Ten reasons why Government procurement spend with SMEs isn’t increasing (part 2)

We started yesterday discussing why the UK government is struggling to increase its spend with smaller suppliers (SMEs). We gave the first five reasons – here are another five.

6.  We’re seeing more centralisation of procurement and aggregation of volume which tends to favour larger suppliers  - unless those doing the centralisation are very careful.  Contracts end up being too large for SMEs to win in many cases.  While organisations such as the Government Procurement Service are aware of this danger, and are working to avoid squeezing out smaller firms, organising procurement on a national basis across central government still has a real risk of ending up with larger, national suppliers dominating.

7. Two years of spending cuts in certain sectors has squeezed out SMEs already. While the public may feel delighted that spend on contractors, consultants, advertising agencies and recruitment firms has declined, these were actually industry sectors where SMEs are probably stronger than the average. SMEs in these areas who relied on government work have had to re-orientate themselves or have disappeared, so some SME capacity has probably gone from those markets completely.

8.  The same spending squeeze has reduced the procurement resource available within government organisations. So they have been looking – not unreasonably – for ways of reducing workload. In the procurement space, that is leading to either greater use of collaborative deals (see point 6 above) or more use of prime contractor type arrangements. As an example, more and more organisations are using a “vendor managed” service for engaging temporary staff. So whereas previously, there might have been 50 different suppliers, many of them SMEs, now everything has to go through Capita, Commensura or Matrix. While this may be a sensible business / commercial decision, the SME spend recorded by that organisation will show a decline.

9.  Large firms who do a lot of public sector business are, in general, good at selling to Government. They have friends in high places, they invest in the sector, and they’re good at influencing the direction of government policy. SMEs generally don’t have the time or money to do this. While this has always been true, it may be that in times where money is tighter, that competitive advantage of large firms becomes more pronounced. And, as we’ve said before, there is a risk that Francis Maude’s encouragement for buyers to engage with the market pre-procurement will play to the strengths of the larger suppliers.

10. The work on the “Innovation Launch Pad” (reported here) was promising. But while it is too soon to judge overall success, it’s fair to say we aren’t seeing a large volume of spend going to dynamic, innovative smaller firms yet as a result of this work.

So, there is little prospect of the numbers in terms of spend with SMEs suddenly improving anytime soon. That’s why the “moving the goalposts” strategy is being followed, as we said yesterday.

If the government is serious, the only points that are relatively easily addressed would be around splitting contracts into smaller chunks – for instance, GPS could let a series of regional frameworks in the professional services or even IT space rather than their favoured national approach. But that would be administratively expensive and, critically, might jeopardise the savings claims that are also a key driver for the government. And those savings are probably more important politically than the SME figures.

But that seems to leave the door open for the opposition to claim that there is another feasible approach which might lead to different outcomes...

One final point. The wider, devolved public sector (councils, police, hospitals, schools) spends far more than central government, and in many ways is a more promising option for SMEs. Now not everything is rosy in those sectors either; but if they can support SMEs, that would more than compensate for disappointment in central government. Unfortunately, with the abolition of OGC, no-one is taking any responsibility for that centrally, but it may be that good work within those sectors will bring more positive news for smaller suppliers.

Voices (2)

  1. Dr Gordy:

    ditto

  2. Paul Wright:

    Sorry to sound sycophantic, but I agree entirely with what you wrote in these articles. I hope the government will pick up on them, but I am not optimistic. They could do with listening to the voices of the sme consultants, rather than the behemoths

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