Buying from small businesses is crucial to government cost cutting, says Cabinet Office SME advisor

Mark Taylor, appointed by the Cabinet Office to lead its New Suppliers to Government working group, talks to Computer Weekly about the challenges of government procurement policy for SMEs.

Mark Taylor, appointed by the Cabinet Office to lead its New Suppliers to Government working group, talks to Computer Weekly about the pitfalls of government procurement policy for SMEs and the obstacles small businesses face in winning public sector contracts.

"It's well understood in any political and business process that one entity shouldn't have all the power. The power balance for procurement in government currently favours the largest systems integrators (SIs), and it would take absolute incorruptibility for the SIs not to occasionally flex that," says Mark Taylor, whose "day job" is chief executive of open source specialist Sirius, where he has plenty of experience in the challenges of trying to win IT contracts in the public sector.

MPs on the Public Administration Select Committee (PASC) were highly critical of government IT procurement in a recent report, citing an oligopoly of major suppliers that dominate the sector. Their calls for more SME involvement echo the Cabinet Office aim to put 25% of contracts through SMEs - an aim that led to Taylor's appointment to lead a working group on bringing new suppliers to government.

As part of efforts to put more government IT spend through small and medium-sized enterprises (SMEs), the Department for Work and Pensions recently said it would try to improve SME engagement by asking SIs to list the small businesses in their supply chains. But Taylor is unconvinced by this move as a way to change the current situation.

"One course is asking SIs to provide information on their SME spending. I'm not saying that wouldn't work at all, but suppliers would have to be saints not to tweak the figures," he says.

"I don't think it is impossible for large companies to work successfully with SMEs. But I do think the balance of power is such that having them act as gatekeepers to improve SME procurement is not a workable solution."

The reality is small businesses are already working on public sector contracts but as subcontractors, says Taylor: "Some SIs are very capable, of course, but in certain cases they do literally just pass the work onto SMEs and take a massive cut. In the private sector SMEs can tender for extremely large deals, whereas in the public sector we get sniffed at for contracts above just thousands of pounds."

The biggest obstacle for SMEs is government procurement lists, of which there are around 50, each containing only 20 different companies and often running for about five years. This has the effect of completely locking other SMEs out of the process, says Taylor.

"The initial justification for the lists was excellent, which was to ensure a minimum level of quality in the market. But there are other ways of ensuring quality control, which don't have to be a static list. It would be an excellent idea to abolish the lists altogether - something under discussion at the Cabinet Office," he says.

Taylor has a lot of praise for things like the Contracts Finder website, designed to allow SMEs to search for government contracts. "It's a fantastic idea, although not currently as user friendly as it could be," he says. But he also says more needs to be done to improve the wording of government contracts, which are often written in "official-ese" and are too time consuming for small businesses to decipher.

There is also the problem that large suppliers are firmly entrenched in government. "There is massive centralisation of procurement in government services. Around 80% of government spend goes to 10-11 suppliers. And if you are not on the procurement list, you can't tender," says Taylor.

"These providers are used to getting a certain amount of money from the government and they can't afford for their shareholders to lose out by reducing their income in the area of public sector contracts. So of course they will push back against change. They also have huge legal power with existing contracts."

And as they run huge amounts of the government's infrastructure they have more than just a foot in the door, he adds.

"Large suppliers also spend a lot of money on account managers, who have one-to-one relationships with people in government that SMEs simply don't have. Unless there are some major legal or cultural changes there will be a tendency to work the same way as ever."

Taylor believes the political aspiration for change is there: "My experience of listening to [Cabinet Office minister] Francis Maude and the prime minister is that they are sincere, but like similar government programmes it's proving harder once it reaches Whitehall."

Talk of improving SME procurement is certainly not a new idea, and there is a danger that this government's latest attempts could prove to be yet another lip-service exercise. But Taylor feels there is more traction with the government than previously.

"Time will tell, but there's a real sense that something has to be done about the £20bn-per-year spend in IT, which is insane," he says. "The basic economics is if you open up the market you will drive down cost."

Read Mark Taylor's response to the recent PASC report criticising government IT procurement: It is time for new IT suppliers for government >>

Read more on IT for small and medium-sized enterprises (SME)