More procurement from SMEs to ‘boost innovation’

The Federal Government’s new report on ways to boost innovation in Australia has called for more government procurement from SMEs (small and medium enterprises).

Government agency Innovation and Science Australia (ISA) has released a report, ‘Australia 2030: Prosperity through Innovation’, making 30 recommendations on how to improve Australia’s poor performance in innovation.

On most international rankings, Australia performs very poorly on innovation. The Government’s National Science and Innovation Agenda (NISA), announced in late 2015, is supposed to reverse the trend, but there has been little tangible action.

Eight of the recommendations in the report are based on ways government policy and activity might improve innovation in Australia:

  • Create a more flexible regulatory environment that fosters innovation
  • Encourage social innovation investment across Australia
  • Improve provision and use of open government data
  • Grow Government procurement from SMEs to 33 percent by 2022
  • Increase the use of innovative procurement strategies
  • Maximise the spillover benefits of major government programs
  • Deliver greater government savings from digitising service delivery
  • Review the Public Service emphasising improved capability to innovate

The report has been criticised in many quarters for being vague and full of vague aspirations and motherhood statements, but the SME procurement target is very specific.

The report says that Australian governments’ economic activity generates approximately one-third of the nation’s GDP. “There are opportunities to strategically use this expenditure to promote innovation through procurement, and to trigger more economic spillover benefits from existing major projects through strategic policy and project design choices.

“Government spending on procurement is a significant market in Australia – for example, Australian Government procurement alone has grown from approximately $26 billion in 2007-08 to nearly $57 billion in 2015–16.”

The reports points out that many other countries use government procurement to foster innovation and economic benefits. “The UK and US governments both run small business research or innovation initiatives as part of their procurement strategies.

“Through these programs, a government department identifies a specific challenge or problem that is released to the public. Small businesses can then submit an application with their proposed solution, and over the course of multiple phases, the company has the opportunity to prototype and possibly scale their solution.

“Small Business Innovation Research (SBIR) allocations in the US have led to the creation of new firms, significantly faster growth and employment, and a higher likelihood of attracting venture capital funding.

“The SBIR has supported the early stages of businesses that have subsequently become global success stories, such as security firm Symantec and telecommunications equipment and semiconductor maker Qualcomm. UK firms that participate in the Small Business Research Initiative have nearly 10 percent higher job creation than average, and more than 30 percent average annual sales growth.”

The report recommends the establishment of an SME procurement target of 33 percent of all government contracts (by dollar value) by 2022. It further recommends that the Australian Government Department of Industry, Innovation and Science should report on progress towards this target annually.

In December the Australian National Audit Office released a major report on Federal Government procurement, which showed that only 10 percent of Federal Government procurement was from SMEs in 2016-17 (SMEs are defined as businesses with less than 200 employees. The figure had decline from 16 percent ten years earlier. It will take a significant change of attitude to reverse the trend.

The ISA innovation report is available here.


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