New report: Government must spend more with small businesses to unlock growth
Posted: Wed 13th Jul 2022
Enterprise Nation is calling on the government to dramatically increase spending with UK small businesses to unlock economic growth and create a more dynamic economy.
A new report, Access all areas: Government, found that despite policy ambition to increase spending with SMEs to 25%, over the past five years the government had managed to spend just 10% of its total procurement budget directly with small businesses.
The report from Enterprise Nation and think tank The Entrepreneurs Network analysed fresh figures from government tenders and data provider Tussell. It showed that the inability to turn the dial on direct spend was partly down to the lack of information the government holds about how the 5.5m strong small business community operates - and how they can be helped.
As a consequence, the system requires a lot of unnecessary bureaucracy, which is vastly easier for larger firms to cope with. Most SMEs do not have the slack to dedicate staff time and resources to searching for procurement opportunities or filling out arduously long tenders, the report said.
Procurement in the UK accounts for a third of all government spending, and over a 10th of all spending in the economy, which means the government has more fire power to support start-ups and small business growth than many understand.
Emma Jones CBE, founder of Enterprise Nation and a former SME Crown Representative, said:
"The government has done a great job of encouraging the growth of the UK's start-up and small business ecosystem. The next logical step is to play a role in their growth, by ensuring they are buying from them, either directly, via consortiums or through larger businesses that make a point of working in partnership with small firms.
"Working with government can be life-changing for smaller businesses. It can provide them with opportunities and experiences and can lead to sustainable and significant scale.
"We're not suggesting a 'bonfire of the red tape', but this report shows a significant reduction in bureaucracy could help to turn the dial on small business growth."
How more small businesses can win government work
The report highlights a range of policies that could help make it easier for small firms to compete for government contracts. These include:
Publish pipelines early. Public bodies should post a pipeline of contracts that are likely to come up. For example, the government knows that if it has cleaning services for their buildings and has negotiated a two-year contract, it will want some form of cleaning services again in two years' time.
Improve pre-procurement consortium building. Provide a platform which can allow businesses to connect with each other so that they can decide to submit bids together and/or with large tier one suppliers.
Establish a pro-innovation culture. Look for indicators other than history of procurement to deduce ability to deliver on scale. This could include things such as some staff have worked on large projects or if the company has managed to scale quickly.
Write bids in a way that allows for more innovative solutions. Procurement teams should avoid writing tenders in a too narrow format. Instead of procuring for "a local library" they should instead consider writing a tender for “"a way of giving local people access to a broad catalogue of books" and see what solutions firms offer to their problems.
Decrease bureaucracy. Dynamic procurement allows companies to submit information about their company once, which then makes them eligible for all contracts of a certain type. On this, we welcome news of the single sign-on referenced in the Procurement Bill now going through parliament.
Stick with one method of publishing SME spending. Government should establish one method of measuring the proportion of procurement budgets going towards SMEs and stick with it.
Jarmila Yu, an Enterprise Nation member and founder of YUnique Marketing, was invited to submit an application to provide marketing advisory services to clients of a government supported regional growth hub in May 2021. But a protracted onboarding process meant it was eight months before she could start work.
"It was quite a small contract, but meaningful, as it was a way to supplement my own work and crucially support more small and growing businesses needing help.
"But the procurement process was highly burdensome, considering that from initial conversation to first client engagement it took eight months.
"The formal onboarding process involved information submission via a procurement portal that was cumbersome and counter-intuitive and whilst I already had relevant professional documentation such as insurances and IT systems in place I used for my private sector clients, I had to conform with the government requirements which involved added expense.
"Very soon I was in the rhythm of supporting clients. I had some very enjoyable interactions."
The report found the worst performing department is the Department for Transport. It is the largest department in terms of procurement spending (£12.59bn) but spends only 2% of this with SMEs.
The best performing departments are the smaller ones. The Department for Digital, Culture, Media and Sport (DCMS) at 37%, the Department for Trade at 25%, and the Department for Levelling Up, Housing and Communities at 23%. But they only have procurement budgets of £100m, £90m, and £410m respectively.
The report is the second of four briefing papers from Enterprise Nation and The Entrepreneurs Network on key areas of policy for small business owners.
Informing the report are meetings with the Small Business Forum, a group of 20 business owners who provide valuable insights about the challenges SMEs are facing.