New Indigenous control rules for Indigenous Joint Venture Companies
Joint ventures (JVs) are a common feature in the Indigenous business sector. A joint venture refers to a collaboration between two businesses for strategic or commercial purposes. 100% owned Indigenous businesses looking to bid for contracts under the Commonwealth Government’s Indigenous Procurement Policy (IPP) may lack capacity to carry out large projects. Many are forming JV companies with larger non-Indigenous businesses, in order to reach scale, build skills and experience. However, an increasing issue is the rising number of disputes between parties of Indigenous JV companies. A key concern has been the Indigenous party’s lack of control of the JV company.
In order to address this, from 1 January 2019, incorporated Indigenous joint ventures must register with Supply Nation. As part of this process, applicant businesses must:
Be at least 50% Indigenous owned, and demonstrate 50% Indigenous involvement in the management and control of the joint venture;
Have in place a strategy to build the capability of the Indigenous business partner; and
Have an Indigenous workforce plan in place.
Any joint ventures that wish to register must first go through a ‘verification interview’, and then be reviewed annually to confirm that they are operating in line with the plans submitted to, and discussed with, Supply Nation.
These changes have emerged as part of Indigenous Affairs Minister Scullion’s ‘Zero-Tolerance’ approach to ‘black-cladding’. ‘Black-cladding’ is a term used to describe conduct where a non-Indigenous business enters into superficial arrangements with an Indigenous party in order to qualify as ‘Indigenous’ for the purposes of winning government contracts under Indigenous procurement policies.
Further, these changes are aimed at providing stronger requirements to make sure that more of the money spent by agencies under the policy actually contribute towards employment and socio-economic outcomes for Aboriginal and Torres Strait Islander communities as intended, and that more benefits flow to the Indigenous sector.
What does this mean for Indigenous businesses?
These changes will apply to all incorporated Indigenous joint ventures who are seeking to win Commonwealth contracts under the IPP, being either newly formed joint ventures or existing joint ventures already registered with Supply Nation. These changes will implement more stringent requirements to be achieved before incorporated Indigenous joint ventures are eligible to compete for Commonwealth contracts under the IPP.
There will be a grace period for non-compliant joint ventures that were registered with Supply Nation under the older rules until July 2019 to meet the new requirements, but agencies will be able to cancel any contracts with joint ventures that are not compliant by the deadline. Transition arrangements may be available for Indigenous joint ventures registered on the Supply Nation directory who require additional time to negotiate the changes. If your business is an Indigenous joint venture, you should contact Supply Nation to commence the registration process.
Governance documentation is required
It is important for Indigenous JV companies to have strong constitutions and shareholder’s deeds that establish decision making processes, delegation and authority structures to enable Indigenous management and control. These governance documents are important to align the company’s vision and to develop a strong awareness and understanding of rights and responsibilities that come with their roles in the JV company. Strong foundation documents can also prevent disputes. Most importantly, Indigenous joint ventures wanting to be registered with Supply Nation will be required to have a constitution which essentially sets out how the company will meet the control and management test in its governance.
How can we help?
Terri Janke and Company have assisted many Indigenous businesses in the formation of JV arrangements. We can help you by:
Providing advice on due diligence – the questions to consider when entering JVs
Providing advice/assist on set up
Drafting foundation documents: values statements; Shareholder’s agreements, constitutions
Advising companies regarding their continued compliance and status
Advising on disputes and provide mediation
For further information regarding the changes to IPP joint venture registration, visit the supply nation FAQs