7 tips to increase SME participation in public procurement
Government spending with SMEs can make a big difference. According to the World Bank, approximately 90 percent of businesses are SMEs and account for half of employment opportunities worldwide, yet governments spend most of their money with large businesses. By contracting more with local SMEs, governments can deliver better and more creative solutions for residents, expand access to economic opportunity, and put taxpayer dollars back into their communities. But low SME participation rates in public procurement means that many governments are missing out.
Through Lift, our impact accelerator program, we are supporting teams to identify and implement practical strategies to increase opportunities and participation for SMEs, particularly for local women- and minority-owned SMEs, as well as co-create their plans for change. Lift teams working on this issue include the cities of El Paso and Des Moines in the U.S., Mexico City, Mexico, the metropolitan government of Lille, France, or Ekiti State, Nigeria.
We know that many of our community members want to improve SME participation, too. That’s why I have asked my colleagues to share their insights. Here are some of their tips to help you get started:
Lay the groundwork
- Establish clear and quantifiable goals on SME participation. For example, the City of Boston created clear targets and a performance management system to track progress on spending with certified Minority/Women-owned Business Enterprises (MWBEs). “These goals should be publicly available so that governments feel compelled to achieve those goals. It also helps to get different procuring entities working together towards them,” advises Oscar Hernández, Head of Latin America. Since measurement is so critical, a first step is to make sure your e-procurement system allows you to capture this information.
- Build SME capacity to participate and compete. The public procurement process can seem so confusing and opaque that it’s not worthwhile to even try. To address this, “on a regular basis, conduct online sessions where municipal representatives explain how to work with their procurement system, prepare bids, submit complaints, and more,” suggests Viktor Nestulia, Head of Eastern Europe and Central Asia. For instance, the City of New Orleans conducted and recorded training sessions for SMEs to help them better navigate the procurement process. SMEs might also need more help getting ready to be competitive.“There is a lot you can do to educate SMEs on how to access financial vehicles and have solid business plans. This helps them be able to deliver for governments, and successfully participate in procurement processes,” says Reilly Martin, Senior Program Manager for the United States.
- Write Requests for Proposals with clear, simple language. Use simple, clear requests for proposals to make them appealing to SMEs. “One tip is to write for a 14-15 year old in ninth grade, like the U.S. military manuals do. You can even analyze your RFPs readability score, such as using the «Flesch–Kincaid» grade level. Keep ’em low and simple,” commented Gavin Hayman, Executive Director. “Hemingwayapp.com is a good free resource to quickly check and visually see how your materials are written, and to write opportunities as you’d want to receive them. Also, make them digestible and approachable, such as by moving the terms and conditions to the end, not the beginning,” adds Reilly. Check out the Government Performance Lab’s Guidebook on crafting a results-driven Request for Proposals (RFP) for more ideas.
- Make small opportunities fair and open. Opportunities need to fit the capacity of SMEs, and they have to be able to bid on them.“Start publishing small and medium lots. Usually, governments tend to publish competitive opportunities that are required by law because they are over a certain threshold. But there are a lot of direct contracts that are of lower value that are typically contracted to favorite suppliers,” says Viktor. Relying on direct contracts can make perceptions of a rigged system even worse, and further deter SMEs from participating.
Solicitation, award, and implementation
- Share the opportunities with SMEs where they are. Don’t expect SMEs to find opportunities simply because they are on your website or e-procurement portal. “Understand where your target SMEs are getting their information and go to them on where they receive it. This requires being proactive,” commented Reilly. This clear and active communication with vendors can make a big difference. Stay tuned for more ideas on this from us and our OCP collaborator, Sascha Haselmayer.
- Make the procurement process friendly to small vendors. Make it easier and more appealing to small businesses to work with the government. “This is not only about improving access to opportunities and facilitating bid submission, but also about being a good customer — for example, paying on time.” says Oscar. One illustration of this is a survey of SMEs in Ukraine, which found that 60% of small vendors cited overly long payment periods as a major deterrent to participation. Creating a simpler process can start by understanding where common barriers are. “Conduct regular analyses of mistakes and challenges for both buyers and bidders. Based on this, you can develop online sessions to help both buyers and bidders succeed,” adds Viktor.
- Give and receive feedback. Good communication between the government, vendors, and community can help elevate and solve problems. For example, “establish feedback systems through which SMEs can escalate their challenges to the senior level,” recommends Viktor. This communication can also help vendors prepare stronger bids to be more competitive in the future. We see the power of this partnership in the City of El Paso, where the city’s strong relationship with the local Hispanic Chamber of Commerce helps the city understand local vendor needs and challenges that vendors feel less comfortable raising directly with city staff.
Stay tuned for more resources and ideas from us and the Lift community and reach out to us if you are looking for help to improve your own SME engagement.
Image source: Freepik