Draft text of a speech given by Francis Maude, Minister for Cabinet Office, at the ‘Public Procurement Briefing 2012: Driving a culture of innovation and enterprise with SMEs’ event on 9 March 2012. Check against delivery.
How often do SMEs get told by politicians that they, SMEs, are the backbone of our economy? That they are the job-creators. The ones that feed the innovation that spurs economic growth.
It’s all very true. But for a long time something must have got lost in translation - because Governments might have been making positive noises about SMEs but they certainly weren’t buying from them.
The whole public sector spends £230 billion on goods and services a year - roughly 15 per cent of the UK economy and £1 for every £7 spent in Britain. So quite a lot.
But when it came to bidding for this work - SMEs were historically shut out. Bureaucratic, complex and costly procurement practises invariably favoured the big suppliers - smaller suppliers were essentially de-selected from the outset.
Government was stuck on the mindset that big was beautiful.
So when we came into office SMEs were accounting for 50% of turnover in the UK economy but, it turned out, were winning only around 6.5% of the value of Central Government’s procurement spend.
This was clearly militating against UK growth and jobs.
But did it at least lead to outstandingly good purchasing? Were brilliantly good deals made on behalf of the taxpayer? Of course not - the reverse.
By failing to create a level playing field for smaller suppliers Government excluded some of the most competitive and innovative suppliers.
This was the situation we inherited - a bad deal for smaller UK businesses and a bad deal for taxpayers. It had to change - and in this case positive noises had to add up to positive action.
Background to SME agenda
A year ago the Prime Minister and I launched a package of radical measures to increase opportunities for SME suppliers and to give us access to SMEs creativity and innovation.
With the ultimate aspiration that we would deliver 25% of our central Government procurement spend through SMEs by the end of this Parliament.
Change couldn’t happen fast enough on this agenda. This Government is fully aware we can only grow our economy by supporting entrepreneurial business.
We want to make the UK one of the best places in Europe to start, finance and grow a business and as well as using procurement levers we are also reducing tax and regulatory barriers, promoting exports, access to finance and entrepreneurial aspiration.
At the same time the urgent need to reduce the deficit has meant our resources are scarcer - and we owe it to the taxpayer, now more than ever, to spend their cash better.
Relentlessly pursuing efficiency has allowed us to make an initial £3.75billion in cash savings just in the ten months to March last year - and we have just announced we are on track to save an additional £5billion this year.
Better procurement has and will continue to be a huge part of this drive. Government has become a tough negotiator - we are no longer tolerating poor supplier performance and we are determined to get the best value for money. That means opening up competition.
This agenda is going to matter even more in future as we set out in our Open Public Services White Paper we expect ever more of our public services to be delivered not by the public sector itself but from outside. Whether by mutuals, joint ventures, social or charitable enterprises or conventional commercial providers.
Progress one year on
So it was imperative that we started opening our doors to all kinds of businesses and business models - and since the SME Summit in February last year we’ve been working with you on unlocking Government business to SMEs.
You told us you needed more visibility and we responded.
The Contracts Finder website now gives businesses a single place to survey everything on offer from Government and has 97,000 viewings per week. And latest figures show thatof the 6,132 contracts posted to date I’m glad to say over a third, 2,133 have been awarded to SMEs.
You made a plea for less bureaucracy and again we’ve taken action. The pre-qualification questionnaire - so often used as unfair short-listing tool that invariably put the bigger companies through - has been abolished for low value contracts and simplified elsewhere.
So no more questions on whether you’ve got a diversity policy or a demand for ‘catastrophe’ insurance if you want to bid for government work.
You wanted more accountability and Departments can no longer shut you out without reprisal. The mystery shopper service is holding our feet to the fire with 150 cases of poor procurement practice investigated to date and in 75% of cases the outcome has been positive.
And for the first time SMEs have a real voice in Government. Stephen Allott, as the Crown Representative for SMEs, is pushing for you at the top table, challenging us and championing you.
So we’ve made real progress- as a one-year-on report published today highlights. And I’m pleased to announce today that central Government’s direct spend with SMEs is on track to double since we took office from 6.5% to 13.7%.
Or in pounds a leap from £3billion to £6billion, at a time when overall spending on goods and services is on track to reduce by 14%.
Figures like these haven’t been published before - for the simple reason that no one was bothering to collate them - which shows how high up on the agenda this was. When we came into office we couldn’t even immediately discover how much business Government was doing with SMEs.
Now every Department must keep a clear record - and we will keep holding this data up to public scrutiny.
That’s the thing about transparency - it sticks, once you start you can’t go back.
You’ll expect and we’ll expect to keep publishing and keep improving on these figures. There will be no hiding places.
New package of measures
So we won’t be resting on our laurels. This is an ongoing process to reach our 25% aspiration - and the current economic climate makes further and faster action imperative.
After talking to SMEs about what barriers are still keeping you from successfully bidding for Government work I’m announcing a new package of measures today to make the way we do business more competitive, more transparent, better value and far simpler than before.
The issue of competition is a key one. We’ve started to level the playing field for SMEs - but we can go further.
You’ve told us contract size is one of the greatest impediments to you winning work. And we agree - Government contracts don’t have to be and often shouldn’t be so big and complicated.
Redfern which you saw on the video earlier is a great example. We split Government travel into two lots allowing the SME Redfern to win a contract for domestic travel. What’s more they offered a price that is a saving of over 70% compared to current costs- saving us over £20 million in four years.
I want many more Redferns.
Today I’m pleased to announce ICT has become then the first sector to introduce specific caps to limit the size and duration of contracts to give SMEs a better chance.
In the future Government IT contracts will be more flexible, starting in two areas - application software and infrastructure IT. We are introducing set breakpoints so there is less money locked into large lengthy contracts.
Other sectors will explore whether similar value or length caps will drive greater value for money and support growth by encouraging new and innovative players into the market.
In this way we can open up opportunities for smaller companies - and reduce the cost to taxpayers both by encouraging a more competitive marketplace and by ensuring Government is only paying for what we use.
Our 25% aspiration also includes spend in the supply chain and we are working hard in all sectors to ensure the right level of supply chain participation from SMEs. For ICT, for example, we are confident that this can exceed 25%.
So I’m delighted to announce today that nine suppliers have signed up to opening up their supply chains to greater competition by advertising their sub-contracting opportunities on Contracts Finder.
Airwave, Amey, Balflour Beatty, CapGemini, Capita, Hewlett Packard, Level 3, Logica and Serco are the first to sign up - I’m expecting more to follow.
It’s very simple - if you allow more businesses and more business models to compete- you find better value solutions.
And I have also asked the SME Panel to work with us to pilot approaches to make it easier for SMEs to form consortia to successfully win Government business.
A 100% SME consortium Creative Choice successfully competed last year to win a Government marketing and communications contract - providing us savings of 25%, £11million.
You’ve also been clear that you want Government procurement to be even more open and accountable - with a focus on building closer mutually beneficial relationships between SMEs and Government.
They say the key to a good relationship is communication. But the truth is in the past Government and SMEs haven’t talked enough - constrained by fears about picking winners, cosiness with incumbents and breaching theories of efficient markets.
You were left in the dark about what was coming up - meaning Government was also blind to what you could offer.
Now we are publishing forward looking resource pipelines giving a much clearer picture of the contracting landscape across Government.
And today I can further announce that we will trial an SME ‘dating agency’ service that will help departments to identify and engage with innovative SMEs at the earliest stage of the procurement process.
And Departments will continue to be held under the spotlight on how SME friendly they are. A new rating service will give SMEs the ability to rate Government Departments on a number of criteria.
This will be trialled first at my own department the Cabinet Office - so we’ll be taking our own medicine before sending it round the rest of Whitehall.
It won’t just be us held to account - from today SMEs will be able to use Mystery Shopper anonymously to escalate issues in Government supply chains - for example, poor payment.
Which brings me to a third barrier that is still preventing SMEs from easily doing business with us - affordability.
Right now it’s not unusual for SMEs in the supply chain to have to wait up to 100 days to receive payment for their work.
Timely access to cash is of course critical to the survival of many SMEs - and we need to ensure there is fast pay down the supply line.
The Highways Agency has successfully piloted Project Bank Accounts in a number of their major construction projects. These electronic bank accounts pay prime suppliers at the same time as tier 1 and tier 2 subcontractors and have had a great impact in preventing cash from being held up in supply chains.
Today I can announce that we will extend the use of Project Bank Accounts in government procurement beyond the Construction Sector to other suitable sectors, starting with Defence and Facilities.
We will also explore other options, such as the role of structured finance, which could also enable faster payments within our supply chains.
Linked closely to this concern are the difficulties of bidding for Government work in the first place; public sector procurement practises are notoriously costly, complex and time-consuming.
Progress has been made at stripping away bureaucracy and we are now committed to getting all but the most complex procurement turnarounds to within 120 working days across Government - a 40% reduction.
There are great examples of quick procurement emerging too. Last August Maxxim Consulting an SME with 27 employees beat larger rivals to win a Cabinet Office consultancy contract by using the e-marketplace process that provides a quick request for quotation.
It took a total of two and a half weeks from the point we issued an advert to time they’d started working.
Then there is the recently launched Cloud Store, the online appstore for ICT services, which is allowing public sector organisations to purchase off the shelf IT services on a pay as you go basis. The suppliers on the Cloud are SMEs.
And the Maritime and Coastguard Agency has just become the first public authority to make a purchase with an SME called Emergn to buy Agile educational software.
The whole process was completed in less than 24 hours - this is the future.
And I am pleased that two of the procurers that made this happen - Steve Duckworth for travel and Rob McLeod for the Cloud Store are here today, alongside some of the SMEs that have benefitted from their innovative approach.
Whitehall and public sector buy-in
In the past so-called SME-friendly initiatives haven’t worked because Departments have been able to pick them up as and when they preferred. No longer.
For the first time all departments have now reported SME spend and by regularly publishing these figures - those that don’t embrace this agenda will be exposed.
This is not an area where we will allow anyone to lag behind. We are appointing senior SME Champions for every Department whose job it will be to challenge their procurers at every step and get better outcomes for you.
Of course it can’t just be central government that takes this agenda seriously - the whole public sector has to follow our lead. We all have an interest in supporting the ability of British SMEs to compete effectively for business paid for by the British taxpayer.
So I’m very pleased the Local Government Association will be taking steps to remind local authorities that they should be doing all they can to reduce the burdens on small business, including putting projects in the pipeline on Contract Finder.
The Secretary of State for Communities and Local Government has also asked the LGA to work with his Department to develop a scheme to streamline the PQQ process for contracts above £100,000.
This Government is committed to putting the UK on a path to sustainable, long-term economic growth. We can’t do that without SMEs - you are key drivers of growth and jobs.
Progress has certainly been made on opening up opportunities to you - but we are neither at the beginning nor the end of this process. And I want you to keep testing the strength of what we’re announcing today and the new ways of working we’re establishing.
Push us if more is needed, keep telling us where the barriers are - you are the experts, and I can assure you I’ll be listening and taking action.