Enhancing the Indigenous Procurement Policy

Empowering Indigenous Australians to participate fully in the economy has been a focus of successive governments around Australia, with many using their procurement budgets to encourage employment and entrepreneurship for Indigenous Australians. At a Federal level the Indigenous Procurement Policy (IPP) has had some success[1] and the Albanese government has sought to lift the ambition with amendments to the IPP, which will be phased in from 1 July 2025.[2]

In this article, we review the changes to the IPP and consider some challenges identified by the Australian National Audit Office (ANAO) that Commonwealth agencies may have in meeting certain IPP targets. In short, agencies need to consider the participation of Indigenous Australians early in their procurement processes.

Recap on the Indigenous Procurement Policy

The IPP was introduced in 2015 to enhance the purchasing by Commonwealth entities from businesses owned and operated by Indigenous Australians. As a procurement-connected-policy it applies to Non-Corporate Commonwealth Entities and prescribed Corporate Commonwealth Entities.[3]. The IPP includes three main elements[4]:

• Annual targets: These targets set the volume and value of contracts awarded to businesses owned and operated by Indigenous Australians by the Commonwealth, both generally and within each specific portfolio.
• A mandatory set-aside (MSA): This provision requires agencies to offer businesses owned and operated by Indigenous Australians the opportunity to demonstrate value for money before a general approach to market for Commonwealth contracts in remote areas and those valued between $80,000 and $200,000.
• Mandatory Minimum Requirements (MMR): This sets participation targets for contracts valued at $7.5m or more in specified industries, including construction, and requires agencies to consider past performance against MMR targets in other Commonwealth contracts.

The overarching goal of the IPP is to increase both the number of Indigenous Australians participating in government procurement as well as the volume and value of contracts they are awarded, while at the same time ensuring agencies still achieve value for money.[5] The National Indigenous Australians Agency (NIAA) has policy ownership of the IPP, but each relevant agency is responsible for ensuring compliance.

Compliance and operational issues

The introduction of the IPP marked a significant shift in how the Commonwealth procures goods and services. However, the rollout encountered various compliance and operational challenges, many linked to the education needed for Commonwealth agencies – and their procurement teams – to fully engage with the operation of the IPP and how to identify and connect with Indigenous businesses.

Compliance

The ANAO identified several issues with the implementation of the IPP in its initial review of performance audit (First Report),[6] and made several recommendations to enhance agency compliance.  These included:

• Updating Procurement Protocols - Updating procurement protocols to ensure procuring officers undertaking major procurements that trigger the MMRs comply with required steps in the procurement process.
• Use of IPPRS - Modifying procurement processes to ensure contract managers and contractors regularly use the Indigenous Procurement Reporting Solution (IPPRS) platform in order to achieve MMR reporting requirements.
• Controls and Assurance - Establishing controls and risk-based assurance activities for active MMR contracts.

Our experience with Commonwealth clients at that time identified that many procurement teams were largely unaware of the need to change procurement planning processes to specifically consider IPP requirements.

In a follow-up check on the agencies reviewed (Second Report)[7], the ANAO found varying degrees of compliance and identified areas for improvement in their approaches.

Appropriateness of exemptions

One key message in the Second Report was that agencies are “responsible for the stewardship of [the IPP]” and this includes “…understanding entities' implementation of the policy; monitoring the appropriateness of exemptions from the policy; working with entities to address implementation issues and instances of non-compliance; and evaluating the long-term impacts of the [IPP].”

Between July 2016 and September 2024, 63% (value $69.3 billion) of all contracts recorded in the IPPRS were reported by agencies as subject to exemptions, with this reliance appearing to have increased over time. A significant number of exemptions were recorded in the IPPRS under the category label “other”. The ANAO noted that this “other” category does not align with any of the prescribed category reasons set out within the IPP and obscures the degree of compliance with the MMRs. For this reason, the ANAO has stated that use of the “other” category is “not appropriate”. Of exempted contracts recorded in the IPPRS, 34 per cent (valued at $30.2 billion) were recorded under the “other” exemption category.[8]   

It is likely that applications for exemptions will face even more rigorous assessment by the NIAA, particularly in light of the ANAO findings. This underscores the need for procuring agencies to fully explore and clearly document any challenges the encounter in applying IPP requirements.

New requirements being phased in from 1 July 2025

The IPP was enhanced from 1 July 2025, with increased targets and improvements to the program’s integrity. The key changes include:

• Increases in Commonwealth and portfolio procurement targets: Starting 1 July 2025, the target for the Commonwealth and portfolios to buy from businesses owned and operated by Indigenous Australians will increase to 3%. These targets will increase by 0.25% each year until they reach 4% in the 2029-30 financial year. Methodologies for the target calculation and measurement will also be reviewed.
• Enhanced transparency: Under the proposed changes, the NIAA must explore the feasibility of increasing transparency of suppliers’ performance against Indigenous participation targets contained in high value contracts.
• Crack down on 'black cladding': ‘Black cladding’ is the practice of a non-Indigenous business or individual talking unfair advantage of a business owned and operated by Indigenous Australians for the purpose of gaining access to contracts under the IPP or exaggerating the extent to which an entity can be considered an Indigenous business. There is an increased focus on this practice, and agencies will come under significant pressure to be alive to it. The NIAA will work on identifying opportunities to make it easier for Indigenous Australians to report the practice.
• Indigenous majority control of businesses: To ensure that Indigenous Australians genuinely control a businesses, and further prevent ‘black cladding,’ from 1 July 2026 the IPP will require an eligible business to have 51% First Nations ownership or be registered with Office of the Registrar of Indigenous Corporations (ORIC). This is a subtle yet important change from the current requirement of 50% First Nations ownership, as it reflects the formal ability to achieve a majority in a general meeting of members of the company.

Conclusion and key takeaways

The ANAO has acknowledged some of the challenges agencies face in realising the policy intent behind the IPP. Along with education and awareness-raising within agencies, ANAO identifies that proactive industry engagement is critical for agencies that want to maximise the role that Indigenous Australians play in their procurement activities.

This is consistent with our observation that the Commonwealth agencies best placed to achieve full IPP compliance are those that invest in getting to know existing Indigenous businesses in their industry, and who work with them to ensure they are able to compete successfully in competitive procurement processes. Beyond this, they also take a partnership approach to contract compliance, to ensure that Indigenous businesses that may be new to Commonwealth contracting are able to understand and meet relevant compliance obligations.

This partnership approach ensures that the agency is reliably able to meet or exceed its IPP targets and receive high quality goods and services, while also creating the conditions for existing and new businesses owned and operated by Indigenous Australians to thrive. 

[1] 2022/23 Commonwealth Indigenous procurement outcomes (National Indigenous Australians Agency) [Link].

[2] Indigenous Procurement Policy (National Indigenous Australian Agency: July 2025) [Link].

[3] Commonwealth Procurement Rules (Department of Finance: July 2024), [Link] para 4.9.

[4] Note 2, para 1.3.

[5] Public Governance, Performance and Accountability Act 2013 (Cth), s 15(1).

[6] Auditor-General Report No. 25 2019–20: Aboriginal and Torres Strait Islander Participation Targets in Major Procurements (Australian National Audit Office: February 2020) (First Report) [Link].

[7] Auditor-General Report No. 40, 2024–25: Targets for Minimum Indigenous Employment or Supply Use in Major Australian Government Procurements – Follow Up (Australian National Audit Office: June 2025) (Second Report) [Link]

[8] Note 7, pp 55-60.