SMEs (Public Sector Procurement)

Jonathan Edwards Excerpts

Tuesday 11th June 2013 Westminster Hall

[Mr Iain McKenzie (Inverclyde) (Lab)]

It is indeed a pleasure, Mr Hollobone, to serve under your chairmanship today.

I start by congratulating my hon. Friend the Member for Ogmore (Huw Irranca-Davies) on securing this very important debate. He spoke on this subject with passion, enthusiasm and knowledge. I could not agree more with what he said, to the point that I fear I may just repeat his speech with a Scottish accent. Without doubt, the importance of small and medium-sized enterprises across the UK cannot be overstated. SMEs are the backbone of the British economy and we need to ensure that both central Government and local government do everything they can to help them through the procurement tendering process to secure contracts.

SMEs employ more than 14 million people and have a combined turnover of £1,500 billion, which accounts for some 47% of private sector employment and about 34% of turnover. Importantly for a local economy, 83p of every £1 spent with a local business will go back into that local economy.

Those are just some of the statistics about SMEs. They are vital to the economic well-being of Britain and vital to employment opportunities. They are the driving force of our economy and they deserve their fair share of public sector procurement. Small businesses are struggling to survive in these challenging economic times, so it is essential that they have every opportunity to win Government contracts or to become part of the supply chain to local and national Government.

Public procurement spend is significant even in these challenging times. Public sector bodies, including central Government, the armed forces and the NHS, spend around £220 billion a year on goods and services—everything from stationery and office furniture to medical equipment and catering services. Despite that, however, public procurement is an underused tool when it comes to keeping trade local. Nearly three quarters of SMEs rarely or never bid for government work, and more than three quarters of SMEs believe that there are barriers to awareness of government opportunities. Many say that lengthy and complex pre-qualification questionnaires disadvantage smaller businesses. The playing field has been stacked against SMEs trying to win public sector contracts. To many SMEs, public procurement seems to have been deliberately designed so that they do not succeed.

More than half of SMEs feel that the process of tendering for Government contracts requires more time and resources than their business can allow for. Some 50% of SMEs find it significantly more difficult to deliver to Government agencies than to the private sector, mainly because of the additional formalities required by public sector clients. SMEs say over and over again that the bureaucracy needs to be simplified to help them bid for public sector contracts and especially low-value contracts.

The majority of SMEs are relatively unaware of where to look for opportunities, and they believe it is too time-consuming to try to find out about them. In addition, they do not bid, because they feel they are unable to compete with larger suppliers. One in five SMEs believes it is unsuccessful in a bid because it is unable to offer better value for money than other suppliers.

One member of the Federation of Small Businesses said:

“Local authorities are the bureaucratic mind at work, busily inventing disproportionately complicated procedures.”

Does that not sound familiar?

Could the Minister look at the following points—she will be glad to hear that the list is not overly lengthy—to improve SMEs’ prospects of securing Government contracts? First, could access to public contracts and pre-qualification questionnaires not be simplified? Secondly, could there not be education seminars on how to tender for contracts, especially through e-procurement? Thirdly, there could be much better access to information about public sector procurement opportunities for SMEs. More needs to be done to improve channels of information, so that small businesses know what contracts are up for tender.

Government buyers need to develop business associations with local SMEs and to set up standard contracts of terms and conditions before inviting companies to tender for released contracts. That will, of course, entail a separation of duties, in that those who source would not be those who evaluate tenders and place contracts. There also needs to be a focus on building an integrated supply chain, in which there are no weak links, and on applying green procurement to keep that supply chain as short and as local as possible.

Where possible, e-procurement should be used to enable SMEs quickly and economically to bid for contracts. The Government also need to target and improve contract monitoring for performance if business associations are to continue and to be justified. In addition, the Government must prove best value by having multiple bids that are evaluated against clear contract weighting.

What of the spend of local authorities? The procurement spend of many councils is significant, averaging £185 million for each local authority. Nationally, that is billions of pounds per year. On the basis of the rather limited figures available, however, less than 50% of that spend goes to SMEs. A significant proportion of councils do not record the size or location of the businesses they spend with, and that should be rectified.

Cost savings are overwhelmingly the biggest driver of procurement policy, outweighing other factors, such as the quality of goods and services, and economic development. That is understandable, given the constraints on local government, but it is, none the less, regrettable, because cost should not always be the most significant factor in awarding a contract, and savings can also be made through quality.

If you will allow me, Mr Hollobone, I will describe what has been taking shape in Scotland over the past couple of years. There has been a total redesigning of the procurement process, which has embraced private, cutting-edge procurement practices to bring about the maximum savings. I hope that will banish the days of off-the-shelf, catalogue procurement.

Some years ago, Scotland Excel was developed, bringing together the combined spend of the 32 local authorities in Scotland. More to the point, it updated and standardised procurement practices, which was necessary if local government was to deal with these challenging times and bring about the savings required in their spend. Many SMEs have been successful in gaining contracts through this collaborative buying consortium. Many other areas of the UK employ buying consortiums; they have had many successes, and they have many good practices they could and should share across the country.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

I apologise to the hon. Member for Ogmore (Huw Irranca-Davies) for being rather late for the debate. The hon. Member for Inverclyde (Mr McKenzie) is making an important point. About 75% of procurement in Scotland is sourced in Scotland, but only about 50% of procurement in Wales is sourced in Wales. What are the major lessons Wales could learn from Scotland?

[Mr McKenzie]

They are working jointly, and the McClelland report has been shared by both Administrations. As I said, it shone a light on procurement practices in local and national Government and updated them, bringing in many good, cutting-edge practices. It is recognised that if we devolve procurement to a local level, the supply chain can be improved and can be kept as short as possible. I should also mention the green procurement card, which is used across Europe to justify a local spend.

Can SMEs do anything to improve their situation? Yes, they can. They can prepare before bidding for contracts. They should know their strengths and highlight them in any bid. They can become aware of appropriate opportunities and select the right ones. They can engage with their clients, discussing their requirements if they are unsure about them.

SMEs can also use their clients’ chosen method to deal with those clients. If that is online, they should learn how to load to the bid portal and about what limitations the portal has in terms of the size of the tender document and the time it takes to load. SMEs should not miss a bid by running over the deadline because their data was slow to upload.

SMEs should also fully meet their clients’ needs and know what matters most in their hierarchy of weighting. Finally, they should combine expertise with innovation, and explain themselves clearly if any new practices or processes are involved on their side of the supply chain.

We should always remember that awarding to local SMEs has many rewards: it builds local businesses, with many becoming subcontractors to the initial contract winner; it creates local employment opportunities and secures employment locally; and moneys spent locally tend to circulate locally, supporting other businesses and jobs. To conclude, SMEs are important, and they will always be important to our economy.

--- Later in debate ---

[The Parliamentary Secretary, Cabinet Office (Miss Chloe Smith)]

I am grateful to the hon. Member for Ogmore (Huw Irranca-Davies) for initiating this debate on such an important subject and for setting us off so passionately. As has been echoing around the Chamber this afternoon, we share a passion for the same thing: seeing excellent procurement that serves the customer—in this case, the taxpayer—and promotes growth. I am confident that every Member here supports those aims and that my remarks will outline the action merited by that.

From the outset, the Government have fully recognised the vital role that SMEs play in helping us achieve the best possible value for money—in some cases for reasons of cost and in others for reasons of innovation, a theme that has also rightly reverberated around the Chamber—when we buy goods and services for the citizen, such as school, hospital or prison meals, wallpaper or any other goods or services.

In the minutes remaining, I will take the hon. Gentleman’s invitation to shatter some myths. Let us do that together this afternoon, because he is absolutely right in laying down his support for the theme and in his desire to see increased awareness of what is available for SMEs, of the ways in which they can grab it and of the ways in which we can hold procurers to account.

I will start by addressing the goal that, by the end of this Parliament, 25% of direct and indirect Government procurement by value should go to SMEs. Although I want to move on to some content that I know will be of great help to every Member when talking to their constituents, I first need to make an overtly political point. I am sad to say that we had to take the bold step of setting a 25% aspiration because before that, under the previous Government, no effort was made to measure such things. The lecture I have just received from the Opposition Front-Bench spokesman is more than a little rich in that context. Even a member of the previous Government has had the dignity to look ahead and say what we need to do better for SMEs, and I am afraid that I do not think the Opposition Front-Bench spokesman is hitting the same heights.

After a lot of hard work in 2010, we found out that SME procurement in 2009-10 amounted to 6.5% of all procurement, or £3.1 billion—a shamefully low figure given that 95% or more of private sector businesses in the UK are microfirms, or companies with fewer than 10 employees. We recognised that something had to be done to remove the barriers facing many companies when bidding for Government contracts, and we have gone a long way towards removing those barriers. I will work through a couple of points that will help Members to express that to their constituents, which is one important thing we can do to send the message outwards.

Over the past three years, we have increased accessibility and transparency, identified and addressed poor procurement practice and provided practical assistance to help SMEs. I will start with accessibility and transparency. We have made contracts smaller and broken them up under various headings. Some of the finest examples of that can be found in information and communications technology, where historically Governments have been subject to procurement disasters. We have instead deliberately gone out to approach SMEs for Government ICT needs and have had some good successes. We have also set up Contracts Finder to increase accessibility; it is a one-stop shop to enable suppliers to find procurement and subcontracting opportunities. They can also find tender documents and contracts online, all free of charge. I urge anyone listening to or reading this debate to look at that.

People will also find online and accessible pipelines of what the Government are looking to procure under a range of topics. All those kinds of thing help would-be suppliers to know what we are looking for. As I said in my opening remarks, we believe in procurement for growth, and we believe strongly that pipelines can help in that endeavour by explaining to industry what this very large customer, the Government, are looking for over time.

In the dynamic marketplace, companies can register without cost to provide quick quotes for low-value Government contracts below £100,000. That enables them to bid and compete at minimal cost alongside larger suppliers. I recognise the points made this afternoon about the cost of bidding. We are doing something about that. On the other side of the deal, what does that give customers—Departments and the taxpayers whom they represent? It gives us cost-effective access to pre-registered Government suppliers and allows bids to be issued and responded to electronically, which again makes the procurement process quicker and more effective.

On the theme of transparency, I also note that we have established a Crown representative for SMEs, which I know will be of great interest to the hon. Member for Islwyn (Chris Evans), who wanted to know where SMEs could turn for help. There is a Crown representative in Government especially for the purpose of giving SMEs a voice at the table. That is vital, and we have done it. We have also set up an SME panel to provide a regular forum for SMEs to raise the issues that concern them most and hold our feet to the fire. I assure the hon. Gentleman that the SMEs on that panel do so. I have been there, and I have enjoyed meeting the panel very much.

Moving on to tackling poor procurement practice, we have heard a couple of good examples in this debate, particularly from my hon. Friend the Member for High Peak (Andrew Bingham), who spoke about a wallpaper supplier in his constituency. I will start with that example. It is a great shame that he and his constituents felt the need for anonymity in that example. I understand entirely, but we would all like to live in a world where they did not receive bad service and did not feel the need to hide it for fear of reprisals.

We have introduced a mystery shopper service that will be familiar to anyone who has seen such a thing in supermarkets or reputable businesses throughout the private sector. It allows poor procurement service to be identified and acted on. If a supplier encounters poor procurement practice, such as the overly bureaucratic pre-qualification questionnaire in my hon. Friend’s example, or unreasonable selection criteria, as in other examples, they can refer it anonymously to the mystery shopper service, so that we can investigate it on their behalf.

I encourage and urge all constituency Members to push that information out to SMEs or anybody bidding in their constituency for Government work. It is the only way that one by one, piece by piece, we can tackle that kind of bad practice. It allows us to identify the broader themes that we can perhaps tackle more systematically, but it also allows us to put right individual cases where something has gone wrong.

[Jonathan Edwards]

Based on what the Minister is saying, does she consider the move towards centralising legal aid contracts an example of bad procurement?

[Miss Smith]

I suspect that I do not have time to do that topic justice and that you would not wish me to go there, Mr Hollobone. However, if the hon. Gentleman thinks that it is bad practice, he or anybody else ought to enter it into the mystery shopper and see what comes out the other end. We regularly publish the outcomes of mystery shopper investigations on the gov.uk website, and I am sure that the hon. Gentleman will find it easy to use.

By 31 May this year, we had received 425 mystery shopper cases. Of those that we have closed, a great majority have had a positive outcome. Once again, I encourage all Members to ensure that their constituents are aware of it.