SMEs lose out in Procurement Targets
Did you know that there are more than 5.2 million small businesses (SME) registered in England? They hire more than half our private work force and contribute nearly half of GDP (£1.8 trillion).
With stats like that you would imagine a government provides key financial support to start-ups and SMEs. Unfortunately that is not the case. For SMEs, government contracts are considered prestigious. Yet under the last cabinet, they were awarded less than 7% of them, from over £45 billion of budgeted public procurement.
The government say they have hit their target of awarding 25% of all contracts to SME through direct and indirect means through the supply chain. However, indirect contracts mean SMEs are not awarded the work, as it was awarded to big business. However, somewhere in the supply chain, which may span several larger enterprises, SMEs were involved in the delivery of some loosely related services. This does not automatically guarantee public money is reaching SMEs, yet allows the central government target to be met.
Also of course, if big business wins the tender then subcontracts it out to smaller, more experienced businesses, they take a percentage of the contract value as account or project management fees, or simply for acting as middle-people. This cannot be considered beneficial to SMEs because they were not given the full value of the contract, yet are delivering the full extend of the valuable work, preventing them from growing as their profit margins are reduced or in some cases non-existent or even loss-making. This is akin to unfair supermarket pricing and buying practises by the big supermarket chains who sit between consumers and farmers and other suppliers.
Moreover, this cannot be considered value for money for the taxpayer when they are paying over the odds for goods and services from big businesses. SMEs are more often than not more qualified in areas big businesses are not, which is why they exist in the supply chain in the first place. Even if they are in the same field, they are also able to do it cheaper as they have a greater productivity per pound invested and of course, don’t have to be paid the middle-person fee. This is borne out by the productivity of SMEs over larger enterprises, adding value over 30% greater per employee than big businesses.
Whilst the government can say that they have hit their own targets, they should do more to make sure that they are directly awarding public procurement contracts to SMEs. Rather than hope that big businesses will relay some of the work.
Check out our feature in Greater Manchester Chamber of Commerce.
During Startup week Europe 2016 we will be posting topical blogs about SMEs in England.
