Government-backed bonds to unlock growth of Indigenous construction

Joint Media Release with Member for Fairfax Mr Ted O’Brien MP

  • The Performance and Warranty Bond is a new $20 million facility that will provide bonds to Indigenous-owned construction and engineering companies to help them win construction works.
  • Construction businesses often have to provide bonds of up to 10 per cent of the contract value to guarantee the delivery of projects which prevents many from winning work.
  • The initiative has the potential to deliver as much as $200 million worth of construction contracts to Indigenous-owned businesses.

The Coalition Government is launching a new bespoke financial product to assist Aboriginal and Torres Strait Islander construction and engineering businesses win contracts.

Minister for Indigenous Affairs, Nigel Scullion and Member for Fairfax, Ted O’Brien who launched the Performance and Warranty Bond facility today at the worksite of Kennelly Constructions – the first recipient of a Performance Bond, assisting it win a major contract for the upcoming Gold Coast Commonwealth Games – said this new financial product will overcome a key impediment to the growth of the Indigenous business sector.

“We know that for a range of historical reasons many Indigenous businesses are undercapitalised and cannot compete for construction contracts which typically require tendering businesses to put up 10 per cent of the total value of the contract,” Minister Scullion said.

“The phenomenal success of the Indigenous Procurement Policy (IPP) – which has just eclipsed $1 billion of Commonwealth contracts to over 1000 Indigenous businesses in its first two-and-a-half years, up from just $6.2 million in 2013 – has busted a lot of myths that Indigenous businesses can’t compete on a value for money basis.

“Importantly these Indigenous businesses are also getting more Indigenous jobseekers into work, with IPP firms having an average 41 per cent Indigenous workforce compares to 0.7 per cent for non-Indigenous firms – meaning supporting Indigenous small businesses gets Indigenous people into work by a factor of 60 times.

“The construction industry is a particularly important sector to focus on because it’s such a large sector of the economy and because there are so many opportunities that Indigenous businesses, workers and apprentices are missing out on. But it also has some unique barriers to entry such as the requirement for companies bidding for work to provide a guarantee for up to 10 per cent of the value of the contract.

“The near unanimous feedback we have heard from Indigenous construction firms is that they can’t grow their businesses and put on more Aboriginal and Torres Strait Islander tradies and apprentices because the up-front costs of performance bonds lock them out of bigger contracts.

“This new $20 million facility for Performance and Warranty Bonds has been co-designed with Indigenous Business Australia and the Indigenous business sector to meet their needs and overcome this barrier to more jobs and economic growth.

The fund is administered by IBA and will either provide the bond directly to the Indigenous-owned business or alternatively provide capital to enable the business to secure a bond from a mainstream bank. IBA is co-investing $10 million in the facility.

Shane Kennelly, Managing Director of Kennelly Constructions – whose company has taken advantage of this new product – welcomed Minister Scullion to the Kennelly Constructions workshop to discuss the benefits of Performance Bonds for Indigenous-owned businesses like his.

“It is great to see that the Federal Government and IBA have developed a suite of financial products that can support the Indigenous business sector. The lack of intergenerational wealth can limit the growth of businesses like Kennelly Constructions,” Mr Kennelly said.

“Having access to a Performance and Warranty Bonds facility will enable us to take on larger projects while freeing up capital required to enable us to grow. This will have flow on effects such as providing employment opportunities for Indigenous people and increasing our spend through our Indigenous supply chain.”

Member for Fairfax, Ted O’Brien, welcomed this new small business initiative and it’s positive impact for the Sunshine Coast economy.

“It’s fantastic to see that this new Coalition Government initiative is leading to direct Indigenous and non-Indigenous employment outcomes here at Kennelly’s worksite in Chevallum and across the region.

“It is also wonderful that the Sunshine Coast is sharing in a piece of the Commonwealth Games action – this contract to build what a sign of confidence in our local businesses.

“Australians are increasingly seeing that jobs and growth was not just an election slogan but an outcome with a record 400,000 jobs created across the economy last year.

The Performance and Warranty Bonds fund is an initiative of the Indigenous Business Sector Strategy (IBSS) which was launched by the Prime Minister during Closing the Gap Week in February 2018. The IBSS is the first comprehensive roadmap to support the growth of Indigenous business across Australia through a range of new initiatives.

Performance Bonds will boost the capacity of Indigenous construction and engineering businesses to provide goods and services, which are now in high demand due to the Government’s Indigenous Procurement Policy and other similar policies around the country.

“By investing in today’s Indigenous businesses and entrepreneurs, we will foster a generation who will build their own business knowledge, assets and wealth” Minister Scullion said.