Good Practice
SMEs and Public Sector Procurement – An SME’s Perspective (Part 2)

Following on from Part 1 yesterday, Peter Stuttard continues his discussion on SMEs and procurement in the public sector from an SME’s own perspective. 

There is a more or less constant downward pressure on the funding, and hence on the manning levels, of procurement organisations; this situation is used to make a case for collective procurement arrangements. Whilst the financial pressure is very real, the arguments for increased collective procurement are often seriously flawed. There are two strong counter arguments, the first is that paying £20 million for something that could be procured for, let’s say £10 million, in order to save 20 – 50 man-days of effort is hardly sound financial management. The second point is that the Central Government procurement agencies are infamously bureaucratic and inefficient, and sometimes unprofessional; it can take such organisations days to do a task that should take hours, weeks to do a task that should take days and many months to conduct a task that should take a couple of weeks. Dramatic improvements in performance are feasible, and it is to this that they should look first before using pressure of work as justification for abdicating more responsibility to large Primes.

In the post PSME discusses the concept of aggregating contracts in order to gain economies of scale, and implies that this logic may be flawed; indeed the logic warrants a level of scrutiny it is rarely afforded. In some cases the basic premise is patently nonsensical, e.g. claiming economies of scale for aggregating a number of regionally based services which offer very limited opportunities for making economies, but lots of opportunity for building large bureaucracies.

The complexity of the typical procurement process is an issue for SMEs, particularly so for new entrants to the market, but the case is overstated. It is overstated because, I believe, it provides a non-contentious justification for the dearth of SMEs contracts in the public sector. Rather it is the patent bias in many procurement agencies and the sometime suspect practices that are the real issue. For example, requiring some form of accreditation as a condition of contract award, whilst ensuring that such accreditation can only be awarded to an organisation that has an appropriate contract. Another example is the prevalence of ‘dummy’ competitions, i.e. when the procurement agency know who they want to support them, but as they are obliged to hold a completion, do so, but in a manner that favours their chosen contractor. Sometime this is obvious to the bidders and they can, and do, withdraw, sometimes it is not, so they waste considerable time and effort on bidding when there is virtually no chance of success. This should not be dismissed lightly, whilst Procurement agencies strenuously deny such practice goes on, it is very common. Often the intent of the procurement agency is very transparent (e.g. there is an incumbent, the information required to scope the task will not be made available until after contract award, the bidding timeframes are ridiculously short, the requirements are very similar to the marketing materiel of one bidder, etc).

The reader should be in no doubt that the figures quoted above are real, and far from uncommon. The present approach to Public Sector contracting is leading to the formation of ever-greater effective monopolies, competition is squeezed out of the market and surviving suppliers find that their only route to market is constrained to a select number of Primes, with all the consequences that that situation brings. It has caused significant damage to the market in many sectors, for example in Defence, where it can be argued that a true market no longer operates. In general (there are always exceptions) in the Defence market business is not won by being better, faster and cheaper; all too often, business is won by having influence and power, by being dominant in the market; and does anyone know of a monopoly that delivers the best value for money?

There is much more, to discuss, but in summary, there is a lot Central Government could do to engage with SMEs, approaches which would require no sacrifice, no cost, and which would bring only benefits to: the procurement agencies, the end users of the products and services being procured, the relevant tax payers and, I believe, the large Prime Contractors who are the apparent benefactors of the present approach.

It is not a lack of money, nor is the inherent nature of Public Procurement, that is the root of the problem, it is simply the lack of the necessary political will to solve an eminently solvable problem.