Government direct spending with SMEs decreased in 2013/14

Government spending on contracts with UK SMEs fell in the latest financial year, despite policy to increase the amount spent with small firms

Government spending on contracts with UK small businesses fell in the latest financial year, despite high-profile policies designed to increase the amount spent directly with smaller firms.

The latest figures for 2013/14 show central government spent £4,489m directly with small and medium-sized enterprises (SMEs) representing 10.3% of all procurement spend. In the previous year, direct spend was 10.5%, at £4,577m.

There has been little growth in direct SME spending since 2011/12, when small businesses received 10% of all spending, worth £4,439m. That year showed a big jump from £3,200m (6.8%) in 2010/11, as policies introduced in the first year of the coalition government took effect. But further measures introduced since – such as the formation of the Crown Commercial Service (CCS) to centralise all government purchasing – have had little additional effect (see graphic, below right).

Announcing the latest figures, Cabinet Office minister Francis Maude (pictured) focused instead on claiming to have achieved the government target of putting 25% of all spending through SMEs, including money spent by large suppliers placing sub-contracts with small firms. The data shows that 15.8% of central government spend went indirectly to SMEs through the supply chain, worth £6,909m. 

Government SME spending
Central government direct spend with SMEs

EU procurement rules

However, the government relies on its 500 largest suppliers to report how much they pass on to SMEs, and admitted that “the approach to indirect spend should be regarded as indicative”.

The Cabinet Office declined to explain why direct SME spending has fallen, preferring to highlight the overall increase in combined SME spend.

The government also announced it had implemented into law a number of measures to encourage SME spending as part of EU-wide procurement rules for public sector contracts.

“As part of our long-term economic plan, this government is overhauling public procurement to open things up to businesses of all sizes,” said Maude.

“I am so pleased our reforms have ensured that innovative SMEs benefited from £11.4bn of business last year alone. Over a quarter of our spend now goes to SMEs but we know there’s much more to do, and these new reforms show just how determined we are to finish the job.”

Government policy on SMEs has been under scrutiny recently, after a number of small firms complained about their treatment as part of framework contracts being managed by outsourcing giant Capita.

SMEs claim Capita poaches staff

Computer Weekly revealed last week that SME IT services suppliers have lost tens of millions of pounds in business after refusing to sign up to the £2.45bn Contingent Labour One agreement, managed by Capita for providing temporary staff. The SMEs cite contractual clauses they say allow Capita to poach staff by banning restrictive covenants; prevent them from competing for business through non-compete terms; and could eliminate them from the market for government temporary staff altogether.

That story followed revelations the previous week that CCS and Capita had been accused of similar behaviour – over a smaller, £250m contract for civil service training – that led to some SMEs being forced out of business.

Furthermore, the Digital Service Framework (DSF) – a comparatively small but strategically important agreement for obtaining software developers to support agile projects – has seen a revolt by SME suppliers who say DSF restricts their ability to bid for work, and is inappropriate for the iterative, interactive nature of agile development. As a result, only £6.7m has been spent through DSF so far, compared with the £40m spend expected.

G-Cloud boosts SME spending

One area where direct SME spending has seen significant growth is through the G-Cloud framework for cloud-based IT products and services. In January 2015, more than half of the £467m spent through the cloud services framework went to SMEs. 

But more widely, large companies still dominate, with giants such as Serco and Capita increasing their share of government outsourcing from 40% from 2002-2005 to 61% since 2010. Just six suppliers still take the lion’s share of IT spending - £4.2bn between them in 2013, thanks to long-term outsourcing deals that have yet to expire.

If G-Cloud spending is removed from the overall SME spend figures for 2013/14, the recent decline in overall direct SME spending is even greater.

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