Does Size Matter? SMEs in Public Sector Procurement
Posted by Diane Callaghan on November 9, 2009
The public sector is a potentially lucrative source of business, as the UK spends about £222 billion a year on procurement. There are also certain advantages to working with public sector organisations; they are required by EU law to be transparent and fair in the way they choose suppliers, they are very stable and reputable, and usually make prompt payments.
Small and Medium Enterprises (SMEs), which constitute 99.9% of UK businesses, are potentially major suppliers to the public sector. SMEs often provide higher quality specialist or tailored products and services. Many supply new and innovative solutions, and they usually have a more personal and flexible approach. Additionally, more suppliers usually results in more competition and therefore better value for money.
SMEs and public sector purchasers should be a match made in heaven, but research (e.g. the Glover review, EC’s Code of Best Practices for SMEs), has shown that SMEs still face a number of difficulties competing for public sector contracts, including:
- Obtaining information: SMEs tend to have fewer resources and staff to dedicate to sourcing opportunities, especially lower value contracts (which may be of particular interest to SMEs) as these are not published in a centralised database.
- Lack of knowledge about the tender process: Public sector procurement can be a daunting prospect, especially when tenders are full of jargon and are unclear about what is required.
- Excessive administrative burden: SMEs usually have less administrative capacity to deal with tender documents. PQQs often ask for very similar information, but in numerous different formats, making just pre-qualifying a lengthy task.
- Large size of contracts: There is a current trend in the public sector to aggregate the supplier base, creating larger and longer contracts, which means that these are often too big for SMEs.
- Disproportionate qualification levels: SMEs may be relatively new and therefore not have a public sector track-record. They may not be able to provide several years audited accounts. Accreditation criteria is not consistent across the public sector, and therefore it can be difficult (and expensive) for SMEs to know which accreditations to obtain.
In spite of these obstacles, SMEs can and do win public sector business. What is more, there are initiatives aimed at reducing the barriers that SMEs face when competing for public sector contracts:
- There are a number of websites where you can access public sector tenders and some of thse offer an email tender alert service. A small subset of these websites also identify the huge number of contracts worth up to £100k that aren’t advertised in the Official Journal , which of course includes our own Tenders Direct website.
- Training courses can be a good way of gaining an understanding of public sector procurement. It is also worth reading “Doing Business with…” pages on authority websites to get an insight into that particular authority’s procurement strategy. Purchasing authorities are also being encouraged to write clearer and more concise tender notices.
- More public sector organisations have started using E-procurement solutions, allowing easier access to relevant information without incurring copying or mailing costs. It has also been suggested that there should be a standardised PQQ so that suppliers do not have to go through this process every time.
- Bigger contracts do not necessarily exclude SMEs; if the tender is broken into lots then SMEs can bid for only the sections of the contract that they can provide. Alternatively, SMEs could join forces and submit consortia bids, or work with larger companies as sub-contractors. Prior-Information Notices (PINs) can be good for identifying up and coming projects so that suppliers can establish affiliations before the contract is up for tender.
- Best practice guidance encourages public sector bodies to set criteria and accreditations that are proportionate and relevant to the contract in question. Three years of audited accounts are not a set requirement, if these are not available, authorities could consider other appropriate information. Likewise, a public sector track-record should not be essential, if suppliers can show relevant experience it shouldn’t matter if it is from the public or private sector.
So, both SMEs and public sector bodies can improve their practices so that both parties can reap the benefits of working together. Size does matter, but it’s what you do with it that counts!