Small and medium enterprises (SMEs) are a significant group of employers across NSW. They can supply directly to government agencies or as subcontractors to a government supplier.
You 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 a SME?
The SME and Regional Procurement Policy defines a SME as an Australian or New Zealand based a small or medium enterprise with fewer than 200 Full Time Equivalent (FTE) employees.
What's the difference between an SME and a small business?
A Small Business is a business with 1-19 FTE including sole traders and startups, and a Medium Business is a business with 20-199 FTE.
The Faster Payment Terms Policy and the small business exemption in the SME and Regional Procurement Policy apply to small businesses. The small business exemption allows agencies to purchase goods or services up to a value of $50,000 directly from a small business, even where those goods and services are available on a whole of government arrangement.
Procurement processes and engaging the market
To encourage SME participation, consider market engagement methods that:
- reduce the burden and time for SMEs to participate
- encourage innovative responses and allow SMEs to compete with larger suppliers, such as expression of interest processes
- be open to partnering arrangements, to enable SMEs to form partnerships, joint ventures or consortia.
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
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 may impact the participation of SMEs.
For example, long contract terms may prevent SMEs that not sufficiently established to enter into long-term contractual commitments.
Agencies must ensure that the minimum possible levels of professional indemnity insurance is imposed on SMEs, giving regard to the risk of the engagement.
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.
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(link is external).
Agencies must ensure minimum possible levels of public liability is imposed on SMEs, giving regard to the risk of the engagement.
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.
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 and 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.
Faster Payment Terms Policy
Registered small businesses, that supply to in-scope government departments will be paid within 20 calendar days of central payment departments receiving a correctly rendered invoice for goods or services provided for between $10,000 and $1 million. Refer to the Faster Payment Terms Policy for more information.
In December 2019, this will change to 5 business days of receiving a correctly rendered invoice.
Dispute resolution processes should be simple, fast and low cost.
Use mediation for small businesses via the Office of the NSW Small Business Commissioner.
Call 1300 795 534 or email email@example.com to access the service.
Clearly identify any government policies or requirements that a supplier must comply with under a contract.
In general, specifications should be outcomes-based as opposed to technical requirements, but 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.
For more information, please see:
- your agency's procurement policies and procedures
- SME and Regional Procurement Policy
- SME and Regional Procurement Policy Buyers Guidelines