Govt made $23.9m change to support Indigenous businesses without knowing if policy was effective

A report from the Australian National Audit Office has found there was limited evidence about whether the Commonwealth Indigenous Procurement Policy (IPP) was improving the lives of Indigenous Australians, despite agencies spending tens of billions of dollars on contracts designed to support Indigenous economic empowerment.

In February and as part of the March budget, Labor announced measures to "strengthen" the policy, however, as the report outlines, there is no evidence that the policy works.

"The National Indigenous Australians Agency has not demonstrated whether the [mandatory minimum requirements] are improving Indigenous economic participation," the report notes.

"Reforms to the Indigenous Procurement Policy were announced in February 2025 without a clear understanding of the policy's effectiveness."

The IPP was first introduced in 2015 to encourage government agencies to purchase from Indigenous-owned businesses and organisations in order to improve outcomes for Indigenous people.

As part of the policy, there are mandatory minimum requirements (MMRs) for contracts worth more than $7.5 million. The requirements include a minimum percentage of Indigenous employment on a contract, either 3 or 4 per cent, depending on the contract.

While the policy has widespread support within the sector, there have been concerns raised that despite the amount of government spending on Indigenous procurement, that money does not always end up in Indigenous hands.

A parliamentary inquiry in November 2024 said so called "black-cladding" was occurring, where non-Indigenous companies partnered with First Nations organisations, without the First Nations organisation having control or benefiting from the procurement.

In response to this and other inquiries, in February 2025, Minister for Indigenous Australians Malarndirri McCarthy announced changes to "strengthen" the Indigenous Procurement Policy, including lifting the targets and changing the ownership rules to qualify as an Indigenous business.

"These reforms, based on consultations with Indigenous and non-Indigenous businesses, Chambers of Commerce and various levels of government, will create even more opportunities for First Nations businesses," Senator McCarthy said at the time.

This was followed up with a $23.9 million funding boost in the 2025 budget.

A government spokesperson said the "important" policy supported the growth of Indigenous businesses.

"We know that since the IPP started in 2015, over 80,000 contracts have been awarded, with a total value of over $11.4 billion (up from the $10 billion announced in October)."

However, five years on from an initial audit of the program and increasing billions being spent under the policy, there was limited data to show the dollars were improving the lives of Indigenous Australians, the audit office found.

The first audit, published in 2020, recommended the NIAA implement an evaluation strategy. This was developed but never implemented.

The follow-up 2025 audit found that while entities were including the policy requirement at the start of contracts, there was incomplete reporting of how these requirements were fulfilled in practice and performance measures did not align with the policy's intent.

"The [National Indigenous Australians Agency] public reporting on the IPP does not provide information on the MMRs' effectiveness. It is unclear if the IPP's objectives of stimulating Indigenous entrepreneurship, business and economic development, and providing Indigenous Australians with more opportunities to participate in the economy, are achieved."

Of those contracts entered into since the policy came into effect, less than 20 per cent had a final compliance assessment at the end of the contract. Of those that did, over a quarter were found not to have met the target.

Support for implementing the policy, including guidance documents for Indigenous businesses, remained in draft or were incomplete; in addition, agencies were incorrectly exempting themselves from the requirements.

While observers have hailed the "success" of the program, given agencies were spending more under the policy, this did not mean the policy was achieving its intent of supporting Indigenous Australians.

"The information [contract number and value] does not go to the effectiveness of the IPP in achieving its stated objective (which is to 'stimulate Indigenous entrepreneurship, business and economic development, providing Indigenous Australians with more opportunities to participate in the economy')," the ANAO report found

The government spokesperson did not respond directly to the concerns raised in the report, but said the reforms would improve the policy and crack down on "black cladding".

"The government's reforms strengthened eligibility criteria, requiring businesses to be 51 per cent First Nations owned and controlled (or to be registered as an Indigenous Corporation). They also lifted the Commonwealth's Indigenous procurement target and committed to working with regulators to better target and tackle 'black cladding'."

The report made eight recommendations, all of which were agreed to by the NIAA and other agencies.