Procurement · 26 July 2018

Small firms remain locked out of public sector procurement “merry-go-round”

The government is committed to spending £1 in every £3 with small businesses by 2022

Small UK business owners are unable to access contracts in the public sector, a committee of MPs has claimed, despite large firms failing to offer value for money.

According to the Public Accounts Committee, government has created a “merry-go-round” procurement culture which has seen a small number of large companies win the majority of public sector contracts, despite not delivering value for money.

“The government has failed to use its unique position in the market to encourage competition in the market.”

Strategic Suppliers, Public Accounts Committee

“We have identified a need for government to be more assertive in shaping the markets in which it operates, with a renewed focus on driving value for taxpayers’ money,” said Labour and Co-operative MP, and committee chair, Meg Hillier.

“It must look with fresh eyes at the motivations of companies currently bidding for central government work, and develop a strategy that requires contract-awarding bodies to look beyond bottom-line costs.”

MPs acknowledged efforts made by government to increase use of small firms in the public supply chain, but had “seen little evidence of action”.

By 2022, the government intends to spend £1 in every £3 of public money with small businesses. Figures published last year by the Federation of Small Businesses (FSB) showed just 23% of smaller firms had worked for the public sector – down 4% since 2014.

Responding to the new report, Mike Cherry, chairman of the Federation of Small Businesses (FSB), said the findings had reinforced the view that the “public procurement process is broken, heavily favouring big firms that waste taxpayers’ money”.

“It doesn’t make good reading following last week’s drop in central government small business spend and points to the need for immediate action to make the system fairer, simpler and more transparent,” Cherry said.

“The committee recognises that a ‘merry-go-round’ culture has developed where public contracts are being awarded to a small number of large companies. By doing so, government is handing over huge market power to these firms and effectively closing the market for small businesses.”

“Taking back this market power and opening up the public service market benefits everyone from both large and small businesses, government and taxpayers as it promotes innovation, creates jobs and provides better value for money.”

The report also addressed the issue of late payments suffered by small public sector suppliers. Recent FSB research found that a quarter of small firms in supply chains for public infrastructure projects experienced late payment over half the time.

Cherry added: “The report rightly states that there are no excuses for small suppliers not being paid on time. Unfortunately poor payment practice is an all too familiar problem for many small businesses. This is not an issue reserved for the private sector.”

“More must be done by government to get its own house in order including barring strategic suppliers, paid on the government dime, from bidding and winning public sector contracts until they improve their payment practices.”

“Government has committed to increasing SME spend and has announced measures to improve treatment of SMEs in supply chains. Now is the time for action, however, with small businesses needing to see real movement to widen the pool of government suppliers and a crackdown on poor supply chain behaviour.”

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ABOUT THE EXPERT

Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.

Procurement