Government increases spending with SMEs but target for share of public sector spend still not reached

Small and medium sized enterprises (SMEs) won £21bn worth of work from government departments in 2021/22, an increase of £1.7bn on the previous year, but the proportion of contracts awarded to smaller businesses decreased.

Jeremy Quin, minister for the Cabinet Office, described the total spending as "record-breaking figures" that "demonstrate our commitment to ensure more small businesses benefit from public sector spending", but the full data shows the government has failed to reach its long held target for giving an overall third of the amount spent on contracts to SMEs.

Ministers first set the ambition in 2015 when it pledged to deliver 33% of public sector procurement spend to smaller businesses by 2020. The deadline was later extended to 2022.

That aim has still not been achieved with the new data showing that 26.5% of government spending was with SMEs in 2021/22, down from 26.9% in 2020/21.

Direct spending by government with SMEs also fell from 14.2% to 12.3%, while indirect spend, when smaller businesses deliver work to a larger business with a public sector contract, increased from 12.7% to 14.1%.

Nine of the 17 government departments managed to meet the 33% target with the Department for Culture, Media and Sport (DCMS) the best. It gave 45.4% of its procurement spending to smaller businesses. That figure, however, was down on 48.7% in 2020/21.

HM Revenue & Customs was the worst in 2021/22 at 12.7%, just above the former Department for Business, Energy and Industrial Strategy on 13.3%.

More public sector contracts for smaller businesses

A report by Enterprise Nation, The Entrepreneurs Network and Tussell released last year found that the government's failure to meet the procurement target for SMEs is partly down to the lack of information the government holds about how the 5.5m strong small business community operates and how they can be helped.

As a consequence, the system requires a lot of unnecessary bureaucracy, which is vastly easier for larger firms to cope with. Most SMEs do not have the slack to dedicate staff time and resources to searching for procurement opportunities or filling out arduously long tenders, the report said.

The report highlighted several policies that could help make it easier for small firms to compete for government contracts. These included:

• Publish pipelines early. Public bodies should post a pipeline of contracts that are likely to come up. For example, the government knows that if it has cleaning services for their buildings and has negotiated a two-year contract, it will want some form of cleaning services again in two years' time.

• Improve pre-procurement consortium building. Provide a platform which can allow businesses to connect with each other so that they can decide to submit bids together and/or with large tier one suppliers.

• Establish a pro-innovation culture. Look for indicators other than history of procurement to deduce ability to deliver on scale. This could include things such as some staff have worked on large projects or if the company has managed to scale quickly.

• Write bids in a way that allows for more innovative solutions. Procurement teams should avoid writing tenders in a too narrow format. Instead of procuring for "a local library" they should instead consider writing a tender for “"a way of giving local people access to a broad catalogue of books" and see what solutions firms offer to their problems.

• Decrease bureaucracy. Dynamic procurement allows companies to submit information about their company once, which then makes them eligible for all contracts of a certain type.

Procurement Bill

The Procurement Bill, which is currently working its way through Parliament, aims to make it easier for small businesses to win public sector contracts.

Under the changes, all departments and public bodies will be required to consider SMEs when designing their procurements.

Other features of the Bill are:

• a new central platform showing contracts by region

• a single website for registration rather than the multiple sites firms currently have to use to bid for work

• reduced insurance costs before a supplier has bid for a contract

• strengthening of late payment rules so suppliers receive payment within 30 days

Speaking at an Enterprise Nation and Deloitte event earlier this year, Cabinet Office minister Baroness Neville-Rolfe said:

"The platform, which will be free for all to access, will make life easier for suppliers in a range of ways. For example, it will let suppliers see forward pipelines. This will allow them to find out more, plan which contracts to go for, where to invest, and when to prepare to bid or work with partners to develop consortia and joint bids.

"It will establish a single place for suppliers to register and self-authenticate their key bidding information – a “tell us once” approach that will cut out needless repetitive bureaucracy."

If you have a view on small businesses accessing public sector contracts that you’d like to share, email Dan.