Levelling the playing field for SMEs in public procurement

While increased efficiency and productivity and flexibility are the benefits most often associated with the adoption of digital technologies, they are also a game-changer in terms of how they level the playing field for SMEs, which form the backbone of most economies.

 

First and foremost, the cloud makes the deployment of state-of-the-art technology more affordable as there is no more need for making costly investments in hardware and middleware.

 

Digital platforms and APIs can help SMEs integrate the latest digital solutions seamlessly into their existing systems at a reduced cost.

 

To make access to capital easier, digital banks can build streamlined loan assessment processes that enable them to finance SMEs incumbent banks have found too risky to lend to.

 

A vendor with a viable product can now set up shop in a few weeks, find a payment service provider that takes care of its checkout and get the goods to customers’ door with a digitally enabled delivery company offering real-time tracking.

 

There are signs, however, that despite the advantages that the democratisation that digital technologies have brought about in business, SMEs still punch below their weight.

 

The latest case in point is public procurement. Although the past five years witnessed a sharp rise in the value of public sector spending with SMEs, this figure has plateaued at around 20 per cent.

 

How the Procurement Act 2023 is changing the space

 

Convinced that this discrepancy is a setback for both public bodies such as government departments, local councils and schools on the one hand and microbusinesses, SMEs and start-ups on the other, the Procurement Act 2023 undertakes to redress these disparities.

 

A more level playing field, so the government’s argument goes, will not only offer more opportunities for smaller players to win public tenders but also drive innovation through engaging smaller and agile companies at the forefront of technological advancement in public tenders.

 

The Procurement Act 2023, which become law on 24 February 2025, four months later than intended, is a single legal framework that will serve as a foundation for simplified and streamlined bidding processes.

 

At the heart of the new regime lies a digital bidding platform that will make all public-tender related information accessible at a single source. The new legislation is doing away with complicated eligibility criteria and rigid thresholds, which unnecessarily barred SMEs from bidding.

 

The new procurement act also legislates for public bodies breaking down large contracts into smaller units referred to as lots, thus enabling SMEs to bid for parts of a large contract which would otherwise be beyond their capacity.

 

Another major constraint SMEs have traditionally struggled with is prolonged payment terms and overdue payments, which the procurement act addresses by building a 30-day payment term into all public procurement contracts, including subcontracts – even if this isn’t explicitly written in the contract itself.

 

Factoring in sustainability

 

The new act also marks a shift from a cost-based assessment of tenders to scorecards that also reflect the sustainability and social value a supplier brings to the supply chain.

 

By mandating a minimum 10 per cent weighting for social value in procurement decisions, the act can put SMEs and start-ups with an ESG mindset in a better position when they otherwise wouldn’t have had the economies of scale of their competitors.

 

Although this can open up new opportunities for SMEs, however, it also comes with the extra burden of having to demonstrate how they minimise their environmental impact, what they do to reduce waste, or lower their carbon emissions. And if contributing to better social values is a part of the bid, SMEs must produce hard data on how they create jobs, support training programs or engage with local charities.

 

As a result, SMEs may need to rely on certifications more extensively than before. ISO certifications, for example, will be more instrumental to winning tenders than they once were. It’s challenges such as these that SMEs will need to surmount if they want to reap the new opportunities the Procurement Act offers.

 

Current shifts in the perception of the role environmental and social responsibility are no bad thing, and are reflected by the Procurement Act 2023’s emphasis on public procurement looking beyond the price-quality sweet spot. But what might skew the intended outcome of the act to drive innovation and sustainability while also increasing the chunk SMEs can carve out of public procurement are the realities of an economic downturn.

 

It remains to be seen whether public bodies will be able to see beyond cost and pay a mark-up for the overall public good, or whether SMEs want, or are even able, to make the investments required to make this new regime operate as intended.