Small firms still locked out of public contracts

Daisy Hooper details the government's failings in allowing small firms to bid for government contracts. The will is there, but the execution leaves much to be desired

 

Daisy Hooper works for Aequitas Consulting, an innovative public policy and public sector innovation agency.

Small and start-up businesses are essential to Britain’s economic recovery. But in order to support economic growth SMEs need to win new business. And despite government promises, red tape still prevents them from accessing government published contracts.

David Cameron has lauded the benefits of British SMEs, praising them for doing ‘incredible things’ and pledging his support for new businesses through the Start Up Britain.

The prime minister has pledged to support small businesses to access government contracts and reverse institutional bias against them.

However, procurement practices are still preventing SMEs from applying for and winning government contracts.

As part of a consortium of SMEs, we recently applied to join the central government procurement framework – consultancyONE, which is for central government contracts worth over £100,000, and purportedly has specific SME-friendly application criteria.

Working in a consortium can be a good way for small businesses to pool resources: working innovatively in partnership, as the government has urged SMEs to do, improves eligibility against contract criteria which theoretically improves the chance of winning contracts.

In fact, this partnership restricted our eligibility.

Applications for new contracts could only cite previous consortium projects worth more than £100,000. The consortium can’t get these contracts because it doesn’t already have them (individual partners’ contracts of more than £100,000 don’t count, no matter how relevant they are).

In the end our consortium was forced to withdraw from the application process for consultancyONE because of the complexity of the procurement hurdles.

The strict criteria that preclude SMEs from applying for contracts are intended to limit the risk to the government and to cut costs.

Yet there is no evidence that giving contracts to small businesses is more risky than giving them to large businesses – or that in the long run it cuts costs. Just look at the big businesses that have failed: one colossal example being CSC’s failure to deliver the NHS IT database project, which cost billions in taxpayers’ money.

SMEs have to be innovative in their approach to get the biggest ‘bang for their buck’. They create products and services that are more efficient, because they are delivered through tighter budget constraints. They also have a greater local and regional economic impact by creating jobs throughout the UK, with a better geographical spread than big businesses who want to be based in London.

And compare the benefits of SMEs (which create local jobs and a better distribution of wealth) with larger companies that outsource their staff and bank abroad to avoid contributing their fair share to society.

The government keeps telling us that small private businesses are already efficient and innovative, creating jobs and rising to the current economic challenges.

Small businesses obviously have the capacity to drive economic growth and to take up the slack from the public sector. But as long as the application process is a barrier to them winning new work, the outcome is likely to be an inefficiently slow and frustrating process.

See also:

• Small businesses can play a vital role – but only if they get the finance they need – Tony Dolphin, February 2nd 2012

• Obama puts manufacturing top of the agenda – time for Cameron to do the same? – Tony Burke, January 27th 2012

• Mandelson weighs in behind National Investment Bank – Alex Hern, January 27th 2012

• Design agencies face a second year of talent exodus in 2012 – Rachel Fairley, January 3rd 2012

• Will quantitative easing work this time? – George Irvin, October 9th 2011

21 Responses to “Small firms still locked out of public contracts”

  1. Ian Hanton

    Small firms still locked out of public contracts, writes @AEQdaisy: http://t.co/LtWXScnL

  2. Wendy Hibbs

    Small firms still locked out of public contracts, writes @AEQdaisy: http://t.co/LtWXScnL

  3. Alex Smith

    Agree. Time to bust open procurement cartels // MT @AEQDaisy: SMEs still locked out of public sector contracts #labbiz http://t.co/1Ci3qQUp

  4. Alex Smith

    @DominicCampbell – check this out by @AEQDaisy. Time to bust open cartels? http://t.co/dDcu2hV2

  5. Daisy Hooper

    @sarangecroft thought u might be interested 🙂 http://t.co/I05aWDq8

  6. Hens4Freedom

    RT @leftfootfwd: Small firms still locked out of public contracts, writes @AEQdaisy: http://t.co/fJJ6DF0w #NewsClub

  7. Miranda

    RT @leftfootfwd: Small firms still locked out of public contracts, writes @AEQdaisy: http://t.co/fJJ6DF0w #NewsClub

  8. DejaView

    RT @leftfootfwd: Small firms still locked out of public contracts, writes @AEQdaisy: http://t.co/fJJ6DF0w #NewsClub

  9. Lori Fena

    RT @leftfootfwd: Small firms still locked out of public contracts, writes @AEQdaisy: http://t.co/fJJ6DF0w #NewsClub

  10. Mustafa Rashid

    RT @leftfootfwd: Small firms still locked out of public contracts, writes @AEQdaisy: http://t.co/fJJ6DF0w #NewsClub

  11. Michael

    Small firms still locked out of public contracts I Left Foot Forward – http://t.co/BCSziCkI

  12. BevR

    RT @leftfootfwd: Small firms still locked out of public contracts http://t.co/kQr0tSu3 #WRB#SPARTACUSREPORT#ATOS#UNUM#ESA#DLA

  13. Mark Taylor

    I am shocked to find myself agreeing with the UK's no 1 left-wing blog, but I do: http://t.co/3IdJeyix SMEs *still kept out of Gov business*

  14. JC

    As long as bigger companies are allowed to specify the projects and require a substantial tender document with a requirement for a large number of audited policies and conformance to a list of specifications, small companies will always find it difficult. The public sector needs to get the small companies to write the tender documents.

    As an example, I recently received a tender document from a large(ish) London based organisation requesting information about our food manufacturing facility in very rural Devon. As I completed it, I could see the number of marks we gained from each question. We lost a lot of marks for not employing ethnic minorities, but gained them back for having a third of our employees over 50. We lost marks in other areas for not being urban enough. Completely irrelevant to the fact that we made organic soup!

  15. Paul Evans

    Small firms are still locked out of public contracts. Who knew? http://t.co/OM6YqLHc

  16. Blarg1987

    Having worked with contracts in the public and private sector, the difficulty with contracts is that without being specific private companies will get away with murder and the state is not willing to chalalnge, unlike the private sector.

    A classic example, if it is specified to put up a shelf, the contractor will try and put up the cheapest shelf witht eh elast expensive materils possible.

    If the shelf breaks the contracot would be right in saying that the shelf was not specified exactly saying what screws were needed, what material the shelf needed to be made from, what size ad what load it needed to take and they would win.

    Now that is a small thing but multiply that by a large project, you can see why the tendering document is so big.

    WIth regards to your point about age etc, I think the public sector has to be seen to be a moral employer as if they apporved a contractor that imported cheap labour to do the scheme instead of local people their would be a public outrage.

  17. alan cocks

    I am shocked to find myself agreeing with the UK's no 1 left-wing blog, but I do: http://t.co/3IdJeyix SMEs *still kept out of Gov business*

  18. Bham Small Business

    Small firms still locked out of public contracts http://t.co/nvTpxhNn

  19. Synergy Events

    Small firms still locked out of public contracts http://t.co/nvTpxhNn

  20. JC

    I would disagree with you very strongly. If the contract is properly specified, then the quality of the materials will be specified. As an organic soup manufacturer, we are not able to substitute cheap non-organic ingredients as it would no longer be organic. Why should any other contract be different unless the organisation awarding the contract is incompetent?

    As for your comment about discrimination, it sounds like you have never been to rural Devon. We would have performed better in the tender if we had imported cheap labour as they would have had a better racial profile.

    Nevertheless, in order to complete a tender document, a small company would have to take a member of staff away from their usual job for possibly more than 1 week and still have little chance of success.

    By the way, I am writing about contracts that small companies (up to 50 employees) might bid for. There is a requirement that they may not be more than 40% of current turnover in size, as I’m sure you know.

  21. wowitsusual

    Er… it sounds as if your “classic example” is actually made up. Any specification can be input based (specifying materials, effort, or other inputs) or output based (the shelf must be strong enough to take all my books etc.). You can mix and match, but typically a spec is one or the other in emphasis. Either way, if you are competent, you’d get round the hypothetical situation you describe.

    I work in procurement (and subject to it) in both the public and private sectors and you can expect challenge with either, dependent on the individuals involved (sponsors, and procurement departments if the customer has one). The effectiveness of the procurement, or otherwise, is not driven by the size of the tender document, but more the adequacy of the document, the attention to detail of those engaged in the procurement and contract management, communication skills, etc. etc.

    And finally, I agree with JC and indeed it is a fact, enduring without outrage, that many tenders are let with unintended consequences exactly as described. We regularly have to respond to questions regarding our gender and ethnic makeup, and also the sexual orientation of the Directors / Owners. Admitedly this is sometimes accompanied by statements that such information won’t be marked, but you do wonder if it’s important enough to ask whether acheivement of whatever targets involved might hold some sort of sway over the outcome.

    My company is an SME, and I believe we can deliver to the highest standards alongside companies of any size, but I think the “SME agenda” is very often a confused conversation. What are the benefits of employing smaller companies over larger ones, all other things being equal? Is it a moral issue?

    One thing I think we might all agree on is that often it’s not that procurements are complicated, it’s just that they are OVER complicated, and that’s a waste of time for everyone.

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