Small- and medium-sized enterprises offer a range of innovative products and services, but often face barriers when trying to do business with government. A recent webinar heard experts’ views on how technology and innovation is helping governments to better engage potential SME suppliers, for the benefit of both parties
Governments around the world are stepping up efforts to spend more of their procurement budgets with small and medium-sized enterprises (SMEs), as the audience heard at a webinar in early February entitled ‘Buying better: how innovation is helping unlock government procurement for SMEs’, organised by Global Government Forum and sister publication Global Government Fintech, and supported by knowledge partner Mastercard. In addition to exploring initiatives that have helped SMEs win a slice of government procurement spend, panellists also considered the barriers SMEs still face and how these could be lifted.
The COVID-19 pandemic has certainly added momentum for change, as Olga LaBelle, vice president for government engagement at Mastercard, noted. “What the pandemic highlighted for all of us and certainly for governments is that we live in a deeply interconnected world,” she said. “It’s exposed the vulnerabilities in the traditional supply chain, as governments saw first-hand when they tried to secure protective equipment and medical supplies.”
LaBelle noted that governments are increasingly looking to build flexibility and resilience into their supply chains and find new ways to restart key sectors. In OECD countries, government procurement represents 12% of GDP. “So what they buy and who they buy from is really one of the biggest tools that they have for spurring economic growth and economic recovery out of this pandemic. And we’re seeing more and more governments really looking more broadly at how they can use innovation and technology to better engage SMEs,” she said.
Four key barriers
Engagement is, however, proving to be a challenge. A study carried out by Mastercard last year found that despite ambitious policies, there are four significant barriers which still stand in the way of SMEs’ participation. LaBelle identified the first one to be lack of access and awareness of government procurement processes, including, for example, how to find bid opportunities where they have a chance of winning. “They are often up against companies with whole departments dedicated to government procurement. That expertise and knowledge is not a skill they have.”
Capital capacity is the second big barrier – SMEs don’t have the upfront capital to invest in fulfilling large government contracts. And where they do win contracts, they often struggle with cashflow due to payment delays.
The third big problem is the labour-intensive manual processes of managing invoicing, payments and reconciliation. And the fourth is the cybersecurity and data privacy requirements needed to bid on government contracts. “SMEs are behind on that,” said LaBelle.
Panellists agreed that greater uptake of digital technology provides the means to streamline payment processes, increase the visibility of opportunities and boost transparency.
“I think digital technologies have a huge role to play in reducing the processing time and the effort required, particularly for small value payments,” said Paul Allison, head of financial services at the Crown Commercial Service (CCS), the UK’s biggest public procurement organisation, which in 2021 procured £21bn (US$28bn) worth of goods and services. However, he cautioned that applying digital technology to old processes would not solve the issue.
Crown Commercial Service committed to increasing SME spend
Allison said that 75% of the 20,000 suppliers on the agreements that CCS has in place are SMEs. However, only 13% of direct spend that flowed from its commercial agreements last year went to SMEs. That figure has doubled since 2018 but as Allison described, CCS is committed to making it easier for SMEs to do business with government and to increase SME spend further.
It has targets in place to pay 90% of invoices within five days and 100% within 30 days, and is looking to ensure prime contractors pay their supply chains on time. There are also policies and practices in place via a refreshed action plan to remove barriers for SMEs.
“We want to look at better systems through which SMEs can work with us. We want to drive greater consistency in documentation – so if an SME is bidding for work, and they pick up one particular set of documentation, it doesn’t look dissimilar from a second set of documentation,” Allison added.
“We have executive level champions of SMEs across the business as well, to provide a real core focus on it. We also want to make sure that we focus on how we structure our agreements to give SMEs the best opportunity to be part of that agreement, and then to have the best opportunity to actually win business once they’ve secured a place on the agreement.”
Innovative approaches from Chile and Dubai
There is a lot that we could learn from Chile, shared Paulo Magina, deputy head of division for infrastructure and public procurement in the Public Governance Directorate of the OECD. The Chilean government has set up a marketplace that brings 100,000 SMEs together with 850 public agencies, and through which 60% of public procurement deals are done. The marketplace enables SMEs to get on board easily and it has evaluation criteria that allows agencies to meet specific policy goals – for example, for purchasing from women- or minority-led businesses.
Then there’s Dubai SME. The integrated division of the Department of Economic Development (DED) represents public contracts worth US$2bn, using a centralised procurement platform that provides access to both government and private sector contracts. Dubai SME also offers financial assistance to SMEs to help them bridge their working capital constraints.
These two procurement initiatives were held up as exemplars of government success stories by Magina.
Written into the Dominican Republic’s constitution
A very different approach to SME procurement was highlighted by Crystal Fiallo, deputy director in the General Directorate of Public Procurement for the Dominican Republic, where the principle of nurturing and engaging SMEs has been written into its constitution. Government has made it mandatory for all institutions to spend at least 20% of their public procurement budget with SMEs and is particularly looking to boost the number of women-led businesses participating.
This is monitored by a rigorous compliance system which allows the General Directorate of Public Procurement to measure whether the targets are being met.
Fiallo reported that 23% of the US$5.3bn contracted between 2019 and 2021 was with SMEs, and of the 82,527 SMEs given offers in 2021, 32% were led by women. Most of the SMEs have been supplying computer equipment and accessories, she said.
Fiallo said that building trust has been vital in attracting interest from SMEs. When the current government came to power in 2020, the public procurement agency focused on fighting corruption and establishing greater transparency.
A number of new initiatives have been launched to engage with more SMEs and alleviate poverty, including the promotion of family farming and cooperatives.
Reflecting on the Dominican Republic’s work to support women-led SMEs, Mastercard’s LaBelle observed that a focus on gender was becoming more prevalent globally, particularly on the SME side and with helping women get access to capital, which traditionally had been more difficult.
The panel was optimistic about the direction of travel. But another message was clear too. As governments use procurement to deliver on a number of policies, such as sustainable development goals, putting in place effective measurement systems to see if their policies are bearing fruit is vital.
Much has been achieved in recent years – but if governments are to take full advantage of the value that SMEs can offer, there is more work to be done.
The webinar ‘Buying better: how innovation is helping unlock government procurement for SMEs’ was hosted by Mastercard on 3 February 2022, with support from Global Government Forum. You can watch the 75-minute webinar via our dedicated event page.