Sector News
“Working With Small Suppliers Is Good for the Public Sector”

Oh no it isn’t — oh yes it is!

It seems we can’t seem to make our minds up on this statement. Here’s an example of a pro-statement, that would ring true whichever country you are in.

According to Government Technology, the IT and computing online magazine for the UK public sector, the term SME is often misused or mis-understood. It claims that “when people say ‘SME’ what they are really talking about are the Micro and Small Enterprises (MSEs) that make up the vast majority of the business population.” It explains this by providing the following statistics: “At the start of 2014, 99.9 per cent of the 5.2 million private sector businesses (in the UK) were classed as small or medium sized. Put another way, there are only 6,700 firms in the UK economy that are not in this category. Closer inspection reveals that the medium sized businesses, those employing from 50 to 249 people, are also a relatively small demographic. Our economy has just 31,000 medium-sized enterprises, meaning that small firms make up 99.3 per cent of the UK business population.”

Add to that “At the start of 2014 small businesses accounted for 48 per cent (12.1 million) of UK private sector employment and their combined annual turnover was £1.2 trillion – 33 per cent of all private sector turnover.” So when we refer to the importance of SMEs – “we mean that small firms generate wealth, drive innovation, create jobs, train apprentices, and provide the tax revenues that support a smorgasbord of social and economic policy that benefits the nation as a whole. Small firms are just as important to local economies and communities as they are to the national one. They provide essential goods and services for local communities, and often provide the focal point for social activity, either collectively through local high streets, or individually as in the local pub.”

This would apply to many nations – it continues “In the vast majority of cases, whatever you need, there will be a small business somewhere that can supply it better, faster and cheaper than a large supplier … small businesses are nimble, and able to respond quickly to their clients’ needs … they are particularly valuable suppliers to the public sector for smaller contracts. These low value contracts may be viewed as something of an inconvenience by large suppliers, but for a small firm, a public sector contract is often the largest that they have. This makes your priority, their priority.” — a good point.

The article states that The Federation of Small Businesses (FSB) believes that public procurement must be about supporting local growth and local jobs: “To demonstrate these benefits, the FSB asked the Centre for Local Economic Strategies (CLES) to analyse the impact of local authority spending in the local economy. They found that, when the effects of local spend are broken down and analysed, every £1 spent by a participating local authority with local small businesses generated an additional 63p of benefit for their local economy, compared to just 40p generated by large local firms.”

So how do public sector buyers go about benefiting from small firms? The FSB has developed some principles for small business-friendly procurement and these are laid out in the article, including: Strategy and Policy, Spend Analysis, Opportunity creation. And there’s much more to read on the subject in the full article here. However, not to leave one side of the argument untested — we wrote in June last year about a very different take on the importance of working with SMEs for the public sector.

At the European Commission-organised Public Procurement Conference in Prague, Munir Podumljak, Executive Director of the Partnership for Social Development (PSD) in Croatia, argued that “If we believe in the principles of the EU, then SME friendly is not competition friendly. It leads to inward-looking behaviour, stagnation, even recession.” He talked a lot about the “social purposes” of public procurement, and how governments want to help small firms (read local firms). But he also believes that sort of approach is economically unsound, and can even be a driver of corruption.

He talks a strong argument, and adds “Europe will lose if we don’t open up our markets, and support to SMEs often in reality means favouring firms who do not deserve to win contracts, just because they are small and local. But if they are not challenged to get better and become more competitive, then eventually Europe will not have a successful economy.” He analyses data in Croatia for example, and concludes that “you cannot win a large contract if you are not connected … Many of the successful suppliers are subsidiaries of state-owned organisations or have other connections with government.” He points out that the data he has been looking at is not always available in other countries — Germany for example has one of the lowest percentages of public sector spend actually advertised on OJEU.

So that’s just two viewpoints – but both well argued. A very sound point (and maybe the crux of the argument) came from our own Peter Smith in Supporting SMEs in Public Procurement – New UK Target but We Need More Gazelles! — “If greater use of SMEs is to bring economic benefit at national and international level, then it must come through the use of SMEs who are better than the large firms they replace as suppliers.”