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Government indirect SME spending "fine”, says civil service chief John Manzoni

Civil service chief executive John Manzoni tells the public account committee (PAC) it is infeasible for government to deal with every SME supplier individually

The chief executive of the civil service, John Manzoni, said he thinks it "fine" that most government spending with SME suppliers is indirect.

During a Public Accounts Committee (PAC) hearing, Manzoni said he thought it infeasible for government departments to interact with all suppliers individually at SME level.

Much of government departments' budget is not spent directly with SMEs, but directed through larger providers' supply chains.

The government aims for 33% of all procurement spending to go to small and medium-sized enterprises (SMEs) by 2020 – but can’t say how much will be spent directly with smaller firms. 

A National Audit Office report, published in March 2016, found government had changed the way it estimates SME spending four times over the least five years. The NAO said this made it impossible to hold government figures to account.

The report found that, of the 27% of spending with SMEs reported in 2014-15, only 10.9%, or £4.9bn, was in direct expenditure. The NAO said the rest was spent indirectly – meaning contracts went to prime contractors, which broke down the work and fed it down the supply chain.

In the PAC hearing, MP Nigel Mills said that, when the government promised to give more work to SMEs, he had “a feeling” those small companies would assume it meant direct spending.

“Is it really a success when most of the work is through somebody else first?” Mills asked.

Chief executive of the civil service John Manzoni said: “I think it’s fine.”

He added that, with so many SMEs in the UK, “it’s not feasible for central government to individually interact with all of them at that level”.

“We can still make 33%, but I don’t know whether we do that directly.”

He added that, while there remains work to be done in breaking down barriers, “life is a balance” – and there needs to be a balance between awarding contracts to SMEs and the burden on the government skill set that brings.

Read more about SMEs and government

Moving away from large IT contracts

Although IT spending was highlighted as one area where SMEs win a large proportion of contracts, Amyas Morse, auditor general at the NAO, told the PAC that 51% of IT spending still goes to the five largest suppliers, with 65% going to the top ten.

Manzoni said this was because “we are in the very early stages of diaggregating the big monolithic IT contracts” such as HM Revenue and Customs’ shift away from the large Aspire contract.

Manzoni said that, in the next 6-12 months, several contracts would expire – after which he would have a better idea of how central government departments spent their budgets. He said: “It will be very different, but it’s difficult to make a prediction on what the numbers would be.”

The NAO report found that, while the government had introduced several initiatives to reduce the barriers faced by SMEs wanting to work with government, they were not sufficient.

Sally Collier, chief exectutive of the Crown Commercial Service (CCS), told the PAC there remain barriers to deal with – but added that government had instituted several measures, such as abolishing pre-qualifying questionnaires (PQQs), introducing Contracts Finder – which aims to bring together all procurement contracts in one place to make them easier to find.

Collier – who is leaving the CCS in March 2016 – said that it was now time to focus on areas where "we can move the dial quicker”, and make sure departments comply with the rules when they go out to tender.

Replacement Crown rep for SMEs

While government created a Crown representative for SMEs and an SME panel were created to ensure the voices of smaller companies were heard in government, former Crown Representative for SMEs, Stephen Allott left his post in August 2015 and has yet to be replaced – and the SME panel hasn’t met since summer 2015.  

Collier said a replacement Crown Representative is to be appointed shortly and it had taken a while to get the requirements right. “We still want a strong voice for small firms. Someone who will stand up and take and recommend initiatives the government can take forward,” she said.

Allott wrote in an opinion piece for Computer Weekly that the replacement representative “should report directly to the minister with an independent office to which G-Cloud, Contracts Finder and Mystery Shopper report".

"More broadly, there is a need to win the hearts and minds of civil service customers and to build on the success of G-Cloud,” she wrote.

Commenting on the SME panel, Collier said that, while there was “a lot of energy” when it was first set up, “it then lost its focus”. Manzoni added that “some people were showing up unprepared”.

The government is just about to agree on a replacement panel, covering a broader spectrum of sectors and geography, according to Manzoni.

Read more on IT supplier relationship management