Local Authorities must boost SME spending according to ‘first of its kind’ report

Our intern and journalism graduate, Robbie Pyburn, outlines a newly published report, “Spend Small – The Local Authority Spend Index” --  revealing how much local authorities spend on goods and services from small and medium-size businesses.

Written by the Centre for Entrepreneurs and Spend Network, the report is the first of its kind to draw upon analysis of government spending data: more than 44 million transactions across 158 local authorities. It also outlines recommendations for local and central government to boost their spending with small firms, which in turn will lead job creation and economic growth.

This report comes four years after a coalition agreement committed to promote small business procurement, with the aim that 25 percent of government contracts be awarded to SMEs by 2015. Last year we reported on “Government spend with SMEs – some success, a whole lot of political spin” which you can read here.

Over the sample period between April 2011 and March 2014, the report found that small firms accounted for £11.1 billion of the £89 billion spent on companies by local authorities. This equates to roughly 12.5 percent of overall local authority company spend. It also found that, during the same period, local authorities spent almost the same amount (roughly £9.9 billion) on their 20 largest suppliers as they did on the 78,128 small firms that supply local authorities. Based on this, it’s clear that local authorities favour spending on large suppliers rather than small businesses. More can be done to change this inline with the coalition agreement of May 2010 to promote small business procurement.

Some local authorities fare better than others when it comes to procuring from small firms. The report found that Monmouthshire County Council awarded 25.6 percent of direct spend to small businesses – the most out of all local authorities analysed in the report – between 2011 and 2014. They were followed closely by the Isles of Scilly with 25.4 percent. Two South Yorkshire councils made up the other end of the index. Barnsley Metropolitan Borough Council spent just 4.2 percent on small firms, while Sheffield City Council spent 4.3 percent.

The report found that small firms were most successful in winning local authority contracts in sectors such as residential care (12.1 percent of local authority spend on SMEs), construction (8.4 percent) and business support (5.95 percent). Meanwhile, very little was spent on local firms in areas such as accounting, financial services and advertising.

The report also attempts to identify any determining reasons why some councils spent more on small firms than others. It analysed authorities’ geographical spread, political control, average local earnings and rural/urban classification and financial size to see if there were any links with how councils spend. They found no correlation between any of the factors and the likelihood that councils would spend on SMEs or larger companies. The report therefore concluded that the main factor was the council’s own policy towards SME spending, and the extent to which they implement it.

In conclusion, the report makes several recommendations to promote SME spending. It suggests that every local authority should have a small-firm procurement champion, and should develop explicit policies and outreach programmes to boost small-firm procurement. Local authorities should also publish a pipeline of contracts available to small firms in the coming year, in line with transparency codes.

As for central government and the Local Government Association, the report recommends that the LGA strengthen the role of the local authority procurement champion. Government should also maintain the Local Authority Spend Index to track performance and to inform an annual ‘best councils to do business with’ competition. It suggests that the government and LGA work with Spend Network and the Open Data Institute to develop a common framework for local authorities to report on SME spend. Governments should also research the value for money impact of using SMEs.

To increase data transparency, the report recommends that every UK public body publish all spend over £500 as some public bodies currently only publish spend of £25,000 or over. Every public body should also link spend data to tenders and contracts awarded to help identify procurable spend. Finally, it recommends that small firms should be able to flag interest in subcontracting on tenders listed on Contracts Finder.

This is a very well laid out report, clear and concise in its presentation of data and findings. It is packed with interesting figures and clearly defines recommendations to give SMEs a more valuable role in the public sector supply chain, bringing key services to all local authorities.


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Voices (5)

  1. Derek Lancaster:

    Isn’t the definition used in the report for small firms just covering micro-businesses, not all SMEs? If all are included the figures would be much greater.

  2. IanR:

    Re: the contracts finder recommendation.

    It would help if Contracts Finder wasn’t a pigs ear in the first place. Not been impressed with it so far and we have been trying to work around it’s shortcomings.

    Would have been nice if this portal had had some stakeholder engagement at inception if it is going to be mandated across the public sector.

  3. Sam Unkim:

    “The report also attempts to identify any determining reasons why some councils spent more on small firms than others”
    Perhaps I can help ………………………………………
    Nope, really cannot think of any reason why Isles of Scilly would be spending more (% wise) on SMEs

  4. Dan:

    In my opinion, the problem is not one of policies (or a lack thereof) but cultural. Too many people doing things the same way they’ve always done, and believing the “big contracts always means cheaper prices” myth. The people at the top can’t change things because they started at the bottom and have the same cultural problem. Its endemic across local government and not just within procurement teams.

    1. Secret Squirrel:

      Not sure I entirely agree with that Dan but I get your point. After all, ‘nobody ever got fired for buying IBM’ (well, according to the old marketing anyway).

      Personally, I would add that the processes we’ve built are the prime cause of the problem. We add so many layers of bureaucracy and compound this by using the same base model for every type of procurement (the Golden Hammer anti-pattern). Most SMEs don’t have the resource to deal with it. Consequently, you build the perception that it has to be big contracts and the cultural issues embed in symbiosis with the processes (which we then make more complicated to deal with the big contractor…..)

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