New procurement laws introduced aimed at helping more small businesses win public sector contracts

Small and medium sized businesses could win a greater share of the £300bn spent on public sector contracts each year after the government’s Procurement Act received Royal Assent.

The legislation establishes a new public procurement regime from October 2024 which the government says will be a "simpler and more transparent system that delivers better value for money, reducing costs for business and the public sector.

Improving small business access to public sector contracts is a key aim of the new regulations. In 2015, the government set a target of delivering a third of public sector contracts to small businesses by 2020. It was later extended to 2022 but the target has not yet been reached.

The new measures being introduced include:

• A new duty on contracting authorities to review the particular barriers facing SMEs, and to consider what can be done to overcome them.

• Large organisations will be required to publish a pipeline of contracts over £2m for 18 months to help suppliers have more time to prepare a pitch to deliver them. These will be published on a new central platform showing contracts by region.

• A current key challenge for small businesses is the requirement to register on multiple platforms if they want to pitch for a contract. For example, if a construction business wishes to bid for public sector work, they may need to sign up to the NHS, a local authority, housing associations and universities separately. To combat this, a new supplier registration system will be introduced that suppliers sign up for once. The information provided will then be integrated with individual procurement systems.

• Currently, contracting authorities can require businesses to have insurance to be in place before a contract has been awarded. This means that prospective suppliers have to incur unnecessary costs with no guarantee of winning the contract. The new rules prevent public sector organisations from having this requirement.

• To combat late payment, 30 day payment terms will apply throughout public sector supply chains, regardless of whether they are written into the contract.

Cabinet Office Minister Baroness Neville-Rolfe said: 

"These new rules will help grow the economy and deliver better and simpler public sector procurement.

"I am particularly pleased to help small and medium sized businesses secure a greater share of nearly £300 billion worth of government contracts."

The latest figures show SMEs won £21bn worth of work from government departments in 2021/22, an increase of £1.7bn on the previous year, but the proportion of contracts awarded to smaller firms declined from from 26.9% in 2020/21 to 26.5% in 2021/22.

Direct spending by government with SMEs also fell in 2021/22 from 14.2% to 12.3%, while indirect spend, when smaller businesses deliver work to a larger company with a public sector contract, increased from 12.7% to 14.1%.

A report by Enterprise Nation, The Entrepreneurs Network and Tussell released last year found that the government's failure to meet the procurement target for SMEs is 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.

Commenting on the Procurement Act, Daniel Woolf, head of policy and government relations at Enterprise Nation, said:

"The new measures will hopefully lead to more small companies getting access to the £300bn spent on public sector contracts each year, and help the government reach its long held target of delivering a third of contracts to smaller firms.

"The creation of a new central platform, which will publish public sector contracts available by region, is a particularly welcome practical step in boosting small business participation in public sector bids.

"This platform will let small businesses see forward pipelines, showing them which contracts to go for, where to invest, and when to prepare to bid or work with partners to develop consortia and joint bids. Publishing pipelines early was a recommendation in our 'Access all areas: Government' report in 2022 so we are very pleased to see this included.

"Small businesses will hope their increased access to public sector contracts will be accompanied by an open-minded approach from government bodies towards small business contract proposals and not the continuation of a tendency towards larger incumbents in public sector bids.

"Public sector contracts are vitally important to the growth of many small businesses. The contracts are usually paid promptly and small firms get to work with large businesses that can share best practice.

"Enterprise Nation is keen to work with the government to boost regional awareness of the proposed pipeline to help maximise small business participation in public sector contracts."

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