Government clarifies public sector contract quotas

When Cabinet Office minister Francis Maude announced the government would award 25 per cent of contracts to SMEs, most entrepreneurs cheered. Then the questions started.

How would the changes occur? What departments would the quota apply to? How can businesses apply for tenders?

Francis Maude has now clarified the government’s position, offering some more information about how SMEs can work with the public sector.

First – does the 25 per cent refer to the number of contracts or the total value?

“The aspiration is for 25 per cent of the total number of government contracts to go to SMEs,” Francis Maude told the House of Commons yesterday.

Although there is the risk that there could be a big difference in financial terms between awarding 25 per cent of the number of government contracts to SMEs and 25 per cent of the value of all government contracts, one thing is certain: there will more competition. Big business will have to compete with more-flexible small firms. Entrepreneurs’ innovative approaches will be recognised. And SMEs will win more business than before.

Francis Maude also explained that the 25 per cent quota wouldn’t apply blindly across the board – some departments will make more significant commitments than others. “It isn’t our intention that each department should award 25 per cent of its contracts to SMEs,” Francis Maude said.

The Federation of Small Businesses (FSB), has welcomed the government’s approach. A spokesperson for the FSB said that “any improvement is good news”. In the past, FSB research found that only 16 per cent of government contracts were going to SMEs.

One key issue that remains, however, is that the quota is only mandatory for central government. Local government won’t be forced to respect the 25 per cent rule. But Francis Maude defended this:

“Local government tends anyway to procure more from smaller businesses. Often smaller suppliers are more flexible and responsive, and because of the nature of local government contracts, they amounts are smaller. Yes, there is scope for local government to improve, but we can’t just ordain that it happens.”

Let’s just hope that local authorities do follow the coalition’s lead, then.

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