My name is Cass Chideock, and I'm Deputy Director for the SME Policy Team within the Crown Commercial Service. I'm going to work on the basis that the committee knows that we at the Crown Commercial Service are essentially a trading fund that's part of the Cabinet Office, a buying agency for the British government. Within that body, we have a small policy team, and my team and I form the SME policy function, leading on the U.K. government's operational target to spend more with SMEs across the board.
I have been asked to provide a high-level overview of the U.K. procurement system and U.K. efforts to increase participation of SMEs in government procurement. I think an important part of the context in thinking about comparisons with procurement in Canada would be that the U.K. public sector buys according to EU procurement rules. We don't focus on specific quotas or set-asides, as I know some countries do. That would be illegal within the context of our legislation.
My focus is very much on levelling the playing field for small businesses so that they are able to compete with larger businesses. That varies: making sure that procedures are simple, that they have access, that they can find opportunities with government, and that government itself is able to work with small businesses in terms of engagement and procurement.
The U.K. government has had an aspirational target to spend with SMEs since the coalition government dating back to 2010. The first target was for 25% spent with small businesses. When I say 25%, that's direct spend, spent directly with SMEs but also spent in the supply chain to the first tier down from the prime contractor.
We use the OECD's definition for SMEs, and that's fewer than 250 members of staff with limits on turnover: a turnover of less than or equal to 50 million euros and/or a balance sheet total of less than or equal to 43 million euros.
As I said, we had a first target for 25% spent with SMEs by 2015, and that was met in the 2014-15 spend. We measured from April 1 to the end of March of the following year with a 27.1% spend. We currently are working on a target to 2022 for one third, for one pound in every three spent with SMEs—again, directly or indirectly.
I mentioned that we measure both this direct and indirect spend. Those are the terms I'll use, because those are the ones I'm familiar with. I think it's fair to say that what we spend directly with SMEs is considerably easier than measuring what our suppliers spend with their supply chain. I won't go into details, but I'll be happy to talk a bit about that, if it would be something that the committee would find interesting.
We measure spend right across central government, including defence spend and construction spend. Defence and big infrastructure projects are the two areas where it's most difficult to get SMEs in, particularly in terms of direct spending. We count arm's-length bodies for different government departments in that spend as well. At the minute, for example, for the Department of Transport, we're counting network rail spend and hiring agency spend.
Our current spend for 2015-16, which is the last year for which we have published figures—because it does take us time to collect and collate figures and make sure they're accurate—is 24%. We have experienced a drop since 2014-15. We are now at around 12 billion pounds spent in 2015-16 with SMEs, which is about 5 billion more than in 2011-12, the last time for which we've got comparable figures.
What have we done to get there? Some of what I'll be talking about will be before my time. I joined the team about three years ago. Up to about 2015, we had a series of payment targets in central government, because we know that payment is very important for small businesses. It's important for all businesses, but it's particularly important for small businesses where cash flow is a real issue. We have targets to pay 80% of valid invoices within five days and 100% within 30 days. We track those department by department. They were held in the central government on essentially a voluntary “we expect you to do this” basis.
We have a service called “mystery shopper”, which is a team established to investigate cases of poor procurement practice, and we use that to target and identify where, within the government procurement cycle, small businesses are experiencing problems. Payment, for example, comes up often. Bureaucracy and difficulty with accessing procurement are others.
We have a site that brings together, from across England and Wales, including local government, opportunities to sell to government, and that's called Contracts Finder. We had our first iteration created between 2010 and 2015, and there was quite a lot of work to simplify framework contracts. For example, you may have heard of G-Cloud, which is a framework contract now in its 9th or 10th iteration that creates a form of catalogue for public sector organizations to buy digital and cloud services from businesses, and we have very high participation rates from SMEs and high levels of spending with SMEs through that framework.
Since 2015 we've taken on further activities. One of the things we've done is banned pre-qualification questionnaires falling below the OJEU, the Official Journal of the European Union, threshold. We took that step out of the procurement process, and above that threshold, we've set up a standardized questionnaire so that small businesses engage with something they recognize from previous experiences.
We took the mystery shopper service and we put it on statutory footing, which requires that, in essence, if a question comes in about a particular public body, that public body is expected to comply with the mystery shopper service.
We rebuilt and refreshed Contracts Finder completely and made it much more user-friendly. We used an agile process to really engage with users of all kinds to make sure that it was working effectively, and we've required central and local government businesses to advertise opportunities on it. For central government, we have a threshold that any contract over 10,000 pounds should be found on Contracts Finder, and we expect to see opportunities flagged in advance, better notice for the opportunity itself to be open, and then publication of an award notice letting anyone who reads it know whether or not it was awarded to an SME.
Contracts firms are completely free to use this. It works across mobile, all kinds of tablets, and laptop platforms etc., and it's pretty user-friendly. It's very simple, but it's user-friendly, and it has an open API, so it's available to be used for open data.
Last, we require payment of valid invoices within 30 days, the measure I previously mentioned. We required that through law, and we required that to be passed down the supply chain, so we're now telling our key suppliers that they have to pay their supply chain in delivering a contract within 30 days, if the invoice is valid.
Just this last month, on April 10, we announced a few further measures. We announced a consultation on considering prompt payment performance in awarding public contracts. We're going to use this consultation to find out what would work for suppliers and for public sector organizations, and we're keen to identify a route by which we can use awarding public sector contracts in encouraging a prompt payment culture, because we believe that prompt payment culture is still not in the place we would quite like it to be.
We've also required, for larger contracts, provision of data on spending in the supply chain, which will help us. It helps us kind of drive that message of spending more with small businesses, and for opportunities in the supply chain that have not yet got an existing business delivering them to be advertised on Contracts Finder. Those two are open to small businesses that are able to go and find those opportunities.
There are other things that have worked well that the committee may wish to hear about. We do a lot of work within my team working with government departments. CCS is by no means handling all of the spending across the central government. We work with government departments to make them aware of the target, to require them to have sub-targets, and to develop trajectories toward delivery of that aspiration in 2022.
We have a person who holds the role of small business crown representative. To use a phrase I think we've used in the past, they hold the government's feet to the fire in dealing with small businesses. They really make sure we're paying attention and they act as the voice of small business in government. That post is currently held by a woman called Emma Jones, who's kind of a leading light in promoting small businesses in the U.K.
We have a group called the SME panel—
Absolutely. We planned for this.
Thank you very much, committee members, and thank you, Mr. Chair, for the invitation to appear in relation to the study on small and medium enterprises in federal procurement.
Let us provide some background about ourselves and our work with the Canada-United States Council for Advancement of Women Entrepreneurs and Business Leaders, and the role that federal procurement can play in creating a strong and vibrant economy.
I am Annette Verschuren, and I am the Chair and CEO of NRStor Inc., an energy storage development company. Prior to this role, I served as president of Home Depot Canada and Asia, overseeing the growth of the company's Canadian operations from 19 to 179 stores between 1996 and 2011.
My colleague Elyse Allan, a great friend and partner, is President and CEO of GE Canada and Vice-President of GE. Elyse leads GE Canada's growth across its business portfolio while also building GE's innovation and digital capacity.
Led by top executives in the United States and Canada, the women's council has a mandate to develop advice to help boost women's economic engagement. We share the many inspiring stories of progress and successful women to motivate others to follow their lead.
Extensive research proves that there is an economic advantage in female leadership in the workforce. Being a female leader in the workforce for 41 years, I can guarantee you that. Our work, divided into five pillars, will contribute to the increased economic growth, integration, and competitiveness of Canadian and U.S. economies. To date, the women's council has released three pillars. They are supporting and growing women-owned businesses; increasing the number of women in science, technology, engineering, and math; and attracting women entrepreneurs, encouraging women to start businesses. Two additional pillars—increasing women's access to capital and the advancement of women as leaders in the private sector—will be released in the coming months.
As the champions of the first report, “Supporting and growing women-owned businesses”, we identified the following barriers affecting women business owners. They include access to growth capital; lack of access to talent, networks, and expertise; the pressure to choose between entrepreneurship and family obligations; and the persistent social and psychological biases.
Today we will focus on how the government can support women-led SMEs through implementing a supplier diversity program. We will also highlight the power of procurement to spur innovation, as discussed in the Advisory Council on Economic Growth's paper “Unlocking Innovation to Drive Scale and Growth”, released in February 2017.
There are challenges and barriers for women in business, but multiple studies show a strong business case for investing in women entrepreneurs. Research has found that businesses observe 15% in additional profit when the share of women in leadership positions rises from zero to 30%. Companies with at least one female founder outperformed all male-founded teams by 63% over the past 10 years.
Several studies, including those done by RBC and the Center for Women's Business Research, found that increasing the number of women-owned small businesses in Canada could add $198 billion to Canada's GDP. Yet, despite starting nearly half of all new businesses, women owned fewer than 15% of businesses with 100-plus employees in the U.S. and Canada. Just to be totally accurate, it's 15% in the U.S. and it's 7% in Canada.
Access to growth capital is critical for success. In both Canada and the United States, firms with at least one female founder received less than 16% of all venture capital funding. There are too few women in decision-making roles in the financial services, asset management, and private equity sectors, and only 7% of partners at leading venture capital firms are women. Women have a smaller pool of fellow entrepreneurs, technical talent, and informal advisers to tap as they start and scale companies. This makes it harder for women to get introduced to potential customers, partners, and investors, and as a result grow their companies.
I would like to thank the committee for accommodating the logistics and allowing me to participate by telepresence.
I'll talk briefly about targeted procurement. Procurement programs are really a very important way for growth-oriented businesses to access capital and networks. In the United States, small businesses that became suppliers to large corporations and governments saw their revenue grow by 250% on average and their number of employees grow by an average of more than 150%. Large contracts such as those that are offered by government and large companies can also serve as collateral, which allows the entrepreneurs to secure loans. If you will recall, Annette mentioned that access to capital is one of the barriers we see facing many women trying to scale their businesses. Procurement programs also give entrepreneurs more credibility when they're seeking this outside capital, and it helps them also link into larger supply chains.
Our work has highlighted the benefits of increasing access for companies that are 51% or more owned, operated, and controlled by such under-represented groups as women. For example, Accenture and General Motors are terrific examples of large companies that have used such programs to drive better results for the bottom line. At Accenture, having a diverse supply chain has been a strategic priority for more than 20 years. Through their program, Accenture now spends about 30% of total procurement on diverse suppliers, with 6% to 8% of that going to women-owned businesses.
There's a strong business case for targeted supplier programs. Reports by the World Economic Forum as well as Canada's Conference Board outline important benefits. These include things like increased customer satisfaction, because the customers see you working with a diverse supplier base; higher revenues; better employee retention, because of the connection employees see to that reach-out in terms of a diverse and targeted supply chain. You also generally have a more robust supply chain, more competition, and increased access to new markets.
Implementing targeted procurement programs in Canada is something that we think is incredibly important. In the United States, action on targeted procurement programs started nearly 50 years ago. As a result, as Annette and I discovered, it's actually quite advanced. The U.S. government itself has a goal of procuring 5% from women-owned businesses, and over 95%—that's 95%—of Fortune 500 companies have their own targeted supplier programs.
Closer to home, we're very heartened by commitments in the 2018 federal budget, which highlighted how federal procurement can drive business growth. We look forward to hearing further details about this commitment, which seems somewhat similar to the U.S. women-owned small business program we've learned about. As the budget states, the government will “set an objective of increasing the participation of women-owned small and medium-sized enterprises...in federal procurement so that they constitute at least 15 per cent of SMEs supplying the Government of Canada.”
As the government moves toward implementation, we offer four considerations that we think will be vital to success. One is to set viable goals. The second is to collect and use data. Third is to reach out to women businesses. Fourth is to verify eligible companies. I'll just briefly articulate around all of those.
Around goals, we commend the government's commitment to 15%. By the same token, there is a big difference between awarding 15% of total nominal SME contracts and awarding 15% of the total available funds. We think the most effective way to effect change would be to create a set-aside reserve to award to women entrepreneurs based on a percentage of total available procurement funds.
The second area is about data collection. We certainly believe we need a strong baseline of current government procurement won by women-owned businesses, broken down, if possible, by industry sector and issuing department. This could be used to chart the progress of any initiatives going forward over time.
The third area is about reaching out to women-owned businesses. Another major portion of our report actually focused on the role of the private sector in expanding their own targeted supplier programs. Our suggestions to business, which include efforts such as attending conferences and summits, and working closely with networks, accelerators, and incubators, should also be applied to government. Basically, how do we get the word out so that women learn about these programs and actually engage?
The final area is to verify eligible companies. The government must provide clarity on the threshold for what qualifies as a women-owned enterprise. We suggest establishing, or actually endorsing, a program of third party certification to minimize abuse. There are a number of different organizations that already do this. Certification should focus on substantive management and control rather than necessarily ownership.
Beyond those specific measures, the committee should also consider the recommendations that were made by the growth council.
There were a couple of recommendations that focused on procurement. There are four basic approaches to strategic procurement that seem to be used in other countries, which might guide the formulation of a strategic procurement program here in Canada. One is solution-based procurement, which actually specifies the outcome you desire, rather than specifying specific equipment or services that are to be purchased. It's outcome-based.
The second type of procurement is called “supply push”. It opens the procurement process to unsolicited offers, exposing the government to innovative ideas and options that officials might not know exist. Basically, it encourages innovation and new approaches.
The third type is set-aside reserve, a share of government spending for certain types of suppliers, such as small business. This could include what we're talking about today, a pool of capital set aside specifically for women entrepreneurs or women-managed businesses.
The final type is demand-pull programs. This is where agencies intentionally create demand for new or nascent technologies.
Those are a few ideas around implementation. Annette and I certainly thank you for the opportunity to address the committee, and we welcome your questions.
In answer to your question, there are a number of specific reports, whether it's the Ernst & Young report, the Conference Board of Canada report, or even the World Economic Forum report. In all three cases, not to mention the anecdotal and sometimes quantitative measures that we learn from some of the big businesses like General Motors and Accenture and others, to your point, those programs did in fact address those barriers. I think a lot of evidence shows this in different ways.
Going back to Annette's point on capital, part of it is that when you have this order from the government, a purchase order, you have the ability to take that to the bank and get financing because you have a long-term supply contract. It's incredibly powerful. It gives you collateral that you otherwise wouldn't have. It also brings you something to walk in to other customers with. The one thing we heard at both this study and the growth council is how come our own government, at any level of government, isn't a first customer? If we're trying to grow and are putting all this investment through ISED and other places into innovation, into trying to develop new businesses and scale them, why don't we have the governments really stepping up in creative ways to ensure that they are first customers for these companies? I must say that time and time again we've certainly heard about the cases where we have companies here and their first customer is in the United States.
To your point, I think it does give them access to additional supply chains, so it helps them build their customer base and their network. It gives them access to capital that they seem not to have to the same degree that male-owned companies do. Also, of course, there are all the benefits that Accenture, General Motors, and others have identified, where it brings employee engagement, it helps you on hiring, and it also helps you in terms of access to more customers who are proud to do business with somebody who looks towards diversification in the supply chain.
Yes, I agree with you that there are a number of benefits if you have the federal government as your customer.