Issue link: https://maltatoday.uberflip.com/i/238322
14 BUSINESS & FINANCE maltatoday, WEDNESDAY, 8 JANUARY 2014 Small Business Act is not working I Marilyn Mifsud t was a bold attempt by PN government to adopt the Competitiveness Council policy on 'Think Small First principle' and in July 2011 promulgated the Small Business Act. Historically it formed part of the ubiquitous Small Business Act for Europe' (SBA) endorsed by the European Council of 12 December 2008. It now sits silently in a library of dead letter legislation which is gathering dust on some nondescript shelf in a majestic building called the Main Guard facing the palace in Valletta. Observers are complaining that the 'Think Small First' principle is not a reality yet and so far it is not correctly interpreted. Theoretically this law, once enacted, is the starting point for all legislation – both new and revised – to be more user friendly to the small enterprises (employing less than 250 ), i.e., the overwhelming majority of enterprises in Malta. No prizes for guessing that it makes good economic sense to cater for SMEs rather than focus exclusively on the bigger fish in the pond. Nostalgically, we recall how the introduction to the act solemnly asserts that, 'It further sets up the Enterprise Consultative Council and the College of Regulators, which aim to provide a forum for consultation and social dialogue, advise government on challenges faced by the business enterprise, address grievances which emanate from the business enterprise and come up with remedial action. More correctly we can state that legislative or political provisions should reduce the burden weighing down on the fragile status of SMEs, which in theory should be exposed to a lesser impact of the full regulation than the larger enterprises. Undoubtedly our political mindset with its ingrained prejudice against 'small is beautiful' leads politicians to continue to support anything that is larger than small and which in their own misguided perception leads to a greater harvest of votes. When Europe is suffering its heaviest bout of unemployment it is madness to ignore the efforts of entrepreneurs who stoically fight against all sorts of prejudice and continue to sow the seeds of growth in their budding nurseries. The unique concept of the 'Think Small First' principle ought to come in play when ministers submit subsidiary legislation in draft form. The law expects them to prepare a checklist of potential drawbacks on SMEs. This helps promote a culture whereby the financial and administrative impacts of the proposed regulatory measures on the private sector and the administration are assessed at proposal stage. Of course most useful is the provision of a two month 'cooling-off period' between the date of publication of laws, and their implementation. Another innovative concept (which unfortunately seems to be a dead letter) is to elect a college of regulators to advise the government on its regulatory policy, while government entities will have to conduct regulatory and independent "Our political mindset with its ingrained prejudice against 'small is beautiful' leads politicians to continue to support anything that is larger" surveys about their deliverables to ensure that they continue giving services in an efficient manner. The uniqueness of this college is that the various regulators can in theory work in harmony and remove overlapping and unnecessary bureaucracy. Another novel measure is the rule that any public sector entity offering services to business shall carry out a customer satisfaction survey every two years, with the aim of establishing the impact which its service is having on the pertaining sector. Just how many such surveys have been carried out in the past two years remains unknown. This is why onlookers cast a die of doubt on whether the SBA is a proactive vehicle realising its end or whether it has become a flightless Dodo having only paid lip service so far. As can be seen later on in this article one is quoting explicit examples where the rights of SMEs have been trampled upon particularly in situations when applying for government tenders. As can be seen, one gets the impression that overzealous government departments in their drive to assert their authority and execute their master's orders, do indulge in double-speak. Such a language creates impenetrable walls for the start-ups which the SBA purposely aims to protect. Yes, we have over the past decade since accession seen the proliferation of directorates which on paper try to streamline the functions and method of delivery of essential public services. Some do function well and these help considerably to create a transparent image of improved accountability. But these are exceptions and not the rule. In practice, it seems that departments do not always coordinate their powers and share the rich trove of data to help ease the strain on SME's when applying for services (such as tenders and expressions of interest). Most of the time they request information via complex forms when such information is readily available in the public domain such as data that can be traced back to annual returns for Income Tax, VAT, Transport Malta and in some cases MEPA. But not all is doom and gloom, as the phoenix has risen and this is manifested in a Department of Contracts circular (number 19) and published on 16 December 2013. The latter is an appropriately styled Circular on SME Experience Removal as a selection Criteria for Public Tenders. This can be seen as a very positive turn of the tide in favour of SMEs for whom it is a great moment to be in the limelight and bask in the acknowledgment and recognition. There have been many a tale of the woe-stricken SMEs trying to join the band wagon of government tenders but who were unceremoniously laughed out of the building for trying but with fervour encouraged to try, try again as finally meritocracy will triumph. This era of 'always the bridesmaid but never the bride' for SMEs has been a long and dragged out one in public procurement and it was high time that things take a turn for the more comforting as proposed in the SBA. A quick glance brings to mind a number of incidents in which SMEs were disqualified from a public call on the basis that they lacked experience or expertise that can only be amassed over a number of years of experience. This was truly unfortunate, in that how could an entity ever hope to acquire such expert experience if one was never given the opportunity to try? Even more unfortunate was the manner in which this blatant injustice continued to be brushed aside and more so the length of time over which the same behavior was allowed to protract. Reminiscent of the pre-French revolution monarchial hypocrisy dished to the sans-culottes (of 'let them eat cake' fame) SMEs were unfairly prejudiced in a manner that was not formally recognised as such, but this did not by any measure lessen the prejudice which still subsisted. One may recall in particular a call for bids back in 2011 by then MRRA for auditing services for the approving body Eco-Contribution. Here the tender specification mandated the audit firm to have on its books 20 professional full time qualified auditors – as a minimum, for a contract that was valued at €120,000 but actually the winning bidder (a Big 4 audit firm) offered to do it for only €29,000. Other SMEs who were the cheaper ones were disqualified on that sole criterion alone (of having less than the required number of experienced personnel under employment and thus without a fighting chance of proving their case of meeting technical compliance and having sufficient resources, irrespective whether this was in fact met or not). As a result such a tender acted to the detriment of all SMEs who would in similar future cases be altogether discouraged from submitting their bid since they were made to feel inadequate and outcast specifically on account to their small size. One of the SMEs took the matter to the appeal board, where although the board ruled that the tender document was ambiguous yet it found for the selected winner nonetheless after it quibbled with niceties such as the proper definition of what constitutes a qualified accountant and after acknowledging the desire by MRRA to seek an established firm with unique testimonial of a high cluster of qualified accountants. Another tender dated October 2011 was that issued by the Office of the Prime Minister with regards to auditing of EU funding. Here the budget was €36,000, making the disqualification of SMEs even more pronounced when again the cheapest bidder who happened to be an SME was not awarded the tender, this time for not having under employment a person holding a Master degree in management, despite having offered a solid regiment of recruits that all held tertiary education degrees and included lawyers and accountants. In cases such as this the link between the contract work to be performed under tender and the requirements in terms of experience were blatantly too tailored and not commensurate, making it possible only for the select few to apply by making the threshold of possible applicants so narrow. A dissonant note was sounded by the tender issued by Central Bank of Malta last year, awarded to an established company at three times the value offered by cheaper bidder who was an SME (fully supported in technical backup and dressed to the nines in expertise yet it had to endure being mocked by CBM who called it inexperienced in open press when the case went public). Can it be written off as a mere coincidence that the selected company for the second time running happened to employ the Deputy Governor's wife? The 'Thinking Small' mantra has clearly not permeated CBM's procurement section which is comfortably nestled somewhere in the cocoon within the protecting walls of the mighty bastions in Valletta. Such stringent conditions and treatment imposed on SMEs for relatively small tenders, their ousting and disqualification on matters trivial has had the compounded result of really disheartening SMEs rather than helping them feel privileged under the 'Think Small First' slogan. To conclude, the new circular will apply to tenders under a threshold of €500,000 and in this way breathes a triumphant breath of fresh air into the system that obfuscated SMEs in the past by giving it a nitro jump start. The beauty of the volte-face is that it is applicable to tenders published after 1 January 2014, while it comes as a blessing that the threshold of the incoming regulations is far higher than that of the example cases cited above and lands a great leap of leg room within which SMEs can partake and compete more fairly on a more level playing field. That said, what remains for SMEs everywhere is to stand poised, wait for the starting pistol, and 'let the games begin'! Marilyn Mifsud is a lawyer at PKF Malta, an audit and business advisory firm mmifsud@pkfmalta.com