Proxima speaks with Jonathan Lewis about what progress the SME advisory panel has already made, and what remains to be done
The Government’s SME advisory panel, made up of 24 entrepreneurs and leading business figures boasting a wide range of experience, is working with the government to ensure that by 2022, £1 of every £3 invested by Government in goods and services goes to small and medium-sized enterprises. This target varies by department, with the supplier profile for some CGDs meaning it is necessarily lower, for example the MOD has a target of 25% by 2022.
The panel was formed in November 2016 and is currently looking at key strands of government procurement activity, including: meet the buyer; supply chains and contract management, contracts finder, and framework agreements.
While the UK’s largest Procurement Consultancy, Proxima is also an SME, so is uniquely placed to both benefit from and also promote the SME agenda. This is because we frequently bid for Procurement work tendered by Central Government, but also advise Government Commercial on how to buy, including the inclusion of SMEs. In this interview, we speak with Jonathan Lewis, Chair of one of the four main working groups, to find out how far their work has gone and what remains to be done.
Proxima: As a successful entrepreneur, building many businesses and selling to Government, you have first-hand experience of the challenges SMEs may face. What would you say are the top three challenges you feel SMEs encounter when selling into Government?
1. Knowing how to engage with the behemoth.
A first step is for SMEs to register on a government database called Contracts Finder. There’s no need to pay an intermediary company to find contracts which are of interest to you. Contracts Finder searches and sends you contract leads free of charge. I would like to see a ‘Tell Us Once’ database introduced and promoted, where SMEs could self-assess and register all the details that government requires to begin doing business with them. That database should be linked to every procurement platform and businesses would automatically be notified of forthcoming tenders pertaining to their lines of work. My colleague Martin Traynor, the SME Crown Representative, has been asked that action across government in this regard is coordinated.
2. Finding your way through the labyrinth.
There have been some excellent examples of simple English being used in tender invitations. But it has a long way to go before SMEs can comprehend the plethora of expressions and requirements which are still widely in use. I would like procurement professionals to adopt a customised tender approach rather than pasting standard requirements as a default, some of which may inadvertently exclude SMEs from participating. I would also like to see procurers engaging with SMEs within their categories of spend, inviting feedback on how to make their tenders more SME friendly, and even contributing to the strategy of future procurements. Where this has been trialed procurers have found the experience refreshing and valuable.
3. Discovering that patience is a virtue.
Government business is a competitive environment and winning is not easy. But persistence is usually rewarded. As SMEs learn from feedback on why they initially lose, they improve their tenders and eventually start to win. Government can be a rich source of new business for decades and a hedge against recession. Government welcomes new entrants. Names begin to etch themselves into the minds of procurers and business starts to flow. So don’t give up. The trick is to make tender responses stand out with relevant content, excellent presentation, with clear, competitive and unambiguous pricing and by being submitted on time, exactly as requested.
Proxima: The government’s target of 33% spend through SMEs by 2022 seems ambitious given it is currently around 28%. What needs to change, and how are the SME advisory panel facilitating this, in order to reach this target?
A few years ago we saw a move towards aggregating contracts in government’s categories of spend and awarding fewer, much bigger contracts to large prime contractors through closed Framework Agreements. There are now signs that this trend is reversing in the light of evidence that these large contractors were chasing each other inside the Frameworks in a race to the bottom on price. This inevitably led to financial instability. Big companies then sometimes cut corners to save money which resulted in a decline in the quality of their service provision. Major contractors going into administration not only threatens the continuation of public services but also creates financial hardship for many thousands of SMEs working as their sub-contractors and for their employees who risk losing their jobs.
Moving more work directly to SMEs poses a much lower risk to government and creates a happier supply chain, providing better, smarter services often at a lower cost. So, in order to attract more SMEs to government business, it needs to do several things:
a. Examine every procurement more closely to see if goods and services can be procured differently and as efficiently as Framework Agreements. Dynamic Purchasing Systems, for example, offer procurers more flexibility and tend to appeal far more to the smaller business community. Not everything can be procured in this way, and big companies do play an important role in delivering public services, but it’s clear that many large contracts can and should be increasingly disaggregated in order to move the needle towards the SME community and redress the balance.
b. Cash-flow is the lifeblood for most SMEs. Public Contracts Regulations state there should be 30-day payment between government and its prime contractors and those terms should be reflected all the way down the supply chain. But thousands of SMEs working as sub-contractors find that is not the case in practice. Some prime contractors stretch payment terms well beyond this. Others demand that their supply chains sign up to 120-day payment terms and then charge SMEs who ask for earlier settlement.
To make doing business more attractive for SMEs working in supply chains government should manage payment with more rigor to ensure that 30-day terms are employed as soon as possible. Contractual pressure should be applied to convince Tier One prime contractors to reduce long payment periods immediately, right through their supply chains, and then by increments to a desired payment period of just 10 days in line with government’s own best practice.
Developing technology will speed this process even more, releasing billions of pounds to SMEs currently being held unfairly by prime contractors in their bank accounts. That additional fluidity in the market will enable SMEs to invest and grow their businesses providing a boost to the economy and creating more employment.
c. More use should be made of Project Bank Account by government procurers and contract managers. This simple system, which is mostly used in construction projects, safeguards public money by ringfencing cash in a separate bank account and secures faster payment direct to sub-contractors who know that their money is safe. Prime Contractors who fail to achieve incremental reductions in payment periods could be required to employ Project Bank Account on all major procurements until they can demonstrate their willingness to conform to better payment practice.
The government’s SME spending is calculated from government business going directly to smaller businesses, and indirectly through large prime contractors to their SME sub-contractors. Data is reasonably solid from many government departments and their arm’s length bodies, but regular and reliable information coming from big companies is patchy. Where prime contractors fail to respond, government assumes that no business is being sub-contracted and therefore 0% is taken into account for the target. The total percentage of spend to SMEs, therefore, is currently unreliable. There is a government requirement to report on Tier One spend on all higher value public contracts and we welcome that, but I would encourage government to go further. Public tenders should require that prime contractors must audit this data every six months and provide it to government as a condition of their contracts. Regrettably, regulations do not permit government to stipulate a percentage spend with SMEs which prime contractors should achieve in delivering their contracts. Should that regulation change, the SME Panel will be lobbying hard to see it included in all major contracts.
The SME Special Advisory Panel is actively working on many of these above activities and others by campaigning and lobbying, meeting with ministers and civil servants and taking part in working groups with procurers and other civil servants.
Proxima: The profile of work required by Government varies wildly by department. Which are the areas of Government where you feel SMEs are most able to win work and add value?
Jonathan Lewis: There are more than 65 categories of spend in goods and services which together total many billions of pounds annually. There’s plenty of choice for SMEs - from lift engineers to computer coders and defence specialists. The small business community can add value to the majority of them.
Click here to read Proxima's whitepaper: 'Why 'savings' is a dirty word in government'
Yes (Procurement) Minister – How The SME Target Got Developed: for a light-hearted (cynical!) view on the SME target vs. ‘ambition’, have a look at the Spend Matters article from 2011, republished and commented on last autumn.