There used to be quite a tradition of awarding monolithic public sector contracts to huge, international generalist companies, quite often at the expense of home-grown small to medium sized businesses, writes Pedro Paulo.
This was (and arguably still is) something that impacted every sector of industry despite efforts to address the situation. It is something both the national UK government and the wider EU legislative body sought to redress, and the enthusiasm for the adoption of reform has demonstrated the clear need for reform that existed.
The UK government’s aspiration that “25 per cent of central government procurement spend, by value,” should flow to SMEs by 2015 has, unfortunately, run into some trouble and has largely failed to meet its targets. However, plans by the Cabinet Office remain strong and the target may yet be met. What is driving this growth in business to the SME sector, is an enthusiastic adoption of plans to reform the public sector procurement process. The UK Government adopted reform plans far in advance of the EU directive which impacts the rest of the Union, and so can be seen as a good case study not only on the difficulties of implementation, but also on the need for early planning for adoption to work out any impairments to the process that may arise.
Beginning with an announcement of intent in April 2011, this EU directive (Public Sector Directive) came into effect on April 17th 2014 and seeks to simplify procurement rules, introduce flexibility to the process, and most importantly reduce the time and cost of administration for all companies competing for a public sector contract. The European Single Procurement Document (ESPD) is designed to make it significantly easier for SMEs (and larger groups) to bid for public contracts. The scale of this ambition is seen in the stated aim to reduce administration by up to 80 per cent in the process.
In addition, the new directives will see public sector bodies required to break large contracts into smaller lots. This should not only make them more accessible to SMEs but also, according to European Commission estimates, save them up to 60 percent of current bidding costs.
UK SMEs (and public bodies) in particular stand to benefit from the reforms proposed in the directive. In the run up to its implementation, Gatewit commissioned research from CEBR (Centre for Economic and Business Research) into the European procurement market. According to the report, the average cost of a UK procurement competition in the public sector is £45,200 which, at 90 percent more expensive than the EU average of £23,900, makes it the highest in the European Union. At £1,260 per tender, 58 percent higher than the EU average of £800, the UK is also one of the most expensive countries in Europe for public sector bodies to attract bids from potential suppliers in a competitive process. Only Denmark, Norway and Italy record higher costs.
As well as this, the report found that the UK’s public sector procurement process takes 53 days longer than the EU average, something that will undoubtedly contribute to the high overall cost of the process in these isles.
These figures set out quite clearly why some of the smaller companies in the UK and elsewhere may feel a reticence in making applications in a public body procurement competition. Regardless of industry, competing with companies whose opportunity cost as a percentage of overall spending is much lower simply isn’t an attractive option.
All of the above costs and problems make it clear why reform was needed. It means that tenders for contracts are, mainly, submitted by a limited pool of larger businesses as they are the only ones able to participate in a competition. This leaves the public sector with a restricted and potentially more costly choice of potential suppliers. The new directives and the reusable nature of the ESPD enable a bidding company to spread the cost of entering a contract competition through other similar processes, resulting in an overall saving. This is done through reusing some of the information submitted in previous competitions in new and related processes.
With 99.9 per cent of the UK’s 4.5 million businesses being SMEs (with a total estimated turnover of £1,500bn) the benefits are clear. Regardless of business sector or industry, a lot of companies in that group will, at some stage, need to compete in a public sector procurement competition. The government’s aims to promote SMEs do, admittedly, have a long way to go. But their strong start, combined with the powerful new EU directives and the ESPD, have put us on the right road. One that will ultimately be built by smaller companies.
Pedro Paulo is CEO of Gatewit
