Departments seem to be making good progress towards government’s goal of spending a quarter of its money with small businesses by 2015. But as Colin Marrs digs into the figures, a more complex picture emerges
Everyone loves an underdog – but only in recent years has this ardour started to shape government procurement. The government’s coalition agreement contained a commitment to open up government contracts to small and medium enterprises. The stated “aspiration” is to ensure that 25% of central government procurement spending goes to SMEs by the end of this Parliament. And last month (August), the Cabinet Office announced a set of figures it claims show that it is “on track” to meet this target. The figures, included in a report detailing progress against government’s SME aspirations, suggested that direct procurement spend jumped from 6.5% in 2009-10, to 10.5% 2012-13.
The government has not been idle in promoting this agenda, introducing initiatives ranging from the listing of all government procurement contracts and tenders online, through to an online shop for cloud-based products called the CloudStore, and backed up by a “mystery shopper” scheme that gives a method of redress for suppliers who hit barriers to participation. But assessing whether and how much of a difference these measures are making is not straightforward, due to data which is far from reliable.
Earlier this year, Cabinet Office minister Francis Maude admitted to a select committee that the baseline figures, covering 2009-10, were “far from perfect”. The apparent growth from this baseline, according to experts, might have as much to do with imperfect recording as with real improvements. Procurement consultant Peter Smith says: “An official in one department told me that he knows the 09-10 data was rubbish but didn’t know how far out it was.”
Since the first year, however, recording has improved significantly, according to a Cabinet Office spokesperson. She reports that total procurement spend and direct spend with SMEs is now lodged centrally by departments each month. But procurement expert Colin Cram, managing director of Marc1, remains unconvinced that the figures are yet reliable. He points to HMRC’s sudden jump from 0.4% of direct spend on SMEs to 6% over the past year, which the agency admits was largely due to changes in reporting.
Moreover, even if these latest figures are correct, the overall progress they reveal is slow. Last year’s figure for direct spend was 10.1% of the total procurement budget – just 0.4 of a percentage point below this year’s total. However, the government says that the figures are skewed by the Ministry of Defence (MoD), which makes up 45% of government spending and has less scope than other departments to buy from SMEs. Without the MoD, the overall figure is nearer 15%.
The Cabinet Office is also keen to emphasise figures relating to indirect spending with SMEs through the supply chain – the progress report shows this rising from 6.5% of the total to 9.4% over the past year. However, measurement here is imperfect, calculated using the results of a quarterly survey covering just 120 key suppliers. The report admits that “we do not yet know the full picture”.
When broken down by department, the figures on direct spend reveal a mixed picture, with 11 increasing the proportion going to SMEs, one remaining steady and four falling. Along with HMRC, other impressive performers include the Department of Energy and Climate Change, whose SME spending rose from 0.4% to 1.9%, Department for Transport (2.9% to 4.9%) and the Department of Health (8.6% to 13.4%).
The government attributes its successes to measures it has introduced to remove bureaucracy from procurement procedures. A spokesperson said that better political oversight is also helping to drive the process: “Every department now has an appointed SME minister who ensures actions are in place to increase spend with smaller businesses to meet their individual departmental targets.”
Despite this, four departments showed a drop in the proportion of procurement spending on SMEs over the past year: the Department of Culture, Media and Sport (DCMS) (17.5% to 14.5%), the Department of Work and Pensions (DWP) (11.1% to 7.1%), the Home Office (6.4% to 3.8%) and the Ministry of Justice (34% to 31%).
The government partly explains the DCMS figure in the context of falling overall spending following the 2012 Olympics. But it also acknowledges ongoing issues with data, putting part of the blame for the drop in “a change in how data has been collected”. The DWP drop is attributed largely to the Work Programme, which it says has seen a shift away from direct to indirect spending through the supply chain, which the government also admits is “not fully captured”.
But patchy performance cannot be fully explained away by poor data collection. Rob Mallows, senior policy adviser, in the CBI’s Competitive Markets Directorate, says that there is often a disconnect between the new initiatives and how they work out. He says: “A survey on the subject amongst our members showed that the government got eight out of 10 for policy, but only five out of 10 for implementation.”
But Smith says that several departments, including some of the lower achievers, deserve praise for embracing the SME agenda. He says: “To give the MoD and DWP credit, they are not in a position to give a lot of work directly to SMEs due to the nature of their spending. But both have become more aware and done a lot to promote indirect spending through their suppliers.”
Charlie Wigglesworth, head of business development at Social Enterprise UK believes such indirect spending is often an easier source of revenue for smaller businesses than attempting to win direct contracts. “We have worked with [the communities department] to break up larger contracts to allow greater SME access, but there is not a lot of this going on. The main route in [to government procurement] is to work with a bigger supplier. What is interesting is that many private sector firms are trying to make themselves stand out when bidding to government by emphasising their ability and desire to collaborate with smaller firms,” he says.
In addition, a number of ICT contracts at departments including transport will create new opportunities for smaller businesses to bid directly for work. These processes will be supported by the government’s overarching ICT strategy, which pushes departments towards smaller suppliers. And the government also points to examples such as the ASPIRE ICT contract, which HMRC recently renegotiated with supplier Capgemini. The agency says that this will give it greater influence over indirect spending on subcontractors.
Perhaps the biggest change that will affect future participation by SMEs will be the creation of the Crown Commercial Service (CCS), announced by ministers in July and aimed at centrally managing the purchase of common goods and services. Cram says: “The great thing is that for it to be effective the CCS will require much better data and will focus on improving that. It will also be easier to make people responsible for meeting targets for SME involvement, and could help to standardise lengthy pre-qualification questionnaires, which can be a great burden for SMEs.”
Earlier this year Maude warned that, because government still has to get a full grip of the data, “these numbers will do some odd things over the years ahead”. Given the ongoing problems relating to the figures, it is unclear how much store will be put on any claims that the government has met its target in coming years. Far more important, though, is that the government will use this aspiration as a driver of progress.