Public Good? What SMEs should know about selling to the public sector

Public procurement is worth approximately £300Bn a year, payment is swift, and government aims to target at least 33% of procurement spend with SMEs. Why would you not want to sell into that market?

Many SMEs steer clear of the public sector due to its complexity and perceived bureaucracy. So, should SMEs engage with the public sector and, if so, how?

I spent 38 years in the civil service, latterly as a senior civil servant responsible for procurement. I served as an SME Champion, and helped to develop public procurement legislation. Since leaving, I established my own company, co-founded another, and have worked with a range of SMEs. I have also sold to the public sector.

Governments have long sought to improve procurement spend with SMEs.

In the 1980s outsourcing created opportunities, particularly in facilities management. However, as more and more services were ‘bundled up’ into long-term contracts, and with extensive use of framework contracts, SMEs were forced out or pushed down the supply chain.

The Blair Government introduced a 15% supply chain target for spend with SMEs, and a ‘policy through procurement’ programme promoting their use.

Since 2010 the target was increased – to 25% and then 33% – and extended to cover direct spend. A Small Business Crown Representative was appointed, government departments appointed SME Champions and developed SME Action Plans.

The most important consideration for SMEs is to understand how the public sector operates, how it is made up (national, local and regional government), and to understand its drivers and objectives. These should be openly stated, but building relationships enables you to dig below the surface, and gain an insight into what may be coming. Larger companies put considerable effort into this. They have an unfair advantage. In Whitehall, their relationship managers can ‘walk the floors’, picking up intelligence, and drum up business. This is already available for SMEs – although it is easier with local government.

Bidding for a competitive contract is a big decision, and whilst the public procurement is being simplified in post-Brexit legislation, it can still be difficult to navigate. If it is a repeat contract, it is vital to identify the current supplier, and to assess whether you can beat their offering on price or quality. You need to appreciate the bid evaluation criteria and concentrate solely on that – if it is not measured, it will not be ‘scored’. Innovation is likely to be a key decider – particularly if it can dramatically reduce the cost, and SMEs are particularly adept at this. If you are unfamiliar with the public sector, it can also be useful to seek advice – both from the contracting authority and independent advisors.

Much of public sector procurement is undertaken via ‘framework’ contracts. Originally intended for routine and low value goods and services, they have increasingly been used for larger procurements. Being on a framework gives suppliers an advantage, but is no guarantee of work. It may involve quite some effort to compete for inclusion, but you should not rest there. It is also important to ensure public sector buyers are aware of your presence on a framework, and what you can offer.

Not all public sector contracts are awarded competitively. There are thresholds under which public contracts can be awarded without competition. From next year, for most contracts, these will be £139,688 for central government, and £214,904 for local government. This is where SMEs can create advantage through building relationships, understanding the needs of clients and – in particular – offering niche and specialist expertise. Once you have obtained one contract on that basis, this can lead to others, particularly with local government. Sometimes, it is worth offering a contract ‘at cost’ if there is a realistic prospect of repeat business.

The pandemic has challenged the traditional office model. SMEs are particularly well-placed to exploit this. Many SMEs have ‘down-sized’ their premises, and I know of one which has moved to an entirely virtual model. Technology enables disbursed teams to collaborate and meet virtually. Agility is in the DNA of SMEs, and the reduction in overheads can increase competitiveness.

Based on my experience of working in government, and my subsequent work in the private sector, I have a few suggestions to improve the procurement landscape.

SME voices should be at the heart of decision-making. The Small Business Crown Representative (responsible for government) and the SME Commissioner (responsible for late payment in the private sector) should be combined in a new Small Business Administration, with enhanced powers. Each government department should appoint a Non-Executive Director from an SME background, with ‘sign off’ responsibility for and oversight of SME Action Plans.

Cash-flow is vital. The public sector is a fast payer – typically within five days. But government allows its contractors to pay within 30 days. This should be consolidated into a single five day target. Companies can claim interest on late payments, but SMEs rarely do given their concern about ongoing relationships. In those rare instances of late payment, public authorities and their suppliers should automatically pay late interest.

In a report I wrote for the Cabinet Office, I identified the gap between the percentage by turnover of SMEs in a range of market sectors and the SME percentage spend being achieved by government. In construction, the market was 75% SMEs but government spend was only 5% with SMEs. Whilst it may not be credible to close the gap completely – and it varies by market sector – that statistic is alarming. So, as well as having departmental SME Action Plans, cross-departmental market sector plans should be developed.