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The challenge of local governments is to strike a balance between optimizing value in contracts and providing opportunities to the small businesses usually run by women and minority groups. Favoring the latter has resulted in a blatant and direct favoring which has violated the judicious sensibilities of constituents and the government. It is possible for local government officials to adopt practices that serve both objectives. The key is to set the conditions wherein women and minority contractors can have fair chances of winning without handing them obvious advantages.
The essential question is “Without using preferential bidding, how might managers ensure that their bidding procedure is fair to all businesses, including those that may be suffering the effects of past discrimination? 1
The following are the policies and measures that managers can include and consider in their bidding procedures for public contracts that can be fair for all businesses. Without prejudice to businesses regardless of size, these measures ensure that small businesses of women and minority groups are given fair chances of competing. Moreover, these measures comply with anti-discriminatory regulation like California’s Proposition 209 1; thereby ensuring non-preferential bidding practices.
Smaller Contracts
The biggest barrier for small businesses is the large sizes of public contracts 2. They have smaller assets, manpower and access to business loans to be able to meet the resource demands. The risk of failure is immediately recognized and they readily give way to larger contractors.
1 From “Business law: The Essentials”, by Miller, 2014, p. 204.
2 From”Do Minority-Owned Businesses Get a Fair Share of Government Contracts?”, by Enchautegui, Fix, Loprest et al., (1997), p. 8.
What local agencies can do is eliminate the practice of bundling contracts into larger contracts that will favor the larger contractors. The rationale of bundling is it is more efficient and manageable with lesser contractors. Unbundling will create smaller contracts which are more viable for small businesses. As a consequence, asset, resources and turnover requirements can be lowered which would be a relief to smaller businesses. The government may need to hire more procurement staff but this will enrich the playing field with the entry of small businesses.
Related to offering small contracts is setting the policy of having a procurement target for small business. In 2015, the UK government set the target of 25% for small business to win public contracts 3. This practice can be adopted by any local government unit and can be the guide on the number of small contracts that will be made available.
Favorable Criteria
Selection criteria can include those that can give greater chances to small businesses by limiting the competition. Two ways are selecting from local contractors or specifying for specialist firms; both are likely to be small businesses. Large companies have many competencies and are usually not regarded as specialist firms. This can be guided as well by a policy that a certain percentage of the local unit’s budget be allotted to local contractors and specialist firms.
3 From “Ten ways to win public sector contracts”, The Marketing Donut, 2016.
Stricter Checking against Misrepresentations
In 2004, the US Small Business Administration found out that in one year alone $2 billion of federal contracts were awarded to small businesses who actually turned out to be large corporations 4. The bidding process of local agencies should include strict due diligence checks to identify, disqualify and prosecute small business posers. This prevalent practice of misrepresentation is another cause of discouragement for small businesses who see that there are many ways that government is favoring large contractors.
Consortium Bids for Large Projects
Small business usually cannot bid for large projects because of limited resources and capability but they can work around this by forming a consortium among themselves wherein all the requirements of the project can be met.
Local authorities can include this idea in bid invitations to encourage small businesses to participate. It can also be proactive and promote this approach by even organizing a seminar on the methods and best practices for forming consortiums. They can even offer free consultancy for those who will do it for the first time. These initiatives can be part of the bidding framework of the organization for the purpose of helping out small businesses in large tenders.
4 From “Landing a Government Contract”, by Kurlantzick, 2006, Entrepreneur.
Simpler and Faster Bidding Process
Another deterrent for small businesses is the practice of fulfilling the onerous Pre Qualification Questionnaire which has become the single tool for both large and small contracts. The design is for large contracts so the questions put small businesses in a bad light even if the matter at hand is that of a small contract. Small businesses have small staff which they cannot tie up with time-consuming form-filling exercises for extensive questionnaires like PPQ’s which usually are 40 pages in length. And with the bad experience of being disqualified, many small businesses consider it not worth the time and effort.
In the early 2015, the UK government had taken steps to relieve smaller businesses of the unnecessary burdens of arduous bidding processes for small bids. Firstly, it abolished the PPQ for a certain threshold of contract values. It also aimed to reduce the time for the tendering process which happened to be 45% longer than European Union counterparts 5. Small businesses need smaller transaction cycles because of limited cash reserves to keep the business going. Removing the PPQ and shortening the period in the bidding process will give smaller businesses better chances to compete by not imposing prohibitive resource requirements.
Cost and time overheads should also be reduced as much as possible as it is small businesses which are affected the most. Request for information for bidders should be done only once and encoded in a vendor database. Updates can be forwarded as needed. Fees to join bids should be avoided as much as possible and open online bids can be arranged for small contracts. Requirements for insurance should also be moderated depending on the size of contracts. Burn-
5 From “Small firms given fighting chance to win Government contracts”, by Callander, 2015, The Telegraph..
Inclusion of penalties in the enforcement of 30-day payment terms will also encourage smaller firms to participate.
Easier Access to Public Tenders
An effective public bidding process includes facilities that ensure that all qualified bidders are given the chance to bid and that can only happen if they are informed of the existence of such bids.
Local government should take it upon themselves to ensure that all possible bidders are informed. The approach with the most ease and reach would be a web portal for public contracts. Examples for these are Contracts Finder in the UK and eTenders in Ireland. Contact information on minority-owned businesses can be used to provide extra support by reaching them through the use of typical marketing methods like email and social networks. For this purpose among others, local government should maintain an ongoing effort to collect information on women and minority-owned businesses among its constituents.
Minority-Owned Business Certification
The US government has a mandate to support minority-owned businesses and this can be implemented by including this as one of the aspects in bidding criteria without making it as the decisive criterion. Points in the bidding can be given if you are a women or minority-owned business but recognition will only come by officially registering in the National Minority Supplier Development Council. This is another way of ensuring that small business impostors are weeded out in the process. 6
6 From “How to Get Certified as a Minority-Owned Business”, by Kessler, 2010, Inc.
Diversity criteria should also be included in bidding. This would immediately directly benefit small minority-owned businesses but also indirectly in the sense that large contractors who don’t have this attribute will be motivated to subcontract some work to minority-owned businesses to gain the points.
References
Burn-Callander, R. (2015, February 2015). Small firms given fighting chance to win Government contracts. The Telegraph. Retrieved March 2, 2016 from http://www.telegraph.co.uk/finance/yourbusiness/11401500/Small-firms-given-fighting-chance-to-win-Government-contracts.html
Enchautegui, M., Fix, M., Loprest, P. et al. (1997, December). Do Minority-Owned Businesses Get a Fair Share of Government Contracts?. Washington DC: The Urban Institute. http://www.urban.org/sites/default/files/alfresco/publication-pdfs/307416-Do-Minority-Owned-Businesses-Get-a-Fair-Share-of-Government-Contracts-.PDF
Kessler, S. (2010, May 19). How to Get Certified as a Minority-Owned Business. Inc. Retrieved March 2, 2016 from http://www.inc.com/guides/2010/05/minority-owned-business-certification.html
Kurlantzick, J. (2006, February 2). Landing a Government Contract. Entrepreneur. Retrieved March 2, 2016 from http://www.entrepreneur.com/article/83506
Miller, R.L., (2014). Business law: The Essentials. Mason, Ohio: Southwestern-Cengage Learning.
Ten ways to win public sector contracts. (n.d.). The Marketing Donut. Retrieved March 2, 2016 from http://www.marketingdonut.co.uk/marketing/sales/tendering-for-contracts/ten-ways-to-win-public-sector-contracts
