SMEs with good finances win public tenders: Study

Nearly 80% of contracts awarded in past three years won by SMEs

SMALL and medium-sized enterprises (SMEs) looking to win potentially lucrative public tenders should get their finances in order. A new study showed that those firms that win public tenders perform better financially in areas such as business performance and shareholder value.

The study, conducted by analytics firm Vector Scorecard (VSC) with the National University of Singapore Business School, is believed to be the first of its kind by the private sector.

Data was collected from 11 ministries, 16 industries and 50 firms over the past three years.

Of the 1,279 contracts awarded in the period, nearly four in five, or 79 per cent, were secured by SMEs rather than multinational corporations.

Contracts at some ministries were not dominated by SMEs, but this was because of the nature of their operations. For example, the Foreign Affairs Ministry deals with overseas officials, and the Defence Ministry deals with firearms and military gear.

The higher-value contracts were mostly in the service, technology, construction and wholesale industries, accounting for 84 per cent of value.

Mr M. Nazri Muhd, VSC chief executive and head of global advisory services, noted a strong link between public projects and SME development in Singapore - even more than in Australia, Britain or America. "What we find interesting is that a higher proportion of companies that are well managed or attain higher financial ratings tend to dominate public-sector projects, even though financial criteria by the agencies have not been set upfront."

A firm's financial sustainability was another factor in predicting its success in winning public tenders. Other factors included reputation and network, together with track record and certification of quality and standards.

Ms Alaxys Liu, regional director for international business and ventures at VSC, said: "Through the study, useful policies or programmes can be formulated subsequently, while also providing an effective soundboard to the authorities on how to empower SMEs and boost their performance in the long term."

The study advised SMEs to analyse their own balance sheets, and also track, shortlist, submit and monitor tender submissions, while keeping tabs on rivals.

Mr Nazri said that in recent years, the Auditor-General's Office Report has identified procurement lapses by public agencies.

For instance, the report for 2013-2014 cited lapses at the Education Ministry in tender evaluation and contract management, while the Media Development Authority, under the Ministry of Communications and Information, had lapses in administration of grants and evaluation of projects for funding.

The study advised the tender authorities to put in place scoring-based screening mechanisms, measure the health of bidding firms, and award to those giving the highest public value.

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A version of this article appeared in the print edition of The Straits Times on June 17, 2015, with the headline SMEs with good finances win public tenders: Study. Subscribe