Government procurement from small businesses

The global economic crisis continues unabated with some pockets of growth seen in certain economies, whilst others are teetering on the edge of another recession. International and local governments are therefore creating strategies to address the recession in their area, and stimulating the local economy by shifting expenditure to local businesses heads the list for most.  

Countries’ initiatives ranging from the EU, UK and North America reforming public procurement rules provide a sound justification to ensure a level playing field for local small and medium-sized businesses bidding for government contracts. An example of one such initiative is the “Small Business Act” for Europe.  

And several studies for example, the United Nation’s Promoting Local IT Sector Development through Public Procurement states that local purchases of goods and services in the information technology sector by governments has untapped potential for stimulating domestic economic progress, particularly in developing countries. 

These initiatives and study are worth taking note of considering that the new government needs a plan for economic recovery and would do well to promote public procurement as a tool to stimulate our economy. 

In 2011 Cayman Islands government procurement was forecasted at around CI$73 million. This is a significant market, and one from which Cayman’s small and medium-sized businesses ought to be receiving a substantial share considering their overall contribution to the economy. By buying more of its goods and services locally, and working with SMBs to encourage greater supplier diversity, government can take the lead in stimulating sustainable growth in our economy. Government should recognise that the majority of money spent with local businesses remains at home, creating what has been described a positive “multiplier effect”.  

Contrasting this, a sizeable proportion of the funds spent with large, often multinational firms exit the country and have little if any effect on the local economy.  

In other words, awarding government contracts to foreign businesses represents a substantial missed opportunity to stimulate our economy and create jobs. 

Now that government has adopted the Framework for Fiscal Responsibility, it is only appropriate that its policies and procedures be applied immediately to public procurement. Furthermore, the CI$5 million minimum threshold for procurement reviews by the Central Tenders Committee should be lowered for good governance and transparency purposes.  

In addition to lowering the financial threshold, reform of the tendering process needs to be done since the process remains a major obstacle to small businesses, as does the challenge in finding and accessing government contracts; being able to compete with larger businesses and offshore companies, plus being unable to meet stringent eligibility criteria. There are too many small businesses being left battered by the procurement process that has an impassable wall of bureaucracy or a pervasive belief that big and foreign is attractive. 

Other barriers include but are not limited to: 

  • Too short time spans to prepare proposals; 
  • Cost of preparing the proposals; 
  • Unclear jargon; 
  • Requirement of financial guarantees; 
  • Lack of knowledge about tender procedures, etc. 

Therefore, significant efforts are required to reduce these difficulties that SMBs face. Notwithstanding, it is acknowledged that those charged with awarding government’s and public authorities’ contracts are required to protect public funds, and many need to be persuaded that reforming their practices will not jeopardise this responsibility. 

Potential solutions to consider include a procurement package devised to reduce the administrative burden and costs related to tendering, make procurement systems more transparent and easier for SMBs to access, and to encourage the use of IT systems (e-procurement) to simplify the process. The ultimate goal must be equal opportunity.  

Another solution is a local preference rule that will award local businesses seeking government contracts by assigning them greater value on their bids and proposals, a tactic that is being used by the city of Los Angeles. This local preference rule could also be a component of public private partnership projects.  

By simply recognising the benefits small and medium-sized businesses can deliver and making contracts more available to them, government can give local SMBs a just and fighting chance. 

The scale of government expenditure provides a vast potential to impact the development of innovative solutions, to enhance delivery of public policy and services, and to encourage economic growth. It is incumbent on government to see that this potential is fully realised and that small and medium-sized businesses are an integral part of the process.