Procurement Intelligence Unit

IT government procurement policies can stimulate business development within economies. Mandating procurement spend sourced from targeted areas, however, is a waste of tax payers' money.

The Singapore government has recently announced a recession-busting US$1 billion procurement programme, as part of a cross-departmental plan to upgrade and expand its ITC systems. Cross-the-board upgrades will harness cutting-edge technology in all areas of government. The package seeks to introduce digital classrooms into its schools and develop hi-tech, hand-held biometric and passport scanning devices to help monitor immigration.

As part of its 'Intelligent Nation 2015', the Singapore government aims to lead the island economy into a new age of innovation and growth, converting the city state into a regional technology hub.

Governmental engagement with internet communications and social media, departmental cloud computing and ubiquitous ultra-fast broadband connection points will mark the new procurement philosophy. The government sees these various technological fronts as combining to form 'rain clouds', which, the theory goes, will stimulate domestic ITC business growth and expand productivity throughout the economy.

The stimulating effects of government-led economic growth through passive procurement policies land upon private businesses like gentle summer rain. Other, more prevalent, approaches promote private sector growth through a hail of diktats from above.

Many countries, including the US, India and numerous European states, mandate a minimum proportion of procurement spend to come from a specified group within the economy. The US seeks 23% of procurement spend from small businesses, of which 5% of contracts are awarded to women-owned small businesses and 3% from services-disabled. The Indian government recently announced its mandate for a fifth of government spend sourced from small business.

Compulsory purchases from small businesses, which are notoriously slow to adopt new technologies, risk both denying the tax-payer from potential cost savings offered by larger organisations' economies of scale and stunting the governments' engagement with modern technology. Limiting suppliers also reduces competition, hitting tax-payers with higher procurement costs.

The effects of these rules, which are effectively back-door subsidies to domestic industry, are crude in approach and uncertain in result. They don't so much as provide rain clouds of positive public benefit, but a foggy mist of bureaucratic confusion.

Excessive domestic support of businesses runs close to protectionism. Yet non-discrimination and transparency are the cornerstone principles of the WTO's Government Procurement Agreement. Further stormy weather is set to emerge through free trade agreements, as nations clash over the differing levels of liberalisation that governments are willing to accept in their public procurement.

Although championing economic growth through the 'white heat' of technological process is not a new idea, rain clouds aim to 'nudge' companies into the right direction by framing choices in such a way as to lead them to societal optimal outcomes.

The deployment of new technological solutions to procurement policy should facilitate stronger and more diverse private sector contract bidders to emerge. For instance, the huge European PEPPOL project aims to co-ordinate the €1.5 trillion sector, accounting for 16% of continental GDP, and to connect suppliers across Europe to any tendering national government.

Governments wishing to drive forward their economies no longer seek to control the industrial base of the country, but to provide an environment which encourages the spontaneous advancement of the commercial sector. Public procurement can be used as a tool to further economic development, but providing the right atmospheric conditions to nurture growth, and not by heavy-handed decrees.