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"Black cladding" is having a massive impact on First Nations businesses but what is it?

Brendan Foster -

First Nation businesses are getting rorted out of tens of millions of dollars of taxpayer-funded contracts each year because of an unfair practice called "black cladding".

So, what is black cladding? And what needs to be done to stamp it out?

To put it simply, black cladding is when non-Indigenous companies boost their Indigenous shareholder base or claim to be a First Nation businesses in a bid to win government contracts.

According to the federal government's Indigenous Procurement Policy (IPP), an Aboriginal business is defined as a business with at least 50 per cent Indigenous ownership.

Under the current federal IPP, three per cent of all contracts, and 1.75 per cent of the value of all contracts, must be awarded to businesses that qualify as First Nation businesses.

Since the IPP was introduced in 2015, around $1.6 billion has been awarded to Indigenous companies but many Aboriginal businesses believe the system is being rorted.

Supply Nation Co-Chair Glenn Johnston said black cladding was of great concern to Aboriginal and Torres Strait Islander people.

"Black cladding is often used to take unfair advantage of Indigenous procurement policies," he said.

"It's a practice where a company sets up a structure which makes it look like Indigenous people are involved. But in reality, there is little involvement of or commitment to Aboriginal or Torres Strait Islander people beyond the façade that has been created."

Aboriginal lawyer and founder of AMK Law, Matthew Karakoulakis said black cladding was inhibiting the growth potential of the First Nations economy.

"It robs the imperatives detailed by the Commonwealth Government which has outlined some key initiatives throughout the past years," he said.

"There has been the creation of First Nations business hubs, Chambers of Commerce like Kinaway and the New South Wales Indigenous Chamber of Commerce.

"Finance and funding of First Nations business have been given some drive and Indigenous business through the structure of joint ventures have become very popular."

Mr Karakoulakis is advocating for an independent investigation into black cladding, due to its potential impact on the First Nations economy.

He also emphasised the importance of Supply Nation taking further steps to address the issue of black cladding. This came following a Parliamentary report on Indigenous Employment and Business in September 2021, which suggested Supply Nation refine their criteria for an Aboriginal business to help prevent such practices.

The Standing Committee on Indigenous Affairs' Report on Indigenous Participation in Employment and Business made 17 recommendations aimed at eliminating black cladding and enhancing the effect of the Indigenous Procurement Policy on Indigenous communities.

"Black cladding is a recurring concern, often seen in both incorporated joint venture and the unincorporated joint venture as soon as you see the non-Indigenous business entity or individual taking unfair advantage of an Indigenous business entity or individual for the purpose of gaining access to otherwise inaccessible Indigenous procurement policies or contracts," Mr Karakoulakis said.

"Supply Nation has some checks and balances as well as a five-step verification process, but is Supply Nation really just a toothless tiger in this respect?"

Mr Karakoulakis that the federal government seems to remain somewhat passive on the black cladding issue, despite possessing powers to step in.

"The legal issues include Australian Consumer Law, ASIC Act, and the Corporations Act and there's some reasonable cross over with the current regime and Greenhouse emission from a conduct perspective," he said.

"But not many people know about the ways where the Australia Consumer Law and as contained in schedule 2 of the Competition and Consumer Act might be able to help."

Ms Johnston said Supply Nation was doing everything within its powers to stamp out black cladding.

"We encourage people who believe a business is 'black clad' to report it to Supply Nation so we can investigate and if warranted, take action," he said. "If we find out a business is black-clad, we can deregister them, and they are no longer entitled to use Supply Nation's verification branding.

"It's up to everyone to stamp out black cladding – Governments, Supply Nation and individuals."

Anyone who suspects a company of black cladding can confidentially report it using a form on the Supply Nation website: Supply-Nation-reporting-form-black-cladding.pdf (supplynation.org.au).

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