Whitehall street sign © 123RF
Whitehall street sign © 123RF

UK government must make 'concerted effort' to increase spend with SMEs

10 March 2016

The government must be more focused in its attempts to procure from small businesses, according to the National Audit Office (NAO).

The NAO has published a report looking at progress and challenges faced by the government as it seeks to increase the amount of business it does with SMEs to a third of Whitehall spend by 2020.

The report said spend with SMEs was estimated at 27% of central government procurement spend in 2014-15, amounting to £12.1bn reaching small businesses, according to the Cabinet Office (CO). Around 60% of this was indirect spending via larger contractors to SMEs in their supply chain.

However, the NAO said it was not possible to know how much of the reported figures on spending were due to improvements in data understanding.

The report also concluded that although the government had made efforts to remove barriers to bidding for SMEs, it needed to do more to gain the real benefits of using SMEs.

CO figures show the government has achieved a target of 25% procurement with SMEs, while the Crown Commercial Service (CCS) has worked with departments to improve government’s understanding of its spending with SMEs and track the government’s performance.

However, the NAO said it could not be certain whether the amount government spent with SMEs has increased over the last parliament. As the reported annual increases happened while the CCS was working to improve its data, it is not possible to know how much of it was due to the changes in approach and how much is an actual increase in SME activity, the NAO concluded.

Central government spends around £45bn each year on goods and services supplied by non-public sector organisations such as small businesses and charities.

The NAO said departments it had spoken to had agreed SMEs can offer a number of benefits to the public sector compared with other providers, including more flexibility and innovative approaches.

The number of SMEs working on government contracts is unknown, although £4.9bn was spent directly with SMEs in 2014-15.

Some 19% of Ministry of Defence spending, which accounts for 44% of the government’s procurement spend, reached SMEs in 2014-15.

The NAO said although the government had made a “clear and sustained focus” on involving SMEs in government contracts and introduced initiatives to help, SMEs still reported this was not sufficient in practice to ensure they got more government work.

The NAO said: “Government will be more likely to realise the potential benefits of using SMEs if it takes a more focused approach to improving access for SMEs. It currently bases its approach on the assumption that more SMEs will win work with government if there are fewer barriers to SMEs being able to bid.

“However, wider trends in government contracting mean that, although SMEs can bid for work, they are often not suitable to deliver it.”

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