When Cayan opted to join the bidding business, he had high hopes that he would become the next millionaire in town.
He often flipped the newspapers just to get a glimpse of the latest tenders. While he ticked all the boxes in terms of requirements, he didn’t win any contract.
Much as government is the biggest spender in this economy, Small and Medium Enterprises (SMEs) are struggling to get a slice of this money because of tedious tender processes and requirements.
To make it easy for the nationals who, in most cases, face stiff competition from foreign bidders/companies, government came up with the ‘Buy Uganda Build Uganda’ policy (BUBU), affording special reservation schemes for local companies in government contracts.
But a cocktail of bureaucracy and a number requirements embedded in the procurement system have frustrated the policy.
Small and Medium Enterprises (SMEs) have, on several occasions, complained about bidding documents, saying they are not only cumbersome, but also unclear making them difficult to understand. The whole process is also saddled with corruption at different stages before one is finally awarded the contracts.
“The whole process is cumbersome; there was a time we tried to bid for construction of a classroom in Busoga region but we gave up. The documents were too many and the whole process seemed to favour the ‘big boys," said one contractor.
The contractor whom Daily Monitor consulted declined to be named. He pointed out that things such as ‘reserve prices’, inception letter’ were not easy to understand.
In the end, they lost out on that tender under unclear reasons.
He added; “For our case, the problem started at the evaluation process; the procurement committee asked for a 10 per cent which we did not have.”
For instance, he illustrated that if the project is Shs1b, some committee would ask for Shs100m and if you don’t have that money, that’s when the ‘big boys’ come and pay cash.
The contactor said even if the committee settles for half, the challenge is such kickbacks eat into the profits and compromise the quality.
“This has two implications; when you do poor quality work, you will be blacklisted or sidelined,” he said.
According to the contactors, paperwork is the first nightmare for SME bidders. Some documents are confusing and the language used is a bit technical to understand.
Paul Byamukama Ahebwa, a legal advisor with Barenzi and Co. Advocates, says bidding is a process by which an institution calls upon different institutions to provide a required service or good.
In Uganda, government is guided by Public Procurement and Disposal of Public Assets (PPDA), and other bidding laws. According to Ahebwa, it is vital for the bidders to do their homework before rushing to bid.
“The legal process is standard although dynamics and mechanisms differ per institution but they all start by advertising; the advert is put in the wide circulation newspaper like Daily Monitor because of the coverage,” he said.
According to Ahebwa, the bid advert specifies the timeline, qualifications needed and later applications are submitted by any organisation that feels they can carry out the task.
“Then it goes to the valuation committee which is part of the contracts committees which are within the procuring organisations for instance, Uganda Revenue Authority URA), KCCA have contracts committees that evaluate the bids,” he said.
It is from the committees that bids are evaluated on fairness, competitiveness and price. The committee looks at how long the company has been in business, experience, prices and tax obligations, among other things.
After evaluation, the best bidders are published by the entity. The results are always published at notice boards to inform the bidders that they have qualified. For those that didn’t qualify for government, notices take two to three months.
Procurement specialists agree that the documentation can be cumbersome but that’s the price the SMEs have to pay if they are to do business with government considering the high monies involved.
“Some of the most vital documents include those that bidders present and those needed to show that one can actually do the job,” Ahebwa said.
Sylvia Kirabo, PPDA, spokesperson, says when one is given a contract especially a consultancy, there is a document you are given, called an inception report.
According to PPDA, this report means that after winning the contact, you explain how you understood the contract. If there are comments you want to make, tell the bidder the work methodology and timelines.
Ahebwa said an inception report is a detailed document that will tell how you are going to execute the project, offer the guidelines you are going to use, how many people, qualifications, nature of work and amount of money.
Why SMEs fail
There are many theories advanced to justify why SMEs don’t participate or fail to win these tenders.
Patrick Kagaba, a procurement specialist, said the biggest challenge is SMEs don’t employ procurement officers, making their bids fail in the preliminary stage.
Kagaba who is also the chairperson at Institute of Procurement Professionals of Uganda, explains that because they are specialists vital documents are left out sometimes.
“Companies hire human resource managers and accountants but you find that they don’t hire professional procurement officers. So, without a professional touch, it is easy to make mistakes,” he said.
Kirabo also admitted that SMEs don’t want to “join hands” through partnerships. Some are not registered by PPDA, making it hard to trace them and what they can do.
She added; “Some don’t know their rights and sometimes don’t ask why they lost the contracts beyond what is told.”
Skills, financial muscle
According to Ahebwa, SMEs have a higher propensity of risk than their bigger counterparts yet government would like to work with low risk companies compared to high risk companies.
“For instance, if a company has Shs100b capital, the government would like to work with that company because there is guarantee of completion with ease and incase anything happens, it’s easier for government to recoup,” he said.
Kagaba weighs in
“If I have a project worth Shs300m, I will be comfortable if I deal with companies that have much bigger capital or done such a project.”
“Also technical expertise to combine hands and have joint ventures, sometimes government wants high caliber contractors and this can sometimes be achieved by putting resources together,” he said.
Kagaba also explained the cost of doing business in terms of accessing money for SMEs is high because sometimes SMEs get money but their transactions don’t go through banks. So “if we cross check, their banking history is not there.”
“Additionally, loans in Uganda are expensive. Imagine getting a loan at an interest rate of 15 to 23 per cent compared to loans from China where one get a loan at 2-4 per cent interest rates,” he said.
Kagaba said it’s good to combine the technical skills and financial muscle. But some SMEs want to own everything yet they do not have the capacity.
“Some people are scared of big and complicated documents. We should have simplified documentation translated into local languages,” he said.
Kirabo explained that PPDA has a Reservation Scheme where SMEs can supply stationery, pharmaceuticals, cleaning services and other less technical things.
“There are many opportunities, but SMEs don’t take time to bid, things like providing breakfast but they don’t show interest. Yet these are reserved and government does not hire foreign companies to do them,” she said.
She added; “PPDA has been working with Uganda Women Entrepreneurship Association, Civil Society organisations where we help them train their members on the procurement processes and opportunities.”
“At Local Government level, there are many opportunities for instance running markets and PPDA can work with local governments to ensure that these tenders are reserved for the local people,” Kirabo said.