Public sector procurement has long been a controversial issue, with SMEs often losing out to their larger rivals in the race to offer their services.
Now a report by the Federation of Small Businesses reveals how small firms offer local authorities greater value for money by reinvesting in the local area.
The research finds that for every £1 of council spending on local small firms, 63p is re-spent locally, compared with just 40p of each £1 spent with local large firms.
Overall, local SMEs’ re-spending generated ?746m more for local economies than large firms did, even though they received £500m less from local authority contracts.
John Allan, National Chairman of the FSB, says that as councils face budget cuts, they have realised that spending more locally will benefit the economy.
“The evidence speaks for itself. Spending locally invests in jobs and growth for the area. We want to see more of this happening across the country,” he says.
The report suggests that if councils had spent an additional five per cent of their budget locally, and three per cent more with SMEs, they could have generated an additional ?788m for their local economies, with no increase in spending.
Cllr Peter Fleming, Chair of the Local Government Association’s Improvement and Innovation Board, says that local authorities now award more than half of their contracts to SMEs, compared with just 13 per cent of central government contracts.
“Councils are ensuring that they themselves are open for business, in particular working with SMEs and local suppliers to make it easier for them to bid successfully for public contracts on everything from building houses to caring for the elderly,” he explains.
The research also found that 90 per cent of local authorities are taking steps to help local SMEs. Changes such as breaking big contracts down into lots and simplifying the procurement process can make public contracts more accessible.
Local Government Minister Brandon Lewis MP says that councils should cut procurement red tape to make it easier for small firms to bid for contracts.
“Small businesses are the heartbeat of our local economies,” he says. “I’d like to see every council increase what they are investing in their own communities so they help them grow and prosper.”