Supply chain · 12 October 2017

New proposals announced to ramp up government spending with small firms

The government is committed to directing a third of public sector spending to small firms by 2020
The government is committed to directing a third of public sector spending to small firms by 2020

The government has announced a series of proposals to bring more small companies into the public supply chain, tightening up the contract selection process with added pressure on large firms.

New official figures have shown that small businesses benefitted from £12.2bn worth of central government spending between 2015 and 2016, leaving it behind the target of one in every three pounds by 2020.

To reach its target, three new measures have been put forward to encourage greater spending with small firms and incentivise better supply chain practices among its larger suppliers.

In a push for greater transparency, large businesses awarded government contracts will be required to annually publish spending data with small firms in their own supply chains.

Large suppliers would also be obliged to advertise their own subcontracting opportunities on the government’s Contracts Finder – where all public sector tenders above £10,000 are advertised – to allow small business owners to bid.

Ethical supply chain behaviour would form another part of the contracts process under the new proposals. Earlier this year, it was announced that every government supplier must sign up to the Prompt Payment Code (PPC), and it could soon become a central part of the selection process, with irresponsible businesses excluded.

The PPC was introduced in 2015 to encourage large companies to pay smaller suppliers within 60 days. However, it’s impact has been so far noted as marginal.

Read more: The founder of Spend Network explains why public procurement opportunities could be on the rise

Welcoming the proposals, Mike Cherry, chairman of the Federation of Small Businesses (FSB), said: “I welcome the commitment to make more use of the UK’s ambitious and innovative small businesses when awarding public procurement contracts.

“Today’s figures show there is still some way to go to reach the 33 per cent target, but I look forward to working with ministers to see it delivered and for this to be hardwired into the government’s upcoming Industrial Strategy.

Cherry particularly praised efforts to ensure better supply chain practices, adding: “It is also important for government departments and agencies not to hand public money to bigger companies which have a track record of treating smaller suppliers appallingly, with late payments and unfair contracts, and today’s commitment on that is a positive step.”

Commenting on the government’s latest spending figures, Caroline Nokes, minister for resilience and efficiency, said smaller companies played a “vital role” in helping deliver efficient public services and creating value for taxpayers.

“We have set ourselves a challenging target, but we know this is the right ambition,” she added. “We are confident these new measures will be welcomed by small businesses throughout the UK.”

A consultation with small business owners will be held in the coming weeks, the government has said.

New entrepreneurial panel urges government to boost spending with small business

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ABOUT THE EXPERT

Simon Caldwell is a reporter for Business Advice. He has a BA in politics and communications from the University of Liverpool, and previously worked as a content editor in the ecommerce industry.

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