November 01, 2024
Economy

Enhancing SME inclusion in public procurement: The case for the Swiss Challenge

October 24, 2023
Enhancing SME inclusion in public procurement: The case for the Swiss Challenge

The introduction of the Public Procurement Act in 2015 marked a significant milestone in the quest for transparent and corruption-free government procurement processes in Namibia. This legislative initiative aimed to bring about a fundamental shift in the way public funds were allocated, emphasising accountability and fairness.

By mandating open and competitive bidding, the Act aimed at ensuring that government contracts were awarded to the most qualified and cost-effective bidders, ultimately reducing opportunities for corruption and favouritism. However, the Act inadvertently posed some challenges for small and medium-sized enterprises (SMEs), which are an integral part of our economy - contributing approximately 35% of all jobs in the country, according to the Ministry of Industrialisation and Trade.

This article will thus unpack some of the challenges faced by SMEs in public procurement and explore how incorporating the Swiss Challenge method in Namibian public procurement could address these challenges.

 First, the rigid nature of the Act, particularly in the bidding process, often proves to be overly complex and expensive for smaller businesses to navigate. SMEs, which are crucial engines of job creation and economic growth, find themselves at a disadvantage when competing for government contracts due to the complex, bureaucratic requirements, and substantial financial burdens associated with the bidding process. This unintended exclusion of SMEs undermines the Act's goal of fostering economic inclusivity and fair competition.

Second, the Act unintentionally exhibits an anti-innovation bias, as it strictly mandates that public entities must conduct a public tender process if they receive an unsolicited bid. This undeniably serves the noble goals of transparency and equity in public procurement, but it unfortunately comes at the expense of innovation.

This is because there is a clear disparity in resources and financial capabilities between SMEs and large corporations. Large corporations often have more financial resources that allow them to price more competitively. Additionally, SMEs lack the human capital to navigate the complex procurement processes and compliance requirements that public procurement often entails.

In the short term, this has made many SMEs reluctant to share their intellectual property and invest in research and development as their innovative edge often counts for nothing. This ultimately hinders the flow of new ideas, technologies, and the potential for groundbreaking solutions to modern-day problems. In the long term, this dynamic will hinder SMEs’ ability to operate and grow by implicitly excluding them from a significant part of the economy, and it will not be long until the negative effects filter through to the broader economy. 

As a result, there is a growing call to revisit the legislation to strike a balance between maintaining transparency and creating a more accessible procurement environment for SMEs. Finding this equilibrium is essential to ensuring that public procurement benefits from both the robust ove aarsight and the dynamic innovation and competitiveness that SMEs can offer. Thus, introducing the Swiss Challenge which may present a promising model that can be adapted to enhance public procurement in Namibia and promote the inclusion of SMEs.

The Swiss Challenge is characterised by the following three-stage process:

1. Suppliers, including SMEs, can submit unsolicited proposals that showcase their innovative ideas which are evaluated based on their potential to deliver value to the government.

2. If the unsolicited proposal is deemed valuable, it is opened to public competition, where other suppliers can submit competitive bids.

3. In the event that the preferred bidder in stage 2 is not the originator of the initial unsolicited bid, the originator gets the right to make a counter proposal that at least matches the preferred bid. If they can, they are awarded the tender.

This method, therefore, provides SMEs with an avenue to introduce creative solutions without being deterred by the traditional complex and costly tendering process; maintains transparency by subjecting the unsolicited proposals to a competitive bidding stage; and encourages innovation by giving innovators preference in the bidding process.

By incorporating elements of the Swiss Challenge, the Public Procurement Act of 2015 could strike a better balance between transparency, competition, and innovation. This modified approach would foster an environment where SMEs are encouraged to participate, contributing their unique expertise and ideas to public procurement processes, ultimately benefitting both the public and the economy at large.

*Etuna Hango is a Senior Associate at Eos Capital

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Last modified on Wednesday, 25 October 2023 09:55
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