Clarity on SME procurement target is cold comfort

6 February 2012
The government’s policy on increasing the amount of its business with SMEs has been clarified in a letter I received this week from the Cabinet Office. Or has it?

The letter was in response to one I wrote to Baroness Wilcox at the Department for Business Innovation and Skills (BIS), pointing out that government statements, including those in party manifestos and BIS publications in 2011, were inconsistent. Some referred to SMEs receiving 25 per cent of the number of contracts, others to their receiving 25 per cent of the value of contracts. Some implied the 25 per cent represented direct spend with SMEs, but a Cabinet Office document in the summer implied that it included SMEs in supply chains.

The majority of the policy statements would have been interpreted by most people as applying to the whole of public sector procurement spend. Few documents implied – and certainly not the manifestos for the last general election – that the policy would apply only to central government procurement, which is less than 25 per cent of total spend. Some statements referred to a “policy”, others to an “aspiration”. For the uninitiated, the traditional Whitehall difference between a policy and an aspiration is that the former is an intention, while the latter enables a government to claim that it is taking its manifesto seriously, but usually without any serious intention to deliver. So what is the government’s policy or aspiration? First, the response makes it clear that it is an aspiration. To be fair, it provides links to actions that the government has been taking to increase business with SMEs. These have to be welcome given the idea was introduced nearly 30 years ago, with various ministers in previous administrations having it in their portfolios, but few doing little else but talk about it – if that. The letter explains that the aspiration is 25 per cent by value, but makes it clear that it applies to central government only. This is a serious weakness, given the purpose of the aspiration is to use public sector procurement to support economic growth through greater use of SMEs. A further, fundamental weakness is that it applies to business going both directly to SMEs and indirectly to them through the supply chain. Analyse most supply chains and it is not long before one finds an SME and then many more up the supply chain supporting it. Tot up the business with SMEs in a supply chain and you find it can exceed the total cost of the end product to the procuring organisation. Hence, by including SMEs in the supply chain, the government has guaranteed success – and every government before it would have succeeded if they had used this definition. Whether deliberately or not, the government has applied the age-old practice of if a policy looks difficult to deliver, change the definition and select a suitable way to measure. In this instance, measurement will be difficult and could be open to manipulation. It would not be surprising if some government departments moved towards ‘boosting’ their spend with SMEs more through measurement than any change in practice. This matters for SMEs. Those in the supply chain will often find their margins badly squeezed by the government’s prime contractors. The government should behave in a way that is consistent with its intention of delivering economic growth through putting more business the way of SMEs. That means the aspiration of 25 per cent of business by value should apply only to business going directly to SMEs. This is relatively easy to measure, transparent and can easily be verified. Including SMEs in the supply chain in the ‘count’ will risk discrediting the government’s intentions of putting more business the way of SMEs and could thwart its aim of achieving economic growth through this mechanism. That will matter to all of us.
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