SMEs (Public Sector Procurement)

Neil Carmichael Excerpts

Tuesday 11th June 2013 Westminster Hall

[Andrew Bingham (High Peak) (Con)]

It is a pleasure, Mr Hollobone, to serve under your chairmanship. I congratulate the hon. Member for Ogmore (Huw Irranca-Davies) on securing this very important debate. He spoke with great passion and I agree with many of the points that he made.

I ran a very small business for many years and know how hard it is to procure contracts with public sector organisations. When dealing with private sector businesses, I used to find that the public sector had three questions. “Can you supply the goods? What is the price? Is the quality of the product good enough?” Indeed if any of us were buying something for ourselves, whether a three-piece suite or a new carpet, those would be the three questions we would ask. However, I understand that when considering public sector procurement, life is not quite as simplistic as that; there are other significant issues to be addressed. Moreover, as a public body dealing with public money, there are certain other considerations that should be taken into account. Ostensibly, though, they should be looking for the same thing: a good reliable service or product that is properly produced at a competitive price and has a robust after-sales back-up service.

Let us stand up for the public sector. Small businesses derive one advantage from dealing with a public sector organisation—as I can vouch from experience—and that is security of payment. I have lost count of the number of times over the 25 years that I was in business when private customers delayed payment, were slow in payment or, even worse, went into liquidation or receivership owing my business money. Sometimes they owed me very small amounts. Thankfully, it was only on a few occasions that I was owed large amounts. At this point I could veer off into the issue of phoenix companies, but I am sure that you, Mr Hollobone, would soon call me to heel.

We are talking about SMEs, which can employ 100 employees, but I also want to bat for the micro-businesses with five or six employees. When a public sector body sends an inquiry to a small business, that SME knows that its money will be safe, which is important. My late father used to say, “It is not sold until it is paid for, son.” An order from a local authority was almost as good as getting cash in the bank. When the public body comes knocking, it should be a cause for hope and perhaps even celebration for a small business; they have an inquiry from a responsible public authority that they know they will be paid for and from which they can hopefully make a reasonable profit. However, in reality, for the people I have spoken to, that is not the case. I know of businesses that have actually ignored public sector inquiries on the basis that they are not worth the effort the business has to put in to get the work. I understand the amount of rigour that has to be undergone for some huge infrastructure contract, but let us be honest, a company the size of Laing O’Rourke has the capacity and resources to deal with all that stuff. I am talking about the SMEs that do not have such resources.

From my experience, when a small company gets an inquiry from a public sector body, it comes bound up in a lot of bureaucratic red tape. The small business owner, which is what I was, looks at it and considers what they have to do even to put a price in. When they work that out and look at the value of the contract, they find that by the time they have fulfilled all the bureaucratic criteria, the profit is so small that it is not worth doing. Some people might say, “So what? There are plenty of other companies that will do it.” That is not the point. The big companies might do it, and the hon. Gentleman made some good points in that regard, but is it necessarily achieving the best result for the taxpayer? I do not believe that it is. Although I do not want to alienate the large companies in my constituency, I have to say that many small and micro-businesses run lean and tight ships.

[Neil Carmichael (Stroud) (Con)]

I have been listening carefully to the debate, although I arrived late, for which I apologise. One point of great relevance is about missed opportunities. A large number of small businesses have quite useful inventions and new technologies that do not always see the light of day. They apply to the national health service or to some other large public sector organisation and the simple process of getting them on to the table for negotiation is impossible. Let us think too of the lost opportunities in new inventions and new engineering ideas.

[Andrew Bingham]

My hon. Friend makes a good point, and I will come to something along those lines in a moment.

As I was saying, many small and micro-businesses run tight ships—they are hyper-efficient. Consequently, they can offer products and services at much reduced prices, and every bit equal in quality. However, all the bureaucratic muddle and red tape is not only depriving small businesses of the opportunity to supply but means that public sector bodies are paying more money for the services they procure. The process is costing public sector bodies more twice over. First, someone in the public body must administer all the paperwork, with all the forms having to be read, checked and all the rest of it, so that creates a higher cost for procurement. Secondly, because the public sector bodies are ruling out—shall we say?—more competitive companies by their system, they are also paying more for the products they procure. In many respects, the public sector is paying more for goods; I hate to use the phrase, “paying through the nose”, but it is paying a premium because of its own processes.

About 18 months ago, I held a small business event in my constituency to help my local small enterprises deal with local authorities and other big public bodies, to try to break down some of the bureaucratic barriers that the public sector bodies put in their way; to be honest, sometimes they do so unwittingly. In total, 85 local companies came along to that event, and they all came with a very similar tale. They all mentioned the dreaded pre-qualification questionnaire, or PQQ, which seems to be the bane of every small business person’s life. As the hon. Member for Ogmore said, public sector bodies seem to have a system whereby they say, “This is the procurement package we use, whether the contract is worth billions, millions, thousands or tens of pounds.” It just seems to be the same process and it seems like a sledgehammer to crack a nut.

In discussing the PQQs, I will change the names, because I want to protect both the innocent and the guilty. I have one PQQ here, which is 64 pages long. It was given to me by a local small supplier. I will not say what the company does, because that would give a clue, but we will work on the theory that it supplies wallpaper, because that fits. Obviously, I do not want to disclose the company owner’s details, because it is not fair on him. He tendered for a fairly modest contract with a public sector organisation, which will also remain nameless. He sent me a PQQ that is 20 pages long and asks for information such as cash-flow forecasts. It also asks for a bank letter outlining the company’s current cash and credit position. I am sure that the bank would supply that information, but from my experience of dealing with banks I would say that it will probably charge him.

Looking at the level of detail of the contract, I see that there is an extra cost. It does not matter about all the paperwork and all the rest of it; the company owner has got a bill from his bank. The public sector body wants details of his company’s equal opportunities policy, its health and safety policy and it even asks him to

“describe your organisation’s current workforce development and training programme”.

The company is a micro-business that employs three or four people, supplying goods—as I say, we will go with wallpaper—and it has to supply all that information. I read the form with incredulity; I have even torn the page off, so that the cameras in Westminster Hall cannot pick up who sent it to the company owner. I could go on at great length, and given that we have the time I could actually read the whole of a 64-page PQQ I have, because I could get it all in before the debate finishes. In fact, I was thinking that there are people who collect different things, and we should have a name for people who collect PQQs, because I could be one of them.