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2012 Study of Participation of Small and Medium Enterprises in Federal Procurement

Date published: January 2013

Prepared by: Office of Small and Medium Enterprises and Strategic Engagement, Acquisitions, Public Works and Government Services Canada

Note to reader: This is the HTML version of the Integral to the Economy, Integral to Procurement: 2012 Study of Participation of Small and Medium Enterprises in Federal Procurement. You may access the PDF version of this study at the following web page Consultations and Reports of the Buyandsell.gc.ca Web site.

Background

Context

Small and medium enterprises (SMEs) are defined as business with less than 500 employees. Over 99% of Canadian businesses are small and medium enterprises. These companies are an integral part of Canada's economy, accounting for 45% of GDP, 64% of all jobs in the economy, and 53% of net employment growth. Within the range of SMEs, small companies are defined as companies that produce goods and have less than 100 employees, or that provide services and have less than 50 employees. Further, over 87% of all Canadian businesses have fewer than 20 employees, accounting for over 2 million jobs. SMEs matter to Canada.

SMEs are equally important to Government of Canada procurement. Each year, Public Works and Government Services Canada (PWGSC), on behalf of government, awards more than $16 billion in contracts for goods and services. On average, approximately 40% of the value, and 76% of the number, of contracts with Canadian companies goes to SMEs. For contracts worth less than $1M, these percentages rise to 75% and 80% respectively. These figures represent businesses in all parts of Canada that help the government benefit and serve Canadians. SMEs matter to procurement.

As part of its overall mandate, Public Works and Government Services Canada (PWGSC) continuously seeks to investigate and develop services for increasing the efficiency and economy of the federal public administration and for enhancing integrity and efficiency in the contracting process. The Office of Small and Medium Enterprises and Strategic Engagement (OSME-SE) was first created in 2005, with a mandate to help SMEs do business with the government. It helps SMEs understand how to do business with the government, and helps the government understand, and respond to, the needs of SMEs.

One of the first things OSME-SE did was to consult small and medium businesses across Canada to find out what issues mattered to them.

Since then, additional studies both within and outside government, and discussions with suppliers in the course of doing business have provided more information on those issues, and OSME-SE has helped over 200,000 individuals and suppliers across Canada in doing business with the Government of Canada, through a variety of service offerings, including seminars on how to do business with the federal government, presentations to industry associations, webinars, supplier meetings, telephone advisory services and through participation at tradeshows and conferences.

In 2012, OSME-SE conducted a study to see which issues are most important to SMEs now, and to see whether the services it offers can be refined. This study sought to:

The study was open to companies of all sizes in all industries. PWGSC sought input through notices posted on Buyandsell.gc.ca. OSME-SE also sent emails to suppliers and industry associations notifying them of the opportunity to participate.

Scope and Limitations

The scope of the study was limited to fact-based questions related to respondents' experience with federal public procurement.

In conducting the study, OSME-SE, specifically sought input from two groups of stakeholders who had not traditionally been represented in information on federal procurement: companies who have generally worked as subcontractors and companies who have not done business with the government. Both of these groups can provide valuable information on the experience of trying to enter the government marketplace and insight that has not previously been available. Questions were also asked about the profile of the companies to provide information not currently available from other sources.

Respondents could choose whether or not to participate at all, and whether to answer specific questions. Therefore, results may or may not be representative of all suppliers, especially specific groups of suppliers. Also, responses from one question can be examined in light of responses to other questions, but cannot establish that one point causes another except where specifically asked.

Structure of the Study

The study was based on an online questionnaire open from June-September 2012, and had a total of 42 questions. Respondents were not asked to answer all 42 questions, since some questions relevant to companies who had done business to the government were not relevant for companies who had not, and vice versa.

350 respondents participated in this study. Some questions offered the option of choosing more than one possible answer, meaning that the number of possible responses varies by question.

The majority of respondents indicated they became aware of the opportunity to participate by receiving a direct invitation e-mail from OSME-SE or by being informed by an industry association.

Purpose of the Report

This report is designed to summarize findings of interest to most stakeholders and to outline the steps that will be taken to respond to the findings.

For readers interested in more in-depth analysis of results, additional information is available on request. Please contact OSME-SE via osmepd.bpmedp@tpsgc-pwgsc.gc.ca.

Results and Next Steps

Key Findings

Underscoring the reality of small firms

84% of respondents indicated that they have less than one person dedicated full-time to finding government business. Taken with the fact that more than 87% of businesses in Canada have fewer than 20 employees, this result is probably the most significant finding of this study. For suppliers, it helps focus attention on some of the results that may help them be more successful. For government, it sheds new light on the importance of making procurement as simple and clear as possible.

Top priorities for barrier reduction

The reasons companies choose not to participate in government procurement align very closely with the sources of irritation for companies who are supplying to government, and with the areas respondents felt were most important for government to change. These are:

Confirmation of anecdotal evidence

The study supports what has been heard anecdotally from suppliers. This helps confirm which areas of procurement to focus on, and helps understand the potential relationships between various issues.

Entry into government market

35% of respondents have been supplying to government for less than 5 years. For suppliers who are interested in selling to government, this can help provide reassurance that it is possible to enter the government market. For the government, it can help provide reassurance that it is getting access to new suppliers, keeping competition open and fresh.

Alignment of expectations and reality

The reasons respondents gave as being most important to their decision to bid align well with the aspects of procurement they most chose as being positive. This seems to imply that respondents' expectations of procurement are being met.

Next Steps

PWGSC will take a number of steps to respond to the results of this study. They include:

Specific examples of how PWGSC will work to achieve these steps include, but are not necessarily limited to:

Respondents

The study asked for general information about the companies who chose to respond, to help understand the context for responses to other questions, and how factors may be experienced differently by different companies.

Representation across broad industry sectors

The percent of respondents who provide services and are in the construction industry aligns well with the percent of known suppliers in these areas, however the percent of respondents who provide goods was smaller than the percent of known goods suppliers.

Location

For this question and others, the number of responses exceeds the number of respondents who participated in the study, because respondents could select all applicable answer choices.

Figure 1: Respondent Regional Business Location(s)/Representation
Location Number of Responses Percentage
British Columbia 105 19.2%
Alberta 55 0.1%
Saskatchewan 15 2.7%
Manitoba 16 2.9%
Ontario - except Ottawa 139 25.4%
National Capital Region (Ottawa and Gatineau) 72 13.2%
Quebec - except Gatineau 25 4.6%
New Brunswick 15 2.7%
Nova Scotia 36 6.6%
Newfoundland and Labrador 17 3.1%
Prince Edward Island 8 1.5%
Yukon 12 2.2%
Northwest Territories 7 1.3%
Nunavut 6 1.1%
Outside Canada 19 3.5%
Total 547 100%

With the exception of Quebec, the regional representation of respondents generally aligns with supplier regional representation in government procurement. The percent of respondents is less than the percent of suppliers from Quebec, although the study was conducted in both official languages, and the OSME-SE regional office in Quebec supplemented national awareness effort with regionally focussed notification.

Ownership Profile

Over one third of respondents identified as having ownership profiles associated with employment equity categories: Aboriginal-owned (4%), Woman-owned (19%), Minority-owned (10%), and Owned by a person or persons with a disability (1%). This is the first time PWGSC has information about broader ownership profiles linked to procurement and will help OSME-SE identify service refinements for these groups.

Size of Business

Figure 2: Size of business
Size of Business Number of Responses Percentage
0 employees 34 9.7%
Between 1-4 employees 139 39.8%
Between 5-49 employees 127 36.4%
Between 50-99 employees 15 4.3%
Between 100-249 employees 11 3.2%
Between 250-499 employees 9 2.6%
More than 500 employees 14 4.0%
Total 349 100%

These numbers are generally consistent with Industry Canada's July 2012 Key Small Business Statistics Report, which found that over 99% of all business in Canada are small and medium businesses, and over 80% of all businesses have fewer than 20 employees.

Years in business

The majority of respondents were either relatively new businesses (28% in business for 1-5 years) or very experienced (38% in business for 20+ years).

Participation in Federal Procurement in the Last Five Years

Figure 3: Participation in federal procurement
Participation in Federal Procurement in the Last Five Years Number of Responses Percentage
Yes, via competitive process 57 18.7%
Yes, via non-competitive process 23 7.5%
Yes, as a sub-contractor 14 4.6%
Yes, via competitive process and a non-competitive process 21 6.9%
Yes, via competitive process and as a sub-contractor 12 3.9%
Yes, via non-competitive process and as a sub-contractor 7 2.3%
Yes, via competitive process, a non-competitive process and as a sub-contractor 43 14.1%
No, I participated in a bid/offer but did not win 46 15.1%
No 82 26.9%
Total 305 100%

The fact that over one-quarter of all respondents have not participated in federal procurement in the last five years provides OSME-SE with unprecedented insight into the full range of respondent experience with government procurement.

Role in supplying to government

60% of respondents indicated that they usually participated in government procurement as prime contractors. 25% indicated that usually participated as subcontractors. 15% primarily participated in a partnership/joint bid/consortia role.

The vast majority of respondents who acted as subcontractors were small businesses, although some large firms also served as subcontractors.

Length of time selling to government

Figure 4: Length of time selling to government by size of business
Size of Business Less than 1 year selling to government 1-2 years selling to government 3-4 years selling to government 5-6 years selling to government 7-9 years selling to government 10 years or more selling to government
Under 5 employees 20 11 10 8 7 27
Between 5-49 employees 4 7 14 3 0 51
Between 50-99 employees 1 0 0 0 0 11
Between 100-499 employees 0 1 0 1 1 10
More than 500 employees 0 0 0 0 1 6
Total 25 19 24 12 9 105

When the responses for length of time selling to government are also compared to the responses for the number of years respondents have been in business, it is clear that the new entrants to the government procurement marketplace include relatively new companies.

Bidding and Business

The study explored several aspects of the respondents' involvement in federal procurement, from the reasons why companies bid, to ways they searched for business, costs associated with bidding, and bidding history. For respondents who have done business with government, the study also explored the extent of that business.

Motivations for bidding

Figure 5: Motivations for bidding
Motivations for Bidding Least Important Not Important Average Importance Important Most Important
Financial Return 17 14 59 85 112
Further Business Opportunities 22 27 51 79 106
Contract Consistent with Business Strategy 20 19 47 95 103
Reputational Benefit of Acting as Supplier to GC 44 56 43 76 63
Experience from Supplying to Public Sector 40 48 64 70 60
Total 143 164 264 405 444

As expected, while the revenue from a specific contract is one reason respondents bid on government contracts, finding further business opportunities and the contract aligning with the company's business strategy are equally important. More clearly understanding the reasons companies might choose to participate in federal procurement is important to understanding the possible economic leverage of public procurement, and helping both suppliers and government frame and manage expectations for procurement.

Competitive advantage in marketing to government

Figure 6: Competitive advantage of firms
Competitive advantage in marketing to government Number of Responses Percentage
Other 22 3.0%
Prefer not to answer 3 0.4%
Knowledge and industry experience 161 21.6%
Company's reliability and reputation 132 17.7%
After-sales service 72 9.7%
Inputs sourced from Canadian-owned suppliers 25 3.4%
Innovative products 58 7.8%
Cost effectiveness 116 15.6%
Product or service quality 156 20.9%
Total 745 100%

These findings confirm that although offering the lowest price may not be the primary driver for determining a company's competitive advantage, it remains a key consideration, reinforcing the point that quality is not necessarily sacrificed for price.

Finding government business opportunities

Figure 7: Finding federal procurement opportunities
Finding government business opportunities Number of Responses Percentage
Word of mouth/business acquaintances 123 30.2%
MERX 170 41.8%
The government contacts me directly 66 16.2%
Other 48 11.8%
Total 407 100%

Other ways respondents became aware of procurement opportunities included:

No correlation was apparent between how respondents found procurement opportunities and business size. However, respondents who had been in business for longer periods of time or had been doing business with government for longer periods of time, or both, were more likely to be contacted by the government directly. This is not surprising, because companies that have been in business longer have had longer to promote themselves, thereby increasing client awareness of the goods or services the company provides.

The Government Electronic Tendering Service, currently provided by Mediagrif as MERX, and word of mouth were the most common means of becoming aware of procurement opportunities regardless of size, time in business, time selling to the government, or resources dedicated to finding business with the government.

Cost of Bidding

There are three key elements associated with the cost of bidding: money, time and resources.

Cost of bidding as a percentage of contract value

While OSME-SE has heard anecdotally, and substantiated through preliminary research, that the cost of bidding generally starts at a minimum of $5,000, and grows in proportion to the contract value, the responses to this question did not provide definitive results. There was no clear correlation between contract value and the cost of bidding, either overall or for goods or services. Inexplicably, over half of respondents from the construction sector indicated they allocated 0% of contract value to bidding. Additional research will be necessary to understand the financial cost of bidding.

Cost of bidding in working days by industry

Figure 8: Cost of bidding as number of working days
Number of Working Days Construction Industry Goods Industry Services Industry
Less than 1 working day 20 29 11
Between 1 - 5 working days 21 37 62
Between 6 - 10 working days 5 17 41
Between 11 - 15 working days 4 6 35
More than 15 working days 10 14 29
Total 60 103 178

OSME-SE was interested to see whether there was any correlation between the amount of time allocated to preparing a bid submission and a respondents' length of time in business, the amount of time they had been selling to the government, or contract award success rate. However, no correlation was found between these four criteria.

Cost of Bidding in Internal Resources

Figure 9: Resources dedicated to finding government business
Number of Employees Number of Responses Percentage
None 142 47%
Yes, but less than 1 employee's full time 110 37%
Yes, 1 employee's full time 22 7%
Yes, between 1-5 employees' full time 14 5%
Yes, more than 5 employees' full time 12 4%
Total 300 100%

84% of all respondents had less than one full time employee dedicated to finding federal government business. OSME-SE expected that large firms would have more resources dedicated to finding government business, however even some respondents from large firms had less than one full time employee dedicated to finding government opportunities. This means that business of all sizes need the bidding process to be as simple and straight-forward as possible.

Bidding Frequency (Number of times bid on a federal contract during the last 5 years)

Figure 10: Bidding frequency by business size
Business Size 1-5 bids 6-10 bids 11-20 bids 21-50 bids 51-100 bids 101-150 bids More than 151 bids
Under 5 employees 51 14 7 2 4 1 0
Between 5-49 employees 28 16 13 11 5 2 3
Between 50-99 employees 1 4 5 2 0 0 0
Between 100-499 employees 1 2 3 6 0 1 0
More than 500 employees 1 1 1 3 1 0 0
Total 82 37 29 24 10 4 3

Data also showed that respondents who had been in business for longer periods of time bid more often. However, there was no correlation between businesses that had been selling to the government for longer periods of time and bid frequency. This could be explained in two ways. More experienced respondents may feel more confident about bidding on more opportunities once they have developed some experience with government procurement, or as companies become more experienced, they may become more selective about the opportunities they choose to bid on.

Percentage of sales with the government

Figure 11: Percentage of sales with the government
Percentage of sales with the government Number of Responses Percentage
Between 0% - 1% 14 9.9%
Between 1% - 5% 35 24.8%
Between 5% - 10% 31 22.0%
Between 10% - 25% 18 12.8%
Between 25% - 50% 12 8.5%
Between 50% - 75% 11 7.8%
Between 75% - 99% 14 9.9%
100% 6 4.3%
Total 141 100%

70% of respondents had less than one-quarter of their total dollar sales with the government, while 14% of respondents had over 75% of the value of their sales with the government.

Respondents who indicated that 25% or more of their total sales were with the government were asked to specify how many government departments they sold to. Of these, 54% sold to no more than three departments while 13% sold to ten or more departments. This may point to a potential vulnerability for certain respondents. Relying on a very small number of government departments as the primary source of business revenue may make it harder for such respondents to adapt to changes in the procurement needs or fiscal climate of the specific departments they sell to and the Government of Canada as a whole.

Change over the past 5 years

13% of all respondents indicated that their percentage of total dollar sales with the government had increased over the past five years. 55% of respondents indicated that their percentage of total dollar sales with the government had remained constant over the last five years, while 32% indicated that their percentage had decreased. These rates were relatively consistent, both overall and when examining responses for goods, services and construction separately.

The information gathered does not indicate whether changes are a result of changes by government, or changes by the supplier.

Challenges

A key part of OSME-SE's mandate is to work to mitigate barriers to supplier participation in federal procurement. The study explored which issues are most important to SMEs now, regardless of whether they have or have not yet done business with the government.

Current Barriers to participation and involvement

Figure 12: Barriers to participation and involvement in procurement

Percentages shown are percentages of total responses from the respective group of respondents.
List of Barriers Number of Responses for Not Sold to GC Percentage for Not Sold to GC Number of Responses for Issues Experienced Percentage for Issues Experienced
Government doesn't buy my product or service 4 1.6% N/A 0.0%
Clarity of solicitation documents 12 4.7% 94 7.6%
Cost of bidding 18 7.0% 92 7.4%
Difficulty finding opportunities not on MERX 28 10.9% 96 7.7%
Security clearance procedures 7 2.7% 54 4.4%
Overlapping procurements, knowing which to bid on 3 1.2% 27 2.2%
Different procedures across government 8 3.1% 66 5.3%
Volume of paperwork 26 10.1% 132 10.7%
Use of outdated technology 3 1.2% 52 4.2%
Criteria are unclear 7 2.7% 62 5.0%
Minimum number of years in business 9 3.5% 26 2.1%
Minimum number of employees 8 3.1% 21 1.7%
Minimum business volume 9 3.5% 32 2.6%
Minimum capital or inventory requirement 5 1.9% 17 1.4%
Restrictive bonding, bid or contract security requirements 6 2.3% 28 2.3%
Liability and insurance requirements 8 3.1% 38 3.1%
Award based on price rather than value 15 5.8% 113 9.1%
Disconnect between requirement for availability and guarantee of business 4 1.6% N/A 0.0%
Unaware of unmet requirements 3 1.2% 41 3.3%
Don't understand why our business did not meet requirements 3 1.2% 44 3.6%
Time constraints between bidding and contract award affects ability to plan bid/schedule work 4 1.6% 65 5.2%
Time it takes to get paid 6 2.3% 41 3.3%
Scope, including quantity, delivery schedules and geographic requirements 4 1.6% 21 1.7%
Requests to perform out-of-scope work without contract modification 3 1.2% 20 1.6%
Access to computer, Internet speed 0 0.0% 4 0.3%
Don't know if the government buys my good or service 10 3.9% N/A 0.0%
Don't know how to find opportunities 16 6.2% N/A 0.0%
Don't know how to bid 6 2.3% N/A 0.0%
Other 22 8.6% 48 3.9%
Not applicable 0 0.0% 5 0.4%
Total 257 100% 1239 100%

Barriers raised by both respondents who had, and had not, sold to the government in the last five years were very similar. The top five barriers/issues identified by all respondents were:

  1. Volume of paperwork
  2. Contracts awarded based on lowest price rather than overall best value
  3. Difficulty finding opportunities not on the Government Electronic Tendering Service (GETS)/MERX
  4. Cost of bidding
  5. Clarity of solicitation documents

These top barriers were consistent across all business sizes. It is important to remember that results do not mean the items selected less often are not barriers. This is especially true for items that may apply only to certain groups of respondents or suppliers.

Respondents were also asked to identify changes the government could make to increase their ability to do business with the government in the future. Not surprisingly, the changes identified as being most important were the same as the top five barriers above. Respondents indicated that they would like the government to:

Reasons for not winning

27% indicated that 'price' played a major factor in losing the competition, while 10% selected 'technical requirements' as the reason why they lost the competition. 20% of respondents indicated 'other' reasons for not winning, and were asked to elaborate. Of these, the most common reason related to security clearances; either due to respondents being uncertain of requirements, or not receiving required clearance in time.

43% of respondents indicated that they were unaware of the reason their bid was not successful. These were evenly split between those who did not know how to obtain feedback and those who had concerns with the feedback system.

Length of time to be paid

Figure 13: Length of time to be paid
Length of time to be paid Number of Responses Percentage
Under 30 days 10 6.1%
30 days 24 14.6%
Between 31-60 days 88 53.7%
Between 61-90 days 33 20.1%
More than 90 days 9 5.5%
Total 164 100%

Overall, these findings confirm what has been heard anecdotally from suppliers with respect to payment time in relation to the 30 day timeline stipulated by the Treasury Board of Canada. What is not clear from the data is the extent to which payment after 30 days was within one or two days and possibly related to postal delivery, or closer to 60; and for respondents who are both prime contractors to government and subcontractors to other firms supplying to government, whether their responses reflect payment by the government, the prime contractor, or both.

Some delays may be addressed through increased use of existing payment options such as direct deposit and credit cards. In addition, proposed changes to financial systems may further help in the future.

Government responsiveness to the needs of business

13% of respondents who had been selling to the government for five years or more found that the government had become more responsive to the needs of business. This rate was higher when respondents were asked about specific initiatives introduced by PWGSC over the past five years to respond to needs of suppliers, such as: National Goods and Services Procurement Strategies; the Canadian Innovation Commercialization Program; and the Buyandsell.gc.ca website, including improvements to the Standard Acquisitions Clauses and Conditions.

Internal changes

A minority of respondents indicated they could make internal changes to increase their ability to conduct business with the government.

For respondents who did identify potential internal changes, the most common changes related the number of resources and skills dedicated to finding government business. Other possibilities included: security clearances; increased networking; increased specialization and general business experience.

Tools and Services

The Government of Canada has a number of procurement tools, services and programs available to suppliers. The study explored how widely they are known and used.

Tools and Services Aware Used
GETS/MERX 230 224
Office of Small and Medium Enterprises and Strategic Engagement 93 79
Office of Procurement Ombudsman 93 9
Canadian Innovation Commercialization Program 80 19
Canadian International Trade Tribunal 80 9
Pre-Qualified Supplier Data 73 22
Industrial and Regional Benefits 58 12
Department Dispute Resolution Offices 53 4
Claims/ex Gratia Payments Policy 39 6

In all cases, the questionnaire included hyperlinks to the websites associated with these tools and services to provide respondents with the opportunity to obtain additional information.

For some key tools and services, additional questions explored further information about use and satisfaction.

Ease of use of the Government Electronic Tendering Service (GETS)/MERX

Figure 14: Ease of use of GETS/MERX
Ease of use of GETS Number of Responses Percentage
Yes, Easy to Use 152 67.9%
No, Complicated to use 16 7.0%
No, Requires too much time to find opportunities 25 11.2%
No, Doesn't display new opportunities clearly enough 14 6.1%
No, Doesn't provide enough assistance 10 4.3%
No, Other (please specify) 8 3.4%
Total 224 100%

Awareness and ease-of use responses were consistent across business size, time in business, length of time selling to the government, or resource dedicated or not dedicated to finding government business opportunities.

"Other" responses included: quality of the search function; industry categorization; and information on non-competitive contracting. With respect to the issue of non-competitive contracting, Advance Contract Award Notices are posted to alert the supplier community when a department or agency intends to award a non-competitive contract, and provides the opportunity to indicate an interest and capability to deliver the good or service.

Awareness of Office of Small and Medium Enterprises and Strategic Engagement

38% of respondents indicated they were aware of the role OSME-SE plays in federal procurement. Businesses that started selling to the government since OSME-SE became fully operational were more likely to indicate awareness of OSME-SE than businesses that had been selling to the government prior to the creation of OSME-SE.

Small and medium enterprises were more likely to indicate an awareness of OSME-SE than larger firms. This is not surprising given the target market for the services of OSME-SE.

Respondents who indicated they were aware of OSME-SE were also asked to rate specific OSME-SE services. While just under half of respondents who had used OSME-SE communication channels such as telephone or email rated them as "very good" or "excellent" that rate increased to two-thirds or more for respondents who used specific, targeted services such as receiving general information regarding the procurement process, regarding how to bid and having questions answered in a timely manner.

The majority of respondents who had participated either successfully or unsuccessfully in the procurement process during the past five years had higher awareness and usage rates of the programs and services listed in the questionnaire than respondents who had not been involved in procurement.

The most used services and programs, aside from OSME-SE and MERX, by respondents who had successfully participated in federal procurement were: Canadian International Trade Tribunal; Industrial and Regional Benefits; and Department Dispute Resolution Offices.

Successes

The study also explored aspects of federal procurement that are working well.

Success Rate

Figure 15: Success rate by business size
Business Size 0% - 1% of bids won 1% - 5% of bids won 5% - 10% of bids won 10% - 20% of bids won 20% - 30% of bids won 30% - 50% of bids won 50% - 75% of bids won 75% - 99% of bids won 100% of bids won
Under 5 employees 3 9 5 3 4 4 5 9 5
Between 5-49 employees 17 4 13 12 7 9 9 3 3
Between 50-99 employees 3 0 3 1 1 1 1 1 1
Between 100-499 employees 1 0 2 1 2 1 3 2 1
More than 500 employees 0 1 0 2 0 2 1 1 0
Total 24 14 23 19 14 17 19 16 10

Research elsewhere suggests that having between 3 and 10 bids generates a sufficient degree of competitive pressure while reducing the degree of productivity associated with unsuccessful bids. Based on this, the corresponding success rate would be 10% - 30%.

Below a certain threshold, the cost of competition may not be cost-effective. Accordingly, for contracts below $25,000, there is an exception to the requirement for competition, and departments may direct the contract to a specific supplier. For respondents who focus on contracts below this value, and are less likely to be competing for business, bid success rates would approach or equal 100%.

There seems to be a correlation between higher contract award success rates and businesses that have existed for longer periods of time, suggesting that these companies have either learned from experience, become more targeted in their efforts, or both.

In examining success rates and internal resources, there was no clear correlation. However it does seem as though a business with more than one full-time employee, is slightly more likely to have won one or more contracts than businesses with one full-time employee or less. 80% of companies with less than one employee have been awarded contracts, 82% for companies with one full-time employee, and 92% for companies with more than one.

The 2011 Trends in Federal Contracting for Small Businesses report produced by American Express regarding the American federal government procurement process, found that respondents had to bid on average 4.4 times before being awarded their first contract. While OSME-SE's 2012 study did not seek this information, it provides potentially useful information to both suppliers and government, by suggesting a need to learn from experience on how to participate in public procurement.

In addition, PWGSC contracting data show that SMEs are successful in doing business with the government. On average, approximately 40% of the value, and 76% of the number, of government contracts with Canadian companies goes to SMEs. In looking closer at that data, it is clear that SMEs perform well on contracts below $25,000, and on contracts of much higher values as well, including contracts of more than $1 million.

The following two graphs of actual PWGSC contract data show the average breakdown of contracts to Canadian companies over the past five years by the value of the contract and the size of the company. The first graph shows the breakdown of the dollars (value); the second shows the number of contracts (volume).

Percentage of Value by business size (PWGSC Acquisition Information System (AIS) Data, 2012)

Figure 16: Distribution of all contract dollars by contract size and business size
Contract Size Small Businesses Medium Businesses Large Businesses Total
$0-$25,000 58% 13% 29% 100%
$25,000-$75,000 61% 14% 26% 100%
$75,000-$400,000 61% 16% 23% 100%
$400,000-$1,000,000 54% 19% 27% 100%
$1,000,000-$10,000,000 34% 19% 47% 100%
Above $10,000,000 14% 14% 73% 100%
Percentage of Volume by business size (PWGSC Acquisition Information System (AIS) Data, 2012)

Figure 17: Distribution of all contracts by contract size and business size
Contract Size Small Businesses Medium Businesses Large Businesses Total
$0-$25,000 66% 13% 22% 100%
$25,000-$75,000 65% 13% 22% 100%
$75,000-$400,000 63% 15% 22% 100%
$400,000-$1,000,000 56% 17% 27% 100%
$1,000,000-$10,000,000 44% 19% 37% 100%
Above $10,000,000 22% 15% 63% 100%

Positive aspects of federal procurement

Figure 18: Positive aspects of federal procurement
Positive aspects of federal procurement Number of Responses Percentage
Government is guaranteed to pay 217 23.5%
Stable opportunities 110 11.9%
Increase in credibility by selling to the GC 121 13.1%
Consulting with suppliers on National Goods and Services Procurement Strategies 42 4.6%
Opportunity of innovation within Canadian Innovation Commercialization Program (CICP) 40 4.3%
Procurement promotes entrepreneurship and business risk taking 49 5.3%
Access to recourse mechanisms to submit complaints 26 2.8%
Access to debriefs after contract award 56 6.1%
Integrity of the procurement process 60 6.5%
Transparency 63 6.8%
Fairness 54 5.9%
Openness 58 6.3%
Other (please specify) 26 2.8%
Total 922 100%

To balance the questions in the section on challenges, the study also asked respondents about what is working well in procurement. The three aspects of procurement most chosen as working well are consistent with the top motivations for bidding. For ease of reference, respondents indicated that financial return, consistency with business strategy, and further business opportunities were the most important reasons they would bid on federal procurement. They fact that these aspects were also most selected as working well demonstrates alignment between expectation and reality.

It is important to note that a low number for any given response choice does not necessarily indicate that certain aspects of procurement are not working well. For example, half of the respondents did not know they can request information on why they did not win a contract. Not knowing this, a respondent would be unlikely to choose it as a positive aspect of procurement.

Similarly, the low number of responses related to openness, access, fairness, and integrity may suggest that respondents have concerns or that these aspects are inherent enough in federal procurement that they are less likely to attract comment. Although one respondent specifically indicated a concern over fairness when explaining their answer, other responses indicate this is not a general view.

Future Bidding Intentions

Figure 19: Future bidding intentions
Future Bidding Intentions Number of Responses Percentage
We will bid more in 2012 89 36.2%
We will bid the same in 2012 84 34.1%
We will not bid in 2012 43 17.5%
We will bid less in 2012 30 12.2%
Total 246 100%

Of respondents who bid unsuccessfully in the past, 25% indicated they would bid at similar rates, while 31% indicated they would bid more in the future.

Of respondents who bid successfully, 44% indicated they would bid at similar rates, while 32% indicated they would bid more in the future.

It is also encouraging to note that 49% who indicated that they had not bid in the last five years indicated that they did plan to bid in 2012.

Participation in other public procurement

Participation in other public procurement Provincial US Mexico Elsewhere Total
Bid on contracts 176 32 3 36 247
Been awarded contracts 127 21 2 30 180

The majority of respondents who had attempted to sell either successfully or unsuccessfully to the federal government were also involved in provincial procurement. Further, many respondents who participated in federal procurement had also received provincial contracts, and to a lesser extent, foreign contracts, implying that success in one jurisdiction correlates with success in other jurisdictions.

Conclusion

Overall, the objectives of this study were achieved in acquiring information for OSME-SE, PWGSC, and the Government of Canada as a whole, to better understand and validate the experience of small and medium enterprises (SMEs) in federal procurement.

Key findings from this study underscore the reality facing small firms; reinforce the top priorities for barrier reduction; confirm what has been heard anecdotally; confirm that new suppliers continue to enter the government marketplace; and indicate an alignment between respondents' expectations and the current federal procurement environment.

The study reinforces the fact that many SMEs participate in federal procurement, but it also highlights issues related to the quality of SME participation. Success involves both participation rates, and the degree to which the procurement process operates smoothly, efficiently and effectively. Challenges faced by companies of all sizes are felt more acutely by small businesses and are indicative of the need for continued improvement. Changes that streamline and simplify the experience for suppliers can improve participation, reduce costs throughout the system, benefit the government, and help serve Canadians.

The study provided important information which will be used by OSME-SE, in collaboration with PWGSC and other government departments, in its ongoing work to improve the procurement process for all suppliers. Next steps include:

On behalf of the Government of Canada and PWGSC, OSME-SE would like to thank all supplier and industry associations who informed their members of the opportunity to participate and all respondents who answered the questionnaire. OSME-SE is encouraged by the responses and hopes to undertake similar studies in the future. If you would like additional information regarding the study, please contact OSME-SE via email at osmepd.bpmedp@tpsgc-pwgsc.gc.ca.

For general information on OSME-SE, on how to do business with the government, or to register as a supplier,

Office of Small and Medium Enterprises and Strategic Engagement

Vision

Our vision is to foster and maintain trust and confidence in federal government procurement.

We do this to help procurement benefit and serve Canadians

Mandate

We work with clients, including suppliers and procurement specialists from other government departments to:

Values

The management and staff of OSME-SE are guided in our work by the following core values:

Engage, Understand, Influence

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