LAW 614 -Introduction Small businesses within

Introduction International Small businesses within

Small businesses within the United States are essential to continue economic

growth (Shoraka, 2014a; U.S. Small Business Administration, 2015). A deficiency in

research addressing contracts awarded through public procurement to small- and

medium-sized enterprises (SMEs) establishes a need for further exploration. Findings

from this study may provide the strategies SMEs’ business leaders have used successfully

to obtain contracts awarded through public procurement. The findings could also

highlight any barriers to attaining contract awards.

Background of the Problem

Regardless of the existence of a formal procurement department in an

organization, business leaders continue their participation in the procurement and

acquisition of goods and services. Organizations that integrate a procurement department

into their infrastructure move toward a centralized platform allowing increased

accountability (Azmi & Rahman, 2015). Centralization is essential to businesses because

business leaders use centralization to create standardization, increase buying power,

develop areas of expertise and specialization, reduce personnel and related work, secure

prices, and heighten control (Thomas, 1919). The United States government outlined the

requirements of proper procurement etiquette under the Federal Acquisition Regulation

(FAR).

The FAR, issued under the Office of Federal Procurement Policy Act of 1974,

included uniform policies and procedures for acquisitions, contract formations, and

contract administration (Contract Cost Principles and Procedures, 2001). As shown in the

Contract Cost Principles and Procedures (2001), the requirements of the FAR are in

government regulation 48 C.F.R. 31. At the state level, Florida must comply with the

government requirements of statute 287.057, which includes details related to the

procurement of commodities or services regarding bidding, new contracts, or contract

renewals (Procurement of Commodities or Contractual Services Act of 2015). Some

Florida SMEs’ business leaders lacking knowledge of the public procurement process and

guidelines miss the opportunity to obtain state government public contracts.

Problem Statement

The dominance of federal and state contracts by large enterprises reduces the

share of contracts SMEs’ business leaders obtain (Spiler, Kvrgic, & Vujadin, 2016). As of

the last census reading in 2016, while SMEs in the United States constituted 99.7% of all

businesses, SMEs only received 23% of contracts (Mijid, 2017; U.S. Census Bureau,

2016). The general business problem was that SMEs were not taking advantage of the

opportunity to gain contracts awarded through federal or state public procurement,

negatively affecting SMEs’ revenue. The specific business problem was that some south

Florida SMEs’ business leaders lacked strategies to obtain state contracts awarded

through public procurement.

Purpose Statement

The purpose of this qualitative multiple case study was to reveal strategies that

south Florida SME business leaders used to obtain state contracts awarded through public

procurement. I explored the strategies of three SME business leaders from three

companies in south Florida; the leaders possessed successful and consistent experience

(i.e., three consecutive years) in obtaining state contracts awarded to their organizations

through public procurement. The implications for positive social change included the

potential opportunity for business leaders, in any sector, to acquire state procurement

contracts; increasing their revenue and enhancing the lifestyles of their communities’

members. An increase in revenue leads to innovative activities, collaboration, and a more

competitive market (Bouhdary, 2014). Every dollar spent at an SME in the local

community stays in the community, generating improved economic value (Robu, 2013).

According to Bouhdary (2014), well performing SMEs in a community lead to more

charitable giving and promote neighborhoods with a unique atmosphere such as knowing

the people behind the products and services, developing one-of-a-kind businesses instead

of chains, keeping dollars in the local economy, and experiencing a better level of service.

Nature of the Study

The three common research methodologies are qualitative, quantitative, and

mixed methods. I chose the qualitative method for this study. Researchers use the

qualitative method to provide rich, thorough descriptions and interpretations of the

phenomena (Sousa, 2014). The quantitative method was not appropriate for this study

because, according to Yin (2017), researchers use the quantitative method to examine

relationships, identify cause and effect, differentiate among variables, and compile

numerical data. Yin also noted using the mixed-methods research method requires both

qualitative and quantitative research methods, more resources, and extensive time. The

mixed-methods research was not appropriate to address the purpose of my study because

I did not need the quantitative aspect of the method.

I considered three research designs: case study, phenomenology, and ethnography.

I chose the case study design for this study. The objective of a case study is to provide in-

depth data collection through the interaction of participants in their physical space (Hyett,

Kenny, & Dickson-Swift, 2014; Stake, 1998). As noted by Yin (2017), researchers use the

case study design because they seek a level of flexibility (i.e., the ability to modify the

study based on new information or discovery during data collection). Phenomenological

researchers seek to capture the meanings of lived experiences and worldviews of the

participants (Moustakas, 1994). The phenomenological design was not suitable because I

did not want to capture the lived experiences of the participants. Ethnographic researchers

must immerse themselves in the culture, continuously observing and interacting with

participants (Yin, 2017). I did not intend to study the culture of a group and did not use

the ethnographic research design.

The most appropriate design for this research was a case study.

Research Question

The overarching research question for this study was as follows: What strategies

do south Florida SMEs’ business leaders use to obtain state contracts awarded through

public procurement?

Interview Questions

1. What were the strategies you used to increase the number of state contracts

awarded through public procurement?

2. What strategies worked best when you initially applied for a state contract

through public procurement?

3. What barriers did you experience when you first attempted to increase the number

of state contracts awarded to your company?

4. How did your organization address the barriers to obtaining state contracts

through public procurement?

5. How has your business performance improved since increasing the number of

state contracts through public procurement?

6. What documents can you share with me that will help me understand your

strategies for obtaining state contracts?

7. What strategies do you use to maintain contract compliance?

8. What strategies, if any, do you use to maintain bargaining power?

9. What, if any, additional strategies have you found to be helpful in gaining state

contracts through public procurement?

10. Is there something that I have not asked you that you think is important regarding

effective strategies to obtain state contracts awarded through public procurement?

Conceptual Framework

Jensen and Meckling (1976) formalized the principal-agent theory. The

principalagent theory is a variation of the theory of the firm and the combined theories of

economic and institutional, developed concurrently in 1972 by Stephen Ross and Barry

Mitnick, respectively (Mitnick, 1973; Ross, 1973). The principal-agent theory includes

two constructs concerning the relationship and general contractual obligations between

buyer and supplier. According to Laffont and Martimort (2001), under the principal-agent

theory, two assumptions exist: (a) the principal makes the contract, removing bargaining

power, and (b) the courts will impose penalties if the principal or agent fails to uphold the

contract terms.

Zardkoohi, Harrison, and Josefy (2017) expanded on the opportunism possible in

a principal-agent relationship without penalties or checks and balance. The principal can

behave opportunistically against the agent, the agent can behave opportunistically against

the principal, and when the principal and agent have a shared interest, this interest can

affect third-party stakeholders. The principal-agent theory applied to this study because

the buyer-supplier relationship found in public procurement was analogous to the

principal-agent relationship identified in the principal-agent theory. While the state holds

the procurement contracts, as the contracting authority, buyer, or principal, the SMEs’

business leaders were the suppliers or agents that bid on the contracts. The agents or

SMEs’ business leaders must meet the needs of the state’s or principals’ procurement

contracts.

Operational Definitions

Adversarial contract: An adversarial contract is a short-term contract in which the

principal maintains primary control, resulting in increased principal-agent friction

(Regan, Love, & Smith, 2015).

Contracting authority: Contracting authority is the body (i.e., a public institution,

state, regional, or local authority) governed by public law; contracting authorities provide

rules and other relevant information for bidding on a contract (Panagiotidou &

Intzesilglou, 2016; Panagoret & Ivanoff, 2016).

Information asymmetry: Information asymmetry occurs when one party to an

economic transaction possesses greater knowledge than the other party (Neupane, Soar, &

Vaidya, 2015).

Nonadversarial contract: Nonadversarial contracts are used by individuals to

encourage the principal and agent to work together for a resolution that benefits both

parties, and the contracts are long-term (Regan et al., 2015).

Organizational resiliency: Organizational resiliency is the ability of organizational

leaders to anticipate, respond, and adapt to changes and sudden disruptions internal and

external to the organization (Valero, Jung, & Andrew, 2015).

Pareto efficiency: Pareto efficiency, also known as Pareto optimality, is the

economic state in which one party’s situation cannot improve without making the other

party’s situation worse (Shang, Feng, Ke, & Chan, 2016).

Public-private partnerships (PPP): Public-private partnerships are cooperative

business relationships between private sector companies and government agencies to

complete projects that serve the public (Vinogradov, Shadrina, & Kokareva, 2015).

Public procurement: Public procurement is the process that any government

agencies or departments of the public sector use to purchase goods, services, or work

(Panagiotidou & Intzesilglou, 2016).

Small- and medium-sized enterprise (SME): Small- and medium-sized enterprise

is a business that employs a small number of workers and does not have a high volume of

sales; usually privately owned and operated sole proprietorships, corporations or

partnerships (Richards-Gustafson, 2017).

Transformational leader: A transformational leader works with subordinates to

identify needed change, individually and socially; creating a vision to guide positive

changes with the end goal of developing followers into leaders (Valero et al., 2015).

Assumptions, Limitations, and Delimitations

Assumptions and limitations are out of the control of the researcher and

delimitations are within the control (Grant, 2014; Manescu, 2014). Assumptions are

accepted as true but cannot be confirmed and if they disappear the study irrelevant

(Marshall & Rossman, 2016). Limitations are the possible weaknesses of the study out of

the researcher’s control (Manescu, 2014). Manescu (2014) also noted that delimitations

are used by the researcher to define the boundaries of the study.

Assumptions

Assumptions are the uncontrollable elements of a study (Grant, 2014). Though the

researcher cannot verify, assumptions are things that the researcher considered true

(Marshall & Rossman, 2016). Researchers assume that research participants will present

their authentic voice related to their lived experience (Grant, 2014). I assumed the

participants would answer the interview questions honestly. Based on the completed

interviews the participants were knowledgeable and provided honest answers about the

procurement field and their methods for obtaining state contracts.

Another assumption was that the participants were bias-free in their responses.

According to Marshall and Rossman (2016), researchers are taking their best guesses and

hunches about the behaviors of the participants. During the interviews the three

participants shared the positive and negative experiences of both leading a SME and

working with various agencies. The participants appeared to share information not to

create bias but to illustrate the details of the full contracting process through public

procurement. Information was provided based on the participants’ experience and sharing

their knowledge.

Limitations

Limitations are significant to acknowledge within a study because they are the

potential weaknesses not within the control of the researcher (Bailey, 2014; Marshall &

Rossman, 2016). Limitations can negatively affect the study methodology and

conclusions. The limitations of this study were access to all three participants company

procurement documents, the condensed geographic area for selecting participants, and

industry confinement.

Only one of the three participants could share procurement documents. P1 shared

the company’s capability statement and government catalog, which provided an

administrative overview of the public procurement process tailored to each contract bids

that were submitted. The other two participants were unable to share any procurement

documents because the information was proprietary but the two participants advised me

to review their websites for general information. All three participants confirmed they

also abide by the guidelines of the federal and state public procurement process. The

geographic area was limited to south Florida and the industries of the three participants

were marketing and promotion, medical, and consulting services.

Delimitations

Delimitations are controllable and include factors such as the chosen objectives,

research questions, theoretical perspective and selected population (Manescu, 2014). The

delimitations of this study included the sample size of only three SME business leaders in

south Florida and the business leaders possessing knowledge of successful business

strategies that positively affect state contracts awarded through public procurement. The

restriction of participants to SMEs’ business leaders meant that the participants’

subordinates could not participate in the study.

Significance of the Study

The findings from this study may be of value because organizational leaders could

use the findings to identify successful strategies employed by SMEs’ business leaders to

obtain state contracts through public procurement. Improved contracting performance can

positively affect the profitability of a company and economic growth. The innovative and

entrepreneurial actions of SMEs stimulate the economy (Leyden, 2016). The application

of the study findings could also improve internal procurement procedures, increase

awareness of state public procurement policies, and enhance community lifestyles.

Contribution to Business Practice

The contribution to the practice of business could enable business leaders to

enhance their understanding of the state procurement process, recognize potential barriers

in contracts awarded, and find ways to implement the identified strategies as possible

solutions to those obstacles. The information could help SME business leaders and

contracting officers to improve their decision-making. My articulated findings may also

provide strategies that some south Florida SME business leaders use to obtain state

contracts awarded through public procurement to present opportunities to other business

leaders.

Implications for Social Change

The strategies the SMEs’ business leader participants use to obtain state contracts

through public procurement are significant to the growth of the economy. The

implications for positive social change include a potential increase in the number of state

contracts through public procurement awarded to all SMEs, led by male or female

leaders, minorities, and other underrepresented populations, growing their revenue and

presenting new chances. The second implication for positive social change is the potential

for increased diversity of SMEs within the local communities, increasing local

employment opportunities and benefiting the local economies. SME diversification

occurs when all business leaders have access to the same information and prospects

because of the awarding of state contracts through public procurement to the most

qualified business.

An increase in revenue leads to innovative activities, collaboration, and a more

competitive market (Bouhdary, 2014). SME business leaders help to enhance the

lifestyles of their communities’ members. Every dollar spent at an SME in the local

community stays in the community, generating improved economic value (Robu, 2013).

According to Bouhdary (2014), well performing SMEs’ in a community lead to more

charitable giving and promote neighborhoods with a unique atmosphere such as knowing

the people behind the products and services, developing one-of-a-kind businesses instead

of chains, keeping dollars in the local economy, and experiencing a better level of service.

A Review of the Professional and Academic Literature

Thomas (1919) noted the primary concerns for government leaders, since the 20th

century, were profits and savings. Organizational leaders established goals based on

finding methods to reduce costs. Strategization in the decision-making process for

purchases and vendor application was either minimal or nonexistent (Lianbo, Zhuqiang,

Pengfei, & Wenzhong, 2014).

The introduction of purchasing departments led to increased attention on

organizations buying without accurate, in-depth analysis of the transactions (Mogre,

Lindgreen, & Hingley, 2017). According to Lee and Rim (2016), the establishment of the

procurement process within organizations was to increase transparency in contract

activity, permit equal access to contracts, enhance accountability, and improve analytical

data. Lianbo et al. (2014) added that the implementation of procurement processes

maximizes quality and minimizes costs.

Organization of the Review of Literature

The research question of this qualitative multiple case study was: What strategies

do south Florida business leaders use to obtain state contracts awarded through public

procurement? Based on the organization of related topics, the literature review began with

(a) a brief overview of procurement, (b) information on the search strategy, (c) summary

of the frequency and percentages of peer-reviewed articles, (d) the application to the

applied business problem, (e) analysis of the conceptual framework, (f) critical analysis

of small- and medium-sized enterprises, and (g) overview of government purchasing and

public procurement. Onwuegbuzie and Weinbaum (2017) stated that the literature review

is a systematic way to summarize and critique the literature, providing a foundation and

inspiration for substantial research.

Search Strategy

The purpose of the search strategy was to illustrate its application to the business

problem. I used the Walden University Online Library for gathering the sources,

searching the business and management databases. I conducted a critical analysis and

synthesis of potential themes associated with public procurement contracts. I used key

search words in the Academic Search Complete database.

Other databases I searched included ProQuest, ABI/INFORM Complete, and

government databases. The primary government database used was the Small Business

Administration (SBA) site, sba.gov. The SBA site included resources and rules,

regulations, policies, and procedures for small business owners. I included seminal books

and doctoral studies from Walden University to the literature review.

I also used online search engines such as Google and Google Scholar. Though the

peer-reviewed literature consisted of thorough research, the studies included few

publications about SMEs and public procurement contracts. However, many works of

literature were available regarding SME business practices, procurement, and federal

contracts in general. The key word search included combinations of public procurement,

small- and medium-sized enterprises, purchasing, government contracts, state contracts,

principal-agent, leadership, innovation, sustainability, and governance.

Summary of Frequencies and Percentages of Peer Reviewed Articles

This study includes 169 references within the literature review, of which 86% are

peer-reviewed, and 91% are within five years of expected CAO approval in 2018.

Illustrated in Table 1 are the percentages of all sources including peer-reviewed journals

and seminal books. Other references within Table 1 are websites, papers, and reports,

which comprise 14% of total references. I used the references not peer-reviewed or within

the five years of CAO approval for the added historic perspective and to supplement

context to the more recent findings.

Table 1

Type, Total, and Percentages of References

Reference Type

Scholarly and peer-reviewed

journals

Total

145

% of

references

86%

Less than

five years

More than

five years

133 12

Other sources (i.e., seminal

books, papers and reports,

government, company, and

international websites) 24 14% 20 4

Total 169 100% 153 16

Application to the Applied Business Problem

The objective of this qualitative multiple case study was to learn strategies some

SMEs’ business leaders used to obtain state contracts through public procurement. As of

1997, per Federal Government mandate, the State of Florida requires that SMEs acquire

at least 23% of public procurement contracts. My critical analysis and synthesis of the

literature about public procurement contracts included supporting and contrasting theories

and possible themes concerning the public procurement contract phenomena using other

researchers' perspectives.

Principal-Agent Theory

Agency relationships are standard (i.e., employee and employer, the state and the

governed, and contractor and contractee). Ross (1973) posited that an agency relationship

occurred between two or more parties when one, designated as the agent, acts on behalf

of the other, named the principal. According to Ross, all contractual arrangements

comprise a principal and agent relationship; though, Mitnick (1973) suggested a

sociological conception of agency theory rather than the economic paradigm.

Mitnick (1973) identified the fiduciary norm as a standard social norm, noting

how such norms economized on agency cost. Mitnick focused on social relationships

such as lawyers negotiating with one another, diplomats negotiating with foreign

governments, and advisers and clients. The principal-agent theory, which was formalized

by Jensen and Meckling (1976), is a variation of the theory of the firm (Casson, 2014)

and a combination of Ross’ (1973) economic theory and Mitnick’s institutional theory.

Some individuals refer to the principal-agent theory as agency theory (Eisenhardt, 1989;

Pouryousefi & Frooman, 2017; Yukins, 2010). According to Eisenhardt (1989) and

Yukins (2010), the principal-agent relationship is found in many areas, such as

accounting, economics, finance, marketing, political science, organizational behavior, and

sociology; explaining successes and failures in organizations.

The principal-agent theory, as an economic theory, is opportunistic (“How to bid,”

2018; Steinle, Schiele, & Ernst, 2014). The relational characteristics of the principal-

agent theory results in both parties pursuing their separate interests. The principal should

monitor the agent to ensure alignment with the principal’s interest. Gailmard (2014)

posited that while the principal may place restrictions on the agent, the limits may be

counterproductive to the principal’s interest.

The principal lacked the expertise and resources to produce a service in-house and

selected an agent to enter a contract. The principal-agent theory was an appropriate

construct for describing SMEs’ business leaders strategization in obtaining contracts

through public procurement. According to Steinle et al. (2014), the principal-agent theory

was used to explain the relationship between the two parties regarding contract

management. The principal-agent theory is a derivative of contract law and can best

define the contractual relationship between buyers and suppliers.

Salehyan, Siroky, and Wood (2014) used the principal-agent theory to analyze

rebel groups in wartime atrocities and civilian abuse. Salehyan et al. explained Foreign

funding of rebel groups in principal-agent terms. Salehyan et al. also found that the

principal, democracies and states with strong human rights lobbies, characteristics

influence agent, rebel groups, actions. Sng (2014) also used the principal-agent theory for

analysis on the dictatorship in imperial China. Sng posited that a ruler governing a vast

country encounters agent problems because of difficulties with agent transparency.

Without transparency, the agents can extort taxpayers. Sng found that the principal,

China, during its imperial years, taxed sparingly to minimize agents’ corruption. Both the

principal and agent can become corrupt and opportunistic (“How to bid,” 2018; Kauppi &

Van Raaij, 2015).

Rehmatulla and Smith (2015) studied the principal-agent problem in shipping.

Rehmatulla and Smith posited that inefficiencies in cost-effective measures and shipping

contracts led to difficulties between the principal (i.e., charterer) and agent (i.e.,

shipowner). Rehmatulla and Smith identified two problems: (a) the split incentives

problem, where the goals of the principal and agent divide and (b) the informational

problem, where the principal cannot verify the agent’s actions. Sng (2014) also noted the

informational problem of the principal-agent relationship in the dictatorship in the

imperial China study. Rehmatulla and Smith advised the first step in overcoming

challenges in the principal-agent relationship are to identify the situations where a

problem could occur and determine resolutions in alignment with both parties.

A mutually beneficial principal-agent relationship was achievable in government

procurement with these three procedures: monitoring, training, and guidance (Kauppi &

Van Raaij, 2015). Principal-agent problems arise because one or both parties may have

information not provided to the other side. Kauppi and Van Raaij (2015) found guidance

and training help to reduce employees’ noncompliance in government procurement.

Supplementary theory. Another theory to consider when analyzing the

principalagent theory and public procurement was transactional costs theory. This theory

is not a rival to the principal-agent but supplementary. To reduce costs and increase

costeffectiveness in public procurement, business leaders need to understand transactional

costs (Jasko, Jovanovic, & Cudanov, 2015; Patrucco, Luzzini, & Ronchi, 2017). Ronald

Coase discussed the concept of transaction costs in the 1937 paper, The Nature of the

Firm, though the term was made official in the 1970s.

Through Oliver Williamson’s 1987 work, Transaction Cost Economics,

transaction cost became widely known. Some researchers use transactional cost theory as

a contractual approach to studying economic organizations (Coase, 1973; Williamson,

1987). According to Williamson (1987), transaction cost economics (a) is microanalytic,

(b) is aware of behavioral assumptions, (c) introduces and develops the economic

importance of asset specificity, (d) relies on comparative institutional analysis, (e) regards

the organization as a governance structure and not a production function, (f) places

greater weight on ex post institutions of contracts, and (g) uses a combined law,

economic, and organization perspective. Jasko et al. (2015) and Strange (2016) concluded

that the transactional costs theory could serve as a benchmark for organizations to

increase efficiency by monitoring and rewarding agents for obeying directives.

Individuals use contractual relationships to define governance, and public

procurement is central to the process (Roman, 2015). Public procurement specialists are

fundamental in shaping the practice (Brooks & Rich, 2016; Roman, 2015; 2017).

According to Roman (2015), public procurement specialists have responsibilities that

were once out outside of their decision-making capabilities and can provide valuable

information.

Procurement is a subfield of the supply chain management (SCM) field. Within

SCM and procurement, the principal and agent identified in the principal-agent theory

were revealed as interdependent because they often switch roles within the relationship

(Fayezi, O’Loughlin, & Zutshi, 2012). Kavak, Tunçel, and Özyörük (2015) concluded

that the principal-agent relationship should provide transparency, loyalty, and

communication quality. The reduction of transaction costs between the principal and

agent was a benefit of using the procurement process (Neupane et al., 2015).

Resource-based view theory versus principal-agent theory. Birger Wernerfelt

introduced the resource-based view (RBV) theory to mainstream attention in 1984.

Though Wernerfelt officially named the theory, elements of the theory were in the earlier

works of Coase (1973) and Williamson (1975) in which the emphasis was on the value of

resources for organizational performance. Under RBV, tangible and intangible resources

within the organization are measured to determine the value and influence they have on

the organization's competitive advantage (Hussain, 2018; Min, Homaid, Minai, & Md

Zain, 2016). According to Almarri and Gardiner (2014) and Sodhi (2015), the RBV

theory received increased attention for its influence on the strategic management field and

enabling leaders to understand how unique resources drive competitive advantage.

SMEs’ leaders could use the RBV theory to improve marketing performance

through product innovation and the ability to adapt to changes in the business

environment (Meutia & Ismail, 2015). Almarri and Gardner (2014) and Kellermanns,

Walter, Crook, Kemmerer, and Narayan (2014) did raise an issue with the lack of

definitional criteria and generalizability of the RBV theory. Business leaders can use

RBV theory to identify unique assets such as diverse human resources which have

valuable knowledge (Hashimoto & Nassif, 2014) or to discover small business strategy

and innovation (Montiel-Campos, Haces-Atondo, & Ruisenor-Quintero, 2014). Nadkarni

(2017) surmised that the RBV theory supports management of resources while the

principal-agent theory supports management or control of business relationships.

Rival theory. A rival theory to the principal-agent is the theory of auction. Paul

Milgrom and Robert Weber founded the theory of auction in 1982. The elements of the

theory of auction are the bid format, the scoring rule, and the settlement rule (Chao, 2015;

Milgrom & Weber, 1982; Patrucco et al., 2017). The bid format is the sealed bid an

organization submits that consists of the unit price bid reflecting the marginal cost and the

fixed priced bid reflecting the fixed cost (Chao, 2015). The scoring rule converts the two-

part bid (unit price and fixed price) into a score.

The settlement rule is the selection of the winning bidder and settlement of the

payment (Chao, 2015). Under the theory of auctions, the development of a model of

competitive bidding detailed the payoff for the winning bidder may depend on their

preference, the preferences of others, and the fundamental quality of the item up for sale

(Milgrom & Weber, 1982). Auctions benefit business leaders not risk-averse and can

outbid their competitors. According to Chao (2015), an assumption exists that the

regulations of the theory of auction commit to all the details of the procurement process.

The theory of auction pertains more to an efficient market organization for

awarding to monopoly franchises than to SMEs. Chao noted that the two-stage auction

design (ex-ante and ex-post efficiency) ensured that the company with the best

technology was selected, operating at the least cost and priced at the marginal cost.

Auction environments tend to have costly entry fees (Gentry & Li, 2014). The auction

design enables larger enterprises to reap the most benefits. The theory of the auction was

not applicable to this study because SMEs’ business leaders were not paying entry fees to

obtain contracts through public procurement. The principal-agent theory was valid for

this study in identifying the relationship between the contracting authority (principal) and

SME (agent).

Principal-agent theory in contracting. The principal-agent theory is the most

applicable theory to understand the dynamics of public procurement processes involving

the government and the selected suppliers (Neupane et al., 2015). Principals use contracts

to define their scope of work for acquiring goods and services from agents. Ross (1973)

determined the level of which each participant holds perfect information without making

anyone worse off. Pareto efficiency specifies the calculation of the level at which both

parties maintain ideal information.

Pareto efficiency is an economic state where resources are allocated optimally

among all parties (Ross, 1973; Shang et al., 2016). The contracting authority or principal

must have rules, regulations, and processes in place that enable SMEs or agents to have

equal access to contracts like larger enterprises. Pareto efficiency increased the chances of

SMEs obtaining contracts in public procurement.

The principal has difficulty monitoring the agent at any given time, and if many

agents have a contract, the fees may be the only detail available for information (Ross,

1973; Schneeweiss, 2003). Public procurement regulations enable the leaders of

government entities to monitor contracts awarded to suppliers (Schneeweiss, 2003); in

which government leaders are the principal and suppliers are the agents. Jensen and

Meckling (1976) sought a structured contractual relationship between the principal and

the agent. A structured contract between the principal and agent increase transparency and

accountability. According to Hussain, Rigoni, and Orij (2018) and Neupane et al. (2015),

incomplete contracts lead to information asymmetry. When the principal has more

information than the agent or vice versa, information asymmetry is evident.

Information asymmetry is the unequal distribution of information.

Two forms of contracting exist, classical and relational (Never & de Leon, 2014).

Classical contracts are short-term and specific, clarifying how conflicts are resolved in

the future and hold that actions can separate from connected actions, both in the present

and in the future (Never & de Leon, 2014; Van de Walle, 2017). The resolution of

disputes in classical contracts occurs through formal arbitration. Andrews and Barron

(2016), Baldenius, Glover, and Xue (2016), and Never and de Leon (2014) agreed that

relational contracts are more complex and may or may not include the original contract,

with adjustments required that one cannot plan. Negotiations under relational contracts

require trusting that all parties will operate in good faith and find mutually beneficial

solutions.

Two contracting methods exist, adversarial and collaborative or non-adversarial.

Regan et al. (2015) found that the adversarial contracting method was most common in

public infrastructure procurement. Owida, Byrne, Heavey, Blake, and El-Kilany (2016)

and Regan et al. noted that adversarial contracting includes the following characteristics:

principal ownership, short-term contracts, agent selection, defined scope of work, and

penalties. Regan et al. posited that adversarial contracts increase principal-agent friction.

Non-adversarial contracting methods deliver a better procurement outcome for the

government. According to Regan et al. (2015), non-adversarial contracts improve

longterm relationship management for capital-intensive services such as infrastructure

services. Traditional or classical procurement contracts are the default option for the

government (Regan et al., 2015; U.S. Small Business Administration, 2017a; Van de

Walle, 2017). According to Kai, Wei, and Meng-lin (2014), the principal-agent model

provided a framework to establish the goals of a contract. Goal alignment and rapport are

essential factors in the principal-agent relationship because of the increase in satisfactory

performance. Regan et al. (2015) stated that the typical procurement contract has the

principal, owner or client contract with the agent or main contractor, managing the

subcontractors carrying out the work.

Well-developed counties, such as the United States and the United Kingdom, have

legislation on public procurement with related bylaws; however, developing countries

that include Ghana, Thailand, and Kenya, must adopt special laws (Vinogradov et al.,

2015). Because developing countries adopt special laws, Vinogradov et al. (2015) posited

that developing countries are more apt to implement public-private partnerships (PPP)

regulations as an unofficial form of public procurement. According to Torvinen and

Ulkuniemi (2016) and Vinogradov et al., PPP permits projects not feasible through public

procurement, providing access to additional resources, increasing end-user value, and

minimizing bureaucratic burden.

Lewis and Bajari (2014) focused on the use of proper contract terms to incentivize

the principal-agent relationship. Deadlines and late penalty terms are used by the

principal to encourage higher effort from agents. Agents adjust their effort level

throughout the contract dependent on unexpected delays and other circumstances (Lewis

& Bajari, 2014). Obtaining contracts through the procurement process includes more

transparency of actions than what is typically realized by principals. According to

Feldman (2018) and McCue, Prier, and Swanson (2015), the minimization of the

principal-agent problem within procurement contracts occur by creating incentives for the

agent to act in the best interest of the principal; assisted by guidelines that include a code

of ethics, internal policies, and statutes.

Principal-agent theory and incentives. Incentives within the principal-agent

relationship enable the parties to work hard, save, invest, or produce quality products and

service. Laffont and Martimort (2001) noted what was missing from principal-agent

relationships was incentivizing economic agents. Chang (2014) expanded on Laffont and

Martimort's view, positing that high-powered incentives tap into the principal's efficiency

improvement potential. The principal may not witness the agent's true ability pre-contract

and cannot predict the level of effort the agent will expend post-contract (Chang, 2014;

Laffont & Martimort, 2001). The tasks delegated to agents turn problematic when the

agent has different objectives from the principal (Steinle et al., 2014).

Contracts between the principal and the agent created some control over the

agents. According to Chang (2014) and Till and Yount (2018), incentives were used to

develop incentive compatibility constraint, increasing agent output. Full disclosure from

the agent to the principal was not possible and, to overcome this lack of knowledge, the

principal could either try to improve the state of information or moderate the

consequences of not being informed (Schneeweiss, 2003; Yukins, 2010).

According to Schneeweiss (2003) and Till and Yount (2018), decision makers

should also screen the environment for additional information as the environment was

actively disclosing (correct or incorrect) information. Alternatively, Chang (2014) posited

that the principal-agent model might lead to biased decision-making with incentives in

procurement because incentives are used to help reduce costs for the principal. Chang

also found that contract termination, another aspect of any agreement, was not entirely

addressed in the principal-agent literature. Ramifications were necessary to address the

poor performance of either the principal, agent, or both.

According to Korman (2014), the government used a termination for convenience

clause in traditional contracts, legally enabling them to breach contract terms and recover

certain costs. Literature published since 2011 listed advantages of applying the

principalagent theory to government contracting. Flynn and Davis (2014) noted

opportunities to present viable frameworks to study public procurement. Numerous

scholars applied the principal-agent theory to government contracting and cited many

advantages.

Yukins (2010) reviewed the principal-agent model to assess its influence on the

procurement system and procurement rules. Under the principal-agent theory, the

principal entered a contract with an agent to achieve a specific goal. According to

Hussain et al. (2018) and Yukins, the principal used various monitoring methods to

reduce conflict of interests. A residual loss exists in any principal-agent relationship

(Never & de Leon, 2014; Schneeweiss, 2003; Yukins, 2010). Yukins concluded that the

principal-agent model enhanced understanding of procurement (i.e., breaking down

barriers between legal policies).

Principal-agent theory and corruption. Neupane, Soar, Vaidya, and Yong

(2014) reviewed the relationship of the principal-agent theory to reducing corruption in

the public procurement process. According to Alzola (2018), Neupane et al., Okubena

(2016), and Steinle et al. (2014), public procurement can aid in minimizing power

dominance, information asymmetry (one party possessing more information than the

other), and increase transparency and accountability. Steinle et al. explored the

opportunism in supplier selection, which often favors larger organizations. Politics tend to

dominate contracts awarded (Keulemans & Van de Walle, 2017; Krahmann, 2016;

Roman, 2017; Thomas, 1919) in public procurement.

Beale (2014) noted another reason for SMEs lack of access to federal procurement

contracts is that the government often relies on larger and well-known organizations. But

Tammi, Saastamoinen, and Reijonen (2014) suggested that SMEs failure to secure

procurement contracts could stem from limitations of capacity, lack of relatable skills, or

apathetic attitude about public procurement. SME business leaders may fear a loss of

autonomy and will avoid government contract bidding (Nicholas & Fruhmann, 2014).

Small businesses sometimes fail to plan and apply to formal bidding processes (Mosoti &

Kaman, 2014; Taneja, Pryor, & Hayek, 2016). SME resources are often limited,

especially in technology. According to Harris and Patten (2014), the submission of most

contract bids happens with the use of technology (i.e., computers) on a secure website;

SME business leaders with limited technological know-how and capabilities become

crippled in competing for contracts.

Organizations use government contracts to gain legitimacy and stabilization of

revenue (Never & de Leon, 2014). Never and de Leon (2014) questioned the

effectiveness of partnerships via contracts if some organizations cut salaries and jobs

because of a reliance on government contracts, which impedes trust. Never and de Leon

and Kavak et al. (2015) believed trust was essential for the principal-agent relationship in

contracting.

Agents may attempt to expand their organization and increase their power and

influence at the principal’s expense (Krahmann, 2016). Krahmann (2016) and

O’Donoghue and Somerville (2018) posited that principals could increase control through

checks and balances systems, incentives, and the threat and imposition of sanctions.

Neupane et al. (2015) noted that finding practical measures to increase the trust between

the government and suppliers is an anticorruption factor. Principals need a balance of

control and entrustment.

Principal-agent influence on relationships. The building of alliances with the

principal would facilitate positive aspects of successful organizational performance and

alignment with the principal-agent theory framework. Achieving success in procurement

creates value for both the stakeholders and the principal (Latham, 2014). Grudinschi,

Sintonen, and Hallikas (2014) added that partnerships were indispensable to public

procurement. Collaborative relationships provide value to both buyers and suppliers in

public procurement. Procurement plays a positive role in the principal-agent relationship

in reducing transaction costs, shortening procurement cycles, increasing information

availability, and enabling a common management framework (Neupane et al., 2015).

According to Taneja et al. (2016), developing relationships and partnerships

strengthen competitive advantage, improve business performance, and increases

innovation. SME business leaders must be professional and flexible when collaborating

with others (Nicholas & Fruhmann, 2014; Taneja et al., 2016). Flexibility increases SME

business leaders’ chances of obtaining contracts through public procurement. While

agents should follow rigorous procedures to win a contract award, Taneja et al. (2016)

noted that vendor adaptability and flexibility are also essential to quickly respond to

changing circumstances.

Also, business leaders that support their local communities and maintain a high

standing are more likely to be successful (George, Dahlander, Graffin, & Sim, 2016;

Taneja et al., 2016). Hayakawa and Ito (2018) and Taneja et al. (2016) posited SME

business leaders collaborating with external organizations, such as other local businesses,

charities, or government programs, enhance the strategization and performance of the

organization. Business leaders are the force behind successful partnership outcomes; their

knowledge management ensures unity in communications, vision, mission, marketing

strategies, and consistent branding (Kihl, Tainsky, Babiak, & Bang, 2014). Knowledge

management is essential to SME success. Garriga (2014) stated that knowledge

management is necessary for the appraisal of business capabilities, evaluation of

practices, and obtaining feedback to enhance performance and profit.

Small- and Medium-Sized Enterprises

Small- and medium-sized enterprises (SMEs) have an essential role in the United

States economic development (Bressler, Campbell, & Elliot, 2014; Chamberland &

Witchel, 2016; Williams, 2016); but SMEs rarely dominate their respective industries.

SMEs encourage diversification, which is often missing from large enterprises, as many

minorities and women make significant contributions to the small business world (Clark

& Moutray, 2004; Richards-Gustafson, 2017; Schimpp, 2016). Though Caucasian men

account for much of SME ownership (Bressler et al., 2014), diverse demographics,

including age, gender, and race, has increased in the entrepreneurial landscape (Williams,

2016). Schimpp (2016) expanded on the changes in the SME culture, noting that different

funds outperformed non-diverse competitors, diverse teams out-innovated their peers, and

the fastest growing sectors are women and minority-owned businesses. According to

Richards-Gustafson (2017), SMEs range from mom-and-pop shops to manufacturing

plants, law firms, inns, construction, and restaurants, a mix as diverse as the owners.

SME business leaders employ a small number of workers and do not have a high

volume of sales; SMEs are privately owned and operated (Richards-Gustafson, 2017;

U.S. Small Business Administration, 2017b). The definition of SME varies by country

(see Table 2) and industry. Of the 5.73 million employers in the United States, SMEs

account for 99.7%, employing a staff of 500 individuals or less (SBE Council, 2017; U.S.

Census Bureau, 2016).

Table 2

SME Size by Country

COUNTRY NUMBER OF

EMPLOYEES

U.S. 500 <

Australia 15 <

Europe 250 <

Asia 100 <

Africa 50 <

Richards-Gustafson (2017)

The recognition of SME business leaders increased because of the value their

businesses afford the economy. For SMEs that only operate for a short term, the longevity

of these businesses was the center of other research studies (Bressler et al.,

2014; Loo, 2015; Williams, 2016). Financial difficulty is the primary reason for most

SME failures. The owners' use checking, savings, or a personal loan from the bank

secured by the owners' assets as collateral for the SME start-up funds (Jagtiani &

Lemieux, 2016). Massa, Farneti, and Scappini (2015) and Miller, Hoffer, and Wille

(2016) observed that after the 2008 financial crisis bank loans became harder for SME

owners to acquire.

SMEs business leaders who can build long-term relationships with their banks can

significantly alleviate financial difficulties (Han, Benson, Chen & Zhang, 2014). But

according to Miller et al. (2016), most SME business leaders seek out internal sources

such as friends and family to minimize dependence on external sources. SME growth

signifies customer loyalty, service quality, product quality, market position, revenue

generation, and effective leadership (Singh & Pattanayak, 2014).

While SMEs represent a high percent of the employers in the United States

(99.7%); the business leaders experience challenges related to growth, sustainability, and

profits (Loo, 2015; Massa et al., 2015; Williams, 2016). According to Bressler et al.

(2014), Massa et al. (2015), and Williams (2016), multistrategic initiatives could assist

SME business leaders to achieve a higher probability of revenue generation and meeting

growth objectives. Rice, Liao, Galvin, and Martin (2015) emphasized dynamic

capabilities and that business performance links to purposeful strategies. Oyeku,

Oduyoye, Olalekan, Kabuoh, and Elemo (2014) noted that a few factors contribute to

business performance: leadership, industry, geography, and business history.

According to Walsh and Cunningham (2016), the blame for small business failure

lies in the nature of the business rather than the business owner. Chamberland and

Witchel (2016) disagreed, stating a lack of managerial skills and limited financial

resources are factors of small business failures. SME business leaders encounter

numerous internal and external barriers to success. Bressler et al. (2014) noted the top

five barriers as misaligned goals and objectives, lack of formal business education,

limited access to capital, possible discrimination, and poor communication skills. Fear,

lack of support, and insufficient education and training are also factors of small business

failures (Walsh & Cunningham, 2016). Birt, Scott, Cavers, Campbell, and Walter (2016)

and Loi, Castriotta, and Di Guardo (2016) agreed that experiential and collaborative

learning is necessary for successful business owners because owners with more education

are more likely to maintain a long-lasting business.

A gap in the literature is relevant to entrepreneurial exits. According to Wennberg

and DeTienne (2014), entrepreneurial exits are planned exits by business owners wanting

to fulfill a short-term goal. Wennberg and DeTienne explained that empirical models do

not account for entrepreneurial exits and calculations and estimates regarding small

business failures are not accurate. Mason and Botelho (2016) highlighted the need for

further studies on entrepreneurial exits, using the findings to distinguish the concept from

small business failures.

The Small Business Act of 1953 include free competition as necessary to free

markets and the government must ensure small businesses receive a fair portion of their

total purchases and contracts (Beale, 2014; Clark & Moutray, 2004). When reviewing the

Small Business Act of 1953, evidence showed the progress that small businesses have

made and the challenges that still lie ahead. Clark and Moutray (2004) also highlighted

the reforms of the 1990s that affected the small business community, such as the Federal

Acquisition Streamlining Act of 1994 (FASA), the Federal Acquisition Reform Act

(FARA), the Clinger-Cohen Act of 1996, and the Small Business Reauthorization Act of

1997. These reforms excluded SMEs’ business leaders’ participation and continue to

influence the government procurement marketplace. Additional information is available

for review in Figure 1, which displays a brief description of each reform and the effect on

small business.

Note. From “The future of small businesses in the U.S. federal government marketplace,” by M. Clark and C. Moutray, 2004, Journal

Figure 1. Acquisition Reforms of the 1990s.

The United States federal government implemented various initiatives to meet

public procurement goals for small businesses, women-owned businesses, minorityowned

businesses, and veteran-owned businesses. Clark and Moutray (2004) detailed how

contract bundling and purchase cards restricted small business opportunities even further

because the business leaders had no requirements for the use of credit cards. According to

the researchers, the five steps that small business leaders should pursue to remain viable

and robust are (a) train new acquisition workforce and retrain on the latest acquisition

tools, (b) ensure that task orders issued under multiaward contracts are within scope, (c)

step up from subcontracting level to prime contractor as contracts become more

substantial and longer in duration, (d) reinvigorate and fortify the various SME sectors

and develop federal mandates that sustain long-term initiatives, and (e) have the Small

Business Administration (SBA) and federal government reevaluate the definition of small

business. If SMEs are the backbone of the economy, the time has come to structure

programs accordingly.

According to Badal (2013), in Gulf Cooperation Council (GCC) countries, SMEs

are 90% of the private sector; yet only contribute less than 40% to the respective gross

domestic products (GDPs). Robu (2013) and Silva and Scott (2014) noted that in Latin

America, the United States, and the United Kingdom, SMEs accounted for 95% to 99%

of businesses. SMEs have the potential to generate jobs but encounter limitations because

of the dominance of government opportunities by large organizations. Badal, Bouhdary

(2014), and Robu posited that SMEs are the backbone of economies and when

governments implement policies, which encourage SMEs to compete for contracts

against larger enterprises; the policies help to increase SME growth, strategization, and

profits.

According to Badal (2013), the low GDP contribution of SMEs was because of

locations in less profitable, less capital-intensive, and low-tech sectors. SMEs foster an

improved economy and large corporations benefit from their success as well. Badal

determined the four steps large enterprises should follow to help SMEs as (a) identify and

support talent, (b) provide financial help, (c) create a transparent procurement process,

and (d) simplify the application and selection process. Barber, Metcalfe, and Porteous

(2016), Flynn and Davis (2016), and Robu (2013) posited that SMEs could rapidly

respond to environmental changes because of their sizes; but without the implementation

of programs, SMEs are at a disadvantage to obtain additional resources and external

financial assistance.

Large enterprise leaders had the advantage of inclusive networks providing access

to information that SME business leaders were not privy. The standardization of

ecommerce for goods and services has provided unlimited access to SMEs. E-commerce

is a commercial transaction conducted electronically on the Internet. Bouhdary (2014)

noted that the use of e-commerce in business networks enable companies to create a

shared community, increasing access to information and improving efficiency. Business

networking increased collaboration opportunities, which drove innovation and

competition (Bouhdary, 2014; do Carmo Farinha, de Matos Ferreira, & Borges Gouveia,

2014). Business networks provided SME business leaders with current leads to qualified

buyers, enhanced customer retention, increased transaction visibility, and insight into

better decision-making.

The SBA was established in 1953 to assist SME business leaders in obtaining

more federal procurement contracts and contribute to the economy (Shoraka, 2014b). 15

U.S. Code § 644 mandated the awarding of an annual goal of 23% of all federal contracts

for SMEs, effective since 1997 (Shoraka, 2014b; 2015). Before the mandate in 1997 the

annual target goal was 20%. Small business goals, enacted under the Small Business Act

of 1953, are the driving force behind SME participation in public procurement. Deficient

contracting opportunities for SMEs in the 1940s led to the implementation of small

business goals (SBA, 2014). For the first time since the annual target of 23% was set in

1997, that goal was met and exceeded four consecutive years with 23.39% in 2013,

24.99% in 2014, 25.75% in 2015, and 24.34% in 2016 (see Table 3 for additional data).

Table 3

10-Year Review of SME Procurement Scorecard

YEAR % DOLLARS (in

billions)

2007 22% $83.27

2008 21.50% $93.30

2009 21.89% $96.83

2010 22.66% $97.95

2011 21.65% $91.50

2012 22.25% $89.90

2013 23.39% $83.10

2014 24.99% $91.70

2015 25.75% $90.70

2016 24.34% $100

U.S. Small Business Administration (2017c)

According to Silva and Scott (2014), SME business leaders bring innovations to

market but are limited in international markets because larger enterprises have the

resources and capability to compete internationally. do Carmo Farinha et al. (2014) and

Jalali, Jaafar, and Ramayah (2014) expanded on the need for SMEs to have an

international presence, stating collaboration with SME business leaders increase

networking access, innovation, strategization, and competition. According to Tan and

Ding (2015), from the start of the twenty-first century, economic globalization, fast

development of technical innovation and the introduction of the information age made

strategic management a requirement. The unions of public and private sector businesses

create new standards of competitiveness, and SME business leaders play a central role in

promoting competition and market dynamism (Cruz & da Cruz, 2017; do Carmo Farinha

et al., 2014; Hodge & Greve, 2017; Silva & Scott, 2014). While change can produce

positive outcomes, resistance to change is universal among all organizations, large and

small; business leaders need to emphasize adaptability (Barber et al., 2016; Ceptureanu,

2015). According to Sykes (2017), the problem SME business leaders encounter is that

while entrepreneurship is attractive, growing a business is hard work and small

businesses need consistent work to hire employees and grow the economy.

Organizational leaders’ willingness to move their companies in new directions

enable growth and advancement. Public procurement opportunities open the door to

changes for SMEs. Equal access to contracts awarded through public procurement

ensures fairness and a level competitive field (Davis & Brady, 2015; U.S. Small Business

Administration, 2017a). Procurement is a form of strategic sourcing permitting tracking

of organizations’ purchases, storage, quality control, invoicing, and other activities (Azmi

& Rahman, 2015; Davis & Brady, 2015; Lianbo et al., 2014). The awarding of

government contracts was a significant opportunity for SMEs to obtain sales and revenue

(Never & de Leon, 2014; U.S. Small Business Administration, 2017a). The four primary

objectives of government contracting are (a) encouraging fair and open competition, (b)

competitively pricing products and services, (c) ensuring the government receives what

they pay for, and (d) confirming that both government and contractors remain compliant

with the law (U.S. Small Business Administration, 2017a).

Government contracting professionals offer breaks to SMEs ensuring (a) large

businesses do not dominate contracts, (b) the government has access to new ideas from

small companies, (c) support of small businesses as engines of economic development,

and (d) disadvantaged socioethnic groups receive equal opportunities (U.S. Small

Business Administration, 2017a). The compliance of public buyers toward SMEs under

public procurement require periodic evaluation. Compliance was high in open tendering

and self-declaring financial capacity, but low in contract division and consortium building

(Flynn & Davis, 2016).

According to Flynn and Davis (2016), Panagoret and Ivanoff (2016), and Usai

(2014), SME access to public procurement could achieve a higher priority with policies

having more competitive terms and less as public sector organizations lending assistance.

A conflict exists between SME friendly public procurement objectives and the economic

and regulatory truths facing public buyers. Economists made the justification that

increasing the number of public procurement contracts awarded to SMEs will encourage

innovation (Nicholas & Fruhmann, 2014).

SME business leaders who seek growth will actively pursue public procurement

contracts. SMEs are the backbone of the United States economy; SMEs are critical for

jobs, entrepreneurial spirit, innovation, and competitiveness (Bissola, Imperatori, & Biffi,

2016; Leyden, 2016; Nicholas & Fruhmann, 2014). Improving SME participation in

public procurement and awarding more procurement contracts is necessary for economic

growth (Nicholas & Fruhmann, 2014).

The SBA publishes data, categorized by agencies, showing the procurement rates

(U.S. Small Business Administration, 2015). Beale (2014) and Tammi et al. (2014)

believed that small business’ failure to meet contract award goals was because of

underutilization and underrepresentation. According to Beal, Congress, to determine why

small business goals were unrealized, ordered an independent assessment. Beale and

Fergusson and Kerr (2014) noted the assessment, completed under the National Defense

Authorization Act of 2013, included: (a) description of the domestic industries, sizes, and

socioeconomic compositions of federal prime contractors and subcontractors; (b)

processes used to establish procurement goals; (c) the quality and availability of data on

contracting and subcontracting; and (d) barriers to procurement practices that prohibit

small businesses from implementing.

Stakeholders demand accountability from organizations of all sizes and measure

this through innovation, entrepreneurship, and responsible social actions (Hadad &

Gauca, 2014). Stakeholders (internal and external), involved in the decision-making and

strategic direction, determine organizational growth (Burga & Rezania, 2016; Van Looy

& Shafagatova, 2016). Stakeholders also recognized the need for corporate sustainability

as a means for organizational development (Maletic, Maletic, Dahlgaard, DahlgaardPark,

& Gomiscek, 2015). Some organizations regard sustainability as a strategic business

opportunity to increase profits and market share (Bulgacov, Ometto, & May, 2015). The

ability of SMEs to secure more public procurement contracts leads to improved

sustainability. According to Maletic et al. (2015), a boost in sustainable activities and

practice can lead to heightened innovative performance, which leads to value-added

financial and market performance.

Understanding the factors that contribute to buyer decision-making in public

procurement is important for the process. According to McKevitt, Flynn, and Davis

(2014), to maximize SME participation in public procurement business leaders need an

understanding of the processes and conditions that support different supply arrangements.

McKevitt et al. believed the transition of public organizations to strategic procurement

and supplier engagement helped to promote equality for SME participation. SMEs do not

usually have a separate purchasing department to channel the attainment of public

procurement contracts (Kavak et al., 2015). For the most part, the owner takes on the role

of purchaser. According to Barber et al. (2016) and Lee, Lin, and Pasari (2014), SME

growth is dependent on leadership adaptability, market awareness, technological

development, and maximization of internal and external sources.

Technology. Sun and Ifeanyi (2014) posited the optimization of technology could

help small businesses compete across a variety of industries. The use of technology

improves efficiency and productivity. The Internet enables access to other sources of

capital and revenue generation (Miller et al., 2016). Technology increases flexibility with

expanded services to a broader market, more options, and instant access to the business

and consumer (Alijani, Mancuso, Kwun, & Topcuoglu, 2014; Sun & Ifeanyi, 2014).

Sun and Ifeanyi (2014) promoted the implementation of e-business tools to

increase efficiency and revenue generation for SMEs. E-Business strategization led to

higher levels of interactivity between buyers and suppliers, increased opportunities to

unite businesses, and reduction in operating costs (Alijani et al., 2014; Sun & Ifeanyi,

2014; Taneja et al., 2016). Information technology is a significant part of strategization to

help business leaders manage rapid change (Novikov, Pykhtin, Gureva, Sozinova, &

Prokhorova, 2016). The success of any business, large or small, is dependent on how

quickly business leaders respond to change.

Government Purchasing and Public Procurement

The advancement of SMEs in public procurement is reliant on teamwork and

access. Public procurement opportunities must be equally accessible to businesses of all

sizes, ensuring fairness with a level competitive field (Davis & Brady, 2015). The SBA

and other federal agencies have collaborated to help build an environment in which SMEs

can progress (Shoraka, 2014a). Laws such as the Small Business Job Act of 2010 and the

National Defense Authorization Act of 2013, enable SMEs to grow. According to Shoraka

(2014a) and Tammi et al. (2014), SMEs were underrepresented in the awarding of public

procurement contracts. Tammi et al. added that the benefits to the government for

awarding contracts to SMEs include an increase in efficiency, better access to market

knowledge, and growth in innovative ideas and solutions.

Procurement is the combination of different methods for buying goods and

services (i.e., contracts); involves many participants; and variables, such as demand,

supply, and price (Lee et al., 2014). When uncertainty exists in the supply chain,

indecision occurs in procurement decision-making. According to Lianbo et al. (2014), the

optimization of procurement strategies leads to improved coordination internally and

externally of the business. Procurement has an essential role in supply chain resilience.

Supply chain resilience is the alternative way management can develop strategies

for preventing and coping with different disruptions (Roberta-Pereira, Christopher, &

Silva, 2014). Procurement is more than a sales function; procurement is cross-functional

and includes the collaboration and information sharing side of the buyer-supplier

relationship. Procurement is a source of strategic sourcing and enabler of economic

growth (Davis & Brady, 2015). According to O’Donoghue and Somerville (2018), risk

aversion is relevant in principal-agent models as an incentive source for trade-offs. Lack

of commitment from business leaders, lack of monitoring, contrasting political agendas,

and a risk-averse culture were some of the causes of ignored procurement

implementations.

The awarding of contracts required strategization from SME leadership. SME

business leaders must have a market orientation (MO), and the ability to obtain

information on competitors and consumers for competitive advantage (Tammi et al.,

2014). A strong MO allows SME business leaders to find information about business

opportunities in public procurement. Procurement integrated with business functions such

as strategization, marketing, supply chain management, and decision-making (Lee et al.,

2014; Lee & Rim, 2016; Mogre et al., 2017; Roberta-Pereira et al., 2014).

According to Mogre et al. (2017), the merger of procurement and other strategic

functions within the organization help to identify trends in purchasing practice. Business

leaders must be cognizant of sustainable purchasing, ethical purchasing, and purchasing

in the digital economy (Mogre et al., 2017; Ruparathan & Hewage, 2015). Ruparathan

and Hewage (2015) found that sustainability can aid in improving procurement practices

and heighten sustainable performance.

The cohesiveness of any organization is reliant on common goals. A centralized

administration will have a positive effect on the functionality of procurement (Jenkins,

2016; Roberta-Pereira et al., 2014). The purpose of the procurement department was to

analyze transactions (i.e., buying behavior, vendors, and costs) and enhance competitive

advantage with suppliers to improve the purchase decision-making process (Cresswell et

al., 2013; Gillett, Fink, & Johnson, 1997). Davis and Brady (2015) identified the

functions of procurement as purchasing, storage, quality control, invoicing, and other

activities.

Challenges. Procurement has numerous benefits, but the problems also require

acknowledgment. Cresswell et al. (2013) and McCue et al. (2015) noted the following

challenges: (a) lack of change management expertise, (b) delegating purchasing

responsibility while maintaining control and accountability, (c) limiting fraud while

reducing operational constraints, (d) increasing economic efficiency as political demands

for minority/small/local and women-owned business participation achieve fulfillment, (e)

increasing transparency while attaining best value, and (f) applying best practices while

meeting legal limitations. Public procurement law, an economic and social system,

involves purchasers and bidders (Spiler et al., 2016). Large business organizations use

public procurement as a strategy for the growth and development of the organization,

while SME business leaders use public procurement strategies to encourage innovation

and domestic harmonization (Spiler et al., 2016).

Miller et al. (2016) noted SME business leaders might not endure the same

pressure placed on leaders of larger organizations because SMEs have limited capital and

less human resources. The ability to have systems and processes implemented for

purchasing activities increases an organization’s efficiency. Fazekas and Toth (2016),

Milosavljevic, Milanovic, and Benkovic (2016), and Qiao, Thai, and Cummings (2009)

analyzed the range of equality and efficiency in public procurement within various

government, examining patterns of practices and trends.

Procurement is an integral part of obtaining contracts. Business owners, provided

with a procurement strategy for guidance, can maneuver the complicated process of

public procurement (Sandada, Pooe, & Dhurup, 2014; Sonfield, 2014a). Bublak (2014)

noted that SME business owners' limited knowledge about contracting resulted in their

complacent attitudes. Williams (2016) also indicated that SME business owners were

concerned about the barriers in the procurement process. According to Olang and Gerald

(2014), adequate procurement procedures are still in the development phase.

Business leaders establishing the proper public procurement process could enable

implementation of efficient practices and trends within the organization, but a struggle

exists with inequality and inefficiency in the public procurement processes. Qiao et al.

(2009) and Neupane et al. (2014) agreed individuals use purchasing power to achieve

social and political gain within the government. The creation of preferential procurement

programs increased access to the disadvantaged. The programs included the promotion of

fair labor conditions, promoting the use of local businesses to prevent discrimination

against minority groups, and encouraging equality between men and women

(Milosavljevic et al., 2016; Qiao et al., 2009; Sonfield, 2014b). The preferential programs

were not without controversy.

As Qiao et al. (2009) explained, the application of preferential laws can create

disorder in competition, and many view preferential laws as a violation of the principles

(i.e., impartiality, open competition, and cost efficient to the consumer) of public

purchasing. According to Nicholas and Fruhmann (2014), the economic justification for

small business policies arises from the premise that awarding government contracts to

small businesses promotes entrepreneurship and innovation that leads to job creation and

economic growth. Mentoring programs would help SME business leaders compete for

government contracts (Williams, 2016), with mentors sharing experience, expertise, and

resources (Small Business Administration, 2015) to enhance competitive advantage.

Mentors work closely with business leaders to address gaps in the business (Boxer,

Perren, & Berry, 2016). According to Giacomin, Janssen, and Shinnar (2016), Lahti

(2014), and Martin and Wilson (2016), mentors were industry professionals

knowledgeable in their field and provide valuable information.

Separation of departments. Gillett et al. (1997), Jenkins (2016), and Thomas

(1919) noted a necessary efficiency practice was the separation of purchasing and

accounting departments. Thomas believed restrictions on purchasing officers would be a

necessity for both public and private organizations. The centralization of purchasing

mitigated other departments creating agreements with suppliers, in some cases even

offering favoritism (Thomas, 1919). According to Thomas, the purchasing department

employees issued orders and the accounting department staff were responsible for

receiving the invoices, reviewing the purchase order for any discrepancies, and making

the payment. The role of the purchasing and accounting departments ensured a checks

and balances system. If there were no boundaries, the accounting staff may contribute to a

dysfunctional public procurement accountability system (Jenkins, 2016).

The scope of public procurement transitioned from the traditional goal of cost and

value to broader economic, social, environmental, and ethical concerns (McKevitt et al.,

2014; Steinfeld, Prier, & McCue, 2015). The procurement process plays a vital role in

ensuring supplies or services are received in a timely manner, at the best price, and free

from bribery (Mohd Izhan, 2018). Procurement is no longer a single focused system but a

complex and interactive process. To achieve organizational outcomes the structure and

organization of procurement are fundamental (McKevitt et al., 2014). McKevitt et al.

(2014) found that centralized buying decisions can polarize SME involvement and those

supply arrangements which are efficient, adapted, central, and balanced support SME

participation in public procurement. The government has a yearly expenditure of

approximately half a trillion dollars on goods and services (Shoraka, 2015). SME

business leaders deserve the same access as larger enterprises to the contracts available

from the government, federal and state, for goods and services.

Shoraka (2015) reviewed the procurement contracting goal established by the

2008 executive administration and referenced the minimum of 23% of the half a trillion

dollars spent with SMEs. Shoraka stated SME business leaders who acquire the ability to

have an integral role in the national supply chain is a win for the American economy.

Shoraka determined the collaboration of the SBA, the President’s administration, and

federal agencies led to the enhancement of small business access to federal contracts.

Flynn and Davis (2016) and Williams (2016) added that support for small businesses

stimulates innovation and job creation, leading to a healthier economy.

The role of leadership in public procurement. SME business leaders often hold

multiple positions within their organizations. Owners of SMEs were usually the managers

(Barber, Metcalfe, & Porteous, 2016). Owners of SMEs are sole proprietors who own and

operate all facet of the business. SMEs with more than one employee need leaders who

do more than delegate by also serving and working alongside their subordinates.

Personoriented leaders are the link between employees and organizational effectiveness

(Acevedo, 2018). According to Acevedo (2018) and McCann and Sweet (2014), effective

leaders improve organizational performance and resiliency, helping the company to affect

the economy positively.

Service and visionary leaders attract and inspire followers to pursue shared goals,

shaping organizational culture, and enabling the efficient handling of future disruptions

(Howard & Ulferts, 2017; Strand, 2014; Valero et al., 2015). According to Lourenco,

Callen, Branco, and Curto (2014) and Valero et al. (2015), stakeholders found inspiration

in leaders who believed in and work toward cohesively accomplishing goals. Leaders

must possess traits that help them to respond better and adapt to catastrophe.

Organizational resiliency is one of the outcomes of a visionary or transformational leader

at the forefront.

According to Jaouen and Lasch (2015), the traits of SME business leaders will

affect (either negatively or positively) the business, strategization, and profitability.

Leaders should efficiently use all available resources to achieve organizational goals and

objectives (Khan & Adnan, 2014). A successful business starts with a strategic and

transformational leader. Jayawarna, Jones, and Macpherson (2014) posited that SME

success was dependent on owners’ knowledge, experience, and managerial skills, and

Davee, Hannon, and Penaluna (2016) suggested entrepreneurial education to enhance

leadership traits of SME business leaders. Williams (2016) considered educational

courses, association memberships, and planning strategies as success oriented approaches

for continuous leader and organizational improvement.

Summary

After an extensive literature review, I found studies conducted on public

procurement contracts and small businesses; but a gap existed in the research on

strategies for SME business leaders to obtain contracts through public procurement. In

2016, SMEs received 24.34% of public procurement contracts, and larger enterprises

awarded 75.66% (U.S. Small Business administration, 2017c). Researchers addressed

aspects related to participation of SMEs in public procurement and lack of SME

representation in public procurement. The conceptual framework for the study is the

principal-agent theory, which I used to illustrate the principal-agent relationship regarding

contracts. The objective of this study was to identify the strategies that some SMEs’

business leaders use to obtain public procurement contracts from the state (i.e., buyer-

supplier relationship); and the principal-agent theory was appropriate.

I did not find a solution to the central research question in the selected articles.

The themes that emerged from conducting a literature review include (a) SME business

leaders aligning goals with the principal, (b) networking and implementing other actions

to create value and growth, (c) building collaborative partnerships, (d) identifying and

overcoming barriers, and (e) stakeholder influence. Using the information from the

literature review and data collected allowed me to answer the research question.

Transition

Section 1 began with the foundation and background of the study to provide a

historic understanding of the research topic. Next, the problem and purpose statements

expanded the scope and direction of the study. The nature of the study included a brief

synopsis for selecting a qualitative case study. Section 1 also consisted of the research

and interview questions; conceptual framework; operational definitions for technical

terminology; assumptions, limitations, delimitations; and significance of the study. I

concluded the section with a review of the literature, which included the following

subsections: organization of the review, search strategy, summary of frequencies and

percentages of peer-reviewed articles, application to the applied business problem,

principal-agent theory, small- and medium-sized enterprises, government purchasing and

public procurement, and summary.

In Section 2, I clarified the rationale for the procedures followed to conduct a

systemic study. Section 2 includes the purpose statement, role of the researcher, the

participants, research methodology and design, population and sampling, ethical research,

data collection instruments, data collection technique, data organization technique, data

analysis, and reliability and validity. Section 3 comprises the findings with an overview

of the prospect for application in professional practice, implications for social change,

recommendations, reflections, and study conclusion.

Section 2: The Project

In Section 2 a summation of the research process for this qualitative case study is

available. The information will serve as a roadmap for describing how I identified the

strategies SMEs' business leaders used to obtain state contracts through public

procurement. I discuss participant selection, the research design and method, how I

ensured data saturation and explain in the population and sampling subsection how and

why the participants will benefit from the study. I also provide clarification on the

selected sampling technique, give a synopsis on adhering to ethical research, specify the

data collection instruments, data collection technique, data organization technique, data

analysis, and reliability and validity.