Australian governments spend over $200 billion a year across federal, state, territory, and local levels. Yet small and medium enterprises (SMEs), despite making up 99.8% of all businesses, only secure a modest slice of this pie. Larger firms often dominate because they have dedicated bid teams, deep pockets, and networks to navigate complex procurement rules. But here’s what many SMEs don’t realise: government procurement rules are increasingly designed to favour them if they know how to leverage the policies. This is your practical guide to levelling the playing field.

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Why SMEs Are Missing Out

Even though agencies talk up SME participation rates, the reality is stark: SMEs account for a small portion of the value of government contracts. The obstacles? Complexity, time constraints, and a lack of awareness about the policies that could help them win. The good news is that every government jurisdiction in Australia, from the Commonwealth down to the territories, has measures aimed squarely at giving SMEs a leg up. Let’s explore how to turn these policies into competitive advantage.

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Break Up the Big Jobs: Policies to Help SMEs Access Large Projects

Government frameworks encourage agencies to unbundle large projects into smaller packages so SMEs can compete. Here’s how each jurisdiction handles it:

Commonwealth (Federal)

Under the Commonwealth Procurement Rules (CPRs), agencies must avoid procurement practices that disadvantage SMEs and are encouraged to break large procurements into smaller, more accessible packages.

New South Wales (NSW)

The SME and Regional Procurement Policy pushes a “SME or Regional First” approach for direct buys under $250,000 and encourages splitting larger contracts into smaller work packages.

Victoria (VIC)

The Local Jobs First Policy requires agencies to consider disaggregating projects so local SMEs can participate, especially below VIPP thresholds.

Queensland (QLD)

Under the Queensland Procurement Policy (QPP), agencies are encouraged to unbundle procurements where possible to allow local suppliers a chance to participate.

Western Australia (WA)

The WA Buy Local Policy explicitly encourages disaggregation of large contracts to increase SME engagement.

South Australia (SA)

The SA Industry Participation Policy (SAIPP) encourages splitting large projects where feasible to open opportunities for local SMEs.

Tasmania (TAS)

Under the Buy Local Policy, agencies must consider disaggregation to ensure local businesses have opportunities to bid.

Australian Capital Territory (ACT)

The Canberra Region Local Industry Participation Policy (LIPP) includes commitments to explore opportunities to divide larger contracts where practical.

Northern Territory (NT)

The Buy Local Plan encourages government buyers to divide projects into smaller, manageable portions that SMEs can bid on.

How SMEs can use this: If you see a large tender that feels too big, reach out to the agency and ask if smaller packages exist, or if subcontracting opportunities are available. In sectors like Defence and infrastructure, primes are often under pressure to involve SMEs.

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Local Content Weightings: Turning “Local” into Tender Points

Many jurisdictions assign significant evaluation weight to local content or economic benefit. This can be a game-changer for SMEs who can prove local employment, supply chains, and economic contributions.

Commonwealth (Federal)

For contracts over $4 million ($7.5M in construction), agencies must consider broader economic benefits to the Australian economy and must avoid processes that disadvantage local suppliers.

NSW

Tenders over $3 million must include at least 15% non-price criteria, with at least 10% specifically weighted towards SME participation or regional economic benefits.

VIC

Under Local Jobs First, local content requirements are triggered for projects above $3M (metro) or $1M (regional). Strategic projects over $50M have set minimum local content targets.

QLD

The Local Benefits Test applies, with 10–30% of tender evaluation weighting tied to local content, jobs, and economic benefits.

WA

Under WAIPS, Industry Participation Plans carry a weighting of 10-20% in tender scoring.

SA

SAIPP requires local participation as a minimum 15% weighting in applicable tenders, sometimes higher for priority regions or sectors.

TAS

Tenders above $100,000 must include a 30% Economic and Social Benefits weighting.

ACT

Local participation considerations are integrated into evaluations, though specific weightings are not publicly fixed.

NT

In the NT, price is capped at a maximum of 30% of the evaluation score, ensuring local benefit factors carry at least 70% of the evaluation weight.

How SMEs can use this: Provide evidence of local staff, suppliers, community engagement, and regional economic contribution. Don’t just claim local benefit, show it through staff numbers, supply chain details, or community partnerships. These weightings can make a higher price still competitive.

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Direct Procurement Opportunities: Avoid the Full Tender Process

One of the biggest secrets is that governments don’t always have to run full tenders. Many jurisdictions allow direct engagement with SMEs for lower-value contracts, bypassing complex processes.

Commonwealth (Federal)

CPRs Exemption 17 allows agencies to directly procure from an SME for up to $200,000 for most goods and services, and up to $500,000 for Defence procurements.

NSW

Direct purchasing is allowed up to $250,000 from SMEs or regional suppliers if in a regional area. The Small Business Exemption allows agencies to purchase directly from small businesses up to $50,000, even if a whole-of-government contract exists.

VIC

The Procurement Innovation Stream allows direct engagement of SMEs for proof-of-concept projects up to $1 million.

QLD

Lower-value procurements encourage direct approaches to local SMEs where possible.

WA

Under the Buy Local Policy, agencies have flexibility to engage local businesses directly for smaller procurements under specific thresholds.

SA

Agencies can directly engage local SMEs for lower-value procurements, though formal limits vary case by case.

TAS

Direct purchasing is encouraged, particularly under $100,000, where agencies are expected to approach local businesses first.

ACT

The LIPP does not set explicit thresholds for direct procurement but allows flexibility in low-value cases.

NT

For low-value Tier 1 and 2 procurements, agencies must invite at least one Territory enterprise to quote.

How SMEs can use this: If you offer innovative services or niche solutions, propose small-scale projects under these thresholds. It’s quicker for agencies and less risky for both parties.

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Industry Participation Plans: The Must-Know Document

Several states require contractors to submit formal plans showing how they’ll engage local businesses and workers. Done well, these plans become a competitive advantage.

VIC – Local Industry Development Plans (LIDPs)

For projects over $3M metro or $1M regional, businesses must outline how local businesses, materials, and workers will be used. Strategic projects over $50M have set minimum local content percentages.

SA – Industry Participation Plans (IPPs)

Required for contracts of $4M+ in metro areas or $1M+ in regional areas. Local participation accounts for at least 15% of evaluation weighting, often higher for priority projects or regions. Projects over $50M or in special regions require Tailored Industry Participation Plans.

QLD – Industry Participation Plans

Required for significant projects, especially infrastructure, detailing local supply chain use, employment outcomes, and regional benefits.

WA – Industry Participation Plans under WAIPS

Required for contracts of $1M+ metro or $0.5M+ regional. Weightings of 10-20% in evaluations.

TAS – Tasmanian Industry Participation Plans (TIPPs)

Mandatory for projects above $5M, optional for projects between $2M and $5M. Plans are published for transparency and enforced through contracts.

ACT – Local Industry Participation Plans

Required for procurements $5M and above, contractors must submit detailed plans and report on delivery of commitments.

NT – Local Content Plans

Required in all tenders, detailing NT employment, local business involvement, and regional development outcomes.

How SMEs can use this: Prepare a strong, authentic template highlighting local partnerships, Indigenous business engagement, workforce development, and community impacts. Larger firms often produce generic documents. SMEs can stand out with real examples and measurable commitments.

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Don’t Forget Defence: The Australian Industry Capability (AIC) Program

Defence procurement has unique rules requiring big contractors to involve local businesses. Under the AIC Program:

• It applies to Defence projects over $20 million.
• Prime contractors must prepare AIC Plans detailing how they’ll involve Australian SMEs, use local supply chains, transfer technology to local industry, and support training and skill development.
• Defence also allows direct procurement of up to $500,000 from SMEs without full tendering.

How SMEs can use this: Register with the Industry Capability Network (ICN) Gateway. Approach major Defence contractors proactively. Emphasise specialist skills, local manufacturing, or niche capabilities.

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The Bottom Line

Government procurement rules aren’t just red tape, they’re tools SMEs can use to compete with larger firms. Big businesses might have scale and resources, but SMEs have agility, local presence, and genuine stories that governments want to buy into. By knowing the policies and preparing well, smaller businesses can turn the tables, win more contracts, and help drive the Australian economy forward.

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