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Sir Peter Gershon recently delivered a speech on how the
Government is levelling the field for SMEs.
In May 2003 the Better Regulation Task Force (BRTF) published
its report Government: Supporter and Customer? The report argued
that public sector procurement may be skewed against smaller firms
leading to a reduction in competition, productivity and value for
money for government. It proposed that the nation could reap economic
benefits from helping small firms access a larger share of the public
sector market.
The BRTF report made 11 recommendations (see PASS Guidance 06a)
to the Government with the aim of establishing a more level playing
field for small and medium-sized enterprises (SMEs) in gaining public
sector work, but the key findings of the report were the extent
to which small-business participation in the public sector could
benefit the economy as a whole and the extent to which the perceived
risk of procuring from small businesses can work against this.
In addition, the report Making a difference: Reducing Bureaucracy
in Central Civil Government Procurement, published by the Regulatory
Impact Unit and the OGC in December 2003, also highlighted the importance
that reducing bureaucracy can have on reducing costs, achieving
better delivery and improving government’s commercial business.
The findings of this report fell into a number of broad areas,
which included:
• Speeding up the procurement process and reducing costs.
• Improving communication with the market and in government.
• Focusing on successful project outcomes.
All of the above would help increase the attractiveness of the
government market to suppliers by reducing bid costs and levelling
the playing field for SMEs.
The National Strategy for Local Government Procurement, announced
in October 2003, also includes actions related to improving SME
participation in this major segment of the UK public sector.
To test the recommendations of the BRTF report, the Office of Government
Commerce (OGC) and the Small Business Service (SBS) are undertaking
two pilot projects aimed at breaking down the barriers to entry
faced by SMEs when competing for government contracts.
The pilots address some of the recommendations of the BRTF report,
including:
• Developing a central government web portal advertising
lower-value central civil government contracts with each local authority
having its own ‘selling to the council’ website.
• Support for small businesses to help them negotiate the
public sector tender process.
• Development of a common core pre-qualification information
document for lower-value contracts.
This is not about lowering standards within the government marketplace;
it is about lowering barriers. Whilst the pilots will look at diversity
and stimulating competition and delivery, the commitment of large
suppliers remains vital.
What can SMEs Offer?
SMEs contribute to a wider, more diverse supplier base and increase
competition across the market. By increasing competition, costs
are driven down, enabling long-term value for money. SMEs may have
smaller administrative overheads and management costs than larger
firms which can result in lower prices and further increase competition
across the market.
Innovation is very important to the competitiveness and productivity
levels of the economy. The OGC is committed to working with the
Department of Trade and
Industry on harnessing innovation from industry and is developing
Best Practice guidance on ‘Capturing Creativity from Suppliers’,
for publication this spring. Innovation stimulates competition and
SMEs are an important source of innovative solutions, products and
approaches that are different from conventional methods. They often
have an advantage by being early exploiters of new technology or
by providing products or services in new or underdeveloped markets.
SMEs can use innovation to differentiate themselves from established
market players, which may be reluctant to bid for limited specialist
contracts. Such contracts are more likely to be important to an
SME which can distinguish itself as being more flexible and willing
to tailor a product or service to meet a customer’s specific
needs. SMEs are often more responsive to changing requirements,
offering a better quality and more personal level of service.
Why are SMEs Reluctant to Bid for Contracts?
Firstly, opportunities are perceived as inaccessible.
SMEs find it difficult searching the OJEU when they are not familiar
with the specialised terminology used. They may not have the resources
to search regularly and may find commercial OJEU-searching services
expensive. In addition lower-value procurements may not be advertised
widely and there is no standard place to look for them. SMEs often
do not know who to talk to about opportunities and, having limited
marketing resources, find it difficult to raise their profile with
the large number of potential public sector customers.
Secondly, there is a perception amongst SMEs that the bidding process
is long, complex and costly. Those new to the public sector market
may not know what is involved, and may have difficulty in understanding
requirement documents and therefore in constructing good quality
proposals or tenders. The cost of long tendering processes can be
prohibitive for SMEs. Those suppliers with limited resources may
also find procurement timescales too tight and struggle to keep
up with larger competitors.
Finally, SMEs may find that the contracts advertised are too large
for them to bid for. Small suppliers, who may have successfully
contracted in the past, and provided good service, cannot bid for
larger contracts and are not in a position to be a prime contractor.
The trend that follows is that more business is placed with a reduced
number of large suppliers. Competition decreases and long-term value
for money can suffer if the primes do not take active measures to
open up their own supply chains.
What is Government Doing to Counteract these Barriers?
To counteract these barriers and in response to the BRTF report
government is rolling out a series of measures over the next twelve
to eighteen months to address these issues.
One objective is to increase SME access to potential opportunities
by publishing those valued below the EU thresholds on a central
web portal which will also include information on future opportunities.
Local authority ‘Selling to the Council’ guides and
websites can give potential suppliers the information they need
to bid effectively and these websites can set out the types of goods
and services bought and explain procurement policy in addition to
advertising requirements. This allows those SMEs interested in selling
locally or those with specialist products to keep an eye on potential
opportunities within their areas.
Government departmental procurement websites may advertise potential
opportunities for SMEs but may also list suppliers that they currently
do business with. If lists are used they must be refreshed regularly,
the process must be open and they must try to make listing suppliers
easier. In addition, ‘meet the buyer’ events can be
a useful way of introducing SMEs to government, facilitating dialogue
between the two sectors, publicising opportunities and providing
information on tendering and bidding processes.
So that SMEs understand the bidding and procurement processes,
training and advice is needed in many cases. SMEs should be informed
at the outset what is required of them, keeping all documentation
(including OJEU adverts and tender documents) clear, concise and
jargon-free, with full descriptions of the goods or services required.
Guidance is available in the publication Tendering for Government
Contracts, which is also available on the Supplying Government pages
of the OGC website. This is a useful guide for small businesses
on selling to government departments, agencies and the wider public
sector. Companies new to the public sector may need longer to respond
to requests for information than more experienced players so there
needs to be a realistic timetable. The public sector side needs
to keep suppliers informed and avoid slippage to prevent additional,
unplanned costs for suppliers.
One of the BRTF recommendations was to 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 OGC is piloting
this in the West Midlands.
To combat the perceived barrier of contracts being too large for
SMEs to bid for, the procurement strategy should be considered.
Perhaps some elements could be left outside the main contract? Is
it really a good idea to place all the work with one supplier? Could
the contract be divided into lots allowing SMEs to act as subcontractors?
The OGC has recently published a ‘Decision map for procurement’
on its website which gives guidance on the different procurement
strategies and deal shapes that can be used, particularly when contracting
for IT goods and services.
Forums such as open supplier meetings provide a platform for potential
prime contractors and subcontractors to get together and find out
more about a particular project. Publishing lists of suppliers involved
in the procurement can aid potential subcontractor and prime contractor
relationships.
It is also important to be open to consortia bids involving SMEs
and to encourage main suppliers to adopt supply chain management
practices that integrate, incentivise and reward good performance
throughout the supply chain. In the context of the IT industry this
is an area where there is much to be learnt from the leading prime
contractors in the construction industry in terms of what they have
done to put in place integrated supply chains.
As mentioned earlier, the OGC and the SBS have launched two pilot
procurement schemes aiming to ensure SMEs have easier access to
government contracts. They are also looking at bringing benefits
to ethnic minority-owned businesses.
In the West Midlands, the OGC is working with Advantage West Midlands,
the Government Office for the Region and the SBS to make procurement
strategies more accessible and transparent to smaller companies.
The second pilot is in Haringey, where the OGC is working with
Trade Local to open up opportunities.
All the actions and initiatives described above are focused on
raising the level of SME participation in public sector procurement.
In the recent S-Cat competition, the number of SMEs selected varied
across the categories, from 18% to 47%. In the entire catalogue,
the number of SMEs now represented is 84 out of 177, or 47% of the
total. A number of major IT companies, as a result of their own
corporate policies, are proactive in seeking to increase SME participation
in their supply chains. The ultimate aim is to improve SME participation,
both direct and indirect, so as to improve value for money for the
taxpayer.
Conclusion
SMEs increase competition, offer innovation and
flexibility and are good for the marketplace, but there are some
clear barriers to their participation in government business. The
pilot schemes the OGC is running are helping the OGC to understand
and address these barriers more fully.
By working in partnership with SMEs the OGC hopes to break these
barriers down and widen the marketplace so that more SMEs are able
to participate and bid for government contracts. This will ultimately
contribute to significant long-term value for money improvements
across the public sector.
Small Business Service
The Small Business Service is one of the key
driving forces taking forward the Government’s Action Plan
for small business published in January 2004. The plan is structured
around seven strategic themes – each one of which has a range
of current and new actions and initiatives aimed at achieving the
Government’s small business objectives. Details of most of
those initiatives are available from the SBS website at www.sbs.gov.uk.
You can also access a copy of the entire Action Plan and the Implementation
Plan the SBS has developed which will show in more detail how government
will deliver the new actions; this will be updated on a regular
basis.
The SBS website provides the public, researchers, the media and
policy makers with information about what the SBS is and what it
is doing. The SBS also operates another website – businesslink.gov.uk
– that forms part of the Business Link national advice service.
That website provides straightforward business information and gives
access to a wide network of business support organisations.
The Role of the OGC
The Office of Government Commerce is an office
of HM Treasury which works with central civil government as a catalyst
to achieve best value for money in commercial activities. Its Government
Market division focuses on optimising competition in the government
marketplace, to achieve better value for money for the taxpayer.
This includes work to encourage competition and long-term capacity
planning in areas where the Government has significant purchasing
power; and work to take time and cost out of procurement.
BiP Solutions Ltd, Park House, 300 Glasgow Road, Shawfield, Glasgow
G73 1SQ
Tel: 0141 332 8247 Fax: 0141 331 2652/2792 Email: bip@bipsolutions.com
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© BiP Solutions Ltd 2004
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