Socio-economic sourcing: benefits of small business set-asides in public procurement

Abstract

Small businesses are critical to economic health and encouraged in government spending by set-asides-annual small business sourcing goals that often are not attained. Little research has explored the negative and risky stigmas associated with small business sourcing. This research explores reduced transaction costs of small business sourcing to government buyers. A survey of 350 government source selections reveals lower transaction costs derived from lower perceived risk of receiving a bid protest and via more efficient source selection processes. Contrary to common bias, the performance level of small businesses is no less than that of large business. Thus, small businesses engender lower transaction costs for correcting supplier performance. Based on these findings, managerial and theoretical implications are discussed. SOCIOECONOMIC SOURCING: BENEFITS OF SMALL BUSINESS SET-ASIDES IN PUBLIC PROCUREMENT The Small Business Act of 1953 requires that a fair proportion of contract dollars be awarded, or set aside, to small businesses (Sakallaris, 2007). This is not a trivial directive as the public sector constitutes a huge market, approximately $2.7 trillion annually in the U.S. alone (Bureau of Economic Analysis, 2017). This means that a tremendous amount of those public funds-$90.7 billion in fiscal year 2015 (FPDS-NG, 2015)-is deliberately funneled to small businesses at all levels (municipal, county, state, and federal) as a matter of public policy aimed at achieving socioeconomic benefits. The current, government-wide procurement goal stipulates that at least 23% of all federal government contracting dollars should be set aside for small businesses with targeted set asides for Women Owned Small Business (5%), Small Disadvantaged Business (5%), Service Disabled Veteran Owned Small Business (3%), and Historically Underutilized Business Zones (3%) (FPDS-NG, 2015). Unfortunately, while the U.S. federal government annually seeks to award 23% of contract dollars to small businesses, it often fails to attain that goal (

Examining the Relationship between the Economic Performance of Technology-Based Small Suppliers and Socially Sustainable Procurement

“…To sustainably involve technology-based small businesses in the federal procurement market, it may need to correct the asymmetry of efficiencies in between R&D/network building and commercialization. The failure to address this issue may lead to negative stigma and risky prejudice against contracting with small businesses [22]. One potential solution would be to render inefficient firms benchmark the efficient ones on the frontier.…”

“…While there is a belief that small businesses play a pivotal role in the national economy and they need government support programs for entering the public procurement market (e.g., SBIR and 8(a) certification), the market has been dominated by large companies [22]. According to the U.S. General Services Administration's "Top 100 Contractors Report" in 2019, the amount of top 10 contractors as of 2019 was over USD 170 billion (about 29% of total federal contracting), which was greater than the amount of total small contractors (about 27% of total federal contracting) [23].…”

Discontinuous Wefts: Weaving a More Interconnected Supply Chain Management Tapestry

“…In part, this difference in emphasis is due to the scale and influence of government spending and its legal and regulatory requirements to treat supply markets equitably as a level playing field (Flynn et al, 2013; Loader, 2013). It is also due to appreciation of how government spending and its influence over supply markets might be leveraged to support broader public policies (Harland et al, 2019) such as stimulating innovation (Georghiou et al, 2014), supporting small businesses (Hawkins et al, 2018), supporting industrial development (Telgen et al, 2007), sustainable supply (Fernández‐Viñé et al, 2013), and improving development of local economies (Vecchiato & Roveda, 2014).…”

Institutional factors influencing institutionalised supplier development initiatives in the construction industry in Zambia

“…There is increasing recognition of public procurement as a tool for socio-economic development (Cutcher et al, 2020). Consequently, this has led to more scholarly attention to supplier development research in the public procurement (Arráiz et al, 2013;David McKevitt & Davis, 2015;Hawkins et al, 2018;Patil, 2017), commonly referred to as institutionalised supplier development (hereafter "ISDIs") (Arráiz et al, 2013). ISDIs are coordinated programmes by central and stateowned enterprises through various public procurement policies to support the participation and subsequent integration of local contractors in the construction industry (GRZ, 2014).…”

“…In terms of investment in ISDIs, Loader (2017) reports that governments spend considerable resources on public procurement, which varies across jurisdictions. For example, Hawkins et al (2018) estimate that the United States of America (USA) spend about 2.7 USD trillion annually in public sector procurement, of this amount, for example, about 90.7 USD billion in the fiscal year 2015 was spent in supporting SME in public procurement. Similarly, Flynn (2018) add that the United Kingdom (UK) spends about £240 billion, and the European Union spends about €1900 billion in public procurement.…”