Ten reasons why government procurement spend with SMEs isn’t increasing

Recent figures show that spend with SMEs in UK central government isn’t increasing and in some Departments (which embarrassingly includes Cabinet Office itself, guardians of the drive to help SMEs) has declined.  As Supply Management reported:

Barnsley East Labour MP Michael Dugher said: “Figures on the minister’s own departmental website show the percentage of procurement spend with SMEs at the Cabinet Office has fallen from just under 11 per cent to 7 per cent, a decline replicated across Whitehall.”

We shouldn’t be surprised at this. Arguably, some of the initiatives started by this Government – and let’s give them credit for taking some new and useful actions – haven’t had time to come through yet in terms of the required outcome of greater spend with SMEs ("small and medium enterprises").

But my hunch is that the Whitehall numbers will continue to be disappointing through this parliament. That’s why there has been subtle (or not so subtle) moving of the goalposts,  which we commented on here and Colin Cram also featured in Supply Management the other week.

It is now an “aspiration” to increase SME spend “over the course of the parliament”, and that even now  “includes spend in the supply chain”, which as Colin points out, is a meaningless concept. Just to highlight that – what if a large firm subcontracts to an SME, but 75% of the SME’s revenue is spent with their own suppliers – who are large firms? How much of that counts as SME spend? And if the SME subcontracts to another SME, do we count that spend twice? That would certainly improve the numbers. But it demonstrates the illogicality of this approach.

That’s not to say that encouraging SME participation in the supply chain isn’t a good thing – it is. But, to be blunt, basing your target on it is a sign of desperation.

Anyway, we’ve some up with 10 reasons why we believe central government will struggle to hit the target over the next 3 years or so. Here are the first five – the rest tomorrow.

  1. There are many long term legacy type contracts in Government. Even if an organisation wanted to get out of them and substitute with lots of smaller SME-friendly contracts, they can’t. Or at least not without great problems or cost. For a large department, over 50% of the spend is probably tied up in 3 year or longer term contracts.
  2. Then there’s an even more onerous and inflexible form of “legacy contract” – the PFI (Private Finance Initiative) contract. Here, it is pretty much impossible even to re-negotiate the price for changing a light bulb, let alone anything significant that might help the SME numbers. With an outstanding PFI commitment of £131.5 billion (not all of it in central Government by any means of course), there’s huge chunk of future spend that isn’t going to find itself anywhere near an SME.
  3. Central Government is by its very nature big, even more so in the UK than many other countries of our size who have a stronger regional model. Where we take a national approach to a topic like benefits, for instance, you inherently end up with large, national benefits systems and therefore contracts to develop and support them. And some stuff central Government buys is just unavoidably huge – any SMEs want to build an aircraft carrier? Or an Olympic Stadium? And this is not improving – in fact, with new investment appearing to focus on grandiose schemes such as high-speed rail, SMEs are not going to see this situation improving.
  4. Most civil servants – and many politicians – are risk averse by nature. “No-one ever got fired for buying IBM” is still a prevalent attitude. Who is going to take the risk for example to break up a large Department’s IT contract with Cap Gemini, HP or Accenture and split it into 100 pieces with various SMEs? Would you feel like taking that risk? And ironically, Ministers taking an anti- civil service stance makes things worse not better. Do you think that being called “enemies of enterprise” by the PM made public procurement staff think “I must take some risks on exciting but unproven new SMEs at once”!  Or was the attitude more likely to be “no-one likes us, better keep my head down, follow the standard process, and look for the early retirement deal / job with the private sector”.  I suspect we can guess which was more usual.
  5. While it is a minor point compared to some here, we’ve argued before that the move to “eliminate PQQs” for lower value contracts does not necessarily help SMEs. It has led in some cases to a much greater bidding burden, where the single document now combines the PQQ questions AND the full tender. The bidder has to complete both – knowing that their tender response won’t even be read if they fail on the PQQ section! In some cases, SMEs who would have completed a simple PQQ are choosing not to bid given the workload and the risk / reward balance of the new approach.

More tomorrow....

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