Supporting SME participation

Small and medium enterprises (SMEs) are a significant group of employers across NSW. They can supply directly to government or as subcontractors to a supplier.

Your can support SMEs by:

  • using a suitable procurement process
  • keeping contract documents simple, brief and in plain English
  • using standard contract templates. When that's not possible, ensure the contract terms and insurance requirements are reasonable and address risk proportionately.

What is an SME?

The NSW Government Procurement: Small and Medium Enterprises Policy Framework defines an SME as 'a small and medium enterprise from NSW, other states and territories of Australia and New Zealand, with up to 200 full-time equivalent employees'.

The framework requires all agencies to be aware of the impact of their procurement on SMEs.

What's the difference between an SME and a small business?

The framework differentiates SMEs from 'small business', although a small business is likely to also be an SME.

A small business is defined as 'an Australian and New Zealand based firm that has an annual turnover of under $2 million in the latest financial year'.

This is relevant to the 30 Days to Pay Policy and the small business trial. The trial allows agencies to buy goods or service up to $30,000 (including GST) from a registered small business, despite those goods and services being available on whole of government contracts. See Board Direction 2012-02 for more information.

Procurement processes

Select a procurement process that is appropriate to SMEs likely to be interested in supplying the goods and services. Refer to the Procurement Board Directions for requirements applying specifically to SMEs.

Develop an SME opportunities statement, as required under the SME Policy Framework. It should include who the SME suppliers in the market are and how procurement will support their participation. 

For contracts over $10 million, tenderers must submit an SME participation plan. It should outline how the tenderer will support local jobs, skills and capability development, should they be awarded the contract. It may include provisions to subcontract SMEs.

Engaging the market

To encourage SME participation, consider market engagement methods that:

  • reduce the burden and time taken to apply for SMEs
  • provide for self-registration by SMEs
  • recognise prior registration or listing with other agencies or jurisdictions
  • encourage innovative responses from the market and allow SMEs to compete with larger suppliers, such as expression of interest processes
  • be open to partnering arrangements, so SMEs can form partnerships, joint ventures or consortia
  • include measures for small businesses that do not use the internet.

Designing the contract structure

Use standard contract templates where possible. This can help minimise supplier costs, particularly for legal advice, as SMEs may already be familiar with the contracts.

If you use a different contract document, ensure it is consistent with the following principles so that it is suitable for SMEs. These principles apply for all sourcing agreements including:

  • one-off contracts
  • contracts made under panel contracts, prequalification or registration schemes
  • processes that do not lead to award of contract, such as expression of interest process.

Use simple structure

The contract structure should be easy to navigate. It should have clear relationships between its different parts.

Label head agreement and schedules. Explain how the contract is structured and which parts come first. Place key terms in prominent positions.

Use plain English

The contract should be as brief as possible and written in plain English.

Ensure suppliers, particularly SMEs, can understand the contract terms without legal review.

Defining main contract terms

Consider the risk profile of the goods and services – whether there have been claims or problems in the past – and reflect this in the contract terms. 

Conduct a risk assessment and select insurances and other clauses relevant to the contract risk profile.

Contract period

Contract period may impact the participation of SMEs. 

For example, long contract terms may prevent SMEs not sufficiently established to enter into long-term contractual commitments. 

See the Goods and Services Procurement Policy Framework for more guidance on contract period.

Insurance

Identify the insurable risks to decide on the types and level of insurance suppliers will need to have. 

Professional indemnity insurance should only be required if professional services are being provided and the risk assessment identifies a significant and insurable risk. Ensure requirements are reasonable taking into account the risk profile and value of the contract. Recognition should be given to professional liability limitation schemes. 

Check the levels of insurance in the standard contract templates for guidance.

Consider also if: 

  • the type and level of insurance is available for SMEs 
  • the cost of the insurance is prohibitive for SMEs
  • insurance is the preferred treatment for the risk or if there's another way to protect your ability to recover from the supplier (either alone or in combination with insurances).

See Mandatory use of the Treasury Managed Fund (TMF) for all government insurance requirements. View the Treasury Circular TC12-12

Liability

As a rule, liability of suppliers to government agencies in the contract should be:

  • commercially realistic in terms of which party can control the risk
  • capped at an appropriate level for the nature of the goods or services, for example at a multiple of the contract value.
Proportionate liability

The NSW Civil Liability Act 2002 allows for liability for loss to be apportioned between defendants proportionately. While the Act allows “contracting out” of proportionate liability, exercise this right only if the risk assessment justifies it. 

Contracting out can pose disadvantages to both suppliers and government. For example, it can expose suppliers to significant liability regardless of the size of their contribution to the loss. So it can limit competition because of higher insurance costs. Contracting out can reduce the range of suppliers, particularly SMEs. The suppliers’ costs arising from contracting out may also be passed on to agencies through higher prices for services. Commercial approaches in contracts provides more information.  

Payment terms (30-day payment scheme)

Small businesses, as defined in the 30 Days to Pay Policy, must be paid within 30 days or agencies must pay interest on the overdue amounts. Where the policy applies, contract terms should reflect this.

Dispute resolution

Dispute resolution processes should be simple, fast and low cost. 

Use mediation for small businesses with a turnover of less than $2 million via the Office of the NSW Small Business Commissioner.

Government policy

Clearly identify any government policies or requirements that a supplier must comply with under a contract.

Specifications

In general, specifications should be outcomes-based as opposed to technical requirements. But they will depend on the nature of the goods and services.

There should not be a mandatory requirement that a supplier has previous experience supplying to government.

Further guidance

For more information, please see: