SMEs and public procurement (part 1) – the targets

We've written before about the range of measures the Government is taking to help SMEs (small and medium enterprises).  But there has been some confusion over the last few months about exactly what the target for SMEs winning Government contracts really is. That was brought into sharp focus by this discrepancy that I, Hercule Poirot, noticed in the Plan for Growth report published with the budget. (My italics).

Page 26 - "To make it easier for SMEs to access public sector procurement, the Government will:
• transparently monitor progress towards eliminating pre-qualification questionnaires for contracts below £100,000; and putting procurement opportunities on Contract Finder. The Government will also monitor progress towards its aspiration of awarding 25 per cent of government contracts to SMEs."

Then later on in the same document:

Page 72   "To encourage enterprise, this Government is already reforming public sector procurement practices to make it much easier for small businesses and voluntary and community sector organisations to access contracting opportunities, in particular by:

- setting an ambition for 25 per cent of the value of government contracts to be delivered by SMEs;

So is the target value or volume of contracts based; or both?

I suspect every procurement person reading this will spot both the difference and why it is important. The number of contracts and the value of contracts are two totally different metrics.  And when organisations do a spend analysis, there is always a long 'tail' whether you look at contract value, orders placed or invoices.  A few contracts / suppliers / invoices account for a huge percentage of the total spend. And at the other end of the scale, the 'bottom' 25% of contracts by number could well account for as little as 5% of spend or even less (anyone who has done a spend analysis recently like to confirm this)?

So.. a target of 25% of contracts awarded to SMEs could - if they were the smallest contracts on offer - account for as little as 5% or less of the spend. They might not - if the contracts were randomly distributed across the sample, then obviously they would account for 25% of the spend as well. But that is unlikely.

A target therefore of 25% by volume is almost certainly much easier to achieve than 25% of spend (by value).  But we could argue that actually both the number of contracts and the value are important in terms of both spreading the work around - and giving a reasonable total spend. You don't want to hit your 25% of spend by giving a huge contract to one SME I would suggest; but equally, at the other extreme, a million contracts for £1 each won't do an awful lot to help.

So firstly, it would be useful to clear up this lack of clarity on the current target; and secondly, it may be worth considering a two-part target; something like "25% of spend and 50% of contracts by volume" which would reflect the likelihood that where SMEs do win contracts, they will generally be smaller.  Of course, a simple target of 25% by volume would be much easier to achieve...

I'll see if we can get a definitive answer on this anyway and over the next few days we'll take a close look at the existing data - as far as it goes - to see as best we can where public organisations currently are against the targets.

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Voices (3)

  1. Peter Smith:

    Mr Furlong
    You’re ahead of me as usual. See our posts over the next 2 days….Fair to say there is pretty good data in some quarters, less so in others. And you’re spot on with some of your observations.

  2. Peter Bentley:

    “transparently monitor progress towards eliminating pre-qualification questionnaires for contracts below £100,00”? I am not sure this is the way forward at all, standardised PQQs yes, otherwise we will end up with contracts that arent fit for purpose, and the work load (unless we move to a completely eprocurement based system with HUGE ITT documents i.e. on your sponsor Bravosolution’s platform). And to give SME’s guarenteed work is ridiculous, we need to educate our suppliers to tender better, but it sounds like we need to educate our politicians better before we do that about Procurement and in particular about transparency, equality and Non discriminatory! I did some work for a charity recently who DO of course discriminate by giving work to groups that need to have developed skills and so forth, However, they dont guarentee this. If the locals dont have the skills, They dont give them the Work!

  3. Final Furlong:

    Well spotted Hercule. And, to complement your views, here’s an interesting perspective….

    This target is obviously government-wide – both central and local government (including the NHS)? And, as we’ve read previously from the likes of Cram (in reaction to an announcement from the PM), in many local authorities, as much as 60% is already being sourced from SMEs. So, it is fair to say that a target of 25% is already being achieved? (It just hasn’t been recorded previously.) The social care budgets (often representing 45% of a council’s budget), for example, are often carved up amongst many SMEs. And what if they implement a prime contractor model whereby there are many SMEs within the supply chain, but only one has a direct contract with the contracting authority? Measurable (especially if it was deliberate)? When politicians (and civil servants) sets a target for the first time, one must assume it’s going to be one that will easily be met.

    Putting on my procurement hat, if one is going to set a target, one should also establish the baseline against which this new target will be measured. Does this basline exist? Does it exist across ALL contracting authorities, and, if so, what is the current percentage, measured against volume and/or spend? Will it include prime contractor models, for example, and other similar models, where the contracting authority encourages the use of SMEs, but doesn’t want to ‘own and maintain’ numerous direct contracts?

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