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UK government SME procurement policy - where it worked and where it has failed

The government's former SME champion outlines the difficulties of getting the civil service to buy in to Whitehall aspirations for buying from small businesses

The National Audit Office (NAO) recently published a report, Government’s spending with small and medium-sized enterprises, which marks a watershed in public SME procurement policy. It is a well-researched and elegantly presented review of a policy initiated by the former coalition and the government’s delivery of that policy.

However, the report concludes that: “We cannot be certain that the amount government spends with SMEs has increased over the last Parliament.”

As Crown Representative for SMEs during this period, my role was to conduct strategic dialogue with suppliers and to be their “strong voice at the top table”. This position gave a privileged inside view of policy formulation and delivery in this important area.

I tried to help the government’s policies succeed. I promoted them, tried to improve them and finally tried to make sense of them. But I now wonder if I was brought in by then-Cabinet Office minister Francis Maude as a political commissar to discipline the civil service’s delivery of policy – as I had expected - or merely to look as though something had been done by bringing in a business person. No doubt different stakeholders might have had different ideas at the time. Whatever their motives, it is now time for this “strong voice” to speak.

The policy goal was confused

In my opinion the best goal statement of all time was US President John F. Kennedy’s, “By the end of the decade, put a man on the moon and bring him home safely”. Kennedy said this in 1961. Nasa achieved it before the end of the decade in 1969. In contrast, while SME procurement is a worldwide movement well established in the EU and the US and is clearly sensible, the UK’s policy goal was confused.

At the time, politicians argued that buying from SMEs would support economic growth. Despite extensive research, however, this doesn’t stand up, because diverting spend to SMEs would generally require spending less, or buying from less efficient suppliers.

If Conservative voters are over-represented among SME suppliers that may also have given the policy a political motive. And the aspiration to procure 25% of government spending from SMEs was merely a forcing device, not a goal. It is clearly not actionable at the level of an individual procurement without a ministerial direction.

Stephen Allott

"G-Cloud has real global potential, but the problem was...that the Crown Commercial Service treated it as 'not invented here'"

Stephen Allott, former Crown Representative for SMEs

My proposal was that a more rational goal to adopt was a policy known as “getting full value” (GFV) from SME suppliers – buying from them whenever they were the best value for money, but buying from alternative suppliers when they were not. This goal found favour and was duly adopted, appearing on the Gov.UK website where it is still visible in the archived pages.

Such a goal is simple, measurable, actionable and could be time bound. How much value has been left on the table and how much has been picked up can be measured.

While GFV was adopted, it did not capture the hearts and minds of the civil service, the driving force behind procurement policy. Indeed, in its report the NAO focuses on the 25% aspiration and does not explain why there is no mention that during the coalition government the goal was GFV. Nor does the NAO explain why the civil service now quotes a new policy of “increasing competition”. For four and a half years I toured the country explaining GFV. At the upcoming hearings these issues should be raised.

What worked?

Faced with a sceptical and risk-averse civil service, I spent most of my time looking for what worked so I could promote it internally. Judging what worked without reference to an agreed goal is not possible, so for now I will use the 25% SME aspiration.

Some things worked really well and top of the list, by far, was G-Cloud, a revolutionary online catalogue enabling buyers to procure in minutes rather than months. Customers voted with their wallets, turning G-Cloud into what could be Europe’s fastest growing internet startup with an annual revenue run rate of £500m. G-Cloud is a source of the components for the government’s “digital by default” strategy and recent benchmark analysis shows it’s a world leader in scale and functionality.

G-Cloud has real global potential, but the problem was that the Crown Commercial Service (CCS) – the government procurement agency within the Cabinet Office - did not think of it. G-Cloud was treated by CCS as “not invented here”.

G-Cloud challenged traditional procurement. Despite this, G-Cloud survived and grew. SMEs win 50% of the business, competing on a level playing field. That’s a striking achievement - compare its 50% direct spend with SMEs with the 10% level typically delivered elsewhere.

Another success was the IT strategy that favoured disaggregation of contracts. The CBI referred me to an EU paper, that has since been updated, which states that contract size is the only variable that correlates with an increased SME percentage share of procurement. Note the paper’s use of the word “only”.

Government CTO Liam Maxwell and his team introduced disaggregation as a policy. Procurement guru Professor Andrew Cox agrees that disaggregation is the textbook answer to changing the supplier-buyer dynamics in IT - faced with a monopoly supplier, break up the large contracts it would otherwise win.

The problem was that disaggregation was directly contrary to CCS’s stated strategy of aggregation, which was also published on Gov.UK. I was faced with the contradictory situation that on the day I was appointed Crown Representative and the Prime Minister pledged to break up procurement contracts, my new employer CCS was already saying it would do the opposite. Outside of IT purchasing, CCS won – although its policy has not been without controversy.

Right-sizing is the right policy

In time, I realised that aggregation by default and disaggregation by default are both wrong. What is needed is “right-sizing” and I turned my efforts towards getting this into policy. Dividing up contracts – the idea of “sub-lot or explain why not” - is now part of the EU Directive.

Professor Andrew Cox and I published a paper explaining that much aggregation of the procurement of tooling was a mistake. Fixed-specification production parts where one cannot innovate often should be aggregated, but not tooling where it is often better to buy the right new things than to buy the old things cheaper.

Innovation is a bigger lever in many cases than aggregation. In my speeches to procurement audiences I talked about the time in December 1941 where a Japanese aircraft carrier sank HMS Prince of Wales, the Royal Navy battleship sent to defend Singapore. The Navy had sent its very best old technology and was defeated by something new. The NAO report also fails to comment on this principle.

Read more about government SME procurement

Some of CCS’s reforms did make a difference. Mystery Shopper, effectively a complaints hotline for suppliers, is really good. The policy of pre-market engagement with suppliers to “get the best bidders bidding” is excellent and is now explicitly authorised in the 2015 EU Directive. The introduction of departmental SME plans with departmental SME champions and an SME minister worked in those departments that embraced them in good faith. Among these, the Department for Transport is top of my list, with honourable mentions for the Home Office, Ministry of Justice, Department for Energy and Climate Change, and HM Treasury.

However, the reason why few of the 2011 and 2012 SME policy measures worked was that they targeted the sub-threshold slice of procurement - contracts below a certain value, which was small anyway - or addressed the tender paradigm.

Official figures showed there were relatively few tenders advertised in the Official Journal of the European Union (OJEUs) each year – only a few hundred in central government. Changing these tenders would not change the bulk of spend, because so much of it was channelled through multi-year, single-supplier contracts or through approved suppliers working under four-year frameworks.

What is the way forward?

There are a number of steps that could be taken to improve.

The first is to adopt fully a good goal, such as getting full value. Reporting based on a meaningful metric, such as GFV, rather than percentage spending share for SMEs, would avoid the effort currently wasted on these numbers. The 25% objective was merely an aspiration. While we may not know whether it was met, it is worse that we do not know how much value has been left on the table by not buying from an SME when they are the best value for money supplier.

Building on work such as the Innovation Launch Pad and Product Surgeries, further skills should be developed in pre-market engagement to help the civil service “buy the right things”, not merely “buy the thing right”.

Procurements then need to be “right-sized”, taking a number of factors into consideration: whether the requirement is for tooling or fixed specification parts; the balance of buyer and supplier power; the economies of scale in supply; the need for supply base development, supply base concentration and the rate of change in the supply market; and finally mission criticality.

From a supplier perspective, there is a need to develop bidder sourcing (that is, getting the best bidders bidding) and to enable bidder training (help the bidders make the best bids). Extra care should be taken with first-time bidders through supplier assurance.

The new Crown Representative for SMEs when appointed 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.

Stephen Allott was the government's  Crown Representative for SMEs from 11 February 2011 to 30 June 2015. He left the civil service in December 2015 and is now chairman of Pebble {Code}.

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