MPs unconvinced by UK government claims on SME spend

20 May 2016

Government efforts to channel public contracts towards SMEs have stalled and spending on small business may not actually have increased at all despite ambitious targets, according to MPs.

In a report the Public Accounts Committee (PAC) said it was not convinced by claims from the Cabinet Office (CO) and Crown Commercial Service (CCS) that they had made strenuous efforts to increase SME spending.

It said: “We are not persuaded that the government’s approach so far has resulted in substantially greater competition for government business or definitely led to more business flowing to SMEs than before.”

The government has set itself a target of 33% of its procurement spending to reach SMEs by 2020. But the report said it was unclear to what extent this target was achievable.

“Momentum has been lost with some initiatives stalling or stopping altogether and the centre needs to reinvigorate its approach,” the PAC said.

An example was the Investment and Contract Readiness Fund, which was started in 2012 to fund master classes to build the commercial skills of voluntary, community and social enterprise organisations, but which ended in May 2015.

“The CO needs to provide clear leadership to departments and convince us that achieving the higher target of 33% by 2020 is indeed a priority objective across government,” said the report.

The committee urged the CCS to report back by March 2017 on what it has done help achieve targets.

Prompt payment remains in a particular problem for smaller suppliers who are less able to absorb delays, the report said.

While government had started to remove some barriers to SMEs such as “burdensome pre-qualification questionnaires” it needed to find sectors and spend categories where it can get the most benefit from using SMEs.

One positive example was the CO’s Government Digital Service, which has spent half of the £1bn channeled through G-Cloud since 2012 with SMEs.

However, spend through G-Cloud represented between 5% and 7% of IT spending. More than half of government IT spending went to five providers, the report said.

The PAC disputed government figures reporting it had increased spending with SMEs each year, from 6.8% in 2010-11 to 27.1% in 2014-15. 

“The government has changed its approach to measuring SME spending in four of the last five years. Consequently, we cannot tell whether government spending with SMEs has truly increased,” said the report.

One problem was unclear measuring of how much SME spending was direct and how much was subcontracted through larger contractors.

“While increasing [indirect spend] may be welcome, it is not clear how this can be considered a meaningful measure of the government’s success in making it easier for SMEs to do business with government,” it added.

Instead the government should consider introducing separate targets for indirect and direct spending with SMEs.

More efforts should also be made to make SMEs aware of bidding opportunities for government contracts. 

While central government bodies are legally obliged to publish contracting opportunities worth more than £10,000 on Contracts Finder, only 80% of eligible contracts are listed on the online portal, opening the way for possible legal challenges.

A CO spokesperson said: “Smaller businesses are the lifeblood of the UK economy and this government is determined to open up public sector procurement to businesses of all sizes. We welcome the committee’s recognition of our efforts, including reaching 27% of spend going to SMEs last year, exceeding our target.

“We now want to go further, and are determined to reach our goal of spending £1 in every £3 with small businesses by 2020.

“While this target is a challenging one, we are confident that we are putting in place the right actions to further open up government business and ensure we get the best value for the taxpayer.”

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