Using open data to seamlessly connect small businesses which have been awarded government contracts with financial institutions that can offer them credit
Why this program?
Governments spend over $13 trillion per year on public procurement. Spent well, this money could deliver inclusive, sustainable and resilient economic growth, especially for small or minority-owned businesses.
However, small businesses often cannot afford to take on a government contract, in most cases because governments are notoriously late payers. If a small business fulfills a large contract and does not receive payment for more than six months, it could put them out of business. This presents a significant barrier for small businesses as they struggle to access credit that could alleviate this risk. Almost 70% of small and medium enterprises have not benefited from external financing from financial institutions, and another 15% are underfinanced. Women-led small businesses in particular struggle to access finance that would enable them to confidently compete for and deliver government contracts.
In Colombia, women-led and small businesses were hit hard economically by the COVID-19 pandemic, resulting in a presidential decree and a new law to boost entrepreneurship through public procurement. As a result, there is support from national and local governments, as well as banks and business associations, to increase the participation of small and women-led businesses in public procurement.
With support from the Strive Community Innovation Fund,
the Open Contracting Partnership (OCP) will build on their ongoing work in Colombia to create a solution to unlock financing for small businesses awarded with public contracts.
The OCP will create an automated system that uses open data about the awarding of public contracts to generate alerts for banks, enabling credit pre-approvals for small businesses with public contracts. As a result, small businesses awarded a government contract will be able to access credit up to the value of the contract. The OCP will work with commercial banks, government agencies, and small business associations to scope and design the user requirements for the solution and will pilot it through its existing network of partners.
To ensure the innovation reaches beyond Colombia, the OCP will publish the software under an open-source license with accompanying guidance and documentation of lessons learned. It will be designed to be reusable by procurement authorities in any country. Specifically, the OCP plans to scope and secure funding to implement the solution in Paraguay, Chile, and South Africa.
About the Open Contracting Partnership
The Open Contracting Partnership is an organization currently supporting transformational public procurement reform in more than 60 countries around the world. They use the power of technology and open government to deliver better goods and services to citizens, deter corruption, and create a better business environment and greater market opportunities for small and medium enterprises. For example, with their support, Ukraine’s open contracting reforms have delivered over $6 billion in savings, reduced perceptions of corruption from 54% to 29%, and made the public contracting sector more diverse, equitable, and inclusive, with more than 80% of contracts now going to small and medium-sized companies.
The real-world impacts of these data-driven reforms have been more reliable access to medicines; better infrastructure and services in the education sector; and local economic growth and empowerment. This work has been endorsed by the G7, G20, and the UN General Assembly, among other international organizations and frameworks.
“Small women-led businesses have been shut out of the $13 trillion global procurement market for too long. To meet the challenge of building sustainable and equitable societies in the 21st century, we need to build open data-driven, participatory, and smarter solutions for public procurement. This fund will be critical to develop an innovative approach that will open up opportunities for small businesses.”
Lindsey Marchessault
Director of Data and Engagement, Open Contracting Partnership
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