SMEs and public procurement (part 3) – how is central Government doing?

We looked yesterday at the Spikes Cavell data which shows that many public sector organisations are already achieving giving over 50% of third party spend to SMEs. But what about the big beasts of Whitehall? These central Departments spend over £40 billion a year between them on third party goods and services. So how do the Ministry of Defence, Department of Work and Pensions, the Home Office and others do in terms of SMEs?

The back-office benchmarking information published by Cabinet Office for 2009/10 is very valuable but there is so much data in it I suspect it hasn't had the analysis it deserves. Anyway, we've pulled out of it a headline table for the large central Departments showing for 2009/10 their third party spend and SME spend as a percentage of total. Here are the "top 15" - central Departments only with the exception of the Highways Agency because they are so huge.

Third party spend in £M % SME (of spend value)
MOD 24,500 N/A
DWP 3,850 15.2
Highways Agency 3,460 3.4
Justice 3,053 N/A
Health 2,174 16.2
Revenue & Customs 1776 10.9
Foreign Office 863 N/A
Home Office 647 2.2
Education 509 29.0
DEFRA 461 22.4
DCLG 313 11.4
DECC 260 N/A
Business 236 23.9
Transport 198 N/A
Treasury 193 N/A

What does this tell us? Well, there are a number of Departments who presumably have been working hard to make data available for 10/11 as they didn't have it for last year, including MOD, the biggest of them all.

And overall, the big Whitehall Departments have a whole lot further to go than the local authorities we discussed yesterday in terms of hitting the SME targets. But if we assume that there is a major discrepancy between SME volume and value, it may well be that even if a Department is only achieving 10% by value, it is already achieving 25% by volume.  So if the Government merely wants to claim success, then a 25% by volume target will be very achievable probably for most of these except maybe Highways, Home Office and (probably) MOD.

If however the target is 25% by value, then it is hard to see a number of Department getting there quickly, and this is a structural problem, not easily solved.  Are MOD, or indeed the Highways Agency, ever going to get near to the target given the nature of their procurement is not exactly conducive to SMEs?  And we might ask whether it is therefore  sensible to have a single target? Is it better to focus on opportunities for SMEs through the supply chain rather than at first tier for certain organisations - as MOD have historically done, to good effect?

We haven’t discussed in these posts the actual theoretical basis for the ‘more business to SMEs’ movement – that will wait for another day.  But assuming a general presumption that it is a ‘good thing’ then I guess a key aspect will be the trends. If the Government can show movement in the ‘right’ direction, then the absolute numbers in my opinion may not matter so much. So it will be interesting to see what the 2010/11 numbers show when they emerge; presumably sometime over the summer?

Over the last three days we've taken stock of the SME situation in the public sector. We've seen that current targets are being achieved in most parts of the public sector, but a number of large Departments have a long way to go. We'd also question whether a single target is appropriate - and suggest we need more clarity on exactly what it is. We'll watch with interest to see what emerges from the 2010/11 data.

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Voices (2)

  1. Barry Henniker:

    Peter. Much food for thought here. What puzzles me about the whole issue is that it appears to be driven by political dogma and not on any shred of empiracal evidence that directing more government spend towards the SME arena will actually have a net positive effect on an economy which is in dynamic equilibrium. And as we both know the scope for SME involvement in central government contracts is virtually non existant. I suspect the higher numbers in your table somewhat mirror the local authority model – it is money spent locally by distribured departments underpinning front line services. It would save the country a good deal of money in the form of civil servants salaries if the politicians could be made to understood that procurement should, in a mature economy, be left to get on with optimising value for money and not as a tool for pursuing unproven social engineering objectives.

    what does not seem to have been aired in the SME debate is the availability of capacity and resources to service higher volumes of procurement competitions irrespective of whether the target is volume of value.

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