SMEs struggle to gain a fair slice of public sector technology contracts

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Although the UK Government has introduced many improvements to its technology procurement processes to make them more open to all organisations, according to recent statistics from the Federation of Small Businesses, small to medium sized enterprises (SMEs) are still awarded just 19 per cent of public sector technology contracts.

In addition, our recent analysis found that although the UN considers the UK public sector’s digitisation programme to be world-leading, the barriers to SMEs to participate in the bidding process may prevent some of the best innovations to be realised. We have addressed this issue head-on in our whitepaper: Taking the brakes off: How SMEs can be unleashed to drive the rapid digitisation of the public sector and made recommendations to further improve public sector technology procurement with the aim of giving SMEs a more representative slice of the public sector technology pie.

Adopting these measures is important for the UK as SMEs offer greater agility and often deliver better value for money and innovation than their larger competitors. For the UK to retain its leadership in public sector digitisation, more SMEs need to win these contracts. Thankfully the government is already aware of this and has committed to spending 33 per cent of public sector procurement directly with SMEs by 2022. This is an increase on an earlier target of 25 per cent by 2015, which would suggest the government has seen real tangible benefits of working with more SMEs.

Some of the most high-profile initiatives aimed at supporting SMEs in the digitisation of the public sector include the introduction of the Digital Marketplace, the launch of Contracts Finder (which lets suppliers find out about contracts worth over £10,000 with government and its agencies), plus the various framework agreements such as G-Cloud, Crown Hosting, and Digital Outcomes & Specialists, to name but a few, which provide a common contractual environment between the public sector and its suppliers.

Our analysis has looked in detail at what steps need to be taken next to improve the ratio of SMEs to big boys winning public sector technology procurement contracts. Our ten top recommendations for improvement follow:

1. Don’t stifle existing relationships

Our first observation was that while the public sector is actively trying to transform the way it works with suppliers to make it more accessible to SMEs, the rigid, rules-based approach to procurement is central to the problem.

It is naïve to think you can remove the human element entirely from the tender process. The solution therefore is not to remove personal relationships entirely, but to embrace them at a much earlier stage in the tender process so that everyone is given a fair shot. You cannot help SMEs by forcing a wedge between existing working relationships, but you can give them a chance to forge relationships of their own.

2. Overhaul the framework agreements

It is clear the government has not thought about how the framework agreements are actually used by SMEs to generate business (and how government customers use them to find suppliers). They are unwieldy, difficult to navigate and often fail to match contracts to the most relevant suppliers. There is also not enough of an incentive for public sector purchasers to use the frameworks.

For starters, the government should prioritise improving G-Cloud 10, Contracts Finder and Digital Outcomes & Specialists to make them more user-friendly and better at fulfilling their matchmaking role. Our specific recommendations are:

  • G-Cloud 10: G-Cloud remains an overwhelmingly difficult service to use. The fundamental challenge for the G-Cloud platform stems from the combination of the sheer number of suppliers listed on the platform (2,847 were approved for G-Cloud 9 for example) with a search function that is largely ineffective at finding the most relevant suppliers for a given task. The G-Cloud therefore fails at its primary role as the matchmaker between buyers and suppliers. As a result, government purchasers often need to enlist the services of a third party to help them navigate G-Cloud and find the right SME suppliers to solve their problem.
  • Contracts Finder: All public sector contracts over £10,000 must now be listed on Contracts Finder. While the government has refined the framework to make it easier for suppliers (such as removing some pre-qualification questions for SMEs), much like G-Cloud the sheer volume of opportunities listed on the system makes it very cumbersome and time consuming for SMEs to find any meaningful business opportunities.
  • Digital Outcomes & Specialists: This framework was designed to be a more agile framework focused on the evolving field of digital outcomes. Incorporating Agile development principles, it is regularly reviewed and refreshed to continually incorporate lessons from previous iterations. So far so good. The challenge for suppliers is the sheer volume of requests and the number of companies bidding for the opportunities. Sound familiar? With 20-50 supplier responses per request, but with little to no feedback or interaction with the end customer, winning business on this framework is simply a numbers game. Suppliers have no way of knowing why their bids are unsuccessful, so they cannot improve their likelihood of success. Their only hope of success is to submit enough bids that eventually one of them will be successful.

3. Fairer terms for SMEs

SMEs typically face more challenging terms of business when compared to the larger firms, in particular payment terms. Whereas it is not uncommon for large suppliers to be paid within just 5 days (despite 30-day payment terms with the government), their SME subcontractors are only paid in 45-60 days by these suppliers.

4. Introduce more realistic Risk Analysis procedures

When the government undertakes risk analysis of a project, the big consultancies are still often seen as less risky and more politically acceptable. This is despite track records of poor delivery, high costs and inefficient (sometimes risky) business models found in larger firms.

The government needs to be more realistic in how it applies weight to different perceived risks of a supplier (e.g. how critical is the number of full-time employees to the delivery of the project. If the company is relatively new, what is the combined personal experience of the individuals that make up the company? What is the financial backing of the company? etc.).

5. Be more transparent

A real challenge for measuring government success in working with SMEs is how companies are categorised, since some companies can be found categorised as an SME on one framework and a large supplier on another. At the same time, some companies are classed as “other”, which further muddies the waters.

It is also worth pointing out the sheer breadth of companies that qualify as SMEs. An “SME” is defined as anything with just one employee up to 250. This is a very broad scale. A company with 220 employees can hardly be compared to one with 5 employees, yet they can both fulfil the government’s SME “quota”. Where on the scale is the government focusing? What proportion of government contracts are awarded to businesses with fewer than 9 employees (termed “micro-businesses” by the government’s own definitions) for example vs. those with 200+?

6. Lower the cost of doing business with the Public Sector

The cost of competing for business within the public sector remains a significant barrier for SMEs. As previously mentioned, the sheer volume of opportunities on Contracts Finder and the Digital Marketplace means that SMEs spend a lot of time submitting tenders with a low chance of success due to the high number of competing entries.

The Government has taken steps to address this, such as abolishing pre-qualification questionnaires for low-value contracts, launching Contracts Finder, and more recently launching a shorter, more user-friendly public sector contract which cut around 50,000 words of the existing Crown Commercial Service (CCS) contract, reducing it to just over 20 pages.

The government must build on this momentum and take further steps to reduce the cost of pitching for public sector business.

7. Commit more government resources to effectively manage SME suppliers

If the government is serious about supporting more SMEs in the public sector it must commit to employing more dedicated Contract Managers with professional contract management backgrounds to support a more diverse supply chain.

The appointment of an SME representative to government (Emma Jones) is a good step forward since she is accessible directly to SMEs and can more directly influence the ministers responsible for the promotion of the SME agenda. 

8. More honestly appraise the risk of SME engagements by looking at all factors such as quality of delivery, access to bespoke skills, value for money etc.

Employee count, for example, must not be used to unfairly discriminate one supplier against another during the procurement process, particularly when the number of full-time employees will have no bearing on the supplier’s ability to deliver (since both the large supplier and the SME will hire contractors from the same pool of talent anyway).

9. Leverage SME consortiums

Many SMEs are unable to win public sector business by themselves because they do not have the right credentials on paper. As a result, many are forced to subcontract through the large suppliers. This is grossly inefficient since it needlessly funnels a proportion of the cost as a margin to middlemen.

A better approach is to enlist the services of SME consortiums. Many SMEs have built partner networks or consortiums with other SMEs to help them deliver on larger projects. These consortiums will often consist of niche skills you cannot find anywhere else, let alone in bigger consultancies. By leveraging their partners, SMEs can also scale far more effectively than their headcount would suggest.

10. We’re all in the Brexit boat – Let’s start rowing!

Using big consultancies often funnels money outside of the UK and ignores the passion SMEs have for high quality delivery that boosts the British economy. In this regard Brexit can be an opportunity for UK SMEs to deliver more public services and bring better social impact and more direct benefits to regional economies.

In conclusion, by applying the recommendations in our white paper, we firmly believe the government can encourage more SMEs to enter the supply chain and compete on an even footing against the established players and accelerate digitisation across the country.

These recommendations have also been reviewed by Emma Jones, a prominent campaigning voice for small businesses, who was appointed as SME Crown Representative in July 2016 to help the government break down the barriers for SMEs. She commented; “It’s great to see Brightman shedding light on the challenges faced by SMEs when seeking to work with the government, and I welcome the many recommendations they have put forward.

“I am often asked by entrepreneurs what is being done in government to focus minds on the target of spending £1 in every £3 with SMEs by 2022. Since I assumed my role as SME Crown Rep, we have seen some very positive changes. The appointment of an SME Champion to every government department to oversee progress towards the spend target, along with every central government department appointing its own SME Minister are two great examples which will ensure SMEs being much better represented in Whitehall.

We hope that our recommendations are carried through so that the UK can benefit fully from the digitisation programme for the public sector!

Romy Hughes, Director, Brightman Business Solutions
Image Credit: Everything Possible / Shutterstock