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In my opinion
Thinking small

by Michael Asner

In December 2000, Public Works and Government Services Canada (PWGSC) issued a draft Request for Proposal (RFP) for Government On-Line - a major initiative involving 28 federal departments and agencies. Intended to put most government services on the web over the next four years, the price tag of the project is expected to be in the hundreds of millions. A week after the draft RFP was issued - from BC to Newfoundland - protests were being made to PWGSC Minister Alfonso Gagliano and Industry Minister Brian Tobin.

The most vocal and organized protest was from the Information Technology Association of Prince Edward Island (ITAP). Speaking for the association and others, Terry Posylek of ITAP declared in a letter to Minister Tobin that "small- and medium-sized businesses (SMEs) are the heart and soul of entrepreneurship, innovation and economic growth in Canada…" Posylek then went on to say that, "… unless immediate action is taken, the majority of these opportunities will likely go to large national or multi-national IT corporations."

Several of the protesting organizations recommended to the ministers that a form of "set-aside" be used to ensure that at least some portion of this work went to small business. PWGSC replied quite properly that it could not introduce set-asides of any type - that is the Government of Canada's responsibility. Under NAFTA, only our government can introduce set-asides, not a ministry. (Annex 1001.2b of NAFTA excludes small and minority businesses from provisions relating to government procurement.)

Set-asides are an interesting and powerful tool of public policy but are not used very much in Canada. Let me explain.

The federal governments of Canada and the United States have policies for encouraging the growth of SMEs and ensuring that they can compete for federal contracts. On both sides of the border, the federal governments believe that most new jobs are created by small businesses.

However, there are real contrasts between the two countries in this area. Despite a culture of free trade and open competition, steps have been taken in the US to ensure that much federal work is reserved for small businesses - they do not have to compete against large US businesses or with Canadian businesses (under NAFTA). In Canada, we have regional initiatives to promote the development of new businesses, but we insist that our small companies compete directly with our large ones and with American businesses (under NAFTA).

In the US, the federal Small Business Act of 1953 states that small businesses should receive a "fair proportion" of federal contracts and that small businesses and small minority-owned businesses should have the "maximum practical opportunity" to participate in federal contracting. Congress established a government-wide goal of 20 percent for contracts and subcontracts awards to small businesses - that's more than $200 billion.

To encourage SMEs, the US government uses both set-asides and preference programs. The small business set-aside restricts contracts exclusively for small businesses to those that qualify based on their size. All contracts with an estimated value of more than $25,000 and less than $100,000 (with certain exceptions) must be awarded to small businesses. But any size of contract can be set aside if the contract officer thinks that there are at least three small businesses that can do the job. For large contracts in excess of $500,000, the contracting officer must require the large business to submit a small business subcontracting plan that specifies the manner by which the large business will ensure that small businesses have an equitable opportunity to compete for subcontracts. Failure to submit a subcontracting plan, or failure to negotiate an acceptable plan, makes the large business ineligible for the award. Many states have similar laws and policies in place.

In Canada, our federal government has no similar sweeping national program in place to assist small business. Our set-asides assist Aboriginal businesses and businesses within the Northwest Territories.

There would be many benefits of a set-aside program for Canadian SMEs. First, by designating a specified amount of work, SMEs need only compete with each other, fostering growth and providing contracts with a low cost of sales. The small business designation would protect these companies from NAFTA competition for federal work. In addition, a national set-aside program would nullify the argument often heard from all parts of Canada other than southern Ontario that Ottawa-based national firms have an advantage over regional firms.

In my opinion, Canada should adopt set-asides for Canadian SMEs. It's time to imitate the US on this one. Small business set-asides should be introduced for use throughout government. With the mandate to establish and impose set-asides and subcontracting rules on all federal contracts, PWGSC can become part of the solution - a solution that nurtures our smaller enterprises and benefits the entire country.

Michael Asner (asner@compuserve.com ), based in Vancouver, is internationally recognized as a procurement expert. He authors The RFP Report, published in Canada and the US; he contributes a regular column in Reseller magazine, a Sacramento-based publication; and he has authored several books on procurement, including The Request for Proposal Handbook and Selling To Government.  He recently launched www.proposalsthatwin.com  and www.proposalworks.com.



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