The prospect of competing for public tenders can be daunting for up-and-coming SMEs. But, as Matt McDonald reports, there are steps that can be taken to maximise the chances of success.
At some point every manufacturer needs to spread its wings and expand. Any SME which is travelling well, and has a good product and a list of satisfied customers needs to take that next step and aim for something bigger.
One obvious way to do this is to try to win business through a public tender. A quick online search reveals there are always several tendering opportunities in the public sector. In fact, there are around 120 Australian Government departments, agencies, and authorities with a range of needs that are satisfied through public tenders.
And, on top of that, you can add tenders from the private sector. Again, there are always tender opportunities. Manufacturers are needed to supply products for use within the Australian economy, as well as for the export market.
The idea of competing for public tender may be too much for some up-and coming manufacturers to contemplate. The managers of such businesses tend to already be time poor and the idea of a public tender is likely to be accompanied by thoughts of endless planning and submission writing added to already full schedules.
As an SME, how should you approach the tendering process? How should you decide which tender opportunities are right for you? How do you go about applying for a public tender? What are the barriers to success? And is there any assistance available?
Firstly, you need to know which tenders are available and which you should compete for.
The federal government publishes its business opportunities, annual procurement plans, multi-use lists and contracts awarded in one central location, at the AusTender website (www.tenders.gov.au).
Businesses register their area of business interest in an AusTender profile. And having done so, they receive free automatic notification via email of the latest opportunities as they are published.
And the various state and territory governments list details of public tender opportunities through their own portals. These websites specify the specifics of that state or territory’s procurement process, as well as tips for tender preparation and submission.
For those interested in tenders from the private sector, there are a number of directories which list current tenders.
It is important to identify the right customers for your business; customers who want what you have to offer.
While government tenders are advertised on centralised websites, individual departments and agencies are responsible for their own business decisions. There is no single government market, but multiple agencies and countless people making purchasing decisions on behalf of governments.
If you know the business requirements of a particular agency, you are well positioned to target an agency that suits the strength of your business and more likely to win a tender.
As with all business activities, networking and building relationships should never be underestimated. Trade Shows and industry events are always a good way to get your face and your business known.
A willingness to keep up to date with the issues, the regulations and the personalities within your industry, doesn’t only promote your business. It also makes you more aware of your business’s particular strengths and weaknesses. It primes your business for expansion and prepares you for future challenges.
Those businesses which don’t yet have the experience or expertise to win public tenders can take the path of forming strategic partnership with other better-established businesses.
Sub-contracting arrangements or relationships in which resources are pooled between companies can help grow your business and put your company name out there. Next step could be winning a tender.
A successful tender needs to clearly satisfy the buyer in three areas. It needs to meet the tender specifications and conditions; it needs to represent value for money to the buyer; and it must not represent a financial risk to the buyer.
Many applications will be eliminated early in the selections process. A first read often reveals that the applicant doesn’t meet the selection criteria.
So it is important that you answer every question and request for information even if you don’t have a complete answer at the time of submission. That way, while you may be asked for clarification at a later date, you will remain in contention.
It’s even a good idea to go a step further. Emphasise your business strengths and offer the buyers more than they are looking for. Don’t overload them with too much information but, in cases where your aptitudes and achievements go beyond requirements, advertise the fact.
A good credit rating is another piece of information that you should put forward. Your company’s credit history is of great interest to potential buyers.
Selection criteria usually covers areas such as technical merit; management competence; financial viability; quality assurance requirements; technical expertise; experience in the field; the skills and availability of key staff; and the risks associated with selecting your business.
The performance history of your company is worth highlighting in your submission. Key projects awards received and the CVs and achievements of staff can all be included in submissions.
Having completed a tender application, it is a good idea to have a neutral third party look over it. An unbiased pair of eyes can sometimes see areas where the submission can be beefed up or toned down.
Everything else being equal, the tender will be awarded to the submission which offers the most attractive price. This doesn’t always mean the cheapest price.
Value for money will also factor in things like maintenance and running costs. A project that comes with a low initial price tag but high ongoing costs is not the best value deal.
It’s always important to look at the big picture so disposal value needs to be taken into account, as does flexibility to change within the project. Buyers need to keep the long term in mind.
An in the case of government contracts, tenders must sit well with broad government policy objectives. Environmental concerns; energy usage; strategic partnerships; ethical use of resources; and commitments to buying locally all play a part in their decisions.
Government agencies also have relationships with the three levels of government (local, state, and federal) to factor into their decisions.
The federal government has established what it calls Multi-use lists. These are lists of suppliers which have satisfied a list of pre-conditions and are authorised to supply goods and services to government agencies.
These lists are established by one or more agencies which operate in a particular sector or industry. They are open to all interested suppliers and any business which meets the pre-conditions will be added to the list. In some cases, new listings are added as they apply, while for other lists additions are made yearly.
It is important to note that being on a Multi-use list does not assure a business of gaining contracts. Those on the list have simply met the criteria to enable them to apply for tender.
Any business that wins a public tender needs to convince the buyer that it represents an acceptable business risk.
Finance can be a problem for many companies attempting to win a public tender. Indeed, it can be a problem for companies which, having already won a tender are having difficulties convincing their banks that they are an acceptable financial risk.
The Export Finance & Insurance Corporation (EFIC) can offer financial assistance to such companies.
EFIC was established to support Australian businesses which are attempting to do business overseas. Its purpose is to assist Australian exporters and offshore investors by providing them with financial solutions and risk management options.
As Robert Dravers, EFIC’s Director of SME and Mid-Market told Manufacturers’ Monthly, the organisation aims to make “viable deals happen”. As such, EFIC “…works directly with companies and their banks to provide tailored finance solutions, including working capital and bonds.”
EFIC can only step in after the tender is secured because, as Dravers says, the organisation is “small, light and nimble and we just don’t have the resources to be pre-approving companies early on in the hope they may win a contract.
“We would need to be twenty times the size we are to do that.”
For any aspiring manufacturer the news of a tender win is obviously great news. But, as Dravers says, “the good news of a contract win may be seen through a different lens by the bank.”
According to Dravers, banks need to apply rigid rules about what they are able to lend to SMEs. Their lending decisions may come down to the nature or term of the investment or even the political climate of the country in which the business is being done.
And their lending decisions are dictated by quantifiable data such as percentages of security they hold against real property and so forth.
SME manufacturers represent a particular challenge for banks. As Dravers says, this is because they are often “providing a critical good to an onshore resource project or an offshore company that doesn’t really know the supply capability of the Aussie SME.”
As such, those SMES are often obliged to put up a performance guarantee that can be called on if the goods are not judged to be up to an agreed standard or are not delivered in an agreed time frame. And, on top of this, there is often a warranty period that must be agreed to. Such periods are often too long for banks to accept.
Put simply, the buyer needs to know that it will be compensated if not satisfied with the finished product.
Whereas, banks are limited by considerations such as the above-mentioned percentages of security SMEs hold against real property, EFIC has more scope to evaluate companies and the risks they carry.
“We become the bank’s risk party and what we do is a detailed technical assessment of the company’s performance capability and that enables us to go beyond the balance sheet and beyond the security limitations that they may have for a bank,” Dravers says.
A self-financing body owned by the federal government, EFIC does not compete with banks. It works in collaboration with them and supplements what they can supply to customers.
The organisation can help Australian manufacturers take that important next step to expansion and future success.