Scotland has failed to help SMEs win public contracts

Scottish government procurement reforms have failed to raise spending with SMEs and a new approach is needed following the disasters with large suppliers, according to the Federation of Small Businesses (FSB).

In a report the FSB challenged the Scottish public sector to improve spending with SMEs by the end of this Parliamentary term.

FSB’s research showed “only about a fifth of Scotland’s £12bn procurement budget goes directly to small businesses”, and legislative and administrative reforms have made little difference to the number of contracts won by SMEs.

The report said Scottish procurement reforms have failed, and advised Scotland to take a similar approach to the north of England by working closely with suppliers to boost local purchasing opportunities.

Andrew McRae, FSB’s Scotland policy chair, said: “Over the last decade we’ve seen a slew of laudable procurement reforms in Scotland. Unfortunately, they seem to have had little impact on the share of work won by smaller firms.

“In this new report, we ask Scotland’s public sector decision-makers to carefully measure how they’re contracting at the moment and develop realistic action plans to improve spending with local business. That might mean attaching proportionate terms and conditions to contracts, or breaking a giant contract into bitesize lots, or working with other local public bodies to stimulate local supply.”

The percentage of the Scottish Government’s procurement budget going towards SMEs and microbusinesses only increased by 2.1% between 2011-12 and 2016-17.

Public bodies in Manchester increased their procurement spend with SMEs by 15% between 2014-15 and 2017-18, to 62%, said the FSB. The FSB encouraged Scotland to adopt Manchester’s approach of improving cooperation between different public sector bodies and working closely with suppliers.

“City leaders in Manchester have successfully managed to shift the spending dial. That means it can be done north of the border. In our study, we make the case for all of the public purchasers in a geography to club together to stimulate demand and develop local supply chains,” said McRae.

The FSB argued that big companies’ responsibility for payment practices and supplier relationships should be given to a non-executive director for big contracts with the public sector.

Following the anniversary of the Carillion collapse, McRae said: “With thousands of Scottish businesses going under every year as a consequence of late payment, ministers should do everything in their power to help end this scandal. Further, we’re making the case for action to boost supply chain skills development to give Scottish productivity a much-needed lift.”

McRae said public sector contracts with large companies aren’t necessarily run well or have fair supply chains, and highlighted that the Interserve and Carillion debacles reinforce the case for a change in procurement approach.

Small businesses are concerned that Scotland’s public sector could be failing to get the best value goods and services because procurement systems effectively exclude smaller firms, according to case studies in the report.

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