National Audit Office questions government's SME claims – and urges clarity over contract management

Spending watchdog questions the government’s claims on SME spending, and urges departments to make sure that initiatives to improve commercial capability do not undermine attempts to support small companies

By Suzannah Brecknell

09 Mar 2016

Government initiatives to increase the proportion of contracts going to small and medium-sized enterprises (SMEs) have had limited success, and it is not clear whether an increase in spending with SMEs is down to these initiatives or data changes, according a new report by the National Audit Office.

Government spent £4.9bn with SMEs in 2014-15, and another £7.3bn of government money reaches small companies through supply chains.

This represents 27% of all government spending, meaning departments have exceeded a target, set in 2010, to award 25% of central government contracts to SMEs by 2015.

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However, the Crown Commercial Service – which is responsible for initiatives to increase SME spending – has changed the way it gathers data, and the NAO says it is therefore not clear “how much of the reported increase is due to the changes in approach and how much is an actual increase in SME activity".

The government now wants to award 33% of spending to SMEs by 2020, and the NAO cautions that this will require government to do more than simply reduce barriers which prevent SMEs from bidding for contracts.

Amyas Morse, head of the National Audit Office, said: “If the government is serious about increasing its use of SMEs, it will need to focus on those areas where SMEs can deliver real benefits.”

The report says wider trends in government contracting mean that SMEs may not be suitable to deliver work even if they can bid for it. 

Increasing the use of SMEs “will take a more concerted effort not only to remove barriers to bidding, but to ensure that what and how government procures achieves the desired benefits of using SMEs,” the NAO says.

"We have yet to see a clear strategy for central government"

The report also highlights a number of trends which may prevent SMEs winning more work, including the drive to pool government’s buying power to buy common goods and services.

“While the CCS has shown that SMEs can win contracts even when government merges its spending, the move towards greater price competition and standardisation changes the type of SME that is likely to win these contracts. This reduces the likelihood that SMEs will bring innovation or niche expertise,” the report says.

The Cabinet Office and HM Treasury have also recommended, in commercial capability reviews of 11 departments, that departments increase the seniority of their commercial teams but reduce the number of staff, meaning there will be fewer administrative staff to manage contracts.

“We have yet to see a clear strategy from central government about how it will manage its smaller contracts in this context,” says the NAO.

Another trend which may hamper SMEs is the growing use of prime contractors who manage a supply chain on behalf of government. 

“Consequently, most SMEs working on government contracts are part of the supply chain and it is not clear that this will lead to increased competition and innovation,” says the report.

Where SMEs operate in a supply chain, the NAO says government “should ensure prime contractors’ behaviour does not prevent subcontractors delivering benefits for the public sector.”

Despite a number of initiatives designed to remove barriers which prevent SMEs winning contracts, the report notes that “the barriers most commonly cited by SMEs – and echoed by government departments – have not significantly changed”.

To improve transparency around government procurement, making it easier for SMEs to find contracts, the NAO says the CCS must ensure departments improve the data they put on the Contracts Finder portal, and consider creating “an integrated cross-government procurement platform to support its commercial strategy”.

The report also notes that specific barriers still exist for charities and non-profit organisations. 

Commissioners still design contracts that do not reflect user needs, limiting providers’ ability to work with hard-to-help groups, said the report, and charities are  “particularly concerned” about short-term contracts which may not reflect the time it takes to help people with complex needs.

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