How Councils & Government Can Utilise Local Suppliers Without Increasing Risks

Government procurement is not just about getting the lowest price. It is about delivering long-term value, strengthening supply chains and ensuring sustainable economic growth.

Every state and territory in Australia has policies designed to encourage local businesses to participate in government contracts. However, procurement processes often default to large, national suppliers due to contract structures, risk management practices and outdated assumptions about supplier capability.

Local procurement is not just a compliance measure. It is a strategic approach that increases competition, reduces risk and supports communities while delivering better outcomes for councils and government agencies.

Here are five reasons why expanding your local supplier ecosystem is a good idea, and how government procurement teams can make it easier and more effective:

1. Strengthen the Economy and Increase Competition

Investing in local businesses keeps money within the community, creates jobs and builds robust supply chains. The Australian Local Government Association highlights that increased funding to local communities via councils has considerable benefits, noting that “the multiplier effect of local government expenditure is substantial.” ​

Whitehorse City Council illustrates this impact by stating, “For every $1 you spend at a local small business, it’s like sprinkling $4 worth of magic dust back into the local economy.”

Queensland’s Local Benefits Test rewards suppliers who contribute to the local economy by employing locals, investing in training or working with local subcontractors. Western Australia’s Buy Local Policy supports regional businesses by offering price preferences and requiring local participation plans for major projects.

Beyond economic benefits, engaging local suppliers increases competition. More competition leads to better pricing, stronger supplier performance and a broader range of solutions tailored to local needs. It also reduces the risk of supplier capacity bottlenecks by ensuring more businesses can deliver essential services.

A deeper supplier pool gives councils and agencies more options and better outcomes for public spending.

2. Reduce Project Risk and Improve Supplier Resilience

Bigger does not always mean safer. Large firms have collapsed mid-contract, leaving governments to deal with costly delays and last-minute replacements.

Instead of defaulting to large suppliers, procurement teams should assess financial capacity based on actual risk.

South Australia’s State Procurement Act 2004 requires procurement teams to make risk-based decisions, ensuring financial assessments are based on real indicators rather than size alone.

By increasing supplier diversity, government agencies can avoid over-reliance on a small number of major suppliers. This reduces supply chain risk, increases resilience, and ensures continuity in service delivery.

A strong local supplier base provides more stability and lowers the risk of project disruption.

3. Contract Structures Make or Break Local Supplier Engagement

Many local businesses want to bid for government work but cannot because contracts are structured in ways that favour large firms.

Common barriers include:

• Contracts that are too large for smaller suppliers to handle
• Excessive compliance and insurance requirements that add unnecessary costs
• Payment terms that strain cash flow, making it difficult for SMEs to deliver

New South Wales’ Small and Medium Enterprise (SME) and Regional Procurement Policy encourages agencies to structure contracts so SMEs can participate.

Victoria’s Best Practice Procurement Guidelines recommend ensuring compliance and financial requirements are proportionate to actual contract risk.

How Procurement Teams Can Improve Supplier Engagement

• Break large contracts into smaller, manageable packages so more suppliers can compete
• Allow subcontracting and joint ventures to help SMEs combine resources
• Ensure compliance and insurance requirements are fair and reflect the size and nature of the contract

Restructuring contracts in this way leads to better supplier engagement and a more competitive procurement process.

4. Faster Payment Terms Give Local Businesses the Confidence to Bid

Cash flow is a major challenge for small businesses.

Government contracts often have payment terms of 30, 60, or even 90 days, which puts unnecessary pressure on suppliers. Large firms can absorb these delays, but SMEs struggle to cover wages, rent, and supplier costs while waiting for payment.

Queensland’s On-Time Payment Policy mandates that small businesses must be paid within 20 days of invoicing to improve cash flow and encourage SME participation in government procurement.

Faster payment terms help local businesses bid with confidence, reduce financial stress, and improve supplier reliability.

A simple shift to 14-day payment terms for small suppliers can strengthen relationships, improve project delivery, and increase the number of capable suppliers willing to bid for contracts.

5. Simplifying Procurement Processes Encourages More Local Bids

Many SMEs avoid government tenders because the process is too complex.

Tasmania’s Procurement Framework highlights the importance of fair and transparent processes but also warns against excessive administrative burdens that discourage SME participation.

Victoria’s Social Procurement Framework encourages agencies to simplify documentation and actively support SMEs through the procurement process.

How Procurement Teams Can Increase SME Participation

• Simplify tender documents so they are clear and easy to understand
• Provide training and workshops to help local businesses navigate the procurement process
• Offer feedback to unsuccessful bidders so they can improve future submissions

A more accessible procurement process leads to better supplier engagement and a stronger pool of competitive bidders.

Local Procurement is a Win for Governments and Communities

Every Australian state and territory has policies designed to encourage local business participation in government contracts. These policies are in place because local procurement delivers tangible benefits:

• More competition leads to better pricing and better value for money
• A diverse supplier base reduces risk and increases supply chain resilience
• Supporting local businesses drives economic growth and strengthens communities

Many government agencies are not realising these benefits because contract structures, risk management approaches, and administrative complexity continue to favour large firms.

To fix this, procurement teams should focus on:

• Structuring contracts so SMEs can participate
• Using financial data rather than assumptions when assessing risk
• Implementing faster payment terms to support SME cash flow
• Simplifying procurement processes to increase local supplier engagement

By making these changes, procurement teams do not just support local businesses. They create stronger, more competitive supplier markets that deliver better long-term outcomes for government projects.

Want to Improve Local Supplier Engagement in Your Procurement Strategy?

If your procurement team is looking for practical ways to engage local businesses while managing risk, we can help.

Let’s discuss how to align procurement best practices with real-world supplier engagement.