SMEs - Government told to put money where mouth is

Small and medium sized firms often find themselves overlooked when public authorities award contracts according to one of the key findings from a report by the Better Regulation Task Force (BRTF) and the Small Business Council (SBC).

The Task Force has also told Government it needs to put its money where its mouth is regarding small firms when it comes to awarding Government contracts.

The report argues that public sector procurement may be skewed against smaller firms and this results in reduced competition, reduced productivity and reduced value for money.

It says that the nation could reap economic benefits from helping smaller firms, which comprise 99 per cent of UK businesses, get a much larger share of the public sector market.

Following a meeting with the Better Regulation Task Force, UKTECH held an online consultation on this subject and fed the results back into the team who were researching this report. As a result, the UKTECH network is acknowledged as one of the contributors in the report.

The report makes recommendations to government that aim to encourage a more level playing field for SMEs in gaining public sector work.

The report makes eleven recommendations, including:

• There should be a single central government web portal advertising lower value central civil government contracts and each local authority should have its own 'selling to the council' website
  
• support for small businesses to help them negotiate the public sector tender process
  
• development of a single common core pre-qualification information document for lower value contracts
  
• the Office of Fair Trading to identify particular markets where SME participation is important because it stimulates innovation and competition.

The report claims that although the Government recognises the importance of SMEs to economic growth and spends billions on support through tax relief, grants and support services, this help is not followed through in procurement practices as SMEs have to overcome considerable barriers to win government contracts.

Two of the most significant issues to emerge from the study are:

• the positive effect that small businesses could have on the economy if they were awarded more public sector contracts
  
• SMEs can be disadvantaged by the fact that those letting the contracts often see them as riskier than larger firms.

Teresa Graham, Chair of the BRTF/SBC sub-group, said: "It's as if Government is saying 'we'll be your friend and support you, but we won't be your customer to help you grow'. But we say you need 'to put your money where your mouth is'."

"I strongly believe that there needs to be a push from the highest level in Government, to make sure that the good practice we found in some local authorities and Government Departments becomes common practice across the whole of the public sector.

"It is encouraging that, even before the publication of our report, in the Budget this year the Chancellor announced that the Government will ask departments to take forward three of our recommendations."

William Sargent, chair of the SBC, added, "SMEs are often described as the engine of the economy, so we were surprised at the extent to which they are overlooked in public sector procurement. We urge the Government to implement the recommendations we make in this report because they will help to improve productivity and at the same time secure better value for money in public sector procurement."

The Prime Minister has asked Ministers to respond to Task Force reports within 60 days.

Office of Fair Trading

Some media reports indicated that the OFT had already announced it would be carrying out an inquiry into the Government's small business procurement practices, particularly focusing on framework agreements.

However, the OFT told UKTECH that it was still studying the Task Force report and had not announced its response yet.

It is likely that the OFT will hold an inquiry into this, in line with the report's recommendations. Although OFT investigations carry some weight within Government, there is no obligation on Ministers to act on them nor does the OFT have any statutory powers in this area.

Full list of recommendations from the Task Force

Recommendation 1 - portal

The DTI should ensure adequate resources for the "Supplying Government" web portal project. The portal should advertise lower value contracts from across central government and include information on future opportunities. There should be a named contact for each advertised contract. The portal should be set up and piloted by spring 2005.

Recommendation 2 - local authority website

The Office of the Deputy Prime Minister and the Local Government Association should encourage local authorities to develop "selling to the council" websites by 2005. Websites should include information on contracts for tender, forthcoming contract opportunities and guidance on how to do business with the council. There should be a named contact for each advertised contract.

Recommendation 3 - advice and training

Within the context of small business support, the Small Business Service should provide advice and training for small and medium-sized enterprises on how to do business with central government and local councils. The Business Links Operators should deliver this by spring 2004.

Recommendation 4 - RDAs

Regional Development Agencies should ensure by Spring 2004 that, as part of the supply chain development work for which they are already funded, they work with prime public sector contractors to develop opportunities for small and medium-sized enterprises.

Recommendation 5 - pre-qualification document

The public sector should develop a common core pre-qualification information document for lower value contracts so that businesses do not have to put together different information in different formats to get past the expression of interest stage. The Office of Government Commerce and the Office of the Deputy Prime Minister working with the Local Government Association should develop and pilot this by spring 2004.

Recommendation 6 - non-compliance

The Small Business Service should publicise the mechanism for reporting non-compliance with the Office of Government Commerce "Government Procurement Code of Good Practice" that firms can use to ensure that they receive adequate debriefing.

Recommendation 7 - Government Procurement Card

The Office of Government Commerce, the Office of the Deputy Prime Minister with the Local Government Association should consider how to promote the wider use of the Government Procurement Card, recently extended by the Office of Government Commerce, to include local authorities and other non central civil Government bodies, in order to improve prompt payment by the end of 2003.

Recommendation 8 - framework agreements

The Office of Fair Trading should carry out research to identify the characteristics of those markets where it is important to ensure that small and medium-sized enterprises are able to compete to ensure competition, particularly where this may have an impact on innovation and value for money achieved by public sector procurement. Within this, it should also assess the impact of framework agreements and contract aggregation on small and medium-sized enterprises. This research should be carried out by the end of 2003.

Recommendation 9 - prime contractors

Where public procurers opt for prime contractors, they should ensure that their business case for doing so in those particular markets brings value for money.

Public sector procurers should ask prime contractors during the procurement process to demonstrate their track record in achieving value for money through effective use of their supply chain - including use of small and medium-sized enterprises. This should also be examined as part of the on-going contract management. Public sector procurers should ensure that prime contractors pay subcontractors on time and that when paying progress payments to prime contractors the payments flow down through the supply chain.

In order to make subcontracting opportunities more transparent to small and medium-sized enterprises, government departments and local authorities should list details of prime contractors and contracts on their websites.

Recommendation 10 - local authorities

The Local Government Procurement Forum, with input from the Small Business Service, should develop an SME-friendly procurement concordat. All local authorities should be able to sign up to this by 2005.

Recommendation 11 - transparency

The Office of the Deputy Prime Minister and the Local Government Association should encourage local authorities to set out in their procurement strategies the steps they are taking to engage with small and medium-sized enterprises by the end of 2003.

Government Departments should include in their procurement policy statements the steps they take to engage with small and medium-sized enterprises by the end of 2003 or publish this information in their annual reports.