Does Western public procurement serve the interests of SMEs?

First we have governments that must adhere to various trade agreements/ legislation.  Their policies require consistent, transparent processes for effective program delivery. Then we have SMEs, small and medium enterprises that often do not have the time or interest in learning or even considering bidding on highly regulated procurement processes to win new business.

They may not even challenge the represented solutions as cost efficient and of value to the public. Absence of SMEs in the bidding process, impedes the capacity of government to help the industry grow.

However, while both parties, the government purchaser and the SME vendor, proclaim the same objective – to procure and supply products or services of value for the public, they have divergent views on government procurement practices. Let’s look at the purchasing organizations a little closer.

Public sector organizations: Governments and public service organizations are mandated to adhere and comply with legislated procurement agreements such as the Agreement of Internal Trade and the New West Partnering Trade Agreement. These agreements regulate public service procurement practices. The public organizations further their practices and processes through policies and procedures complying with the Agreements, on how they will conduct procurement initiatives.

SMEs: This group is typically in business to sell a product or service. But they also purchase goods and services, often preferring to buy their goods and services from a supplier that is quick, agile, and does not require a complicated procurement process. They usually don’t have extensive resources for structured procurement and it is important for the SME to focus their time and resources on survival and growth. This group is interested in the shortest most cost-efficient path possible to market for selling their products and services.

So the question is, how do we determine effective procurement solutions for these divergent purchasing and vendor organizations?

Learning and building trust.  For the SME, there needs to be an understanding of how and why government or public sector organizations and NGO’s conduct their purchasing. A significant factor in competing in business is relationships. This is not to be confused with having a good relationship with a purchaser who makes a non-competitive decision to buy the SME’s solution on the spot.

Establishing a trusted relationship with these public service organizations is important before procurement initiatives occur. Building a relationship with these organizations required diligence and time and complicated by the size, regulations and pace of public sector decision making … and staff turnover. Vendor management and relationship building is a challenge for both – often very busy, parties.

To explain, when a public service organization identifies a problem, and the type of solution viewed to solve the problem, it may elect to procure a solution from the marketplace – this is termed the “make or buy” option for assessing the best value supplier. An SME – nimble, innovative, informed, local, networked, may have much to offer from their expertise and how their product or service would benefit and add value to purchaser, often before the purchaser has defined the problem.

An SME that has a specific product or service needs to develop and grow a relationship of trust and credibility with these purchasing organizations, in order to secure the delivery of that solution to the problem.

The relationship between the SME and purchasing government organization must be highly evolved and rooted in trust and a mutual understanding of the level of risk tolerance and position of trade law compliance within the purchasing organization. Generally, lower tolerance of risk drives a purchaser to accept less information from a supplier to avoid a biased and unfair competitive advantage for the SME.

The dilemma is that the SME may have more experience and knowledge of how to fix the purchasers’ problem with its solution than the purchaser would. The SME must know the risk threshold of the purchaser, often defined in the insurance specifications in the bidding document.

More often than not, the thinking that goes into procurement requirements criteria are derived from ma rket sources such as relationships with supplying SME vendors. An SME that understands the purchasing organization and is allowed to engage the staff in understanding their requirements through an established relationship of trust, increased the potential that their proposal will be competitive.

To Summarize: A successful contract between an SME and the public is both a science and an art. The SME must have an effective relationship with the purchasing organizations, learn the procurement rules if they are to submit a competitive proposal.

Recommendation: Government and SMEs should confer for helping Alberta’s SMEs in public procurement. SMEs have features contributing to innovation and diversification, retention and attraction so important in today’s economy. Together; SMEs and the purchasing public can introduce policies and practices that of increased benefit to Alberta.

This article originally appeared in QuikTech Notes, the newsletter of the Alberta Council of Technologies.

The author, Ken Hein, is a Certified Management Consultant with VCIO Consulting Group Inc.