60 per cent of government spend with SMEs is via larger contractors - NAO report
Departments rely on goodwill of large suppliers to report spending accurately to the Crown Commercial Service
Sixty per cent of government spend with SMEs was via another, larger contractor with SMEs in their supply chain, according to a National Audit Office (NAO) report released today.
In 2010, the government set a target for 25 per cent of procurement spending to reach SMEs by 2015 and, according to an estimate by the Cabinet Office, it met this target in 2013-14 and surpassed it by two percentage points in 2014-15.
However, the NAO said that it could not be certain that the amount government spends with SMEs has increased over the last parliament because the data it has used is not directly comparable, year-on-year, as a result of numerous changes in the way it calculates SME spend.
Alarmingly, the 27 per cent figure for 2014-15 is made up of both direct spend with SMEs - which amounts to £4.9bn or 10.9 per cent of overall spend - in addition to indirect spend, in which SMEs are appointed as subcontractors in the supply chain in a public sector contract with a larger provider. Indirect spend amounts to £7.3bn in 2014-15 and is 16.2 per cent of overall government spend, or 60 per cent of overall SME spending.
However, according to the NAO, the government's understanding of its indirect spending with SMEs is "incomplete".
"Departments told us that they rely on the goodwill of large suppliers to report spending accurately to the Crown Commercial Service (CCS) as departments usually have no way to verify the accuracy of the figures," claims the NAO.
"Suppliers may only have data on their spending with the next tier of their supply chain, so may not report spending with SMEs in lower tiers. Furthermore, suppliers may have different approaches to collecting and validating data, and identifying SMEs, leading to inconsistent measurement," it adds.
Improving access for SMEs
The NAO states that the government currently bases its approach on the assumption that more SMEs will win work with government if there are fewer barriers to SMEs being able to bid.
However, it states that wider trends in government contracting mean that, although SMEs can bid for work, they are often not suitable to deliver it.
According to former HMRC CIO Phil Pavitt, more and more SMEs are providing IT services, but the procurement teams within government have processes that eliminate them from consideration.
"It is not uncommon for politicians and IT leaders in government wanting the right thing but procurement officers stop that," he told Computing.
The NAO suggested that the government needed to make a more concerted effort not only to remove barriers to bidding, but also to ensure that the way in which government procurement is done can achieve the desired benefits of using SMEs. It added that the government should also balance its aspirations for using SMEs with other potentially conflicting priorities such as pressures on departments to make savings.
Among its recommendations, the NAO said that the government should stop changing its basis for estimating SME spending and start to identify areas of government where different providers can bring the most benefits.
It said that the government needed to identify where it ought to have oversight of the relationship between primary contractors and their subcontractors, and emphasised the need for greater visibility and transparency of government procurement. It suggested that the CCS should work with the Cabinet Office and Government Digital Service (GDS) to assess the feasibility of an integrated cross-government procurement platform to support its commercial strategy.
On the back of another NAO report into government spend, Computing looked into what the government could do to ensure that spend on consultancy and temporary staff did not spiral out of control.