The IT SME procurement challenge

The government has announced it will increase SME procurement to 25% of public sector contracts. But is it likely to meet this quota with small IT businesses?

The government has announced it will increase SME procurement to 25% of public sector contracts. But is it likely to meet this quota with small ICT businesses?

Small IT businesses are often well placed to offer the public sector the innovation and flexibility so many of its IT systems need. And with the scale of public sector savings required, the government could benefit from a shift from the status quo.

"Many small businesses don't get a sniff of government contracts," says David Chan, director at the Centre for Information Leadership at City University London.

David Chan, City University

In August the City University London's Centre for Information Leadership published a Policy Challenge Report, which outlined seven proposals that government could adopt to achieve the policy objective of increasing SME take-up.

"We have a burgeoning marketplace, but because we follow the EU rules in such a rigid way that it favours the big boys. They always talk to the big boys first," he says.

Regulations create a barrier to entry for the majority of SMEs, according to Chan. "It tends to favour the bigger players as they can afford to meet them. Fundamentally, that's the main problem."

As the situation currently stands, Chan believes the government will struggle to meet its target. "If you look at the expenditure available, a lot of it is already tied up in communications and datacentre contracts. In order to achieve their target, up to 80% of what's left would have to solely go to SMEs."

Feeling the axe

While IT can help the government meet its cost saving targets, there are concerns that spending cuts in some areas will lead to fewer contracts with small ICT businesses.

Paul King, founder of software company 1-day later, won a big public sector contract at the beginning of the year with a quango based in Newcastle. In order to get involved it stopped development on its core products and concentrated its resources on the project.

But when it was time to invoice the organisation it refused to pay the amount that was originally negotiated. "We got the impression that this was the direct consequence of cuts."

The public sector no longer offers the same opportunities, says King. "We will be chasing fewer contracts now that our confidence has been shaken.

"In the public sector the turnaround is slow. It takes such a long time to get paid and that's something we can't afford with our cashflow situation," he adds.

However, Steve Nicholls, director of IT infrastructure supplier CSA Waverley, has been supplying the NHS for 28 years and is optimistic about targets to increase IT contract procurement.

"The initiatives have been effective in the past. We were put on a supplier list initially because they wanted to target SMEs," he says.

For Nicholls, rules and regulations shouldn't be an issue if SMEs are serious about winning contracts. "I think if SMEs want to be successful that is something they will invest in. I don't see it as a barrier.

"The will has to be there on both sides. I think it's time to drive out a bit of cynicism and try and give it a go."

Proposals for change

A spokesman from the Cabinet Office said the government's aspiration of awarding 25% of government contracts to SMEs will require a contribution from the ICT sector, but did not specify what percentage of ICT contracts would come from small businesses.

He also says the Cabinet Office is aware of City University's report. "We are considering the points it raises as part of the wider work we are undertaking to improve opportunities for SMEs when bidding for government contracts," he adds.

With the cost cutting agenda in full swing there could be a danger that there is a quid pro quo situation going on with big suppliers, whereby in return for cutting costs for government they are promised more contracts.

But under new transparency guidelines the government has committed to publishing a report in March 2011 to outline a new approach to ICT procurement enabling greater use of SMEs. While it seems unlikely that the government will meet its target of 25%, on paper at least it appears committed to increasing SME procurement.

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