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25.05.16

Government spend with SMEs: A review of the PAC report

Ian-9-pressIan Fishwick, commercial director at Innopsis, the public sector technology trade association, reviews the Public Accounts Committee report on government spend with SMEs. 

When the Conservative government was re-elected, it announced that having beaten its target of 25% of government spend  to be with SMEs by the end of the last Parliament, it was increasing the target to 33%, by then end of this Parliament in 2020. Given that background, I had expected the recent Public Accounts Committee report to be one long slapping of backs with details of how well they were doing. Instead it is a big kick in the rear and a complaint that there are no concrete plans in place to achieve the 33% target.

The overall thrust of the report is that “momentum has been lost with some initiatives stalling or stopping altogether and the centre needs to reinvigorate its approach. To do so, the centre needs to move from a generic approach of lifting barriers, to a more focused approach, by helping departments to identify particular areas of government business where SMEs can bring the most benefit.”

Sometimes it is more instructive to look at what was omitted rather than what was included. The Public Accounts Committee only took verbal evidence from the Cabinet Office and Crown Commercial Service. They never spoke to any SMEs, or trade associations representing SMEs, to ascertain whether bidding for public sector contracts had got any easier.

The committee points to the fact that the much vaunted Cabinet Office SME panel has not met since January 2015. This is hardly “holding our [Government’s] feet to the fire”. The SME and CVSE Crown representative post have been vacant since July 2015 and October 2014 respectively. Come on boys, this shows that you are not taking this seriously implies the Committee. Perhaps the sadder point is that few have noticed that the SME Panel has never met. If it is reformed and reinvigorated, then it has to have clear objectives with the ability to make specific recommendations and targets. The SME Crown representative should be responsible for driving the recommendations through government.

I completely agree that Contracts Finder can only be viewed as ‘work-in-progress’.  Industry cannot rely on it to find tenders if only 80% of tenders are ever published on it. Use of Contracts Finder is meant to be mandatory and it clearly isn’t being enforced. One of the hardest things for SMEs is still finding out what contracts are available to bid for. Having to register on over 300 public sector purchasing portals is nonsense.

The report complains that targets have not been set for the amount of work that is to be awarded directly to SMEs and how much is to be indirectly awarded by prime contractors.

In 2014–15, the government reported that 27.1% (£12.1bn) of its total procurement spending had reached SMEs: £4.9bn through direct contracts with SMEs and a further £7.3bn indirectly to SME subcontractors. Only 40% of government contracts are won directly by SMEs: 60% is won as subcontracts from a prime contractor.

G-Cloud is often trumpeted as the great example of how SMEs can win contracts directly. However, the report rightly points out that G-Cloud has to be viewed in context as it only represents 5-7% of government IT spend. The top five IT contractors still account for 51% of the total.

Historically, SMEs have been used as subcontractors where a contract requires a large local workforce e.g. construction. The sheer quantity of people needed in a geographical area means that local subcontractors are often used. However, there is still no central place where subcontract opportunities can be found as Contracts Finder is even less successful at advertising subcontract opportunities.

It is difficult to see how SME spend targets can be met unless there is a clear plan for the very large departments. The Ministry of Defence used to represent 44% of government procurement spending, although this has reduced to 38% by reclassifying Network Rail as a public body. If I was doing my day job as a CEO then I’d say, “find the three biggest numbers and get me a plan for tackling them first, then we’ll move onto the next big three and so on”.

If this had been a school report and a teacher was trying to encourage a pupil, then I think it would probably have said something more balanced like, “you had a great last Parliament and you beat all of the targets set for you, however the targets have now got harder and you still haven’t worked out how you are going to hit the new stretch targets. Please come back when you’ve had a think and tell me how you are going to do it”. However, we have to applaud the committee’s attempts to kick-start the SME debate again. Let’s see if it has any effect.

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