The Coalition government says it wants to see more SMEs bidding for major government contracts, but a new study suggests that Whitehall is going to have to do a lot more to open doors for smaller firms.
The Interim Partners survey, conducted among executives of some of the country’s largest outsourcing and facilities management businesses, discovered “strong industry agreement” with the perception that Government favours “larger outsource companies when allocating contracts”.
"Despite the Coalition Government's attempts to improve outsourcing to SMEs, industry leaders agree that more should be done to help smaller bidders for Government work," said Mark Kitchen, Head of Practice for Business and Support Services at Interim Partners. "Whilst some contracts can only go to outsourcers that have reached a certain scale, there is the concern that too much of the outsourcing market will consolidate in the hands of just a few players."
Kitchen added, "Directors of mid-tier FM providers and outsourcers do not want to see the rapid consolidation within the sector that could happen if small providers are permanently locked out of the market for Government work. Many larger providers sub-contract some of their work to small, specialist providers so they want to see as healthy a supply chain as possible."
The survey follows the publication of a report from the House of Commons Public Accounts Committee (PAC) which openly questioned how the government intends to open up business to SMEs. Focusing specifically on ICT services to government, the PAC notes that there is a welcome aspiration to involve SMEs, but that the Efficiency and Reform Group (ERG) within the Cabinet Office has yet to explain how this will come about.
In its report, the PAC noted: “The Strategy aims to create a fairer and more competitive marketplace, putting an end to the oligopoly of large suppliers and providing greater direct opportunities for small and medium-sized enterprises (SMEs). The balance of power in the procurement process has leaned towards large suppliers, which have a vested interest in long timescales. ERG accepted that using an SME as a subcontractor through one of the large ICT suppliers could result in government paying a profit margin to both suppliers.
Ian Watmore, head of the ERG and one of the people charged with revising procurement practices within government, told the PAC that action was being taken. “We have appointed a guy called Stephen Allott, who is from the high-tech sector. He has come in as the SME Crown commercial representative, as we call it; you or the press would doubtless call it the tsar. He is the guy who is leading on the SME side,” he explained. “He has put up websites for people to bid ideas in. He has SME surgeries going on. There is a rolling programme now to try to get more innovative SME companies to pitch their ideas to us rather than respond to our RFPs.”
Top level support
Watmore insisted that whatever previous noises have been made about getting greater SME involvement in government business, this time the political willpower is there to make it happen. “We held a very good launch in January when the Prime Minister spoke personally,” he noted. “To get the Prime Minister to come to a seminar on procurement is quite a challenge. He did so because he cares so passionately about it. He spoke about the need to knock down the barriers that stand in the way, particularly of the SME and voluntary sectors. We announced a whole range of things—such as getting rid of pre-qualification questionnaires, publishing things on contracts, and so on—I could go through those at greater length offline. I think there is a change in attitude by both the buyer and the seller, and in the business practice set by the Government.”
“I think there is ministerial commitment behind it, which I do not remember there being in the previous regime. I saw the words, but they weren’t a mantra running through everything, whereas now I think Ministers across the departmental spectrum are challenging everyone to find ways in which innovative SMEs can come in—and come in directly, not just underneath the prime contractor role of some of the big contractors, when they are smothered and we pay a double margin. It feels different.”
Indeed the PAC report does note some progress: "Removing the obstacles that hinder the direct participation of SMEs and the voluntary sector was a key element of the Strategy. However, previous initiatives supporting greater use of SMEs had failed. Departments were now being challenged to find ways in which SMEs could engage and contract with them directly. ERG initiatives included providing websites and meetings where SMEs could pitch their ideas rather than responding to requests for proposals. ERG has also recruited an ‘SME Crown commercial representative’ who is leading on SME involvement in government.”
But others remain deeply sceptical of how deliverable the government's SME commitment will be. Margaret Hodge, Labour MP and chair of the PAC, commented: “This is the old cynic, I’m afraid. In 2001 the same objective, 2003 same objective, 2008 same objective. What is magical about 2011?”