Good morning. Season's greetings. Thank you for giving me the opportunity to meet with the committee and talk to you about Telfer research focusing on the engagement of SMEs in federal procurement.
As noted, my name is Barb Orser. I'm a full professor at the Telfer school of management, University of Ottawa. My research focuses on enterprise growth, and specifically SME procurement, financial literacy, access to capital, and feminist entrepreneurship policy.
This morning I will highlight findings drawn from two studies that I hope will inform the committee. The first study profiles Canadian federal supplier SMEs, research conducted in collaboration with Dr. Quang Duong and Jérôme Catimel of PSPC's business analytics services directorate, and Dr. Allan Riding, who has joined me this morning. This is a collaborative piece of work. The second piece of research looks at the efficacy of the U.S. small business set-aside program. It's work that we have also undertaken.
To establish the context for the first study, let me briefly explain the study methodology. Data were drawn from the 2014 survey on financing and growth of small and medium enterprises, a survey conducted by ISED and StatsCan. It reflects the responses of over 10,000 SMEs with earnings of over $30,000 in 2014. In addition, the sample included a subpopulation of SMEs engaged in public procurement, that is, firms that had signed contracts with PSPC. I'll refer to SMEs known to have been suppliers to the federal government as “supplier SMEs”. The findings are representative of the small business population in Canada.
What did we learn? We learned that one in 10 SMEs had contracted with the federal government in the three years prior to the survey in 2014. We learned that SME suppliers are, on average, larger and older, and disproportionately concentrated in the knowledge- and technology-based sectors, and in construction.
In comparing supplier SMEs and all SMEs, we observed that supplier SMEs were more likely to report innovations, all types of innovation, including product, marketing, organizational, and process innovations. The most likely type of innovation was product innovation.
We learned that SME suppliers are export oriented. About a quarter of supplier SMEs conducted export activity, compared to merely 12% of all SMEs.
It might also be of interest to this committee that female-owned firms were less likely to contract with the federal government compared to male-owned firms. Among supplier SMEs, only 10% were primarily majority female-owned.
What are the reported challenges in doing business with the federal government? A key take-away was that the majority of Canadian SMEs, 82%, simply did not perceive the federal government to be a potential client. Even in those sectors in which SME suppliers are common, for example, knowledge-based industries, ICT, and construction, the government was still not seen as a potential client. For example, 75% of non-contracting SMEs in knowledge-based industries, sectors that are well represented in contracting opportunities, did not perceive the government as a potential client.
Other frequently cited reasons for not selling to the federal government were lack of awareness of contracting opportunities and the perception that the application process was too complicated or time-consuming. Among supplier SMEs, those firms contracting with the federal government, the primary obstacles were again associated with complexity of contracting, 43%; difficulties finding contracting opportunities, 26%; and the high cost of contracting, 27%. Other obstacles included long delays in receiving payment and difficultly meeting contracting requirements.
Interestingly, only 14% of supplier SMEs cited difficulties with respect to providing all services required in the contract. It may well be that supplier SMEs overcame the previously cited obstacles before delivering the services specified in the contract. Alternatively, delivering on federal contracts might not be as onerous or complex once the business has found the contract opportunity, responded to the RFP, and met the contract obligations.
These findings suggest that increasing the engagement of more SMEs in federal contracting requires communicating to SMEs that the federal government is open for business across all sectors. This study breaks down challenges of public procurement by stage of procurement, which is information that may inform other response strategies. A copy of the paper has been distributed through your office, and we have some here. It's available in English and French
Let me now summarize the findings of our study that examined the efficacy or impact of the U.S. women-owned business program, the federal contracting program, because I understand that this is a topic of interest to this committee. This is the U.S. Small Business Administration's supplier diversity initiative, a set-aside program that is intended to increase the diversity of federal contractors.
Again, to establish the context of study, the U.S. government has targeted 23% of its annual half-trillion-dollar spend to SMEs and 5% of its spend to women-owned firms. We examined the efficacy of various certifications, with particular reference to the set-aside for women-owned firms, on the frequency with which SMEs bid and succeeded in obtaining U.S. contracts. The population of interest comprised small businesses that were active bidders to the federal government, and specifically small businesses that were currently performing on a federal contract as a prime contractor.
In the U.S., vendors are required to be certified to qualify for the federal set-aside, for example, women-owned. Our study found that when we controlled for size and sector, that is, we compared apples and apples, the U.S. certification program had no impact on bid frequency or bid success. This is an important finding. It's a finding that suggests replication of the U.S. program is not in the best interests of Canadian business owners or taxpayers.
It is my view, however, that Canadian SMEs would benefit from a well-designed, regulated, and monitored federal supplier diversity program. This is for several reasons.
First, industry has sought such a program for over 20 years. For example, the 2003 prime minister's task force on women entrepreneurs and the 2011 national task force on women's business growth both recommended such programming.
Second, what the numbers do not speak to is that in Canada and the U.S. the agencies that certify minority-owned or women-owned business play a critical role in building capacity through conferences, networks, and fostering B2B relationships.
Third, the private sector has led the way in supplier diversity programs, programs that are creating more robust entrepreneurial ecosystems.
The U.S. set-aside also illustrates that the design and execution of such a program requires strict certification protocols, monitoring, and reporting. For example, it took the Small Business Administration 20 years to reach the 5% procurement target for women-owned businesses, a target that was achieved only in 2016, under the Obama administration.
The U.S. experience suggests that to enhance Canadian contracting opportunities for small businesses, PSPC executives must be held accountable, reporting on consequences for those agencies that do not meet designed targets.
Finally, a hallmark of effective entrepreneurial ecosystems is the engagement of entrepreneurs. A diversity of Canadian entrepreneurs across sectors, business models, and stages of procurement should be consulted on program design, execution, and monitoring. Such engagement will help to address a long-standing assertion that Canadian governments at all levels have been lethargic in employing procurement as a mechanism to support Canadian small and medium-sized enterprises.