Policy Context

Number 10

David Cameron

Cabinet Office

SME Procurement - An Opportunity for the UK

In the UK, greater inclusion of smaller, local businesses in the procurement process presents a real opportunity for Government purchasers to reduce the risk of project failure through more agile programme and project management [1], to drive innovation through greater competition and choice, and to stimulate growth in the economy by supporting entrepreneurial businesses.

In this tightened financial climate, it is more crucial than ever for decision makers to explore both the opportunities and barriers to procurement from SMEs, and to reform procurement strategies in order to bring about new and more efficient purchasing solutions, and thereby ensure greater value for money and better results for Government and taxpayers.

National Policy Context

In its May 2010 Spending Review, the Coalition set out a programme of savings to be made throughout Government, including through the renegotiation of contracts with major suppliers.

With greater scrutiny of procurement spending, and with rising Government and citizen demand for more agile, risk-averse, responsive and customer-focussed service provision, particularly through digital channels, it is becoming increasingly important for decision makers to challenge the assumption that ‘big is best’ in procurement contracting and to consider new and better ways of purchasing Government goods and services with SMEs.

The Government has recognised the potential of small and medium enterprises (SMEs), which account for 50% of turnover in the UK economy but only win around 6.5% of procurement contracts, and has set out a plan for increasing this share to 25% [2].

International Policy Context

Greater inclusion of SMEs in public procurement has precedent in other countries: the United States Government has a federal commitment that 23% of every procurement budget should be allocated to SMEs, and in practice the percentage is higher than this. The U.S. Small Business Administration (SBA) negotiates with Federal departments concerning their prime contracting goals and achievement with small businesses to ensure that SMEs have the maximum practicable opportunity to provide goods and services to the Federal government.

In December 2011 the European Commission stated that, given the current budgetary restrictions and economic difficulties in most Member States, public procurement policy must, more than ever, ensure the optimal use of funds in order foster growth and job creation and thereby help to achieve the objectives of the Europe 2020 Strategy. One of the main reforms proposed is to encourage access to public procurement for SMEs; for access to be increased and made easier through measures to cut the administrative burden as well as strong incentives to divide tenders into lots and limit the financial capacity requirements for the submission of a tender.

Learning from our European Neighbours

Studies of procurement across EU countries demonstrate that the UK lags significantly behind the Netherlands, Germany and France in terms of its procurement from the SME sector [3] as well as innovative structures for making procurement accessible to SMEs.

The Government of the Netherlands has recognised the importance of making procurement more transparent and accessible to entrepreneurial businesses and has in place the ‘PIANOo’ (Professional and Innovative Tendering, Network for Government Contracting Authorities) facility, which gives companies greater access to contract information, answers to questions, and organises dialogue between the public and private sectors. The Dutch Government has also implemented an eProcurement system, ‘TenderNed’, to simplify and improve the efficiency of the tendering process for smaller suppliers.

[1] ICT Strategic Implementation Plan, Cabinet Office, October 2011.

[2] Making Government business more accessible to SMEs: Management Summary of the progress made to date on enabling more SMEs to tender for government procurement, Cabinet Office, July 2011.

[3] Evaluation of SMEs’ Access to Public Procurement Markets in the EU, DG Enterprise and Industry, September 2010.