Cabinet Office defends procurement target as spending with SMEs falls

Written by Richard Johnstone on 7 November 2017 in News

Figures show that spending with smaller firms fell for over half of Whitehall departments that reported figures

Photo: PA

The government has insisted it remains committed to its target to spend one-third of its procurement budget with small- and medium-sized firms after figures revealed the proportion was falling.

Cabinet Office data published last month showed that government spending with smaller firms fell from 27.1% in 2014-15 to 24% in 2015-16, despite a government target for SMEs to benefit from 33% of procurement spend by 2022.


The figures reveal that the proportion of total spending with SMEs, which measures both direct spend with smaller firms and indirect spend through the supply chain with other suppliers, fell at nine of the 17 departments with reported figures for both years. These include the Department for Communities and Local Government, the Department for Food, Environment and Rural Affairs, the Department for Education, the Department for Transport, the Treasury, the Ministry of Defence, and the Ministry of Justice. Spending also fell in the last set of figures released by the Department for Energy and Climate Change and the Foreign Office, although its direct spend is only measured in the UK, while indirect spend is measured globally.

The Cabinet Office revealed that direct Whitehall spending with SMEs actually increased marginally in percentage terms over the year (from 10.9% to 11%). The measure of indirect spending with smaller firms, calculated by asking government contractors how much work they subcontract to SMEs, fell from 16.2% to 13%.

Caroline Nokes, Cabinet Office minister for government resilience and efficiency, told CSW that the government had set a “challenging target”, but that it was the right ambition for the country.

“SMEs are the backbone of the UK economy, fuelling economic growth and providing more than 15 million jobs. These businesses also play a vital role in helping government to deliver efficient, effective public services that meet the needs of our citizens and provide value for money for taxpayers,” she said.

“This government is doing more than any previous government to break down barriers for SMEs who want to supply to the public sector. We are confident these new measures will be welcomed by small businesses throughout the UK.”

Peter Smith from the website Spend Matters, who has analysed the figures, said they showed the difficulty of accurately measuring indirect spend with SMEs.

The fall in the proportion of indirect spending with SMEs is driven by a drop in 29.5% to 12.8% in the DfT and a decrease from 15.2% to 13.4% at the MoD. Smith said that the DfT figure was “probably an issue of measurement, not reality”, while the MoD figure had outsized influence as this department accounted for almost half of the total spend under consideration.

These figures should lead the government to reconsider its whole approach to SMEs, he added.

“It is ridiculous for instance to think that MoD can ever spend a third of its budget with small firms. We would also question why the focus is even on SMEs – there is arguably more logic behind looking to support innovative firms, social enterprises, or minority-owned businesses. And some firms are small because they aren’t very good or because they don’t want to grow. There is also no real evidence that supporting SMEs has any effect in terms of measurable policy outcomes.”

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Richard Johnstone
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Richard Johnstone is CSW's deputy and online editor and tweets as @CSW_DepEd

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Submitted on 7 November, 2017 - 14:37
In a clean break with the previous administration, this Government has made it clear that it will look upon Small and Medium-sized Enterprises much more favourably, when taking decisions on how to spend public funds. It is now widely accepted within Government that in addition to offering flexibility & adaptability, SMEs bring long-term commitment, original thinking, niche expertise and exhibit a sense of patriotic responsibility towards British workers in a way others have not, on both, equipment supply & sustainment contracts and service provision contracts for the Ministry of Defence. Indeed, they are the lifeblood of the UK economy and should rightly be given equal access to publicly-funded contracts which have hitherto, been monopolised by the Select Few. In any discussion on Prime Contractors and SMEs, it is important to understand the reasons why the former has a need for the latter. The first thing that happens after MoD has released the invitation to tender is that, the ITT recipient dissects his proposed Technical Solution into its component workshare parts and outsources some of them to other Profit Centres, whilst retaining the rest. This happens because the ITT recipient does not possess the full range of capabilities in-house to build the entire Technical Solution on his own – hence his requirement for Supply Chain partners, which may include SMEs. It certainly is not due to benevolence on the part of ITT recipients, as people in MoD have been led to believe (by the Select Few). The result is the founding of a commercial relationship between for-profit organisations, large and small, operating in the free market solely for the benefit of Shareholders. It is not for people in the pay of the State to interfere in this business relationship, other than to ensure that: (a) Both the ITT recipient and his Supply Chain partners conduct business within the law and prevailing regulatory framework. (b) Pay their fair share of business and employee taxes to the Exchequer. The other important issue to bear in mind is that irrespective of the size of for-profit organisations (the distinction between the Prime Contractors and SMEs), MoD is obliged to apply the principle of equitable treatment and maintaining impartiality at all times. Additionally, there must be a clear separation of roles between MoD as Buyer and Defence Contractors as Sellers, to avoid the possibility of them getting mixed-up and creating confusion. @JagPatel3

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