Public sector procurement: Missed targets and opportunities for SMEs

A recent report by the British Chambers of Commerce and Tussell has highlighted the ongoing challenges the public sector faces in meeting its procurement targets for small and medium-sized enterprises (SMEs).


Despite the UK government’s commitment to increasing the procurement of goods and services from SMEs, the numbers reveal a persistent shortfall. In 2023, only 20% of the total direct procurement spending in the public sector went to SMEs, amounting to £39.7 billion out of £194.8 billion.


An overview of the current situation


The report shows that while the overall value of public sector spending with SMEs has increased by 77% over the past six years, the proportion of total procurement spend directed to SMEs has remained largely unchanged. Local government fared better than central government in this regard, with 34% of its procurement spend going to SMEs, compared to a mere 2% in some individual central government departments.


The conclusion then is that SMEs continue to face significant barriers in accessing and winning public sector contracts. The complexity of procurement processes, high bid costs, and the recent dominance of large procurement frameworks have made it difficult for smaller businesses to compete with established suppliers.


Could the new Procurement Act provide an answer?


The Procurement Act, which received Royal Assent in October 2023 and is set to come into effect in October 2024, aims to address these challenges by opening up public procurement to SMEs and social enterprises. The Act introduces a more flexible and streamlined procurement system, with a focus on transparency and fairness.


Key provisions of the Procurement Act include:


-A central digital platform: This new platform will give details of all public sector tenders, making it easier for SMEs to find suitable opportunities and compete for contracts.
-Simplified processes: The Act aims to reduce the complexity of procurement procedures, making it less daunting for SMEs to participate.
-Mandatory Feedback: Public bodies will be required to provide feedback to unsuccessful bidders. This will help SMEs understand how they can improve future bids.
-National Procurement Policy Statement: This statement will guide contracting authorities to level the playing field for SMEs by removing unnecessary barriers and avoiding disproportionate contract requirements.


What proactive steps could you take?


If the Procurement Act is successful in reshaping public sector procurement, you could have a significant opportunity to increase your business. Here are some proactive steps you could take to become a public sector supplier:


1.   Familiarise yourself with the Procurement Act: Understanding the changes introduced by the Act will be crucial. Keep up-to-date with developments and guidelines as they are released, and prepare to take advantage of the new digital platform once it is live.


2.   Engage with procurement frameworks: Although procurement frameworks have been seen as a barrier, they also present opportunities. You should seek to understand how these frameworks work and explore how to become part of them, potentially in partnership with other businesses.


3.   Invest in bid preparation: The quality of your bid is crucial in securing contracts. Consider investing in resources or training to improve your bidding skills, including understanding the specific requirements of public sector contracts and how to meet them.


4.   Seek feedback and adapt: Take advantage of the mandatory feedback provision under the new Act. If you make a bid that is unsuccessful, use the insights you will now get to refine your approach and increase your chances of success in future tenders.


5.   Network and collaborate: Building relationships with larger suppliers and other SMEs can lead to subcontracting opportunities or joint bids, which can be particularly beneficial when tackling larger contracts.


6.   Leverage local government opportunities: Since local governments have a higher proportion of spending with SMEs, they may offer a more accessible entry point for you. Focus on building relationships with local authorities and exploring contracts that are well suited to your business’s size and capacity.


While the public sector has fallen short of its procurement targets for SMEs, the forthcoming changes under the Procurement Act could present you with some promising opportunities.


By understanding the new legislation and taking proactive steps, you will be able to better position your business to win public sector contracts and contribute to the growth of your business in this evolving market.


See: https://www.icaew.com/insights/viewpoints-on-the-news/2024/sep-2024/sme-public-sector-procurement-spend-stalls-despite-pledges