SMEs get a procurement leg up

published 1 September 2017

Public sector bodies, including central government, spend more than £250bn a year on procurement. This should be a potentially lucrative source of business for small and medium-sized enterprises (SMEs). Yet the Federation of Small Business has found that despite the promises of successive governments just 23% of SMEs have worked for the public sector over the past 12 months, down from 25% in 2014, the last time this research was conducted. The number of SMEs interested in bidding for public sector work is also falling, with just 10% of firms showing an interest, compared to 14% three years ago.

This suggests that the government will struggle to hit its target of awarding a third of all procurement spending to SMEs by 2020. The figure currently stands at around 27%, although this includes work that ends up with SMEs as part of a supply chain managed by a larger public sector contractor. Contracts awarded direct to SMEs account for less than 10% of public sector spending.

The figures are disappointing but at least they suggest that SMEs should be pushing at an open door when bidding for public sector work. While there are some tough hurdles to jump for firms bidding for high-value contracts, ministers insist they are working hard to ensure SMEs win more work through smaller projects. In particular, the government has abolished a raft of red tape for contracts worth around £100,000 or less. Importantly, SMEs bidding for these deals can't be asked to complete a "pre-qualification questionnaire", which have proved hugely unpopular due to their complex, time-consuming nature. As a result, small business advisers suggest it makes sense for most SMEs to at least start by bidding for these smaller-value contracts, either direct or from a larger contractor. Winning such work also enables SMEs to gain references from public sector contractors, often a basic requirement for larger tenders.

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The Crown Commercial Service (CCS) offers advice for SMEs interested in bidding for such work. It also runs services such as Contracts Finderthat send email alerts when work comes up. Depending on the kind of work they intend to bid for, SMEs should also register on the government's eSourcing tool and its Dynamic Marketplace. If you believe that a procurement project is not being run fairly, you can also make an anonymous report to the CCS's mystery shopper service, set up as part of an initiative to increase the policing of public sector work awards.

David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.