George, I Don’t Believe You

Goerge Osbrone looking grumpy


George Osborne was today reported as stating that government procurement from SMEs (small or medium sized enterprises) will rise five-fold. It is a great aspiration. It would result in big cost savings and better service if government was prepared to look beyond the likes of G4S, Capita and Serco.

But the chances of this government actually delivering on this promise? Absolute zero.

A Track Record of Switching Procurement from Small to Big Business

The track record of this government is to buy less from SMEs and more from large business. Here’s two examples from the training industry:

  • For apprenticeships, the government two years ago introduced a minimum contract value of £500,000. Any SME, many of whom had been supplying services direct to government for years, who wishes to provide apprenticeships can only do so through a large provider, paying at least 15% of the income to that provider.
  • Last year the government decided to outsource all training, on any subject and for every central government department, to one company. Although there was a bid from an SME consortium, the tender was inevitably won by Capita. So instead of hundreds of small businesses delivering training, we have one large provider delivering it all. The previous suppliers face a drastic drop in income and, for some, a threat to their existence. And the feedback I hear is that the contract has already resulted in higher prices.

Happy Ltd has been a major provider of training services to government. The Department of Work and Pensions rated us as one of the top two, among their thousands of suppliers, for customer service. But great service counts for nothing in this new world. Every government department has been told they must go through Capita.

Procure Direct Please

elephant sitting on person

If you are an SME, this may feel familiar

Large suppliers are being encouraged, after they win their government contracts, to sub-contract to SMEs. For the small business this is a bit like trying to deliver your normal service while being sat on by an elephant. The flexibility disappears as you work within the procedures of the large company. And the large company makes sure it gets its margin: the SME generally get less income, at the same time as government often ending up paying more.

The problem is that, for all it claims, the government listens to big business. It is big businesses that have a buddy and a hotline to ministers. Small firms are lucky to get any response at all when we try and make contact. (My email to Cameron on minimum contract values got an anodyne response after 9 months and my email to Francis Maude over the Capita contract has got no answer at all.)

Given that it spends its time talking to large corporations, it is not surprising that government ministers believe it is better and more efficient to use large companies. And part of the move to large suppliers comes from the focus on cutting government staff. The estimated it cost £3,000 a year to service each SME providers on the apprenticeship programme. The fact that instead it cost the small provider £40,000 or more to work through a “more efficient” large provider, didn’t matter as it wasn’t a direct cost.

George, we will judge you by your actions and not your somewhat wild claims. A five-fold increase in supply by SMEs? Not really very likely. I would be surprised if there was even a 10% increase. But I would be delighted to be proved wrong.

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