New policies needed in public procurement if UK is to meet SME target warn firms

Small and mid sized consultants say government policy means it is missing out on best value.

Bernadette Ballantyne
02 February 2015

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Bernadette Ballantyne reports

Professional services firms are urging government to implement new policies to ensure that small and medium sized design consultants are involved in public projects and frameworks. They say that government clients are missing out on the value that small firms can bring to public works by including contract terms, liabilities and legal requirements that only major consultants can comply with.

In a round table discussion hosted by Infrastructure Intelligence and software firm Deltek consultants said that changes must be made if the UK is to meet its target to devolve 25% of public procurement spend to SMEs by 2015. And at the same time deliver on its ambition promote the growth of middle sized companies, emulating the economic success of this sector in Germany, known as the Mittelstand.

​“The UK wants middle-sized firms to drive growth in the UK economy – in fact, a recent Cabinet Office study found that SMEs were disproportionately responsible for creating stable jobs in the UK. The way to achieve this is for Clients to force the very large firms to bring SMEs formally into their supply chains and then monitor that work really does get subcontracted,” said Tushar Prabhu, director at Pell Frischmann Consulting Engineers, which employs around 900 staff.

He says that a key reason that public contracts often fail to bring in SMEs is because even when this is agreed at procurement stage it is not enforced and large consultants are unwilling to bring in sub consultants. 

Other firms say that a direct procurement route where layers of contracts are specifically allocated to SMEs would be a better approach. “Segmenting the public sector market would provide a more level playing field. The types of contracts and their value can be better matched to those tendering. It will take a major change at government procurement level to bar companies of a given size from accessing opportunities, but it should lead to a fairer contest,” said Mark Ingram, managing director at GHA Livigunn, which employs around 155 people.

Firms pointed to a number of barriers preventing SME inclusion on public projects including high bid and compliance costs; unreasonable risk transfer; poor payment schedules; contract documents that require unlimited liability and bespoke legal terms that absorb high costs. Furthermore firms say that it is common for large consultants to erroneously count contract staff from agencies as SME content.

Figures from the Cabinet Office show that in 2012/2013 SME direct spend was £4.58bn or 10.5% of all investment, a marginal increase on the £4.44bn procured with SMEs in 2011/2012. The government estimates that indirect spending through the supply chain to SMEs accounted for around £4bn or 9.4% of spending bringing total procurement to around 20% of total. Its target is 25% by 2015.

Some said that they believe that mandating involvement was not the best approach. “I think it is wrong to force anyone to take on SME’s as a quota,” said Graham Nicholson, executive managing partner at Tony Gee & Partners, which has 325 employees. “The fundamental problem as I see it is that the SME value is not being properly recognised. It is as much for us to show that as it is for others to see it.”

Firms pointed to a number of advantages of using SMEs. “SMEs should be considered where they have local or other specialised knowledge. They tend to have lower overheads and often with direct owner involvement where rapid decisions can be made,” said Steve Capel-Davies, partner at Peter Brett Associates, which has 474 staff.

To date government has made changes to its processes to encourage more SME content on public projects including eliminating the need for prequalification questionnaires on goods and services under £100,000; providing more visibility of business opportunities and reducing the procurement timeline. 

Infrastructure Intelligence is working with SMEs on a procurement position paper. To contribute please contact bernadette.ballantyne@infrastructure-intelligence.com