Procurement is still broken
The culture and habits of commercial teams and the influence they wield over delivery require major reform
Like many in the UK tech sector, we gave a cautious welcome to the Procurement Act when it came into effect back in February.
It promised to make procurement simpler, more transparent, create better value for the public purse and remove some of the barriers SMEs face in bidding for public sector contracts.
There is much about the Act to admire, in particular the acknowledgement of the crucial role that SMEs play in public sector supply chains. It should also mark something of a reset after the past few years where a small number of far larger businesses have reasserted their dominance over the public sector.
But the Act alone will not fix everything, it is just one part of the puzzle. The culture and habits of commercial teams and the influence they wield over delivery require major reform. That will take time and require strong leadership.
What we’re actually seeing on the ground
Since the Act came into force, we have seen several pre-market engagements in buying departments where the commercial teams stressed the value of working with SMEs.
Despite the warm words, however, the deeds did not match with contract sizes of £40m plus which are simply not viable for SMEs to bid for. The idea that large prime suppliers will then give some of the work to SMEs is flawed.
One recent department led a pre-market engagement session where they said the Procurement Act would not apply. This seems inexplicable.
Prime suppliers typically mark up SME day rates by up to 20%, often looking to SMEs to absorb that cost. From our own experience of this, it also slows down placement of teams and individuals as bloated day rates require senior sign-off. Payment terms of up to 60 days are also a huge issue for smaller companies managing tight cashflow.
The Act specifically talks about buyers having a mandatory responsibility to assess and remove barriers to SME participation. So far, we are seeing little or no evidence of this.
Packaging up work into huge contracts and procurement lots does not benefit buyers either. We hear lots of complaints from in-house digital teams about the quality and pace of delivery. This is not surprising when procurements dictate the level of people required to deliver the work without reference to the actual needs of the projects.
There is no accountability for outcomes and these mega-contracts are usually nothing more than vehicles to place low cost staff in huge IT programmes that then fail to deliver.
What’s happening in the market
Locked out of many public sector bodies, SMEs have been faced with falling demand, rising costs and lack of access to capital. Many companies have had to cut costs, making redundancies and abandoning investment in skills and people.
Sadly, many have had to sell up or close down entirely.
SMEs are the lifeblood of the UK economy. techUK reckons there are 191,000 tech SMEs in the UK employing 700,000 people. In techUK’s own words, “Our SMEs have pioneered innovations in emerging technologies, created highly skilled and highly paid jobs, transformed public services, and led the emergence of regional tech clusters.”.
The culture around how government operates commercially has to change.
Openness
Procurement works best when it’s open and transparent. We need to remove the paywall and return to an open approach rather than running everything from inaccessible and impossible to navigate procurement “portals”.
Disaggregation
As the Act says, huge contracts must be broken up into smaller lot sizes. This not only levels the playing field for smaller, more innovative companies to bid on contracts, it gives greater control to the in-house delivery teams on the hook for new services.
Market intelligence
Commercial teams need a better understanding of the markets they’re operating in. To be honest it beggars belief that after all these years of digital transformation, we are still having this debate. The UK has produced many world-leading SME businesses yet they remain on the outside while the same global firms swallow up contracts.
SME strategy
We need more than warm words to enable SMEs to deliver on their potential to transform government. SMEs drive growth in the UK, they build skills and create high quality jobs in our communities. We don’t need handouts, we need a level playing field.
Government says it wants to test and learn, it values innovation and to harness the power of AI. SMEs are one of the levers they can pull to achieve this.