This research note examines the state-of-play in the Australian government contract market, and how it may affect competition in the broader economy. The value of government contracts in Australia has more than quintupled over the past decade to $190 billion in 2022, making the government dominant force with the power to impact market dynamics.

The research finds that governments may be harming competition in this burgeoning area of the economy as:

• Government contracting disproportionately favours older firms, and this preference is increasing over time.
• There may be barriers in the procurement process preventing newcomers from challenging incumbents.
• Larger firms are claiming an increasing proportion of government contracts.

The authors also find that firms that contribute to political parties are more likely to secure government contracts and operate in heavily regulated industries. However, causality is difficult to establish and there may be other factors at play.

The research also shows that governments contracting decisions – including choosing larger, politically connected firms – have the potential to impact competition.