Big contracts and small firms poses a quandary – but there is a model that shows how it can be done

Can the government’s desire for smaller companies to win public sector contracts match with the good value procurement practice and budget cuts? 

This is the quandary facing the coalition as it seeks to break up large contracts into smaller elements. A tough challenge, but with the right models in place, it could happen.

In a speech earlier this year, David Cameron attacked public sector procurement managers who “think that the answer to everything is a big contract with a big business and who shut out millions of Britain’s small- and medium-sized companies from a massive potential market.”

Cameron then went on to make it clear that the Coalition’s intention was to change this.

Changing the approach is a tough challenge, but with the right models in place, it could happen

In terms of strategy most departments currently see the route to cost reduction and efficiencies to be a big contract with a big business. This has led to a raft of “consolidated” procurement exercises where a number of departments are clubbing together and bundling services into large single contracts. Some of these contracts are so large, and the bidding processes so complex, that only a handful of firms in the UK would be capable of delivering them. The current trend of total facilities management contracts across multiple central government departments is another example of this.

The current, if somewhat half hearted, response to the prime minister’s wishes has been to try and encourage the big contractors to use SMEs in their supply chain when bidding for public sector work. But large contractors have had small subcontractors in their supply chains for years - so simply capturing and publishing this information isn’t going to fundamentally change the market place.

Changing the approach is a tough challenge, but with the right models in place, it could happen.

Cameron has announced a number of initiatives such as the establishment of “contracts finder”, a government run website that publishes every public sector procurement opportunity above £25k. This is a start and it will be interesting to see how SMEs take to this and whether it helps to open up opportunities for them.

On a deeper level, Manchester-based social enterprise Fusion21 is a great example of how clients can purposefully engage with SMEs and deliver real economic, commercial and social benefits through collaborative procurement. One of the central aims of Fusion21 is to support training and employment opportunities with SMEs, tackling skills shortages in the market place and creating long term sustainable jobs. 

There are real economies of scale in the way that the model has been developed, and there is no reason why this concept could not be replicated across the country given the political desire from above and the willingness to introduce new models throughout the public sector.

Amir Baharlou is a partner at EC Harris

For more on the government’s construction strategy, launched this week, and how it could affect SMEs, read our news analysis in this week’s magazine.