Why do so few companies want to do business with the government? And why do the companies that sell to government, sell mainly to government?
These two facts lead to significant costs for government, not only in terms of higher prices from reduced competition, and, potentially, cancelled contracts because of too few respondents. There are long-term costs. as well, in that government may not end up seeing, let alone buying, the optimal solution for the problem they are trying to solve.
In a study for the Government of Canada, researchers at the University of Ottawa quantified the considerable number of vendors who do not sell to government.[1] The paper focused on small-and-medium-sized enterprises (SMEs).
In the survey period of 2012 to 2014, only 9.8 percent of Canadian SMEs did business with the federal government. They also noted that “the majority of Canadian SMEs (81.5 percent) do not view the federal government as a potential client.” Those SMEs that did sell to government were typically larger, focused on technology or knowledge-based industries, and more likely to be owned by men.
Per Liao, Orser, and Riding, the obstacles to doing business with the government are manifest within the OECD and they include “low awareness about government contract opportunities and procedures, and the relatively high cost of bidding on government contracts.”
Complexity may be the factor driving the sense that SMEs winning government business sell principally or exclusively to government. Here’s Spence Witten writing in Public Spend Forum:[2]
“If you pay attention to the federal market, you’ll notice something strange. Few small businesses successfully manage to support commercial and federal sector clients at the same time. Here’s some data: Over the past five years about 80 companies have scored repeat performances on Washington Technology’s Fast 50 list of fastest growing small businesses holding federal contracts. But they’re almost all pure-play government contractors. Hardly any of these organizations manage to bring in significant revenue from commercial sector clients. “
Selling to government is so complicated that it has become, in and of itself, what Charlie Munger refers to as a circle of competence, “expertise or knowledge that gives him or her significant advantage over the market in evaluating an investment.”
Harvard’s Steve Kelman is more lyrical in his description of the current status quo:
“… the extravagant essay contests that characterize too much of traditional federal procurement, with lengthy, self-serving disquisitions on the company’s technical or management ‘approach’ to the work at hand, slavishly keyed to every request or requirement in the agency’s RFP, in a ritual that sets the government far apart from how work is competed in the commercial world.”
This is also consistent with reports out of Europe.
“The survey data tended to suggest, as one might expect, that public procurement is bureaucratic, inflexible and compliance-focused, whilst private sector procurement, where there are no EU procurement directives to worry about, might be seen as flexible, innovative and profit-minded (‘better’?). Much, therefore, seems to come down to ‘regulation’ — more specifically its form and extent. For many, regulation is a distinguishing feature between public procurement and private procurement. Arguably, public sector procurers are on the back foot because of it.”
Public procurement has its own set of constraints.
Bernard Maltaverne explains the problem well: public sector procurement is risk averse because it is funded by taxpayers and governed within a political context. The people expect that the government will get the best value-for-the-money, transparently and without any taint of corruption. There are interested parties, such as the media, overseeing this process, with all the consequent potential for embarrassment, professional damage, or political change. Public procurement is much more complicated in terms of the trade-offs it must balance.
The key to bringing in new vendors to government procurement, and not just tailoring solutions for those who focus already on selling to government, is to address the substance and the appearance of these obstacles to doing business with innovation, in a way that addresses the inherent, systematic, and understandable risk aversion of the buy side.
This is precisely what the EdgeworthBox platform will do: simplify the contracting process (using technology), ease the task of finding selling opportunities, and lower the cost of responding to government solicitations. For procurement officers on the buy side, the platform brings more vendors to the table (including those who have not sold to government historically), with a greater diversity of solutions; permits analytics on transparent, standardized data for enhanced fraud protection and performance optimization; and engages procurement officers with their colleagues in other agencies and jurisdictions for the rapid and efficient sharing of procurement intelligence.
We would love to talk to you about what we have learned and what we have built. Send us an email.
[1] Diane Liao, Barbara Orser & Allan Riding, “Canadian Federal Procurement as a Policy Lever to Support Innovation and SME Growth,” Telfer School of Management, University of Ottawa, 2017
[2] Spence Witten, “Why Government Contractors Don’t Have Private Sector Clients,” Public Spend Forum, August 9, 2017
