Over 80% of govt contracts go to SMEs; more help on the way

Over 80% of govt contracts go to SMEs; more help on the way
PHOTO: The Straits Times

The government is awarding more contracts to small and medium enterprises, and more is being done to help SMEs clinch public tenders, including breaking up large public projects.

Supporting SMEs - which provide two-thirds of jobs in Singapore - via public procurement took up a significant part of the Parliament debate on Tuesday when it was the turn of the Ministry of Finance to be quizzed on Budget 2017.

In 2016, the total number of government contracts was about 35,500 worth S$22.6 billion.

Each year, over 80 per cent of government contracts, comprising about half of total government contract value, go to SMEs, said Lawrence Wong, Second Minister for Finance.

Read also: Budget 2017: What startups and SMEs need to know

This is a respectable result even when compared to the US and UK, he said. By number of contracts, more than 40 per cent were won by companies with revenues below S$10 million. Of these contracts, almost half were won by micro-enterprises with revenues of less than S$1 million. There are 188,000 SMEs in Singapore.

Mr Wong reminded the House that while the government supports SMEs, public procurement has to abide by the key principles of fairness, transparency and value-for-money.

"Government support should not become a crutch for uncompetitive companies," said Mr Wong.

Read also: Singapore SMEs beat global average in export value per firm

Tenders will also be appropriately sized to give SMEs a chance to compete for them, he said.

Although some contracts need to be a large enough size for the supplier to invest in innovative solutions or technology to improve productivity, government agencies are equally interested in ensuring that their tenders are not too large that only a small number of suppliers can tender for the project, he said.

This is why a very high proportion of about 90 per cent of contracts called by government agencies each year are below S$100,000 in value. There were more than 30,000 of such contracts in 2016. Only about five per cent of contracts are above S$1 million.

Read also: UOB economists flag two key challenges for Singapore SMEs

For construction projects in general, about 80 per cent are less than S$650,000 and can be carried out by contractors registered with the Building & Construction Authority without a track record. More than 90 per cent of construction contracts are less than S$10 million, and accessible to smaller suppliers.

For some larger projects, where appropriate, the government may call separate tenders for different parts, giving smaller companies an opportunity to participate, said Mr Wong.

For example, the construction of a single MRT line is often carried out in many parts.

Separate tenders may be called for individual MRT stations, or MRT stations with connecting tunnels, depending on the complexity of the railway lines. Often, smaller companies tender for the "station only" contracts, and larger companies tender for "station with tunnel" contracts.

The government also helps SMEs without track record with funding to take part in public tenders, he said.

Through Gov-PACT, government provides grants to SMEs and start-ups to collaborate with and undertake projects initiated by government agencies.

SMEs and start-ups whose projects are approved are eligible for up to 70 per cent funding support for qualifying development costs.

Another scheme is the Accreditation@IMDA which helps tech start-ups to establish their credentials.

So far, the scheme has helped 59 companies and 17 of these companies have been accredited, out of which 13 have won contracts. They will benefit from the S$60 million of pipeline opportunities to-date, he said.

There is also GeBIZ Mall which gives free electronic shelf-space to suppliers so they can sell their goods and services to agencies. Each supplier can list ten items on their "shelf" and agencies can then buy directly if the purchases are below S$5,000.

Over the last five years, an average of 5,000 orders per year have been placed through GeBIZ Mall. This amounts to a value of S$3.5 million per year. "We intend to encourage greater use of GeBIZ Mall," he said.

"We will also make it easier for agencies to buy from smaller players. GovTech has started an experimental website in 2016 called govBuy. This allows government agencies to post small projects or tasks for IT programmers to work on. No track record is required to participate," he said.

The government will also take the lead in shaping labour market norms, by working with responsible employers, he said.

"So wherever possible, government agencies will take into consideration the HR and tripartism records of tendering companies," he said.

"In particular, we focus on the sectors that are more at risk of cheap-sourcing and suppressed wages, such as the cleaning, security, and landscape sectors," said Mr Wong. "For example, the government buys only from accredited service providers that adopt the Progressive Wage Model for cleaners. We also proactively encourage service providers to adopt the National Wages Council guidelines on wage increments for their employees, and to factor in wage increments in multi-year contracts."


This article was first published on Mar 08, 2017.
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