Whitehall spent more than a quarter of its procurement budget with small and medium-sized companies in 2014-2015, according to a National Audit Office report.
Published earlier this week, the report found that according to Cabinet Office estimates, the proportion of government spending that reached SMEs in that year hit 27 per cent, exceeding its target of 25 per cent by 2015.
This brought the total amount of central spending that went on direct contracts with SMEs to £4.9bn.
But the National Audit Office said it could not be certain whether the figure represents a true increase in spending, because of changes in the way data were collected. As a result, it “cannot be certain that numbers are directly comparable due to the structure of the underlying data”, the report said.
Other key findings include:
- Eight out of 17 central government departments said they spent more than the 25 per target with SMEs in 2014-2015
- 60 per cent of the total procurement budget spent with SMEs was indirectly, through the supply chain of larger contractors
- The Ministry of Defence, which spends 44 per cent of the government’s money, allocated 19 per cent of its budget to SMEs
Westminster’s target for procurement expenditure to be spent with small and medium firms is now set to increase to 33 per cent by 2020, the report said.
SMEs held back
It also examined the barriers that SMEs face when bidding for government contracts, the challenges for Whitehall in recognising the benefits of contracting with smaller companies, and how both can be tackled.
While measures have been introduced to make it easier for SMEs, there are still a number of factors that hold them back, the report said. These include transparency of information, departmental appetite for risk, disproportionate bidding requirements, capability or commissioners, and delays in payments.
Responding to the report, Duncan Montgomery, tax partner at Whittingham Riddell, said: “Government contracts do come with an up-front administrative burden when tendering, and while they have value for SMEs, moving the contract using normal upselling techniques tends to be harder going.
Indirect contracts mean SME losses
“The reality is, as this report says, that the government counts SMEs that are part of the supply chain, as opposed to direct contracts.
“That involves lots of estimates and calculations, [and] in reality the government could try harder to get work directly to SMEs using procurement frameworks that encourage local contracts, rather than national contracts, which have a tendency to be monopolised and profits taken by larger organisations, before the subcontractor even gets a sniff of work.”
You can read the full report here.