SMEs are being “locked out” of public sector contracts because of a “stacked" procurement system, according to a business group.
A report by the Federation of Small Businesses (FSB) found that although more than £200bn a year is spent by the public sector on the procurement of goods and services from third parties, very little of it is with small firms.
The report, Unstacking the Deck: Balancing the Public Procurement Odds, said only 23% of SMEs had worked for the public sector over the last year, despite government efforts to increase the amount of business it does with smaller firms.
The UK government has set a target of increasing procurement spend with SMEs to 33% by 2020.
The report also found that the number of SMEs, which had expressed an interest in competing for a public sector contract in the last year, had fallen by 10%.
The FSB said it was calling on the government and public sector to step up efforts to remove blockages that unfairly prevent smaller firms from supplying the public sector.
The FSB said that at the moment local authorities avoid putting smaller contracts on the digital database Contracts Finder, as they tend to only publish higher value contracts, which are outside the reach of smaller businesses.
It proposed forcing local authorities to publish all contracts over £10,000 on the database, as central government does.
Mike Cherry, FSB national chairman, said despite government efforts to reform public procurement practices, most SMEs still faced a fixed system, which is preventing them from getting a fair share of public contracts.
“Our report shines a light on how local authorities are getting around their obligations to clearly and fairly advertise contracts, which could go to local smaller firms. They are being locked out and it is scandalous that only 20% of all local government contracts go to small businesses,” he said.
“Smaller firms need to be given the chance to secure these opportunities, it is no longer acceptable that they continue to be effectively excluded from the process. For this to happen, it is vital that the government takes another look at reform to make procurement fairer, simpler and more transparent.”
Other proposals put forward in the report include giving the Mystery Shopper Service—a government project that allows firms to raise concerns anonymously about unfair public sector procurement practice—legal power to enforce its findings and allow it to name and shame poor performers.
The FSB said it also wants framework agreements to be replaced with Dynamic Purchasing Systems, to make sure small businesses are not locked out from lists of potential suppliers.
Cherry added that in the next few years, work will begin on major infrastructure projects across the UK that will bring a vast number of public contract opportunities for smaller businesses.
“Opening up the public service market is a win-win for everyone involved in the supply chain because when small businesses are used effectively, they are able to create jobs and growth,” he said.
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