SMEs value for money. Key words: Small

SMEs are often excluded from public procurement contracts
because of administrative requirements for mandatory bidding
processes, their inadequate size or capacity to deliver. We need
effective public procurement policies, systems and personnel to
ensure that the opportunities are scaled up rapidly,
transparently and fairly so that SMEs can get access to public
procurement contracts (A2PPCs). Our advocacy for SMEs
access to public procurement contracts are hence driven by
status discrimination, equality and sustainable development.
Particularly, the use of procurement to advance social justice
i.e. affirmative action in employment; and the use of
sustainable procurement i.e. as a method to help stimulate
increased entrepreneurial activity by disadvantaged groups in
particular marginalized youth and women. In this paper, we
analytically design a procurement process that can enable
SME’s access public procurement contracts within the Public
Procurement and Disposal Authority (PPDA) legal framework.
We take cognizance of the public procurement environment
and develop a supportive management framework as a guide to
procurement and disposal entities in Uganda in their quest to
attain value for money.
Key words: Small & Medium Enterprises, procurement
process and management framework.
INTRODUCTION
SMEs in Uganda employ more than 2.5 million people,
constitute up to 90 percent of the private sector and contribute
over 70 percent to total GDP (Ankunda 2010). For developing
countries, small-scale enterprises would generally mean
enterprises with less than 50 workers and medium-size
enterprises would generally mean those that have 50-99
workers. In Uganda, a small scale-enterprise is an enterprise or
a firm employing less than 5 but with a maximum of 50, with
the value of assets, excluding land, buildings and working
capital of less than Ug. Shs 50 million (US$ 30,000), and an
annual income turnover of between Ug shs. 10-50 million (US$
6,000-30,000). A medium sized enterprise is considered a firm,
which employs between 50-100 employees. Other
characteristics have not been fully developed (Kasekende and
Opondo 2003).
Integrating SMEs in public procurement provides clear
market opportunities for SMEs, who otherwise are likely to be
excluded from public procurement because of administrative
requirements for mandatory bidding processes and their
inadequate size or capacity to deliver. Government of the
Republic of Uganda in the budget 2010/2011 allocated 44.5
billion shillings to a fund under the Youth Entrepreneurship
Venture Capital Fund to help youths set up income generating
activities in a bid to reduce on chronic unemployment. Youths
between the age of 18 and 30 constitute 22% of Uganda’s
population. However, the larger classification of youth from
birth up to 30 years of age makes 79% of the population or 26,
070, 000 youths.
In Uganda, up to 34.76% of the GDP (Odhiambo and
Kamau 2003) is spent on procurement. The enormous
government purchasing power can exert a sustainable positive
influence on economic systems (sustainable procurement) to
the benefit of the youth and other marginalized sector (women
& disabled) owned SMEs. Tumutegyereize (2013) explicitly
put it that one of the capacity challenges faced by the Public
Procurement and Disposal Authority (PPDA) is the failure to
achieve social policies in the public procurement practices
(such as ensuring proportions of government contracts go to
women, SMEs or economically disadvantaged people or
regions. The need to analyze how the government can exercise
its procurement economic power and at the same time use it to
advance conceptions of social justice is critical.
We need effective public procurement policies, systems
and personnel to ensure that the opportunities are scaled up
rapidly, transparently and fairly so that SMEs can get access to
public procurement contracts (A2PPCs). Hence, we examine
the tactical procurement process and initiatives that can spur
deeper thinking and practice on how SMEs can access public
contracts for their empowerment and growth.
Subsequent sections in this paper address a review of
literature, procurement process design, the management
framework and prerequisites to facilitate SMEs A2PPCS.
LITERATURE REVIEW
Governments can use public procurement to achieve
policy objectives. Although terms share certain similarities, we
have brought together public procurement contracts to go
beyond simply getting tenders. We extend it to include the
definition of the contract, the qualifications of the contractors,
and the criteria for the award of the contract (McCrudden
2004). Government can participate in the market as a purchaser
and at the same time regulating it through the use of its
purchasing power to advance conceptions of social justice.
Telgen (2006) in an analysis of literature contends that public
procurement can be used for policy delivery. Among others for
job creation and employment for example by splitting up
purchases in such a way that jobs are created or requiring
suppliers to use the unemployed in supplying their goods and
services; SME/regional involvement for example by splitting
up orders in smaller lots so that smaller companies can
participate in competing for these smaller lots; Diversity (social
outcomes) i.e. favouring various suppliers (minorities, disabled,
women, local firms).
By advocating for SMEs to access public contracts we
serve many goals i.e. social, economic and political. Our
advocacy for SMEs access to public procurement contracts are
hence driven by status discrimination, equality and sustainable
development. Particularly, the use of procurement to advance
social justice i.e. affirmative action in employment; and the use
of sustainable procurement i.e. as a method to help stimulate
increased entrepreneurial activity by disadvantaged groups in
particular marginalized youth and women. This is against the
backdrop that Central Government public procurement in
Uganda accounts of 34.76% of GDP (Odhiambo and Kamau
2003) and can hence provide sustainable market for inclusive
SME growth.
Generally though, The Organization of Government
Commerce (2010) argues that, markets are more efficient
where they have multiple suppliers and optimal competition.
That drives suppliers to perform better, with benefits for their
customers, the economy and ultimately all citizens. So, buyers
have an interest in maintaining and encouraging competition
and SMEs can play a major role in achieving this. Further that,
in a more direct sense, support for SMEs that truly offer
competitive advantage-through innovation, cost or service-will
benefit the economy and the customer organization. Pertinent is
that, SMEs need to have access to, and the opportunity to win
government contracts. What must not happen is that the
procurement process unintentionally favours large firms in
some way and discourages small firms. In a literature analysis
of: McCrudden (2004); Telgen (2006); Procurement Innovation
Group (2009); Linthorst and Telgen (2006); Fee et al. (2001);
Mont and Leire (2008); Commonwealth Secretariat (2010), the
conceptual framework is developed to better understand the
conceptual relationships in this study thus:SMEs in Uganda face the several impediments in their
quest to access public procurement contracts. The
Commonwealth Secretariat (2010) particularly identified the
following: insufficient knowledge of the formal tendering
process; no feedback was made available about previous
unsuccessful tenders; lack of opportunity to meet the decision
makers/buyers; small company size to service large contracts;
Lengthy procurement process; Payment terms offered, not
suitable.
The others established were: discrimination; lack of
knowledge on writing a formal tender; Have no long
established record; no sub-contracting opportunities are
available on large contracts; excessive requirements of
Drivers
-Social justice
-Sustainable
procurement
Benefits
-Employment
growth
-Innovation
-Competition
Impediments to effective SMEs
A2PPCs
? Long time taken for payments
? Poor information systems
? Large size of contracts
? No national policy
? Bureaucratic public service
? Lack of professional staff
? High costs of bid preparation
? Quality requirements are prohibitive
? Scarce management resources
? Collusive tendering by oligopolistic
suppliers
? Documents are ambiguous
Procurement
Process
Figure 1: Conceptual framework of SMEs A2PPCs.
financial guarantees (for example insurance, public liability, or
professional indemnity requirements); lack of knowledge on
what is available.
The challenge of SMEs in accessing public contracts
also depends on how they themselves increase their capacity to
fulfill government contracts. However, government in
collaboration with research efforts from Universities should
play a significant role in eliminating the supply side constraints.
There is a need to develop a more SME friendly approach to
public procurement. We briefly review the Uganda
Governments institutional reforms in this regard.
Procurement/ institutional reforms and SMEs.
As part of the mitigation measures, the Public
Procurement and Disposal of Public Assets Authority (PPDA)
was set up under the Public Procurement and Disposal of
Public Assets Act (2003) as the principal regulatory body for
public procurement and disposal of assets (National Public
Procurement Integrity Survey Report 2007). Further, The Local
Governments (Public Procurement and Disposal of Assets)
Regulations 2006 were enacted scrapping District Tender
Boards to be replaced by Contract Committees arguing it was
intended to remove politicking and eliminate corruption in the
tender process.
The new Public Procurement and Disposal of Public
Assets Regulations (2014) are deeply rooted in the above
discourse. Particularly, insertion of a new section 59 B that
provides for reservation schemes to promote the use of local
expertise and material as well as the participation of local
communities or local organizations. Entities have evidently not
taken advantage of this amendment to have SMEs A2PPCs.
The procurement process needs to be designed to focus on
SMEs. Provision of easy but transparent operational guidelines
is critical. Filling this gap is the purpose of this study.
PUBLIC PROCUREMENT PROCESS DESIGN
Enabling SMEs A2PPCs is a decision making process.
This, in the public procurement context is at the tactical
procurement level particularly in the supplier evaluation and
selection process. The making of a decision is formed by what
is sometimes referred to as a decision making model, or a
mental or conceptual model of the decision making situation
(Betrand et.al. in De Boer and Van Stekelenborg 1995). In
tandem with this, the PPDA has a procurement cycle that
delineates the roles and responsibilities of key stakeholders.
The purchasing cycle describes the typical stages that
characterize the purchasing process illustrated below:However, the cycle does not explicitly state or demonstrate
the decision making process that can enable SMEs A2PPCs. In
our public procurement process design, we adopt the 8-step
model for supplier selection in Obanda (2010). In this study, we
focus on the first four steps. These constitute:
1. Recognize the need for supplier selection
2. Identify key sourcing requirements
3. Choose evaluation criteria
4. Prequalification.
The steps in our procurement process design are mindful of
SMEs. They are analyzed within the PPDA regulatory
framework and procurement cycle. They are linked to the
phases before contract award in the PPDA procurement cycle
in figure 2.
Recognize the need for supplier selection
As argued earlier, SMEs, play a critical role in the
social and economic spheres in Uganda. The first step of the
evaluation and selection process usually involves recognizing
there is a requirement to evaluate and select a supplier for an
item or service (Monzcka et.al. 2005). This entails recognizing
that there is a problem by measuring the gap between the
existing goals and current state of affairs. In this study context,
this implies that the first step would be embedding SMEs’
A2PPCs clearly in the procurement plans of the procurement
and disposal entities. This unlike unguided and intuitive
decision making which is susceptible to many forms of
inconsistency would help the entities structure and
subsequently better understand the next steps.
Identify key sourcing requirements
It is important to understand the key requirements that
are SME friendly. This involves specifications. Specification is
stating in detail what is required in order to meet the need. It
should be clearly noted that specification cannot take place
unless need identification has been done. So, before one
embarks on specification, he / she should clearly identify what
the need at hand is. Specification involves stating the
characteristics / qualities or attributes of the item that is needed.
This stage is very vital because it does provide the basis for all
that will be done during the purchasing process, for instance
SMEs’ will be selected basing on their ability to provide the
supplied item. The result of this stage is known as a
“programme of requirements”, which lists all requirements that
an SME has to meet in the offer.
This phase in the procurement cycle is the preserve of
the user departments. The decision to integrate SMEs A2PPCs
is a Council/Board decision. Hence, they should be responsible
for developing the terms of reference (TOR)/Specifications
with technical support from the Procurement & Disposal Unit
(PDU) staff.
Choose evaluation criteria
The SMEs’ evaluation criteria should relate to its
organization like size, geographical location, and experience,
etc while the proposal criteria all relate to the content of the
proposal, such as quality of the offer and price. According to
the Organization of Government Commerce (2010), Analysis
of financial strength and stability needs to be handled carefully
and looked at on its merits in each case. A procurement that
needs millions of shillings may not attract SME’s as bidders. In
addition, contracts which require for example large insurance
cover, warranties or performance bonds.
Keeping selection criteria proportionate is of core
importance for SMEs, since contracting authorities that fix too
high capacity and ability levels exclude de facto a high
proportion of SMEs from participating in tender procedures. A
decision has to be made on which criteria are appropriate for
the kind of purchase involved and its value. All selection
criteria should be clear, non-discriminatory and proportionate
to the contract in question. Caution should also be taken in
wording selection criteria in a way that may not narrow the
field of competition by addressing irrelevant matters e.g. a
requirement that only experience acquired in dealing with the
public sector will be taken into account is, as such, irrelevant
and limits competition.
Prequalification
Pre-qualification is based on the programme of
requirements developed in step 2. Most evaluations rate
suppliers on three primary criteria i.e. cost/price, quality and
delivery. This is a first cut or preliminary evaluation of
potential SMEs to narrow the list before conducting an in-depth
evaluation. The PPDA Regulations (2014) 21(2) indeed
provides that: “The criteria for the evaluation for prequalification
shall be limited to that necessary for the
performance of the intended contract and shall not be unduly
restrictive”. The requirements should be set proportionately to
the requirements of the contract.
What we discern from the foregoing is that, for SMEs’
to access public procurement contracts, an explicit process
must be designed to give then a level playing field. Following
these steps would hence enable SMEs A2PPCs. The designed
process provides an avenue for communication between
individuals and as well as communication within groups.
Equally important is that the justification for the procurement
decision to enable SMEs A2PPCs which is elaborately
provided for. An integration of other criteria in that favour
SMEs should be undertaken to compliment these steps
described next.
Integrating SME criteria into supplier selection practice.
The PPDA Act No.1 2003 under Regulation 100
provides for the splitting of requirements and Regulation 101
provides guidelines for the division into lots. Implementing
them may hence be neutral in terms of compliance.
The sub-division of public purchases into lots clearly
facilitates access of SMEs, both quantitatively (the size of the
lots may better correspond to the productive capacity of the
SME) and qualitatively (the content of the lots may correspond
more closely to the specialized sector of the SME).
Furthermore, sub-dividing contracts into lots and thereby
further opening the way for SMEs to participate, broadens
competition, which is beneficial for the contracting authorities
provided that it is appropriate and feasible (Commonwealth
Secretariat 2010; Linthorst and Telgen (2006).
Multiple sourcing offers much in terms of socioeconomic
goal achievement, but it also requires much in terms
of tools and formal methods necessary to handle the added
complexity. Indeed De Boer et al. (2006) show that purchasers
and stakeholders in the selection process sometimes hold
skeptical attitudes towards more advanced formal methods. In
such an environment, multiple sourcing may be doomed to fail
no matter the promises.
However, Choi Jeong-Wook’s (2010) description of the
Korean Public Procurement Service (PPS) is instructive here.
The Korean PPS introduced MAS (Multiple Award Schedules).
The MAS is designed to overcome lack of diversity in
procurement products. The MAS is designed to simplify,
streamline, and ultimately accelerate the process for vendors to
obtain MAS contracts. This has led small and medium
businesses in Korea developing new markets and strengthening
competitiveness as well.
Of particular importance in our context is the use of
framework contracts for SMEs. The PPDA Act No.1 2003
regulation 237(1)(b) states that: “A framework contract is a
schedule of rates or indefinite delivery contract and shall be
used to reduce procurement costs or lead times for a
requirement which is needed repeatedly or continuously over a
period of time by having them available on a “call off” basis.
This is appropriate for SMEs with contracts characterized by:
low contract value/volume, local delivery, tailored or
innovative product/service and limited economies. When a
specific requirement arises, a mini competition can be used to
decide on which of the SMEs to use. Alternatively, lots can be
used in combination with frameworks.
De Boer et. al. (2006) in their conclusion suggest that
future research on supplier selection should take the
(problematic) existence of formal methods in practice as a
starting point, and be of an integrative nature –combining
insights from management research… It is in same vein that we
develop a supportive management framework.
MANAGEMENT FRAMEWORK.
The private sector wants more training