Small firms are prevented by bureaucracy from winning their share of public contracts, a committee of MPs has found. If public bodies better understood how SMEs and micro-enterprises operate they could gain from small firms’ innovation and flexibility, the ACCA backed group concluded.
The House of Commons All Party Parliamentary Small Business Group is chaired by Andy Love, a Labour MP who also sits on the powerful Treasury Select Committee. Love tells AB: “One of the things that came out clearly from our inquiry was the strong feeling, especially among small businesses, and also from academics, that the procurers in the public sector don’t understand business generally and particularly the needs and limitations of small businesses, and the effects of demands imposed on small businesses.
“There was a clear view that the only way to address this was to ensure they were more knowledgeable about the particular issues revolving around the impact of bureaucracy on small businesses involved in a procurement exercise. So one of our recommendations was that procurers in the public sector need support and training to procure from small businesses.
“Our report emphasises that larger small businesses really were quite successful in procuring [from the public sector]. Whereas micro-businesses – those with under ten people – really haven’t been able to enter the game to procure contracts from the public sector.”
But there is a clear danger that gearing public procurement more to the needs of small firms would merely provide contracts for them at the expense of larger businesses. Love and his colleagues accept this is possible, but believe this would still provide real benefits, and not just to the small firms sector. “Even if it’s true, in terms of value for money and innovative services it will benefit public services to make more use of smaller businesses,” argues Love. “Also, small businesses are very much more vulnerable, especially through the recession, and being successful in the public sector marketplace can support them and will help them to survive.”
Love adds, though: “I would not want to interpret what we are doing as supporting one type of business over another. We want to ensure proper competitive tendering in the public sector. Often you feel that is not there. Part of the way to achieve that is to produce a strategy for organisations to compete for contracts. That is mainly to assist small businesses, particularly micro-businesses. We want to ensure this is a beneficial process, ensuring value for money for the public purse.”
The committee considered recommending that mandatory targets should be set to ensure that a minimum – perhaps 30% – of contracts should be awarded to small firms. However, after discussion they decided this was unrealistic, with too many practical problems. Moreover, existing targets for buying from designated types of businesses are not always helpful, they believe.
“I think it’s the case that often when you talk to public procurers you find they fully understand there is pressure to use women-managed businesses; black and ethnic minority-run businesses; and those in deprived communities,” explains Love. “All those are special priorities for local and central government. We don’t want to deny the importance of all of those. But the other side of that is to ensure you get good value for money from smaller contractors. It is not just about ticking some boxes somewhere. It’s about ensuring that value for money is not lost in attempting to ensure a spread of contracts across the community.”
The Parliamentary committee is not the first attempt to make public procurement more sympathetic to SMEs and more effective at using their knowledge and innovation. The Treasury’s agency responsible for improving procurement practices, value for money contracting and achieving efficiency savings – the Office of Government Commerce – promoted more use of SMEs by public bodies. Initially, in 2003, there was an increase in contracting with small firms, but since then the number of contracts has fallen back again.
This is despite another attempt by the Government to increase its procurement through SMEs, with Anne Glover commissioned by the Treasury last year to report on how to increase small firms’ share of public contracts. The Parliamentary committee concluded that the Glover report did not go far enough.
Professor Robin Jarvis, head of ACCA’s small business unit, believes that much of the problem with the Glover report stems from the authors’ failure to adequately engage with ACCA and other stakeholder organisations, or with SMEs themselves. “Accountants are the preferred source of advice for SMEs,” says Jarvis. “SMEs come to SMPs [small and medium sized practices] for advice: that seems to have been totally ignored by Glover.”
Jarvis thinks that public sector procurement professionals are also too isolated from the organisations they need to engage with. “If a lot of contracts are going to be awarded in the local area, as if often the case, money could be put into network events for SMEs, their support agencies, accountants, bankers and so forth and the local authority people giving out contracts,” suggests Jarvis. “I believe face-to-face local networking is an important way forward.”
Having produced a report that is so comprehensive and with clear recommendations on how to make improvements, ACCA intends to pursue the subject further. “I think there is a real case for pushing and pushing on this,” adds Jarvis. But, he concedes, success is not easy as it fundamentally requires what he calls “a new culture” amongst procurement professionals in the public sector.
“ACCA and other stakeholders need to take it further,” insists Jarvis. “We need to engage with stakeholders on this.” Even if achieving change involves a long struggle, it is one that ACCA is prepared to commit to.
Recommendations from the Parliamentary committee
Recommendations from a previous review for government – the Glover Report – should be apply across all of the public sector, not just to core buyers in departments.
SMEs must be seen as diverse, with the capacity of micro-enterprises differing from larger SMEs.
Targets should be set for buying from SMEs and micro-enterprises, but should not be binding.
A better system is needed to notify SMEs of public procurement opportunities: www.supply2gov.uk is a good start, but not good enough.
Fees for tendering information need to be minimised.
A single pre-qualification questionnaire should be shared across public bodies.
Tendering bureaucracy needs to be cut and ‘plain English’ used.
There should be support schemes to help SMEs win public contracts.
Measures should be adopted to reduce the perceived risk of buying from SMEs.
Useful feedback should be given to SMEs when they fail to win contracts.
Public sector procurement professionals should be trained to understand SMEs.
Guidance should be given on forming consortia of SMEs and more contracts ‘unbundled’.
Businesses should receive advance notice of tenders.
Delivery terms and conditions need to be adapted for SMEs; invoice payment accelerated; contracting speeded-up.
Procurement processes should be more transparent.
The role of ACCA
Andy Love MP is full of praise for ACCA’s involvement and support in producing the All Party Parliamentary Small Business Group report, which was initially published as a submission to the Chancellor in preparing the Budget. ACCA conducted the research for the group, carried out the administration, invited witnesses to give evidence to the committee, published the report in both hard copy and on its website, sponsored it and promoted it.
“ACCA was critically important,” says Love. “One of the things the public don’t understand is that there there is an awful lot of work behind the scenes going into submissions, to produce a comprehensive report and to interview key people with knowledge, who have relevant expertise. MPs don’t get enough opportunity to get out and see for themselves what it’s like to operate as a small business. This is the best opportunity we have.
“Every small business has an accountant. Lots of them are ACCA members, so the sharpest bank of knowledge resides in the membership of ACCA.”
As a result of ACCA’s support, the Parliamentary committee itself can improve its credibility and its role in promoting the SME sector, believes Love. “ACCA has done a good job for us, because they are independent, because they are well financed, because of the expertise within their membership and because of their commitment to small business.”