Public Procurement (British Goods and Services) Bill

Mark Tami Excerpts

2nd reading
Friday 15th March 2024 Commons Chamber

[Sarah Champion]

I thank the hon. Gentleman and my hon. Friend the Member for Brighton, Kemptown (Lloyd Russell-Moyle) for their work on that important Bill. I am trying to aid the process of that roll-out because, if my Bill passes, procuring authorities will have to publish what they are procuring. That will probably be the only data available to see whether the cross-party intention, as set out in the Procurement Bill, to try to get more British businesses supported through our procurement processes, is working. If it is not working, Ministers would have the information to make the updated guidance bolder. That data would enable Ministers to give procurement money to British businesses if they wished, and if that was not breaching any laws. I see my Bill as a help; I do not see it under- mining what is happening because of measures in the Procurement Bill.

There is something going on—the hon. Member for Darlington has anticipated my next point. Importantly, the Bill does not require public procurement professionals to take any specific action beyond reporting what has been procured and how that benefits the local environment. Such an obligation cannot reasonably be seen as compromising the UK’s international obligations, which is a concern the UK Government previously had with “Buy British” policies. The measure will benefit UK food producers on the principle that what is inspected is generally delivered. I am proud that the NFU, the Countryside Alliance and the RSPCA all helped me to develop the Bill, and they support it.

It feels as if the Government, and particularly the Minister, support it. I welcome the recent announcement of an independent adviser, the hon. Member for Colchester (Will Quince), to support the ongoing work to improve public sector food procurement. The areas of the review are strikingly close to those I seek to address with the Bill, so I am incredibly grateful that the Minister has offered the time of the hon. Member for Colchester, and hopefully the time of civil servants, so that we can work together towards those common aims.

I turn to another key driver behind the Bill, which is enabling small and medium-sized enterprises to access public contracts. SMEs make up 99% of UK businesses and account for 61% of employment. Despite being the beating heart of our economy, research from the Federation of Small Businesses has found that SMEs are effectively shut out of the public procurement system. Only one in five SMEs has bid for a public sector contract in the last three years. In the construction industry, a sector heavily reliant on SMEs, only two in five SMEs have bid for a public sector contract in the last three years. Of SMEs new to public sector opportunities—those with experience of between one and nine bids—49% have failed to secure a single contract in the last three years. The lack of transparency means that they do not know why they have failed. Submitting a tendering application is a resource-heavy process. If an SME keeps getting knocked back, the stats show that it will eventually stop trying.

The National Federation of Builders, a trade association representing the interests of small and medium-sized house builders, told me that one of its members had not successfully bid for a public sector contract for over a decade, even though it is well qualified to deliver. Sadly, this situation is replicated across most sectors. Of course some SMEs are rejected for good reasons, but there is clearly a cultural issue in public contracts being awarded to large, often multinational businesses over SMEs.

[Mark Tami (Alyn and Deeside) (Lab)]

Smaller companies are often put off because the cost of tendering for such contracts is so high that failing to win the contract could have a really detrimental impact on the business as a whole.

[Sarah Champion]

My right hon. Friend is absolutely right, and that chilling effect is having a negative impact on all our SMEs. The working group debated dividing bigger contracts so that local SMEs are more inclined to go for them but, unless SMEs know why they have failed and unless they know that the door is actually open to them, why would they waste their precious resources on bidding for something that they see as utterly futile? That is what we have to change.

There is clearly a cultural issue, which is demonstrated by the fact that 90% of contracts deemed suitable for SMEs are awarded to large corporations. Data from the British Chambers of Commerce found that, in 2016, 25% of public sector procurement spending was awarded directly to SMEs. As of 2021, this figure had dropped to 21%. Only just over £1 in every £5 spent by the UK Government on public services is going straight to SMEs, which is in stark contrast to their 2022 target of spending £1 in every £3 with SMEs.

The national chair of the Federation of Small Businesses said in August 2023:

“Meeting procurement targets isn’t just a bureaucratic milestone—it’s an affirmation of trust in our small business community.”

He is right. SMEs offer so much expertise and innovation, and they must be awarded more suitable public contracts. Frustratingly, when they get a bite of the cherry, it is usually as a subcontractor, with much lower remuneration than if they had been the lead, and of course without the public credit. An example of this led me to introduce this Bill.

A Rotherham business that leads not only the UK but the world with its innovation was grateful to deliver a £1 million Government contract. However, it was actually a £10 million contract that had been delivered to a multinational that then subcontracted it down to my business, having done nothing other than the packaging and the marketing around it. Had my business known that it could apply, even if it was paid £2 million, it would have meant that the business did not have to do it at cost for what it hoped would be a way in to Government procurement. The business could have done it, made a profit and kept going, but the business is currently facing a tough time.

By amending section 1(3) of the Public Services (Social Value) Act 2012, my Bill seeks to add an obligation for contracting authorities to consider how procuring from small and medium-sized enterprises might improve their area’s wellbeing. Clause 2 will require contracting authorities to report how they have complied with this obligation. It is hoped that these changes will increase the importance of SMEs within social value tenders and will encourage the public sector to award more contracts to them.

As I mentioned, billions of pounds of public contracts are awarded to foreign suppliers every year. The most recent data shows that a substantial number of contracts are awarded to foreign suppliers both directly and indirectly —indirectly being when a foreign supplier controls the successful applicant for a contract. Of public contracts valued below £200 million, 2.3% were awarded directly to foreign suppliers, but this rose to 17.6% when indirect awards were accounted for. The story is similar for contracted values over £200 million: 2.1% were directly awarded to foreign suppliers whereas 31.5% of contracts were indirectly awarded to foreign suppliers.

An example of such a contract is the £1.6 billion Royal Navy contract awarded to a Spanish-led consortium in 2022 over an all-British one. Analysis shows that at least 40% of the work, worth £64 million, will go abroad and be carried out in Spain. To compound this issue, there have been no concrete answers as to whether there is a limit on how many jobs will be created in Spain and why there are no targets for UK steel in the contract.