The Singapore government awarded about two-thirds of its tech contracts to start-ups and small companies last financial year, and wants to continue creating more opportunities for them.

But governments’ experiences around the world has shown that this is easier said than done. The UK Government missed its target of awarding a third of overall spending to SMEs last year, for instance. Meanwhile, Australia’s Prime Minister has made tech procurement reforms a personal priority.

In Singapore, the government’s “commitment to disruption, innovation, creation” has created the right environment for smaller companies, says Gordon Heap, General Manager of the Singapore Public Sector at tech services company DXC Technology. But it is missing one key ingredient, he believes: an appetite for risk. “The landscape includes an ambitious vision, enterprise friendly environment, economic vibrancy and solid legal framework. It is a world-class haven for start-ups; the only thing that is lacking in Singapore is a tolerance for risk.”

How to buy from startups

The Singapore Government can change this culture and encourage startups to pitch innovative ideas by adapting the way it buys technology, he adds. “If the government truly wants to innovate and take the best thinking, they’re going to have to find a way to pay for that innovation. Innovation by definition involves some failure. Start-ups need a commercial and contract framework that compensates for ‘failing fast’ while adapting to discover the right outcome.”

In particular, governments must share the problems they would like to address and the desired outcomes, rather than prescribing solutions in tenders. “Either the desired solution is known in which case tenders can be prescriptive. However, when seeking innovation and disruption, it would be best for the Government to issue a problem statement, allowing the industry to offer solutions they may not have thought about before,” Heap says.

Traditionally, prescriptive tenders restrict smaller companies from working with government. “The company that’s trying to innovate or is a start-up, their thought processes and their products get oriented towards creating a disruptive solution” he adds. Start-ups’ success in winning contracts should not depend on whether they can tick a narrow set of requirements; instead they should be judged on their ability to come up with a creative and cost-effective solutions.

Israel has encouraged startups to work with governments using “challenge tenders”. Agencies issue problem statements, asking startups to pitch their ideas on how to solve them. The shortlisted ones are trialed, and if proven successful, implemented on a wider scale. In Israel’s experience, startups are willing to take risks that governments are not, and therefore, come up with more innovative solutions.

Paying for risk

“Governments can also support innovation and risk-taking by paying startups to test new ideas, through a method like spiral contracting”, Heap adds. Multiple companies come forward with solutions for the government and over time, these are eliminated down to the best one. “This is becoming more common in other countries. In Singapore, we’re seeing more agencies now talking about proofs of concept before tenders,” he notes.

The government can invest to cover the costs of these trials, so that smaller companies are not inhibited from taking part in spiral contracts, he adds. This is “a win-win because the companies would participate and the government would be able to evaluate three or four different ideas, instead of just the one that they came up with.”

While the Singapore government is encouraging agencies to use this approach, it is far from becoming the norm. Elsewhere, the UK Government is looking into it, Heap says, and in the case of one large defence organisations in Europe, the pre-tender trials cost companies “several hundred millions”.

Meanwhile, Australia has tried to attract startups by breaking contracts up into small projects. The “sweet spot” for SMEs are contracts between A$80,000 and A$5 million (US$59,441 to US$3.7 million), according to the government. It hopes this will reduce the government’s tendency to depend on large companies as ‘safe choices’. “These so-called safe choices simply prohibit innovation,” the minister in charge said.

Building an ecosystem

Large companies such as DXC Technology play an important role in this ecosystem. “As a global company, we have experience dealing with government contracts,” Heap says, whereas small start-ups typically don’t. “But they’re sharp, they’re agile, they’re nimble,” he adds, and bigger companies should embrace them to provide governments with innovative solutions.

For instance, DXC works with a group of government-accredited Singaporean startups which are on a fast-track to sell to government. The company provides these startups with business advice, helps them understand governments’ challenges and identify the right tech solutions. “We’re technology agnostic. Our focus is finding the best solution for our customers and often start-ups could be part of the recipe,” he says.

The company works closely with start-ups globally. “We have a partner network of many hundreds of companies in our alliances, and work to integrate them and bring value to the agency,” notes Heap. “In some cases that innovation is coming from offshore alliances, notably Israel, Eastern Europe, Australia and USA,” he added.

Old procurement habits are simply too expensive for small and agile start-ups. If the government wants to work with innovative, risk-taking companies, it must adapt and show itself to be on the cutting-edge.

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