Government contracts for small firms could save taxpayers' money

19 January 2007
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19 January 2007 | Antony Barton

The government would save public money and create fairer competition if it procured more goods and services from small businesses, according to a pressure group.

The Forum of Private Business (FPB), which represents 25,000 small and medium-sized businesses with a average of 25 employees, says all government contracts should be competitively tendered rather than awarded to preferred suppliers. It is also calling for limited use of approved supplier lists.

In a paper to be submitted to the Department of Trade and Industry, Improving small firms' access to public procurement contracts - how to enhance competition and save taxpayers' money, the FPB refers to research it has conducted into US public procurement. The report claims that a pilot project which opened competition to smaller firms in 1980 saved $7.3 million (£3.7 million) by offering 294 contracts to smaller firms at four air force logistics centres.

It concluded that a target for the percentage of government contracts that should go to smaller businesses would enforce fair competitive polices. It also said that retaining some contracts for competition exclusively between smaller businesses could be the only way to prevent a supplier monopoly.

A spokesman for the FPB told that although larger businesses were often able to offer lower costs for contracts, further involvement of smaller businesses would prevent that assumption. "More involvement would give the government the option of saving money by opening up competition to smaller firms," he said. "The government could capitalise on bids made by smaller firms while still taking advantage of the scale and size of some of the larger firms for most of its contracts."

The FPB also criticised the government for failing to respond to its proposed lobby for a deadline extension relating to the World Trade Organisation's Agreement on Government Procurement. The FPB says this agreement, in force since 1981, is discriminatory to businesses with fewer than 50 employees.


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