SMEs locked out of public sector contracts failing?

Why are SMEs still locked out of public sector contracts while the big boys keep failing?

Despite numerous initiatives to improve value-for-money and support growing businesses by bringing more SMEs into the supply chain, many vital public services are still being awarded to the same handful of major contractors who are either failing to meet their obligations again and again, or are being driven out of business by contracts that are designed to fail.

Clearly this situation is unsustainable.

Accountability be damned

The UK Government’s procurement policy is fundamentally flawed for one very simple reason – it not only seeks for the private sector to deliver services to the public (fair enough), but it also aims to make the private sector ultimately responsible for these services too. It is no longer a case of public/private partnerships, but of public/private scapegoats. It is a policy designed to free the Government of any liability for anything in the public sector. Do you see what is wrong here?

The policy today results in the elected Government having zero accountability for public services. If (and when) they fail, the Government simply blames the contractor and appoints another company to do the job for the lowest possible price. And the cycle continues.

Capita’s reported £513m loss last year is perhaps the latest examples of this trend. Capita operates in both the private and public sector, but it has been particularly hard hit due to its heavy reliance on public sector contracts; where businesses must operate under the conditions set for them by Governments. In an environment of shrinking budgets where contracts are primarily awarded to the lowest bidder, many are simply financially unsustainable in the long term and are not adequately overseen by the Government department involved.

Large suppliers

Government policy places far too much risk on outsourcing to a few large suppliers who then, inevitably, overstretch themselves. Recent incidents involving companies such as G4S (2012 London Olympics, Immigration Detention Centres,) ATOS (Disability Testing) and Serco (Overcharging for Tagging Prisoners, Yarl’s Wood Immigration Detention), show that underperformance, and even incompetence, are no barrier to winning repeat Government business. Some contracts have been in place for decades with only occasional pauses when something goes wrong.

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Some large Government contracts are even being extended beyond their original termination date due to the additional work and uncertainties caused by BREXIT. The Department for the Environment, Food and Rural Affairs (Defra) has extended its IBM deal to July 2019 (originally signed in 2004) and its Capgemini contract to August 2018 (originally signed in 2009) – according to a Freedom of Information response sent to The Register.

Contractors, on the other hand, feel that the Government asks them to do complex, difficult things in a rush and, often, ‘on the cheap’ and then pile in to criticize them when things go wrong.


The answer to this procurement crisis is twofold;

  • The Government must retain ultimate responsibility for the delivery of public sector services and not set up the private sector for failure
  • The Government must deliver on its own ambitions to open up more of the public sector to SMEs

The public procurement market is huge – it purchases some £250 billion from private sector suppliers each year, meaning that roughly one pound in every five (20%) is spent by a public authority. Sharing the load among more SMEs would help to deliver a better service and better value in many instances, while spreading public sector money more widely.

But although the Cabinet Office announced in 2015 that by 2022, it wanted £1 in every £3 (33%) to be spent with SMEs, a report by the Federation of Small Businesses – Unstacking the Deck: Balancing the Public Procurement Odds (August 2017) – said that ‘Over the last 12 months, it is estimated that SMEs won just 19 per cent of directly awarded public sector contracts by value’.

SMEs feel they are at a disadvantage when bidding for public sector work because:

  • the public sector routinely prefers to work with the larger suppliers, even if they know they’re paying more for it, simply because they’re familiar
  • Even if they win the contract, SMEs are often forced to lower their costs and over service the contract because they don’t have the same leverage to hold their ground as a larger enterprise might be able to do
  • The procurement process is too expensive and time-consuming for most SMEs to engage with

G-Cloud and contracts finder

Some steps have already been taken. The G-cloud, an online IT procurement framework, which enables small firms to compete on an equal footing with large firms when bidding for work, was launched in 2012 (G-Cloud 10, the latest incarnation, is due to launch sometime in July).

The Government has also abolished pre-qualification questionnaires for low-value contracts and departments are now required to use Contracts Finder for all public-sector contracts (a portal for advertising Government tenders, first launched in 2011).

More recently in January 2018, the Government launched a shorter, more user-friendly public sector contract to encourage greater public sector participation. This cut around 50,000 words of the existing Crown Commercial Service contract, reducing it to just over 20 pages. But clearly even more needs to be done. Both the G-Cloud and Contracts Finder remain unwieldy and difficult to navigate for both sellers and buyers. They are currently not fit-for-purpose and must be improved to further support the Government’s ambitions to improve public service by working more directly with SMEs.

Ultimately, the Government has an obligation to deliver the best possible public services at the best possible price, and it is SMEs, not the large outsourcers, that are often the best placed to do this. A well designed and fair public procurement policy has the potential to be a huge lever for economic growth, but only if applied wisely. It will enable more SMEs to enter the supply chain, award contracts that are fair to the long-term stability of suppliers, and will not outsource ultimate responsibility to private sector scapegoats.

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