Government Spend with SMEs – Target, Aspiration or Ambition?

You might remember some time ago the UK government decided that having a “target” for spend with smaller firms (SMEs) was all too difficult.  That led us to write the spoof “Yes Minister” article that we have reproduced below, first published all the way back in June 2011!

One move made by the government was to change the “target” to an “aspiration”.  That sounds a lot less definite, not something you could really hold someone to account for, could you?  (The aspiration was only 25% in those days, by the way, it was increased to 33% in 2015 despite 25% having never been achieved).

Well, thanks to our eagle-eyed Publishing Director, Nancy Clinton, for spotting this which suggests that the SME target is now perhaps an “ambition”. It comes from an article on the diginomica website which reported on comments about the policy, made by the government’s SME Crown Representative, Emma Jones.

“When Francis Maude launched it, it was a target. I quite often hear the word now in government of ‘ambition’. Read into that what you would wish”.

So, the question must be – is an ambition even more vague and wishy-washy than an aspiration? We think it is. I mean, I might have had am ambition to play football for England, without ever “aspiring” to do so, which suggests some degree of realism. “Ambition” these days is all very hopeful, all very X factor contestant and hoping to invent an App that makes me millions.

Anyway, the target / aspiration / ambition is deeply stupid, as we have said many times before. It will never be achieved unless the government finds a way of fiddling the numbers further for “indirect spend in the supply chain” which is a ridiculous construct in itself. Frankly, we despair of anyone in government taking this seriously, but anyway, it is an excuse to re-publish our original article, which was at least fun to write!

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Yes (Procurement) Minister – How The SME Target Got Developed

-  Ah Bernard, do come in. We seem to have a bit of a problem. Some of the Departments are telling me there’s no way they’re ever going to hit this target of giving 25% of their procurement spend to small firms – SMEs I think we call them.

- Yes Minister. Small and Medium Enterprises.  Well, we’ve already started backtracking – we’ve made it an aspiration rather than a target.  And said we’ll average it across all Departments, AND that it will apply over the full term of the government, not on an annual basis.

- Does that solve the problem then Bernard?

- No Minister.  That still doesn’t give us enough wiggle room.  We have some departments such as DWP and Defence who are never going to get near it, and because they are so large, even averaging it across Whitehall won’t help I fear.

- Does anyone even care Bernard? Should I be worried?

- It does help of course that you are a Conservative-led administration - the Federation of Small Business and Chambers of Commerce are always much less forthcoming with their gripes when you are in power Minister compared to ... when the others are in charge.  But eventually even the FSB might catch on. Then we have the usual annoying bloggers who take an interest in these matters ...

- So what do you suggest we do? Change the target?

- No Minister. Sir Humphrey and I were talking about this and we had what – forgive me Minister – we think is rather a good idea.

- Well go on then man, don’t just stand there grinning inanely!

- Well, we believe it would be quite easy to subtly change the words to include spend with SMEs in the supply chain within the ‘aspiration’ of 25%. So if you put a contract in place with – let’s say, Rolls Royce, then of course they spend some of their revenue with small firms in their supply chain.

- Right...

- Now, we’ve done the Maths ...

- I thought you were all PPE chaps in the senior civil service?

- Well, we did have to borrow a tame Mathematician from the Office of National Statistics ... but this is how it works. Let’s take MOD. Suppose only 10% of their procurement spend goes to SMEs.  The other 90% goes to large firms like Rolls Royce. Then let’s assume that half of that 90% pays for those firms’ own staff. The other half – 45% - goes to their suppliers. Now let’s assumes that 20% of that spend goes to SMEs; so that’s another 9% of the MOD’s spend gone to the SMEs who are suppliers to the first tier.

But of course the sequence continues.  Some of the money Rolls Royce spends with their big suppliers also goes to SMEs at the next level down, and so on, and so on.  Now, that gives us an infinite geometric series, which we can sum using the formula a / (1-r) where a is the first term in the series and r is the geometric multiplier.

- Bernard, my head is beginning to hurt..

- Almost finished Minister. In this particular case, if 90% of MOD’s spend goes to large companies, and then 20% of each of those supplier’s spend goes to SMEs, and so on ad infinitum ...  you do know what ad infinitum means Minister?

- Yes, yes, go on!

-  Then doing the Maths, it means that using our formula, exactly 15% of the MOD’s spend goes to SMEs through the supply chain. So we add that to the 10% that goes directly from MOD and – hey presto – we have 25%!

- Brilliant Bernard! So do you have a proposal for this subtle change of words?

- We think something around ‘doing business’ rather than ‘awarding contracts’ should do it, Minister. Gives us scope to say that includes the sum to infinity expenditure through the supply chain...  What about, “Government’s overall aspiration to do 25% of its business with Small and Medium sized Enterprises (SMEs)”...

- Bernard, Bernard. You’ve saved the day again. What would we do without you! Would you like a small sherry?

- Thank you. Yes (procurement) Minister, I rather think I would.

 

NB - with thanks to the very clever writers at the BBC Antony Jay and Jonathan Lynn

 

Voices (3)

  1. Charlie Middleton:

    The simple fact is that whatever they say most major departments don’t want to work with SMEs. They know that if they place a piece of work with a household name and it fails, people will point the finger at the household name and tut that it was one of those things, or that the project was probably unachievable anyway. If they place the same piece of work with an SME and it fails, people will point the finger at the procurement team and ask why they chose this risky supplier who could never do the job. Self preservation kicks in and they err towards the big suppliers.

    Unfortunately poor procurement practices and policing make it difficult to stop this behaviour. Often ITTs ask for the past experience in delivering similar projects (despite this not being allowed as an award criterion) which maintains the status quo. Or they just do direct awards to their preferred suppliers. Or they choose a lot where they know that only the preferred suppliers will be able to bid (eg the scandalous decision of the Cabinet Office to buy Brexit consultancy through the Health and Community lot of MCF).

    Until we have departments who actually believe in what SMEs can offer, or the Cabinet Office doing more than a wishy washy SME ambition, or the Crown Rep for SMEs being given some power rather than just being able to raise concerns nothing will change.

  2. RJ:

    Not quite sure why this has raised its head again today but the SME target/aspiration is one of the weirder constructs the public sector still has to contend with. The first incarnation, as you say, was never going to be remotely achievable, especially considering the other constraints and scrutiny faced by public sector buyers (you can imagine the screams from the press when they find out that, e.g. “Hospital Trusts spend £millions buying rubber gloves from their local corner shop”). Aside from creating an unwieldy burden on 1st tier supplier to report their “indirect spend”, it also falls down when a significant contract is placed with an SME thus making them fall outside the category (yes, I know there’s a grace period but…) or when an SME is taken over by a larger firm (CCS’s award of travel management services to an SME a few years back was rendered useless last year for this reason).
    Surely it would make more sense to measure access to public procurement contracts via looking at e.g. how many SMEs are able to bid for business?

  3. The Lady Doth Protest:

    LOL Peter – and then there’s IR35. Suddenly, moving people from their limited companies to umbrella companies or to be paid PAYE directly means that we’re closing “small businesses.”

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