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Why procurement targets won’t fix the SME participation problem

August 21, 2019

Governments and commercial procurement departments around the world are introducing thresholds and policies to achieve non-discrimination in their supply chain contracting. Many are still are not meeting those targets. There’s a complex set of factors at play to stimulate market participation. Thresholds, while aspirational, must start by practically steering participants towards building procedural knowledge and business process capability first.

When procurement organisations purchase goods or services, they consider and award contracts only to bidders that comply with specifications and conditions of tender or bid as outlined in the tender invitation. Tenders (or bids) received must therefore be conforming, compliant, and responsive. This enables procurement organisations to compare suppliers on an equal footing across all bidders.

You can invite them, but why aren’t the coming (or are they?)

Procurement departments have introduced Small to Medium Enterprise (SME) thresholds as instruments to stimulate participation and competition for tendering and bidding, and while barriers to SME participation in procurement has been the focus of research for many years, less attention has been paid to the predictors of SME success, while even more lacking is data that captures non-compliance rates of tenders submitted.

Despite governments committing to adopt the open contracting principles as part of their anti-corruption and open government strategies – starting with planning, then tenders, awarding and implementation of the contracts – there is little or no centralised data or reporting on the total numbers of tenders received as a percentage of those disqualified before they proceed to evaluation.

The reasons why SMEs struggle with procurement can be understood in terms of an unfamiliar and not always efficient marketplace, bureaucratic tendering and bidding procedures, and their inherent resource limitations. From a supplier perspective, tendering and bidding is perceived to be bureaucratic, formalised and legalistic in nature requiring lengthy form filling, full of compliance and qualification criterion disproportionate to the risk profile of the contract.

Tenders and bids can be deemed non-compliant for a number of reasons including: being submitted late or in the incorrect format; failing to meet certain conditions of the contract; failing to answer a question or returning key compulsory documents for evaluation purposes. Tenderers or bidding companies can also be excluded from consideration on grounds of conflicts of interest, or breaching of laws or policies in regards to company conduct; or providing false and misleading information.

Steps to simplify the process

Procurement procedures by contracting authorities have been undergoing reform for several years, making tenders and bids more accessible to SMEs in line with principles of equal treatment and open access. Measures to encourage participation among SMEs have included:

  • Dividing contracts into work packages so as to reduce bureaucratic red tape;
  • Reducing financial qualifications and thresholds; and
  • Introducing e-procurement, allowing SMEs to use digital marketplaces and portals.

While the reform process has addressed some of the hurdles faced by SMEs in accessing procurement markets, there are undoubtedly still some barriers to entry for SMEs.

Other deterrents of SME participation

One of the greatest advancements for SMEs has been the open access to procurement opportunities through government websites and e-tender subscription portals. However, after an SME decides to participate in a tender or bid, it faces further constraints at each stages relating to their capability in navigating the process, as well as the resources and capacity to design the proposed solution.

Excessive paperwork and poor understanding of the compliance requirements represents a key barrier to creating both a conducive environment and ensuring mandatory conditions of the tendering process can be met.  One of the obvious constraints for SMEs is the opportunity cost to prepare a tender or bid submission while running ‘business as usual’.

Collaboration tools can greatly assist to centralise knowledge and create information efficiencies. These tools can also help SMEs to keep track of the tender milestones and documentation and enable them to more cost-effectively partner with independent bidding consultants to help them improve the quality of their submissions. Joint ventures and sub-contracting arrangements between big and small companies are becoming key tactics to boost capacity through the sharing of risk, resources, knowledge and combined capability in delivering submissions and projects through relational contracting models.

Why we must invest in industry knowledge and capability 

While the use of technology can, and does, improve access to procurement opportunities and enables collaboration, those opportunities will only materialise however, if SMEs know how to prepare compliant bid submissions in the first place.  The time it takes to prepare tender documentation and issue it to the market can take many months, and when non-compliant tenders further delay the process, the whole market suffers from reduced competition, missed niche solutions, and new innovations.

Developing a culture of being proactive with process versus reactive to the tender or bid is a distinctly different approach to qualifying and winning opportunities. One approach is based on hard facts and validated human intelligence gathered as part of a documented customer engagement process to make informed choices on which to pursue opportunities. The reactive approach, on the other hand, is frequently based on assumptions, limited data and limited information solely on what is provided for in the tender document.

It’s a two way street however. If SMEs want to build their capability in business development they must be willing to commit to learning about the bid lifecycle and the end-to-end process so that they are not limiting their efforts to the Request for Proposal (RFP) window.

As it is with tendering and bidding activity, procedural know-how is associated with performance outcomes. As real as these barriers are, undoubtedly knowing how to precisely navigate the process will differentiate the compliant from the non-compliant tenderers and bidders. Successful bidders are the ones who can:

  • deconstruct the legalistic and bureaucratic process;
  • understand what buyers expect from suppliers; and
  • articulate this through the formal tender process.

This baseline capability serves to improve not only the quality and compliance of the tender submission, but increases the likelihood of success while maturing the organisation’s internal business and service delivery processes, as well as contract management mindsets. Together, the relational and procedural capability, enabled by technology to facilitate collaboration and reduce time-limitations, can have a substantial positive effect on an SMEs ability to mitigate disqualification rates, while improving contract win-ratios and ultimately, percentage of total revenue derived from contract awards.

Beyond the tender submission, procedural capability is relevant even after the tendering process has been completed and the contract has been awarded. In the event of a successful or failed bid, firms need to know how to obtain feedback so that they can understand the relative strengths and weakness of their bid. This information can then be used to continually improve and devise future bid strategies.

With tendering and bidding, the key to success is the capacity to hone the process, build on successes, and learn from failures. Like relational capability, procedural know-how is predicted to directly affect SME tendering activity and performance. To begin with, it should lead firms to tender more frequently, and time and resource implementation can be reduced if firms take a more purposeful approach to the process.

Bidhive is on a mission to help bidding organisations tap into the $9.5 trillion procurement industry by using big data and advanced analytics to take decision making to a new level.

By helping companies improve their procedural knowledge and bid management processes, they can better understand the relational factors behind their bid’s success or failure, and use this to shape a winning bid in the context of each new opportunity. Bidhive customers report reduced reliance on spreadsheets and manual processes, saving them up to 40% in time and duplicated effort alone. These step changes are proving to be transformational to a company’s business development strategy and their bottom line.


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