SME procurement spend: what we (think we) know

8 December 2015

On Saturday, the Government released data on how much public-procurement spend was apportioned to small and medium-sized enterprises (SMEs). In 2014-15, the figure was 27.1 per cent, up one percentage point on the 2013-14 numbers.

It is important to understand that these figures are imperfect. The total percentage is broken down into indirect and direct spend on SMEs. The former relates to money spent by suppliers within the procurement process who subcontract goods and services after winning government contracts. The Government explains that the figure it has for this (16.2 per cent of total spend) is “indicative” of indirect spend because the data is reported by suppliers. These numbers have been questioned in the past, with concerns raised that £1.5 billion of indirect SME spend was unattributed to any department.

The direct-spend figure (which is also seen as unsound) reveals a second problem for a Government that has committed to spending 33 per cent of total procurement spend on SMEs: there has been a stagnation in the spend figures. The graph shows that Government has directly spent around 10 per cent of procurement spend on SMEs each year since 2011-12.

SME spend as a percentage of total government procurement

The reason for this stagnation is not yet fully clear. Government procures up to £242 billion of goods and services each year (although this figure is also disputed). Within this, it requires a variety of suppliers to provide a range of products: from the Work Programme to IT software. In many cases, SMEs will not be able to provide the economies of scale the Government needs to deliver large projects. But in others barriers to entry, such as lengthy procurement timeframes, stifle competition.

The way government currently buys IT software could act as an example of how to inject more competition and transparency into some procurement markets. The G-Cloud—an amazon-like framework on which buyers can pick from a list of suppliers—has simplified the procurement of cloud-based goods and services. It allows the Government to pick from a huge range of products, providing the Government with unrivalled information from which it can make an informed purchase. SMEs have received 50 per cent of spend through this framework, which in total has delivered savings of between 20 and 50 per cent compared to legacy products.

The Government has committed to building on the success of the G-Cloud framework in its announced creation of a Crown Marketplace. Doing so may help it move towards its SME target. More importantly for the taxpayer, however, it may create better competition and transparency in public-sector markets, allowing the Government to achieve better value for money in the products it procures.

Alexander Hitchcock, Researcher, Reform

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