By Civil Service World

16 May 2012

The coalition promises more public contracts for small businesses – but we’ve heard this language before, without seeing much in the way of results. Becky Slack meets the man tasked with turning rhetoric into reality

As the old proverb says: ‘Give a man a fish, feed him for a day. Teach him to fish, feed him for life’. It’s a philosophy that Stephen Allott hopes will drive greater government procurement from small and medium-sized enterprises (SMEs). Rather than spending his time helping individual businesses win the odd contract here and there, Allott is concentrating on developing the skillsets of, and relationships between, SMEs and the commissioners that he hopes will procure their services.

Since being appointed as the ‘Crown representative’ for SMEs in February 2011, Allott has been working to help commissioners and procurement staff engage with small business in a more effective way. His aim is to be the – hopefully persuasive – voice of small business within central government (local government doesn’t come within his remit).

With limited staff available to support him, Allott’s strategy is to “do a bit and show it works” in the hope that departments and SMEs will see the possibilities. “We have to set an example from the centre. We’re not going to do it all for them,” he tells CSW. “This is about a change in culture so that [procurement from SMEs] is a ‘built in’ rather than ‘bolt on’.”

When it comes to SMEs, Allott knows what he’s talking about. In the 1990s, the serial entrepreneur helped grow a London-based firm from 10 to 800 people, eventually floating it on the NASDAQ. Over the last decade he has been chairman of seven different technology SMEs, and on the two days a week when he’s not working for the government he makes his money as a consultant – again within the SME technology arena.

He is also well aware of the challenges that companies of this size – the EU defines an SME as a business with fewer than 250 staff and less than £40m in turnover – face when working with government. Allott has previously made it very clear that he is no fan of public sector procurment processes. In an interview with Real Business magazine last September, he said he was “happy to admit that when I was running small companies I always kept them away from public tenders” due to the “ridiculous rules and unnecessary bureaucracy.”

It is barriers such as these that motivated the government to appoint Allott at the time when it was naming Crown representatives to manage its cross-departmental relationships with its biggest suppliers. It is hoped his work will help knock down some of the obstacles to SME procurement, building on work started by the previous government – which in Allott’s view didn’t go far enough.

He argues that procurement reform and the benefits SMEs can offer are today seen as a crucial part of the deficit reduction plan, and as such enjoy much more “significant top-level backing” than they did under Labour. “The big change is that procurement reform under Labour was a nice thing to have, whereas today saving money is central”, he says.

The task in hand
So what exactly has Allott been asked to do? In 2010, SMEs accounted for 50 per cent of turnover in the UK economy but were winning only 6.5 per cent of the value of central government’s procurement spending, according to figures provided by the Cabinet Office. The government wants to increase this figure to 25 per cent by 2015.

In his quest to achieve this target, Allott is to focus on three key areas: specific projects that open up opportunities for SMEs; strategic dialogue with SMEs and the sector’s trade bodies; and being a “strong voice at the top table” – talking both with ministers and with the civil service, something he hopes will be achieved by having a desk at the Cabinet Office and via his position on the Procurement Reform Board. This board is responsible for driving through the reform agenda, and sees him sitting alongside representatives from 17 departments.

Allott is acutely aware that his success will depend upon senior officials accepting his argument that SMES can offer better value for money. “SMEs are quicker and more flexible to act, which will make civil servants’ lives easier,” he says. “They can also help save money, which is better for the taxpayer.” However, he’s under no illusion that this is going to be easy to achieve. “It will be hard to enable behaviour change across the whole civil service. I’m in this for the long haul.”

To win this battle for hearts and minds within the civil service and help SMEs to win contracts, Allott says, a number of activities will need to become commonplace across the departments and agencies.

“The only way we’ll meet [the target] is to find places where SMEs offer better value. There are two main ways to do this. The first is more pre-market engagement – so before you start a procurement process, talk to suppliers about what is the smart thing to be buying. We have to speak to suppliers and use that information to inform specification,” he says.

The second thing to do, he adds, is to encourage more SMEs to get involved in the tender process. This means both engaging with the good ones and encouraging them to bid, and also up-skilling those which haven’t yet mastered the intricacies of public procurement. He likens the process to a school exam: commissioners have to judge a company on what they write in the tender document, rather than on anything else that is known about the firm. “If a supplier hasn’t bid before and they are not very skilled at [completing the tender], they might be the best supplier but they won’t win the contract,” he says.

One of the main reasons why SMEs have been reluctant to compete for work is the high financial thresholds set in Pre-Qualification Questionnaires (PQQs) – a first hurdle in many public pro-curements. These often insist that bidders have big turnovers, large cash reserves or track records of public contracting. In acknowledgment of this – and as recommended in Labour’s 2008 report by venture capitalist Anne Glover, which looked at the barriers SMEs faced when bidding for public sector contracts – PQQs have been scrapped for all central government procurements under £100,000. A new system that allows firms to submit their data once, rather than doing so every time they bid, has also been introduced which should reduce costs for suppliers.

It’s who you know, not what you know
Difficulties implementing the SME agenda are also, in part, the result of the high numbers of redundancies that have occurred across the civil service, believes Allott. These have reduced the resources available, he says, and therefore hindered departments’ ability to manage lots of different contracts.

“The number of procurement people in government has gone down, which naturally leads to more aggregation, binding [products and services together] in larger and larger amounts. Sometimes aggregation delivers the best value for the tax payer, sometimes it doesn’t,” he explains, noting that some of the big brand consultancies charge twice as much as niche consultancies – even though the smaller companies often have the same skill sets.

“The pressures on procurement staff have also led many to stick with the suppliers they know rather than spend time researching potential partners or having speculative meetings with untried suppliers,” he adds. This he aims to resolve with ‘product surgeries’. Introduced last year, they see small groups of SMEs being put in front of commissioners interested in finding new partners and services (see news, p2).

Another initiative intended to make the procurement process easier for SMEs is the ‘Mystery Shopper’ scheme. This gives businesses the opportunity to refer to the Cabinet Office tender processes they find onerous and restrictive. The Cabinet Office will then investigate the complaint and, if appropriate, work with the offending department to help them improve the way they do business.

For example, a small construction company recently complained that the way a PQQ was being scored disadvantaged small firms because it favoured organisations that had higher turnovers. After the Cabinet Office spoke to the organisation running the contract – St George’s Housing at Basildon Council – the tender was redesigned and reissued. So far, the Cabinet Office has received 151 complaints, three quarters of which it says have been resolved positively for the SME. The majority of criticism relates to wider public sector procurement, primarily regarding PQQs.

To promote these schemes and help instil a willingness to work with SMEs, Allott is relying on the help of 17 departmental SME champions – existing procurement workers who’ve been nominated to initiate and lead change within their departments. For example, Andrew Culver, deputy director for procurement at the Department for Local Government and Communities, is the champion in his department, while Julie Homer is taking the lead at the Ministry of Justice, where she is regional procurement manager.

“The objective they’ve been set is to work out how much they can deliver [towards the 25 per cent target],” he says, adding that when they’ve done this the champions have to design a plan of action that will enable them to achieve their ambitions.

It’s a nice idea, but with no deadline set by which the champions are to have completed their analysis and designed their plan, I wonder how they’ll prioritise the project – particularly at a time of such pressure on resources. When I suggest that the champions’ SME work runs the risk of repeatedly falling to the bottom of their groaning in-boxes, Allott agrees that a deadline is probably something he should introduce in order to “discipline the response”.

David and Goliath
While direct contracts will form part of the 25 per cent target, it is also expected that a large proportion of the new SME work will be sourced indirectly through the supply chain. Allott is in the process of assessing the potential for SMEs to win business from main contractors handling public sector work, but at present there is no indication as to when this work will be completed – again, no deadline has been set.

Given the bad reputation many prime contactors have for driving down prices and creaming the best work off for themselves, leaving slender pickings for their smaller partners, I wonder what Allott will be doing to help SMEs get the best possible deals when working with these large companies. While he acknowledges that these problems have arisen in the past, he says the Merlin Standard – which has been developed by the Department for Work and Pensions – is doing a lot to improve practice. Nowadays, he says, SMEs are telling him their main concern is “getting paid on time”. He explains that although government itself is a prompt payer, those organisations further down the supply chain often have to wait as long as 100 days before the prime contractors pass payments down to them – something that’s harmful for cash flow and can damage their businesses.

This is to be addressed through the introduction of Project Bank Accounts (PBAs). An idea borrowed from the construction industry, a PBA is a legally ring-fenced and protected bank account from which payments are made directly and simultaneously to all participating members of the supply chain. The Crossrail programme has already implemented PBA arrangements, and the plan is for the Highways Agency and the Ministry of Defence to follow suit. It is not yet known if and when other departments will also introduce the system, although the Cabinet Office has confirmed it is considering introducing PBAs within new facilities management contracts. In the meantime, everyone else will just have to keep their fingers crossed that their prime contractor partners pay up when they’re supposed to.

Delivering the goods
So 14 months into the job, Allott has made progress. But what impact have these initiatives had? According to the business community, there is still a long way to go. In February 2012, for example, Sureyya Cansoy, public sector director at IT industry body Intellect, told CSW that the new approach has not yet boosted SME procurement. “SMEs are very optimistic about the messages coming out of government, but we’re not seeing many coming forward saying: ‘This has changed, and I’ve won this new business as a result’,” she said.

Allott refutes this. “The percentage of business won directly by SMEs is on track to double,” he says. “Plenty of that is because SMEs are winning more contracts.” Indeed, the Cabinet Office is reporting that of the 5,768 contracts awarded so far through the Contracts Finder website, 2,025 have been won by SMEs.

However, while greater purchasing levels may account for some of the uplift, Allott acknowledges that the increasing figures may also reflect a change in the way statistics are reported. “Some of it is because we are better at measurement. Some departments haven’t been measuring [SME procurement] and have therefore reported zero. Now that they measure it, they can report something,” he says.

Allott knows that there is no pleasing everyone all of the time; and that as government projects go, this is still very early days. However, for a man who has previously been critical of the way government works with SMEs, he has certainly changed his tune about what’s on offer. He tells me that there are some very good opportunities for people “who can get established” and that opportunities exist to build good businesses by serving the public sector.

Allott seems particularly happy with the way that his presence in the Cabinet Office and his membership of the procurement reform board create a “physical reminder” of the task at hand. “It’s very important and effective at keeping it uppermost in their minds, and it’s worked out really well,” he says. And he’s glowing about prime minister David Cameron’s input – particularly in relation to the SME agenda’s anniversary event, held in March.

“David Cameron invited all the commercial heads of each government department, plus a few others, in for breakfast,” he enthuses. “The fact this is backed from the top has made a huge difference. The PM has a close interest in this. He talked without notes and was word perfect on all the facts and figures.”

However, for all the conversations and positive affirmations coming from within government, Allott’s work will only be successful if he can persuade both commissioners that buying more from SMEs is a good idea, and SMEs that public contracts are becoming easier and cheaper to win. So as our conversation comes to an end, he’s keen to re-emphasise why civil servants should act on this agenda. Finding and hiring those SMEs that deliver better value for money, he says, will “help reduce the deficit, encourage growth and will make officials’ lives easier. There are lots of reasons why they should be doing this.”


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