Mid-tier audit firms are circling to capture expiring KPMG contracts worth nearly $200 million amid the firm's ban from bidding for new federal contracts. However, a current loophole in the fine print may hinder those opportunities.
KPMG agreed not to bid for federal contracts between June 16 and September 30, 2026, but the Finance Department's directive excluded existing arrangements from the suspension. It meant current contracts can be amended and extended if the contract has an extension option.
During the period of the ban, a total of 267 KPMG contracts are scheduled to reach their completion dates.
However, 106 of those expiring agreements - nearly 40 per cent - contained active extension options.
A Canberra Times analysis of historical KPMG contracts showed contracts with an extension option were 42.1 per cent likely to be amended, compared to 25.4 per cent of contracts without them.
Nine out of 10 amendments were applied to contracts without an extension option with amendments being applied to about 35 per cent of all KPMG contracts. The firm has 194 contracts that are locked in to operate beyond June 30, 2026.
The suspension of KPMG from new Commonwealth work could create a window for smaller competitors to secure long-term incumbency for audit contracts.
AusTender data showed that between 2022 and 2025, KPMG led the federal auditing market with more than $51.2 million in contract value, outpacing rivals like Ernst & Young (EY).
However, its value of audit contracts fell to $2.6 million in 2025-26, with mid-tier firms like Bellchambers Barrett, Sententia Consulting and Cobalt Consulting capturing more contracts.
This trend was well under way before the formal restrictions took effect. In the audit services category, the collective market share of the big four plunged from 32.1 per cent in 2021-22 down to 12.3 per cent in 2025-26.
The fall led to more opportunities for mid-tier firms. RSM was awarded 19.1 per cent of audit contracts in 2022-23, followed by Protiviti, Cobalt Consulting and Bellchambers Barrett collectively locking down more than 11 per cent of all federal audit contracts the following year.
This contraction in audit contracts aligned with a broader fall in the market share of federal contracts for the big four - PwC, KPMG, Deloitte and EY - which decreased from 20.2 per cent in 2021-22 to 8.9 per cent in 2025-26.
Cobalt Consulting managing director Mark Tsui said although recent updates to Commonwealth Procurement Rules to increase opportunities for small and medium enterprises (SMEs) have encouraged agencies to look more broadly at the market, the structural shift towards independent firms has been building for some time.
"There's been a clear focus across government on supplier diversity, value for money, contestability and access to experienced teams without necessarily relying on the scale of the largest firms," Mr Tsui said.
"I do think these changes create more room for mid-tier and SME firms to be considered, particularly now that agencies have been encouraged to look more broadly at the market ... it's not a shortcut for us though - all firms still need to compete and deliver - so for us, we continue to focus on delivering value for money through our capability, track record, integrity and pricing."
In the economics committee at Senate estimates, Industry Department officials said they had moved away from KPMG as the internal auditor and instead awarded contracts worth a combined $2.5 million to Sententia and Cobalt Consulting.
Multiple agencies have begun reassessing their active contracts with KPMG.
Finance has directed agencies to seek assurances from the firm that no individuals under investigation are involved in the delivery of these contracts.
The pause on new federal work might hit the Defence Department the hardest where KPMG has been the top-ranked supplier on the multibillion-dollar Defence Support Services (DSS) panel over the past decade.
The DSS panel covers the procurement of engineering, logistics and professional services needed to maintain Australia's military equipment and systems.
Since 2015, this procurement panel allocated a cumulative $8.7 billion in federal funding, with KPMG capturing $1.2 billion of that total, representing about 14 per cent market share of the entire panel pool.
Although the firm also maintained about the 14 per cent share of all DSS panel allocations between the 2022-23 and 2024-25 financial years, its footprint reduced during the 2025-26 financial year down to about 10 per cent.
Large sovereign SME aggregators have surged on the defence panel, such as SME Gateway with $198.9 million in contracts awarded and ServeGate with $152.1 million.
The DSS panel accounted for about 46 per cent, about $559 million, of KPMG's total amount earned in federal contracts between 2022-23 and 2025-26.
This panel reliance underscored its broader relationship with Defence as a whole, which served as the firm's absolute largest client by generating $734.1 million across 310 federal contracts over those four financial years.
