Opinion

Why the Conservatives need to change procurement methods to help SMEs

5 min read

15 May 2015

Matrix SPS was recently recognised by technology analyst firm Gartner as a “cool vendor”. Here, managing director Chris Wilson looks at what the new government can do to improve the number of SMEs winning local authority and central government contracts.

According to government figures on SME spend, around 90 per cent of contracts still go directly to the larger companies despite the previous coalition taking steps to make it easier for small to medium-sized enterprises to search and apply for public sector contracts. 

We often talk with local authorities who still make it too difficult for SMEs to bid for work, whether that be by asking for over £10m of public liability insurance or up to 15 different policy guidance documents in their Request for Proposals (RfP). This is a major barrier to entry for small firms. 

New legislation which came into force on 25 February means that across the wider public sector, complex forms, such as pre-qualification questionnaires, have been abolished for low-value contracts (below the EU threshold for goods and services, currently £111,676 in central government and £172,514 outside central government), while everyone in the supply chain must now comply with 30-day payment terms.

This reform is welcomed but it doesn’t go far enough, as the extended reasons why SMEs shy away from the complex and lengthy process of pitching still haven’t been properly addressed. 

These include a perceived lack of trust between SMEs and contracting authorities, a lack of understanding of how to apply pro-SME policies by local government. The time and resources it takes to complete the tendering process is a barrier often cited as is the overall expense of the pitch process with no guarantee of actual work. 

In short, SMEs still feel discriminated against by traditional procurement methods and lack of a competitive market environment. 

A better alternative is for local and central government to buy services as and when they need them. That way, they can ensure quality at the time of need instead of once every four or five years. 

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Take the London Borough of Bromley as an example. It now sources educational consultants and tutors though our Matrix SPS solution, which has enabled more SMEs to enter the supply chain by reducing the amount of paperwork required to complete the tendering process, removing the pitch process to focus directly on the demand, introducing an open framework and creating a level of trust between the supplier and the buyer. Bromley can now award contracts dependent on real-time need and up-to-date quality checks. 

In the past, the Borough felt it had little choice but to contract a single large agency to supply tutors once every few years. By introducing a technology solution that attracts a wider choice of potential providers, Bromley has since been able to move away from the traditional approach, altering its procurement mindset to focus on better value solutions.

It is important for the government to encourage competitive markets in order to level the playing field for SMEs, therefore providing the customer with a greater supply of choice. Currently large businesses dominate the market with government contracts by tying them into long contracts that remove the freedom for direct supply and demand, marginalising the opportunities for SMEs. Introducing micro-commissioning into the supply chain re-opens the door to SMEs, who are often better equipped to cater to the immediate needs of the buyer.

Progress is being made, across the country organisations and agencies have been set up to help SMEs secure more government business by offering advice or assistance in cutting through red-tape and bureaucratic language, however this is addressing the symptom and not the cause.

Currently government targets maintain strong SME expenditure aims, however much of these targets are reached through indirect business whereby large firms are outsourcing some of their government business to SMEs as subcontractors. This isn’t in the spirit of the law, more needs to be done to make SMEs the primary contractor rather than the subcontractor.

As the will exists, a levelling of the playing field and simplifying of procurement should follow, so that more SMEs not only stand a chance of winning lucrative government contracts but also aren’t intimidated by the tendering process. We know the will exists, it is now time for change.

Chris Wilson is managing director of Matrix SPS