NSW budget: Faster payments for small business subcontractors and new procurement limits for SMEs

Big businesses with government contracts in New South Wales will be required to pay their subcontractors within 20 days, under a policy to be included in next week’s state budget.

The 2021-22 NSW budget, to be handed down on Tuesday, June 22, will also include significant changes to the state government’s procurement policy, in a bid to help more small businesses win government tenders and contracts. 

The subcontractor payments proposal extends a pilot program that began in January, which required a number of large businesses with government contracts to pay their own suppliers and subcontractors within a shorter period of time. 

Under the new arrangements, all large businesses that have government contracts over the value of $7.5 million will be subject to the 20-day payment timeframe for those projects. 

NSW Small Business and Finance Minister Damien Tudehope said the government wants to be a leader in improving small business payment times, amid a growing focus on how big businesses pay the smaller businesses they work with. 

“Cashflow can be a major issue for small businesses and the new policy will support the important role small businesses play in the NSW economy,” he said. 

The new policy extends the state’s existing ‘NSW Faster Payments Policy’, which requires registered small businesses with government contracts to be paid within five business days. 

Former small business ombudsman Kate Carnell previously welcomed the policy during its pilot stage, saying in January that the NSW government’s approach to payment times “should be considered the benchmark for governments at all levels”. 

SME procurement changes

Next week’s state budget will also include changes to the government’s SME and regional procurement policy, which was first introduced in 2019 to give businesses more opportunities to win government contracts and tenders. 

While Tudehope said the policy has had a “positive” impact, the government wants to “continually improve small business participation in our supply chain”. 

The new policy will lift the current general exemption of $50,000 for small businesses to $150,000 for SMEs and regional businesses, which means government agencies will be able to directly engage businesses to supply goods or services up to a higher value. 

NSW government agencies will also be required to first consider SMEs for contracts or tenders up to the value of $3 million, in situations where direct engagement is allowed. 

Suppliers that tender for contracts valued above $3 million will be required to submit a ‘SME and Local Participation Plan’, which will then become contractually binding, and the government says it will also increase the value it places on suppliers that deliver “economic, ethical, environmental and social outcomes through a contract”. 

In the past 12 months, the NSW government has taken steps to increase procurement from social enterprises and set targets for one-third of the state’s ICT procurement budget to go to SMEs. 

The federal government also committed to improving its procurement policies in May’s federal budget by allocating $2.6 million over four years to “support and strengthen” SME participation in Commonwealth procurement. 

Additional information about changes to the NSW government’s payment times and procurement policies is available here.