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The Biggest Buyer in Town

The City of Toronto, like many other municipalities, invest in incubators and small business development on one hand, but fail to give them much business through contract bidding on the other. Their lengthy, time-consuming procurement process largely favours the 800lbs gorillas, leaving many new start-ups without the benefit of the biggest buyer in town's attention. People wonder why City functions lack innovation and progress. We unearth the forensics behind it all...enjoy!

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The Biggest Buyer in Town

  1. 1. How to Convince the City of Toronto To Buy From the New Businesses Emerging From Our Incubators, Accelerators, and Institutes 1
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  3. 3. Government is the biggest buyer in every Canadian market  In 2012, governments in Canada purchased $237 billion in goods and services (13% of GDP according to OECD) http://www.oecd.org/gov/ethics/PublicProcurementRev9.pdf, http://www.tradingeconomics.com/canada/gdp  Roughly $75 billion of this purchasing occurs at the local government level ($74.3 billion in 2008 according to CLC); and accounts for 21% of all wages http://www.canadianlabour.ca/action-center/municipality-matters/procurement 3
  4. 4. Toronto’s case “The City of Toronto's purchases are valued at over $1 billion [per year] which reflects a total of approximately 2000 contracts issued to vendors for goods and services, professional services and construction services.” http://www1.toronto.ca/wps/portal/contentonly?vg nextoid=a718dc54c5801410VgnVCM10000071d60f89 RCRD 4
  5. 5. Examples of contracts and winning competitors Winner of Contract Description Contract Amount Date IBI Group Downtown Transportation Operations Study $ 398,824 09/14/2012 IBI Group Consulting Services for RESCU Expansions Two- Envelope $ 471,593 11/30/2012 IBI Group Richmond - Adelaide Corridor Cycle Tracks Planning and Design Study $ 623,191 01/25/2013 IBI Group King Spadina Community Services and Facilities Study Update $ 27,000 07/22/2013 Touch Cat Digital Inc. Database System Development & Support $ 42,600 10/16/2012 Wertheim Consulting Inc. Exhibition Place District Energy System $ 290,000 04/26/2013 Goodbye Graffiti Inc Graffiti Removal and Prevention Services $ 391,342 08/09/2013 Large companies Small Businesses Established firms assembling a team for large projects Franchises IBI Group had $288 M in revenue in 2013 5
  6. 6. How they find out about these contracts? They are listed on the City’s website: Or through a third party, paid site: www.merx.com 6 Or familiar vendors are invited to bid
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  8. 8. Problem #1: SMEs are disadvantaged “Small to Medium Enterprises have historically been shut out of government business. Smaller firms have found bidding for public sector work excessively bureaucratic, time-consuming and expensive. This meant that the tax payer has not always benefited from some of the best and most cost-effective ideas that SMEs are capable of delivering.” - Chloe Smith MP, Minister for Political and Constitutional Reform in “Making Government business more accessible to SMEs Two Years On” (United Kingdom); In Canada, no level of government has publicly acknowledged this problem 8
  9. 9. Long Legalistic Tender Documents: This is an example, taken from a 98-page Request for Proposal (RFP), seeking a company to hang framed posters in a City-owned facility. RFP’s are filled with complicated terms and conditions that could lead to disqualificaiton. (Proposals are often limited to 20 pages.) 9
  10. 10. 10 Problem #2: Opaque process After risking scarce time and money on a complicated proposal, bids are subject to an unaccountable evaluation process: 1. SMEs submit a bid in response to an RFP 2 The winning bidder is announced. 3. Losing bidders inquire about the evaluation No complaint or appeal can be lodged after a winner is announced (City policy)? As bidders on Consulting Service contracts, we have experienced this first-hand.
  11. 11. Problem #3: Squandered resources and opportunities Lack of co-ordination within the City bureaucracy in support of SMEs: The City’s Economic Development and Culture Division incubates start-ups and helps SMEs through a variety of programs The City’s Procurement Department does not consider the economic value of engaging SMEs that have been fostered by the Economic Development and Culture Division Helpful Unhelpful (even counter- productive) 11
  12. 12. Procurement makes it difficult for SME’s to win contracts from the biggest customer in town Economic Development and Culture helps incubate and support SMEs 12 (Problem #3 Illustrated): Worlds Apart
  13. 13. Implications for SMEs  A costly and complicated bidding process means:  Smallness is a disadvantage where specialized proposal writing and presentation expertise is unaffordable  Innovation is a disadvantage where new solutions to old problems appear not to conform with RFP requirements  SMEs become discouraged and disengaged from process  When unable to compete successfully for City business:  Start-ups can’t establish themselves  Established SMEs can’t grow  Innovators and entrepreneurs leave for rival cities or perish  Opportunities for regional economic growth are squandered 13
  14. 14. Implications for Toronto  A costly and complicated bidding process means:  Large corporations have an advantage over SME’s  Established supply and service relationships are favoured over:  new entrants to the market  new, possibly better, ways of meeting the City’s needs  Benefits of tax-based expenditures, such as the education of our young people, leak out of the jurisdiction where the taxes were raised  Long term consequences  The most innovative and entrepreneurial companies (hence the most mobile) move to establish in more hospitable environments  Investments in local start-up businesses and entrepreneurs are wasted  Potential economic growth from the disappeared SMEs (future employment and investment) is lost 14
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  16. 16. Can little start-ups compete for a share with the 800 lb. gorillas?  Sensor Suite, is a Ryerson DMZ company, which helps property managers “monitor and control a number of critical building functions and issues, such as boiler room leaks, temperature control, securing of doors and the status of machinery, from an offsite location.” The City of Toronto manages $12 billion in assets comprised of over 5,600 properties including schools, heritage sites and elderly care homes that would need this technology.  In January 2014, the City awarded $800,724 in contracts to companies like Siemens for: Preventative Maintenance and Technical Support Services for Environmental Control Systems & Building Automation System Call Number 4305-13-5086 16
  17. 17.  OTI Lumionics, is a Rotman School of Business Creative Destruction Lab company, which has been innovating the manufacturing processes that will lead to the mass production of light, thin, flexible and efficient Organic LED products (including next-generation lighting)  Governments are always in need of efficient / replacement lighting; many government agencies, like the TTC, have many uses for this technology: signage, advertising etc.  OTI Lumionics needs to at least be able to present their technology in a City-Province charrette  In September 2013, the City’s Economic Development and Culture Division awarded $992,316 in single contract for a new pedestrian lighting system along Danforth Avenue’s Business Improvement Area. Call number: 149-2013 17 Maybe some start-ups could be supplying the City already?
  18. 18.  Sprout Guerrilla, and the Cape Dorset Mural Project are OCADU Imagination Catalyst companies, which have introduced the concepts of “moss graffiti” and Aboriginal art, respectively, as inspirational urban art forms, crowd- source funding on Indiegogo  In 2013, the City awarded $400,000 in a single contract to Goodbye Graffiti Inc. to remove and prevent graffiti. But what was the prevention strategy? We think these OCADU start- ups have solutions. 18 Does a better idea have a chance in this system?
  19. 19. Comfable, is a George Brown Digital Media and Gaming Incubator start-up, which works with architects and urban design engineers to create people-friendly outdoor environments and public spaces. Opportunity: The City of Toronto oversees 1,600 public parks and 600 km of trails. The parks system covers 8,000 hectares, or roughly 13% of the city's land area. In February 2014, the City awarded $427,227 in a single contract to design and implement innovative and high-quality public natural areas in the lower Don Valley. Call number: 9118-13-727 19 New entrants offer things the system doesn’t know to ask for
  20. 20. If this improves, the City wins  The City needs to change the way it does business with Toronto’s SMEs, especially emerging companies in which it has already made an investment  The benefits include increased regional employment; retention of our best minds; maximization of tax expenditures; localized expertise for local problems  Leadership on this issue has to come from the top at the City of Toronto  Therefore, Strategic Procurement or Procurement Reform should be on the mayoral debate agendas Strategic Procurement is worth at least $1B in discretionary spending a year. It is the one economic lever left to our mayor to better Toronto’s economy. 20