Small businesses could miss out on over £33 billion worth of UK Government contracts in the ten years to 2022, according to procurement specialists Millstream.
The Government has set itself a target of spending £1 in every £3 on SMEs by 2022 through both direct and indirect spending as part of a drive to re-balance the economy. It procures around £50 billion worth of products and services a year.
However, according to Millstream analysis*, in the last five years direct government spending on SMEs has only grown by one percentage point from 10% to 11%.
The firm estimates that, if spending on SMEs increases at its current rate, the SME community is likely to have missed out on £33.5 billion worth of government contracts in the ten years to 2022 – at precisely the time that the government is hoping to attract more tenders from them.
Penny Godfrey, General Manager of Millstream, said: “This could be a real missed opportunity for the SME community. Despite a major push to redistribute spending amongst a larger number of smaller firms, current trends suggest that not enough SMEs are tendering for and winning government business.
“This is not itself a criticism of government: the target is there to encourage smaller businesses to apply for contracts. Doing so would spread risk for the government and improve its access to specialist businesses. Of course, it should also redistribute investment around the UK.”
According to Millstream, it’s not all doom and gloom, the UK government is on track to double the proportion of funds it spends directly on SMEs by 2022. In 2009, just 6.5 per cent of total government expenditure went to SMEs, but Millstream predicts it will hit 13% by 2022.
However, the government’s target is not exclusively based on the direct contracts it offers to SMEs, but on the total overall benefit to SMEs, which includes indirect contributions to the SME supply chain. By this definition, government spending on SMEs is actually decelerating.
Penny Godfrey added: “More must be done to encourage tender submissions from SMEs. Businesses must appreciate that the process needn’t be arduous. Buyers really want to see more small businesses getting involved. It is vital that we stimulate tendering for government work – SMEs must understand that the opportunities outweigh the risks.”
Millstream made the following presumptions in its calculations:
- YoY increase of 3% on total procurement spending by the UK government 2016-2022
- Improvement in the % of total (direct & indirect) SME spending follows the direct spending trend of the UK government from 2011-2015 onwards (=growth of 1% every four years)
- To make the most conservative estimate possible, we used the highest % spent on SMEs available as starting point for projected spend from 2016 to 2022