, and the Department of the Prime Minister and Cabinet (PM&C) has previously provided incorrect advice to entities that the MMRs do not apply to Commonwealth, state and territory entities. Addressing these issues (in line with Recommendation no.1) should help entities to avoid excluding contracts for invalid reasons.

4.12 There were valid reasons to exclude the other 62 contracts in the testing sample. In most cases the approach to market was before 1 July 2015, or it was an additional contract notice or contract variation for a Defence capital works project (see Box 4). Other valid reasons for exclusion were international delivery, use of mandated whole-of-government procurement arrangements, and data entry errors in AusTender that meant contracts incorrectly triggered the MMRs.

Active MMR contracts

4.13 For active MMR contracts, the 2015 IPP outlines steps entities must follow to comply with the MMRs in the procurement phase.

• Entities must incorporate the MMRs in approach to market documentation, including requirements for tenderers to: submit an Indigenous Participation Plan setting out how they will meet the MMRs; and outline past experience in increasing Aboriginal and Torres Strait Islander participation, including performance against any previous MMR contracts.
• Entities must assess tenderers’ Indigenous Participation Plans and past performance in increasing Aboriginal and Torres Strait Islander participation as part of tender evaluations.
• Following selection of a contractor, entities must ensure the resultant contract includes the contractor’s Indigenous Participation Plan.⁶¹

4.14 For the 69 active MMR contracts, the ANAO examined procurement documentation to determine whether entities had complied with the MMR steps in the procurement phase.⁶² The compliance testing results for the 69 active MMR contracts are outlined in Table 4.3. The key compliance test was whether contracts created a contractual requirement to meet MMR targets.

4.15 Selected entities met the key compliance test for 36 (52 per cent) of the 69 active MMR contracts. However, the majority of these contracts (33 of 36) did not comply with all MMR steps. Key steps not followed were: documenting the tender evaluation panel’s assessment of tenderers’ Indigenous Participation Plans and past performance in relation to increasing Indigenous participation; and including the contractor’s Indigenous Participation Plan in the resulting contract.

4.16 Selected entities did not meet the key compliance test for 33 of the 69 active MMR contracts (48 per cent).

• For 19 contracts, contractors had developed Indigenous Participation Plans that included compliant MMR targets, but they were not contractually required to meet them.
• In nine cases contractors had developed non-compliant plans that did not include targets, and in four cases targets did not meet the minimum requirements. In one case the contractor had not developed a plan.

4.17 The majority of non-compliant contracts (24 of 33) were held by Employment and Home Affairs. Education had managed the procurement process for 22 of these non-compliant contracts, and 20 had resulted from a single procurement activity conducted by Education in 2016 for the Adult Migrant English Program (AMEP) and Skills for Education and Employment (SEE) program (see Case Study 1).

4.18 To increase levels of compliance, central procurement teams within entities need to ensure procuring officers undertaking major procurements that trigger the MMRs receive appropriate support prior to the approach to market and follow all required steps. While only three selected entities (Defence, Employment and Home Affairs) hold contracts in the sample that did not create contractual requirements to meet MMR targets, all selected entities did not comply with required MMR steps for all or most of their MMR procurements. Consequently, all entities need to review their current protocols to ensure procuring officers comply with these steps.

Have entities agreed appropriate MMR participation targets?

4.23 As discussed in paragraph 2.33, the MMRs allow entities and contractors substantial flexibility in determining appropriate participation targets. In addition, entities can voluntarily choose to apply such targets in procurements not covered by the policy. This section examines whether selected entities are:

• agreeing targets that meet or exceed the minimum requirements;
• agreeing appropriate remote area targets; and
• voluntarily applying participation targets to other procurements.

Agreeing targets that meet or exceed the minimum requirements

4.24 For most contracts (80 per cent) in the compliance testing sample, contractors had submitted Indigenous Participation Plans with MMR targets that met or exceeded the mandatory minimum levels.

• For 13 contracts (19 per cent), contractors’ submitted plans did not include targets or included targets that were below the mandatory minimum levels.
• For one contract (one per cent), the contractor did not submit a plan as the entity (Defence) had not included the MMR requirements in the approach to market.

4.25 Of the 68 Indigenous Participation Plans assessed by the ANAO, six provided a methodology for setting targets and 19 clearly indicated that targets were informed by prior experience, consultation or other evidence.

Agreeing appropriate remote employment targets

4.26 Where a component of an MMR contract will be delivered in a remote area, the contracting entity and contractor must ensure the contract delivers ‘significant Indigenous employment or supplier use outcomes in that area’, and agreed participation targets should ‘have regard to the size of the local Indigenous population relative to the non-Indigenous population and the nature of the contracted goods and services’.⁶³

4.27 Of the 69 active MMR contracts in the compliance testing sample, 35 contracts (51 per cent) with a total value of $1.2 billion included a remote area delivery component. Figure 4.1 shows the distribution of remote and non-remote contracts by state or territory. Further information about which contracts included a remote component is at Appendix 4.

Figure 4.1: Geographical distribution of active MMR contracts

 

 

Source: ANAO analysis of entity documentation.

4.28 Based on a review of procurement documentation, compliance with MMR requirements was poor for the 35 remote area MMR contracts in the testing sample. In almost all cases, entities and contractors did not adequately document how agreed targets would provide significant participation outcomes.

• For 16 contracts (46 per cent) entities did not clearly identify that procurements involved remote area delivery components, and for 18 contracts (51 per cent) they did not include the relevant remote area IPP model clauses.
• Only one Indigenous Participation Plan outlined how the contract would deliver significant participation outcomes, and no plan included consideration of the size of the local Aboriginal and Torres Strait Islander population.

4.29 As outlined in Table 3.1, NIAA needs to provide clearer instruction to entities and contractors on how to set appropriate targets that maximise participation outcomes for Aboriginal and Torres Strait Islander peoples in remote areas. Entities also need to ensure procuring officers undertaking major procurements that trigger the MMRs comply with required steps in the procurement process (see Recommendation no.4 at paragraph 4.19).

Voluntarily applying participation targets to other procurements

4.30 Entities can voluntarily apply Aboriginal and Torres Strait Islander participation targets to procurements not covered by the policy. The IPP Reporting Solution includes a contract type of ‘Voluntary Reporting’ to enable such contracts to be set up for performance reporting. As at 30 June 2019, there were four contracts recorded in the system with this contract type, although none had commenced reporting. For example, Defence has a contract with a value of $3.4 billion to provide health services at Defence bases and establishments, including in regional and remote areas, which includes MMR targets.

Have entities established appropriate reporting arrangements for MMR contracts?

4.31 Under the IPP, entities must ensure MMR contracts ‘include a requirement for the contractor to report on compliance with the Indigenous Participation Plan at least quarterly’. In addition, contract managers are required to record contractors’ performance in a central database that could be accessed by other Australian Government procuring officers. As discussed in paragraph 3.23, from mid-2018 entities and contractors were required to use the IPP Reporting Solution for MMR reporting.

4.32 For the 69 active MMR contracts, the ANAO examined contractual documentation and performance reporting to determine whether entities and contractors were complying with their MMR reporting requirements. The results are outlined in Table 4.4.

4.33 As Table 4.4 shows, selected entities and contractors are largely not complying with reporting requirements. Of the 18 contracts for which contractors were complying with their contractual reporting requirements, only three were actively reporting using the IPP Reporting Solution. This means 4.3 per cent of the 69 tested contracts were actively reporting in the system as at 30 June 2019. Other contractors were reporting as part of their broader contractual reporting mechanisms or using bespoke reporting templates developed by entities.

4.34 As discussed in paragraph 3.23, there were significant delays in establishing a centralised database for monitoring the MMRs. As a result, different approaches were developed to manage reporting, which introduced inconsistencies and contributed to non-compliance. For example, for Defence, five contracts only reported against a supply-use target despite also having employment targets, and one contract only reported on employment outcomes despite also having supply-use target.

4.35 These findings also indicate that entities have not been appropriately enforcing contractor compliance with reporting requirements.

4.36 NIAA needs to establish a strategy for addressing entity and contractor non-compliance with MMR reporting requirements (see Recommendation no.2 at paragraph 3.35). However, entities also need to take greater responsibility for managing their own compliance and their contractors’ compliance with the MMR reporting requirements.

Have entities gained appropriate assurance over reported results?

4.41 Entities managing procurement contracts should establish appropriate controls and assurance activities to ensure contractors comply with contractual obligations and performance reporting is accurate and complete.⁶⁴ With regard to Aboriginal and Torres Strait Islander participation targets, the importance of establishing appropriate controls is highlighted by the Northern Territory Government’s experience with the Indigenous Employment Provisional Sum (IEPS) (see Box 5).

4.42 Under the MMRs, entity contract managers are responsible for ensuring contractors comply with their Indigenous Participation Plans and gaining assurance over reported results. The IPP states that, in addition to the requirement to report at least quarterly, MMR contracts must include:

such other reporting, documentation, review and auditing rights and requirements as the Commonwealth entity considers necessary for it to determine whether the contractor is compliant with the Indigenous Participation Plan.⁶⁷

4.43 The ANAO examined assurance arrangements for the 69 active MMR contracts. In most cases (94 per cent), contracts included generic documentation review and auditing rights that could be used to enforce compliance and undertake assurance checks for reported MMR performance. No contract specified what documentation contractors should retain as evidence of their reported performance against MMR participation targets.

4.44 Selected entities could not provide evidence that they had enforced contractual compliance when contractors were not meeting their MMR reporting requirements. Where reporting has been occurring, there was no evidence that entities had sought additional documentation to confirm contractors’ reported performance against MMR targets.

4.45 As a minimum, entities should integrate occasional reviews of MMR documentation into their existing contract management control frameworks. Documentation that could be specified as acceptable evidence of MMR performance includes:

• timesheets and payslips that demonstrate hours worked by staff on the project;
• evidence that staff have self-identified as Aboriginal and/or Torres Strait Islander;
• invoices from suppliers or subcontractors; and
• evidence that suppliers or subcontractors are Aboriginal and Torres Strait Islander businesses.

4.46 Contractors face reputational and financial risks if they underperform against targets. If contractors do not believe there is a credible threat that misreporting will be identified, there is a risk that such behaviour may be incentivised. Consequently, entities need to take appropriate steps to mitigate this risk.

4.47 As outlined in Table 3.1, NIAA needs to provide additional guidance to entities on building checks into existing contract management processes to gain assurance of MMR performance reporting and undertaking risk-based assurance activities. This guidance should include advice to entities and contractors about how to request evidence of identification from staff and suppliers in a culturally appropriate manner. Once this guidance has been developed, entities need to integrate it into their contract management control frameworks.

Appendix 1 Entity responses

National Indigenous Australians Agency

 

 

 

 

 

 

 

 

Department of Defence

 

 

 

 

Department of Education, Skills and Employment

 

 

Department of Home Affairs

 

 

Department of Infrastructure, Transport, Regional Development and Communications⁶⁸

 

 

Appendix 2 MMR industry coverage

Table A.1: 2015 and 2020 MMR industry category coverage

Source: PM&C, United Nations standard products and service codes [Internet], 26 November 2018, available from: https://www.niaa.gov.au/resource-centre/indigenous-affairs/united-nations-standard-products-and-service-codes [accessed 22 November 2019]; and PM&C, Changes to the Indigenous Procurement Policy [Internet], 13 February 2019, available from: https://www.niaa.gov.au/resource-centre/indigenous-affairs/changes-indigenous-procurement-policy [accessed 22 November 2019].

Appendix 3 MMR coverage by portfolio

Table A.2: Number and total value of 2017–18 and 2018–19 AusTender contracts triggering the 2015 and 2020 MMR industry coverage criteria by portfolio^a

Note a: Some contracts will be exempt from the MMRs for reasons discussed in Chapter 2.

Source: ANAO analysis of non-corporate Commonwealth entity AusTender contract notice data.

Appendix 4 ANAO compliance testing sample

Table A.3: Active MMR contracts included in the ANAO’s compliance testing

Source: IPP Reporting Solution.