MBA in Strategy & Procurement Management
Dissertation Synopsis Form
Proposed Title: The role of public sector procurement policy in the SME growth strategy in the UK construction Industry
Synopsis of Proposed Research:
- a) Summary of your idea
The author would, at the outset, like to comment on the relevance of their research based on the financial setbacks and downturns, which might be looming for the construction industry, which forms an important part of the UK economy.
This mandates, of course, a focus upon how public sector procurement policy has or potentially can, make the conditions of business and growth strategically better for the small and medium enterprises (hereinafter re which form an important part of the UK construction industry. The reason public sector policy in terms of procurement is absolutely necessary for a review in this case is that the UK Construction is primarily dominated by SME’s which are dependant upon, for their livelihood upon work they get from public sector bodies either directly as contractors or indirectly as participants in the main contractor supply chains. Therefore, it is no surprise that the public sector actually accounts for a third of all the work awarded to the construction sector.
The current procurement policy in the UK as it affects the construction industry is indeed an uneasy amalgamation of policy legacies, the most dominant one of which have been over the years the stress upon cost efficiency, sustainability and ‘value for money’ spending initiatives. The rationale for this research is the fact while there has been quite a hype to frame public procurement as central to innovation policy and strategic SME growth, there have been very few quantitative analyses of which types of SME’s actually benefit more from the government procurement contracts. The lack of sufficient empirical analyses which can form a good base for the literature review also remain a shortcoming of this research, which aims to understand the role of public procurement (at different ranges of government levels) in supporting SMEs in the UK construction industry. The aim of this research paper remains to thus to demonstrate how SME growth and promotion as affected by the public procurement policy can be better understood once the discrepancy in the patterns of procurement at different tiers of government is understood. In terms of the UK construction industry the scattered locations and local economies of the contractor (Councils, Counties etc) do not benefit uniformly from procurement policies. Therefore after an examination of the current state of the SME growth in UK construction as it relates to the public sector procurement policies the author hopes to be better able to judge what opportunities and limits there may be for future public procurement policy decisions to facilitate strategic SME growth in the UK construction industry.
It is worth noting that much of the legal policy in this area is dominated by EU procurement regulations which dominate the pace and success of the majority construction procurement with in the UK as it is a EU member state. In 2010 the coalition government has begun to favour the role of the private sector more within the formulation of the public policy as it relates to the governance and procurement of public sector construction projects through the mechanisms of Local Enterprise Partnerships. It is hoped that the advent of these new mechanisms will bring in the views of the indirect beneficiaries and stakeholders in the supply chain agreements between SME’s and the government. This paper is aimed and addressed to the public sector bodies that are essentially the “buyers” or procurers of private contracted services for building refurbishment or repair and maintenance. SME’s denote those contracting business concerns, which represent the main contractors and their SME supply chains.
It is hoped that through the insights gained from the SME construction industry and public procurement departments the author will be able to, through this paper, better assist the public procurer and supplier to increase the opportunities for SME growth in the UK public sector.
- b) Theory you intend to use
The evolution of the procurement policy and its effect on the economic growth of the construction industry has been examined academically by many authors like Erridge (2009), Audrestch (2004), Massey (2006) and Brookesbank (2008) to name a few. Until recently UK public procurement policy and its agenda were characterized mainly through a cost minimization as a primary aim for government policy, which replaced the classic conservative approach of fiscal discipline and state interference, characteristic of the Thatcher years. The cost-minimization aspect was justified by the use of Compulsory Competitive Tendering (CCT) in local authority contracts. Cost reduction and value for money, being secured through the promotion of competition became the main premise of public policy at this time. However it has been noted that the substantial reforms in the nineties were focused more on cost minimization than the promotion for healthy competition by facilitating outside contractors during subsequent service tenders. This of course went against the consumerist approach, which was aimed at providing benefit to the taxpayer, the ultimate consumer of public projects. The focus has in the past one decade however shifted to a more collaborative and co-operative environment between public-private procurement partnerships where competition is less of an issue and the concern is the securing of long-term efficiencies in contracting relationships. This has been done by the use of Best Value (BV) and PPP (Public Private Partnership) schemes, which focus more upon services reviews, voluntary competitive initiatives and stakeholder consultation.
The author after the study of various procurement models and theories to facilitate SME growth within public private contracts for procurement has decided to elaborate and build upon the current model of the EU procurement which not only stresses upon competition as a central element of public procurement policies (based on the spirit of the Services Directive) but also the reduced role of public service unions. This would of course mandate the encouragement of the single market aims of facilitating SME movement across borders through reduced barriers to trade, competition, the use market intelligence and total quality management in the supply chain procedures to reduce costs in the long term. For this reason this model demonstrates increased competition at the early stage of market testing and service design but close co-operation at the later stages of selecting and short listing SME bidders. According to Aschoff and Sofka, 2009) this approach can have positive effects on an SME firm’s innovation performance by providing for growth space for those located in areas which are economically depressed, by co-operation at the short listing stage of the procurement. Accordingly a model like this which adopts a more hybrid approach to procurement policy can actually be said to better accommodate various problems which plague a SME growth in the UK in terms of awareness of opportunities, ability to get on the approved supplier list, cost optimization, environmental restrictions, compliance driven public regulatory frameworks, an over stress on qualifications for large scale contracts (which naturally puts the SME at a disadvantage), the ignorance of SME firms in the use of e-procurement procedures and of course bureaucratic red tape.
Based on the above the literature review I will try to triangulate the current academic views with the UK construction industry as they relate to the potential role of public procurement policy in promoting SME growth. Some of these relate to the government supply side polices as they relate to the improvement of supply side policies which can improve SME access to information, access to business information, advice and credit management assistance. This will of course warrant a review of the SME policies as they relate to the extent to which public procurement supports local and regional economic development more widely via provision of a (demand side) market for SME goods and services in the public sector, sits with its supply side policies. According to Dollinger (1995) and Massey (2006) these policies should focus upon the following aspects of the SME concerns in the UK construction industry (This theoretical model is still under construction and will be linked in later to the methodology).
Increasing SME Access to >>>>>
(Supply Chain Policies of the Construction industries)
|Finance and capital, new construction markets, new skills development, and general awareness, encouraging new firm start up.|
|a. Technological resources,|
|b. Reputational resources|
|c. Capital resources|
|d. Social capital|
|e. Human capital|
Source of Data
The author aims to use questionnaires to elicit the views of some willing participants from the public procurement supply chain departments with in the UK construction industry. This is a good research strategy as it is meant to help the author get hold of the target audience, which is most conveniently available. Also it is an efficient strategy in getting a large number of responses and can be an ideal solution if the researcher suffers from a lack of financial support and has serious time-constrains for the research to be carried out (Zikmund, 1997). Furthermore this method will allow the use of a qualitative research paradigm in the form of a survey which is not only economical but can also have a quick turn around as it can be conveyed to numerous respondents through web, email or even post. Therefore as a primary research strategy, in addition to elaborating upon the UK public procurement operations with the SME’s in the UK construction industry in the form of a case study the author aims to supplement this research with a questionnaire (appended) which will be composed primarily of open ended questions to elicit brief, yet relevant views from the UK construction industry from both the public and the SME sector. The author acknowledges at the outset however the possibility of self selection bias and extremity bias due to the time constraints involved
Secondary research will be carried out through EU and UK official websites and peer reviewed business journals. An offline research will also be carried out from the local University libraries.
Justification of the research method being employed: Qualitative Questionnaire survey
The author has aimed to utilize the means of a self designed Qualitative Questionnaire, which seeks to draw parallels of the survey findings with the industrial reports and statistics, reviewed as a part of the secondary research. The qualitative nature of the data will allow the author to get an in-depth analysis which is not dependant on the choice of a few given variables by the respondents, but instead based on original remarks or comments by the respondents in writing. Even if some of these responses are short or incomplete this will still save the author the time, finances and travel required for the questionnaire as the author plans to send them out via email or postal methods with an enclosed return envelope. It is best to clarify at the outset that while the author does not expect lengthy responses to most of the qualitative queries in the survey below, this question will make it possible to discern some key demographic (gender, location and age) characteristics of both the public and private sector respondents and perhaps get in some unique insights as these questions are open ended, and research literature indicates that such questions can often attract very direct, frank and precise replies by the those people who have been exposed to the real problems in the industry and the government operations.
The criteria for selecting an SME for the survey at hand has been based upon the BERR UK Small Business Survey data and definitions. For the same reasons the classification questions also ask about the size and the age of the firm on whose behalf answers are being given to ensure that actual SME’s are widely involved in responding to this survey. Questionnaires will thus be sent out according to this criteria to ensure the validity and relevance of these surveys.
Furthermore this survey will be sent to at least 50 people in the construction industry with in my local vicinity and an effort will be made to get at least 20 more responses from a neighboring vicinity. These questions are designed neutrally so as to elicit a response not only from government procurement agents/ officials/managers but also from the actual owners or supply chain agents in the SME construction segment.
The author aims to tabulate these results and note down in particular:
- The number of responses for a) respondents actually involved in the supply chain or construction industry as private entities and b) people involved in the government departments responsible for the awarding and execution of such public procurement contracts
- The demographic characteristics of the SME industry in terms of the gender, location, financial and age of the respondents. These will be crosschecked against the industrial data available and the author will also seek to triangulate these responses with the responses.
- The identical questions about funding (one inserted in each Section A & B) will seek to point out the main source of SME funding and also to understand the ease or difficulty with which the same is available to them. Matching the responses of the public procurement officials and the SME contractors will help the author discern the gap in perception from both sides which may be causing difficulties for the SME businesses. These findings will then be tabulated and compared against the most recent UK literature on public procurement and SME construction.
About the Questionnaire: Please note that the Questionnaire has been divided into Section A and Section B in order to make it more expedient for the respondents to answer according to their occupation. This will also allow the author to ensure than a diverse base of respondents were involved and to analyze them separately in terms of their occupation and then to compare their views against each other.
For this reason the questions in Section A & B aim to elicit a brief qualitative response which will be later analyzed through bar charts and excel tables to fit into the public procurement policy model discussed above. The author believes that the qualitative aspect of this survey is necessary for a more profound insight into the procurer perceptions about the state of the UK procurement policy and its potential to help the SME growth in the construction industry.
|· I am involved with the government operations in terms of the public procurement tendering and contracting (Please proceed answering Section A ONLY)|
|· I am involved in the SME construction industry (Please proceed to answering Section B ONLY)|
|· Other ______________________________________________________________ (Please answer either section A or B based on description of your qualification/occupation)|
|· My firm /company/enterprise is under 4 years old|
|· My firm /company/enterprise has fewer than 10 employees.|
|Please answer sections A only if you are an involved in the government operations in terms of the public procurement tendering and contracting.|
|1) What departmental mechanisms exist in your estimation for soft market testing or stakeholder consultation prior to the commencement of your procurement process?|
|2) Does your department/government facility you encourage reservation of contracts for certain small and medium supported concerns during public procurement tendering?|
|3) Do you think E-procurement can facilitate SME growth? What is your departmental experience for this?|
|4) How do you support the main contractors who subcontract parts of the procurement contract to SMEs and what is your general policy for encouraging growth of the same during your bidding and allocation mechanisms?|
|5) Do you think that encouraging SME’s to form consortia in order to bid for contracts is a good option to encourage their growth?|
|6) Has your department considered providing any training to SME’s interested in the technical aspects of qualifications when applying for contracts or tenders?|
|7) How has your department ensured that the SME contractors and their supply chain are paid for their work on time?|
|8) During the stage of approval for Prequalification questionnaires (PQQs) for SMEs do you make use of flexibility mechanisms like accepting ‘equivalents’ for accreditation standards or financial information?|
|9) What is your experience of and perceived relevance of the consideration by public departments in considering financial thresholds of the SME when awarding a contract? Do you think this should be strictly proportionate to the value and subject matter of the public procurement contract?|
|10) Through what procedure do you take into account a bidder’s experience and references in your PQQ?|
|11) Do you think the PQQ procedure can cause difficulties for the SME with limited resources?|
|12) How do you ensure SME’s and local communities (or other target audiences) benefit from your procured contracts?|
|13) What are the main sources of SME funding in the UK industry and how can the government take into the account the difficulties in obtaining these during the public procurement bidding, allocation and contracting processes?|
|(For response SME owners, supply chain participants and private agents etc ONLY)|
|1) How would you classify your experience with the governmental mechanisms for soft market testing or stakeholder consultation prior to the commencement of the procurement bidding and contracting process?|
|2) What are your views on the presence or the lack thereof on behalf of the government procurement policies and procedures as they occur with the construction industry?|
|A) Reservation of contracts for certain small and medium supported concerns?|
|B) E-procurement opportunities and their potential in facilitating SME growth.|
|C) The treatment by the government of the main contractors who subcontract parts of the procurement contract to SMEs|
|D) Encouraging local SME’s to form consortia in order to bid for contracts|
|E) Pre-training for SME’s interested in the technical aspects of qualifications when applying for contracts or tenders?|
|F) Timely payments for the SME contractors and their supply chain associations.|
|G) The presence, during the stage of approval for Prequalification questionnaires (PQQs) for SMEs of flexibility mechanisms like accepting ‘equivalents’ for accreditation standards or financial information.|
|H) Perceived relevance of the consideration by public departments in considering financial thresholds of the SME when awarding a contract.|
|I) Relevant procedure for taking into account a bidder’s experience, financial resources and references in your PQQ|
|J) What are the main sources of SME funding in the UK industry and how can the government take into the account the difficulties in obtaining these during the public procurement bidding, allocation and contracting processes?|
A few preliminary references
Aschhoff, B. and Sofka, W. (2009) Innovation on demand—Can public procurement drive market success of innovations? Research Policy, 1235- 1247.
Audretsch, D. (2004) Sustaining Innovation and Growth: Public Policy Support for Entrepreneurship, Industry and Innovation, 11 (3), 167-191.
Brooksbank D, 2008, “Small business policy and support” Environment and Planning C: Government and Policy 26(2) 287 – 291
Elder, J., Georghiou, L., 2007. Public procurement and innovation— resurrecting the demand side. Research Policy 36, 949–963.
Erridge, A (2009) Contracting for Public Services‘, in Bovaird, T and Loffler, E. (eds) Public Management & Governance, pp.95-108.
Erridge, A. (2007)Public Procurement, Public Value and the Northern Ireland Unemployment Project‘, Public Administration, 85, 4, 1023-1043.
Massey C, 2006, “A new conceptualisation of business development for SMEs: a focus on development potential” Environment and Planning C: Government and Policy 24(1) 37 – 4.
McQuaid, R.W. 2002, Entrepreneurship and ICT Industries: Support from Local and Regional Policies, Regional Studies, 36 (8), 909-919.
Loader, K. (2005) Supporting SMEs through government purchasing activity, International Journal of Entrepreneurship and Innovation, 6 (1) 17-26
Loader, K. (2007) The challenge of competitive procurement: value for Money versus Small Business Support, Public Money and management, 27 (5), 307- 314.
Sigmund, William G. (1997), “Exploring marketing research”, 6th ed., London; Fort Worth, Tex.: Dryden