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23 August 2017

‘Stacked’ procurement system locking out smaller firms

Small businesses are still fighting an uphill battle to secure public sector contracts, according to the latest report from the Federation of Small Businesses (FSB), which means the Government’s new targets for SME public procurement are unlikely to be met.

FSB is calling on Government and the public sector to step up efforts to remove blockages which are unfairly preventing smaller firms from supplying to the public sector. Proposals include forcing local authorities to publish all contracts over £10,000 on Contract Finder, as central Government does. This would put a stop to the practice of local authorities avoiding putting smaller contracts on the digital platform, and so only publishing higher value thresholds which are outside the reach of smaller businesses.

Each year the UK public sector spends over £200 billion on the procurement of goods and services from third parties, but far too little of this is with small firms.

The new Unstacking the Deck: Balancing the Public Procurement Odds’ report highlights that just 23 per cent of SMEs had worked for the public sector over the last twelve months – down 2 percentage points from 2014. The report also shows that the number of SMEs, which had expressed an interest in competing for a public sector contract in the last year, had also fallen (10%) –down 4 percentage points. This suggests that the Government has some work to do to reach its target of increasing procurement spend with SMEs to 33% by 2020.

FSB National Chairman Mike Cherry said: “Opening up the public service market is a win-win for everyone involved in the supply chain because when small businesses are used effectively, they are able to create jobs and growth. They are overwhelmingly the route that people take to get out of unemployment while also creating greater competition leading to better value for money for Government.

“By supporting local small businesses, we are helping to pay the wages of local people who then go and spend money in local businesses which helps the whole local economy. FSB research backs this showing that every £1 spent with a small or medium-size business, 63 per cent is re-spent in the local area. It is crucial that these local firms are given a fair chance to compete.”

Under FSB’s proposals, some of the most serious barriers stopping small businesses from supplying to Government would be removed, leading to economic benefits both locally and wider. These proposals include:

  1. Require local authorities to publish all contracts over £10,000 on Contracts Finder, as central Government is required to.
  2. Give the Mystery Shopper Service (MSS) legal power to enforce its findings, and to more effectively name and shame poor performers.
  3. The Government must publish a thorough action plan concerning how it will better enforce the law requiring detailed feedback from local authorities to unsuccessful tenderers.
  4. Local authorities should recognise comparable accreditations to reduce existing barriers of entry to small firms seeking public procurement contracts.
  5. Replace framework agreements with Dynamic Purchasing Systems (DPS), where possible, so small businesses are not locked out from lists of potential suppliers to local authorities.

Mike Cherry continued: “Despite Government efforts to reform public procurement practices, most small businesses still face a fixed system which is preventing them from getting a fair share of public contracts.

“Our report shines a light on how local authorities are getting around their obligations to clearly and fairly advertise contracts which could go to local smaller firms. It is scandalous that only 20 per cent of all local government contracts go to small businesses.

“In the next few years, we will see work begin on major infrastructure projects across the UK. These projects will bring with them a vast number of public contract opportunities.

“Smaller firms need to be given the chance to secure these opportunities, it no longer acceptable that they continue to be effectively excluded from the process. For this to happen, it is vital that the Government takes another look at reform to make procurement fairer, simpler and more transparent.”