For too long SMEs have been “locked out” of public sector procurement. We say “locked out” because while there was nothing official barring SMEs from tendering for public sector contracts, circumstances made it very difficult for small businesses to compete with larger enterprises.
However, the UK government has recognised the value that SMEs have to offer the public sector and has taken steps to make the public procurement market more accessible.
Invitation to SMEs to join public sector procurement
This was one of the motivating factors in the creation of the Procurement Act 2023, as new procurement regulations and procurement legislation used for low-value contracts favour SMEs.
We’re going to look at how low-value local and central government contracts make the public sector more enticing and more profitable for small businesses.
Procurement Methods Can Enhance SME Opportunities
There are several public sector procurement methods, some of which can be more beneficial for small businesses than larger organisations.
Open procedure
Open tendering is a competitive procedure (or free and open competition). Contracting authorities publish a contract notice for a specific locality. The contract or tender contains all the details, including clear technical specifications.
It’s a free and open competition to all bidders that meet the specs and is awarded to the business that provides the most value.
Note: The most value is not necessarily the lowest price.
This is the first advantage for SMEs.
Awarding tenders to the bidder with the lowest price tends to favour larger businesses that have the economic and financial standing to afford low-value public contracts.
When value is a determining factor in contracts awarded, small businesses tend to have the advantage because their local knowledge gives them more insight into what their community needs.
They may have working relationships with other small and medium-sized businesses that extend their service offering to public bodies, and their size gives them the flexibility to adapt to changes more quickly than their bigger counterparts.
Restricted procedure
In restricted tendering (selective bidding), contracting authorities invite suppliers to submit bids on the contract.
Suppliers that crack the nod have been pre-approved or pre-qualified based on their ability to meet the contracting authorities’ exact award criteria.
SMEs in particular can benefit from restricted tendering if their procurement strategies include early engagement, networking, and relationship building.
Request for proposals (RFP)
Public sector buyers proactively look for suppliers by sending out requests for proposals to the candidates that they think have the most potential to meet contract requirements.
RFPs tend to use a two-envelope system to choose contract winners.
This is the second advantage for SMEs.
The first envelope to contracting authorities contains the MAT information. MAT is the Most Advantageous Tender and this is where small businesses can shine.
They have an opportunity to demonstrate how their products, services, or works provide an overall benefit for the contracting authority.
For example, they might meet all the criteria – and streamline the buyer’s operations, enhance the efficiency of the supply chain, provide indirect cost savings, and provide outstanding social value.
All of which are well aligned with the new public procurement law.
The second envelope
If central government bodies are sold, they open the second envelope, which contains the financial part of the bid. It’s one of the best ways to ensure objectivity because the quote only comes into play once the proposal is approved.
CCS Simplifies Public Sector Contracts in the UK
CCS (Crown Commercial Services) plays a significant role in making public sector procurement more SME-friendly.
In 2021, CCS published its SME Action Plan that simplifies the procurement process for small businesses.
For instance, large organisations tend to have public procurement teams whose sole purpose is to find and analyse bids, select contracts that match their services, goods, or works, and write tender responses.
SMEs don’t have that advantage, which is why CCS developed the Public Sector Contract (PSC) or Low-Value Purchase System.
This is the third advantage for SMEs.
The Low-Value Purchase System is a shorter and much less complicated procurement process than higher-value contracts because it provides a template for framework contracts.
Small businesses (and Voluntary, Community, and Social Enterprise (VCSE) suppliers) have a much easier time quickly submitting bids in compliance with procurement rules.
The gift for SMEs
One of the reasons it suits SMEs so well is that the contract notice needn’t be published on Contracts Finder, which means large businesses are unlikely to be aware of the contract notice, let alone have the interest to enter the procurement process with a serious bid.
Contracts are awarded directly or via a mini competition, kind of like a mini proposal.
Low-Value Purchasing System Benefits
The low-value purchasing system has many benefits for small businesses that want to benefit from low-value public contracts.
7 Benefits of the low-value purchasing system
- The system is flexible, enabling suppliers to enter the public procurement market when it best suits them.
- The nature of the system encourages a diverse supply chain, increasing the capacity to meet the varied needs of local and central government departments.
- The low-value system is simple, enabling suppliers to find public sector contracts with below-threshold values (below £12,000).
- The system is in line with the national procurement policy to bring SMEs into the public sector procurement market.
- A dynamic filtering system notifies suppliers about suitable contract opportunities.
- The system complies with the Public Contracts Regulations 2015.
- The purchasing system corresponds with the Procurement Policy Note (PPN) for Public Contract Thresholds 11/23.
Note: It’s worth taking a look at the Dynamic Purchasing System, which also helps SMEs capitalise on low-value public contracts.
Public Sector Support for SMEs
The public sector continues its mission to make it easier for SMEs to compete successfully in the government procurement market. Better communication is one of the more supportive methods.
This is the fourth advantage for SMEs.
Pre-engagement communication between contracting authorities and SMEs removes one of the biggest challenges that small businesses faced in the past.
Visibility.
During pre-engagement communication, buyers discuss upcoming procurement opportunities with small businesses. In turn, SMEs give public sector buyers a better understanding of their capabilities and what is realistic in terms of contract criteria.
The better public sector buyers understand small businesses the better they can create low-value contracts that are fair and enable suppliers to provide additional value for money.
Collaboration on SME tenders
In some cases, public bodies have contracts that are too big for one small business to handle. The solution is collaboration.
This is the fifth advantage for SMEs.
When SMEs collaborate on larger procurement contracts they submit what is called a consortia bid. Several SMEs join forces to meet the contract’s award criteria.
Gov.UK has more information on consortia bids so SMEs can follow the correct procurement processes.
Social Value
Social value provides a bunch of advantages when bidding on public contracts. This is incredibly beneficial for small businesses on the cusp of public sector greatness.
(advantage six)
It’s become an essential part of public procurement, with contracting authorities required to give it a minimum of 10% weighting when evaluating a bid.
Note that it is a minimum weighting. A contracting authority is free to increase the weighting up to 20% if it wishes.
(advantage seven)
Social value provides benefits for public authorities that are social, economic, or environmental – or a combination of all three.
The value must reflect the nature of the contract and is usually stipulated in the contract documentation.
For example, a construction contract must have construction-related value and not something related to the national defence and security sector.
Projects that do well in government procurement include employment, climate change, and social upliftment.
Why is social value in low-value contracts so beneficial for SMEs?
(advantage eight)
Small businesses are ideally placed to maximise social value initiatives. For instance, they must benefit the community in which the contract is based.
This works well because SMEs are on the ground, so to speak. They know their community and have a feel for what it needs most. This means they can often supply value for money on several levels.
For example:
Value for a construction contract can include apprenticeships or on-the-job training (economic), eco-friendly building materials and methods (environment), and putting a new roof on the community centre (social).
Community knowledge must translate into action
Larger enterprises in public procurement tend not to have the familiarity with local communities that enables them to craft initiatives that meet their unique needs.
At best, the project lacks personalisation. At worst, the project doesn’t address the community’s needs.
They’re also too big to quickly adapt to changes in the procurement process, whereas a small, local business is flexible enough to meet current needs.
For example:
Say the project is to plant trees in an old park and generally spruce it up. But then there are heavy rains and flooding, which damages the community centre.
An SME with a construction contract could switch focus to repair the community centre, as well as some other flood-related problems.
A large business might not even be aware of the localised flood damage to the community centre. However, knowing about the disaster wouldn’t necessarily enable the enterprise to respond timeously.
Many large enterprises have strict approval processes. Any proposed changes to the public procurement contract would need to travel down the funnel before being given the green light.
Prompt Payment
Cash flow can be a problem for small businesses. It’s one of the reasons they’ve stayed out of public procurement, as they can’t afford to fund a project if they haven’t been paid timeously.
This is why the government has included a prompt payment policy in the new public sector procurement contracts regulations.
According to the Cabinet Office, public sector buyers must pay 90% of their invoices within five days of the contract being awarded and must pay the balance within 30 days.
This is the ninth advantage for SMEs.
SMEs Drive Innovation In Public Procurement
Innovation is essential in public procurement. Without it, there would be no enhancing or streamlining operations, no cost-saving solutions, no improvement in services, and no forward movement in production. Just the same-old-same-old stagnation.
However, the competition in public sector procurement gets tighter as more SMEs enter the market. Any business (regardless of size) that wants to stand out has to keep innovating and improving its service offerings.
This kind of rolling innovation in government procurement is necessary for small and medium-sized businesses to stay relevant, or better yet, stand head and shoulders above the madding crowd.
This is the 10th advantage for SMEs.
Small business-driven innovation achieves several public sector objectives.
4 Public sector objectives
- Public resources are used more efficiently in the public procurement cycle.
- Public spending is more transparent, especially as it relates to compliance with the new public contracts regulations.
- There is growth in local and central government economies.
- (There could even be growth in the international procurement market.)
- Creates solutions for environmental, health, and social care challenges.
Regarding innovation (including the roles of SMEs), the Royal Academy of Engineering states:
“Procurement of innovation can deliver a wide range of benefits, from better value and improved public services to acting as an effective stimulus for innovation and business growth … Procurement is an under-leveraged tool in the UK’s innovation ecosystem and has the potential to have a transformational effect on companies’ investment in R&D in the UK, stimulate innovation and adoption across supply chains and deliver best value to the public purse while achieving the government’s priorities such as the net zero target.”
Essentially, public authorities must be more proactive in their engagement with innovative small businesses to improve and optimise procurement processes.
What Do SMEs Get Out of Low-Value Contracts?
The Procurement Act 2023 provides SMEs with plenty of enticement to enter the public procurement sector, but what about once they’re making headway in the market?
What benefits do low-value public contracts provide to keep SMEs in government procurement?
1) Profit.
The public sector is lucrative and even low-value public contracts can do wonders for your bottom line.
It helps that public contracts are typically short-term, as opposed to longer terms in high-value contracts with government departments.
Short-term public contracts are in the region of 12 months, maybe a month or two less, maybe a month or two more. This means that contracting authorities have more procurement opportunities for SMEs.
Interested parties can benefit from more procurement activity, which enables them to hone their tender procedure as they get valuable feedback from public bodies, whether they win the contract or not.
2) Growth.
Some businesses are comfortable with their share of the public sector and do not want to expand their reach into the European Union (or EU member states).
Others champ at the bit to generate cross-border interest and enter the global procurement market.
Why short-term contracts
This is where short-term contracts and more procurement opportunities come in handy. They enable SMEs to get more public procurements under their belt, which increases their experience and expertise.
This increases their visibility in the public sector market and attracts the attention of local and central government departments that might include them in restricted contract procedures.
The potential for growth from that point is phenomenal.
3) Brand awareness.
Growth and brand awareness tend to go hand-in-hand – although it certainly isn’t always the case.
For example, government procurement suppliers who display ingenuity are usually very well-known in their sphere. News of their innovation spreads beyond their niche in the public sector and suddenly their brand is known in local and international procurement circles.
They can use this recognition to unlock even more procurement opportunities (if they so choose).
4) Brand reputation.
A good reputation will open a lot of doors for your brand. A bad reputation will keep procurement opportunities behind locked doors.
What this means is that brand awareness does not necessarily equal a good reputation. In the above example, the government procurement supplier might be known for their ingenuity but also for being rude, tardy, and expensive.
That’s a bad reputation in anyone’s book.
Lock the door on a bad reputation
You can make the most of the opportunities presented by low-value public contracts by providing high-quality goods, services, and works as well as being personable, approachable, professional, and reliable. Characteristics like this provide the foundation for a good reputation in the public procurement market.
5) Collaboration.
Collaborating on low-value public contracts can be incredibly beneficial for public sector suppliers.
For starters, it increases your network of professional relationships and, as we all know, it’s not what you know, it’s who you know. Also, you never know when someone in your network will recommend the dream public procurement contract.
It exposes you to new ideas and new tech and gives you access to experts in related fields. This is great for your innovation and growth.
Collaboration, or consortium bids, enables a group of suppliers to bid on more complex procurements. There are new challenges to be overcome, but there are also new rewards which drive your business forward.
6) Expertise.
You know your business and your niche; however, if you want to continue to compete in the public procurement market, you must grow your knowledge base, keep up with developments, and use your experience to become an expert in your field.
7) Thought leadership.
Your reputation, innovation, relationships with leading SME suppliers, expertise, and track record can help position you as a thought leader or pioneer in your field.
8) Respect.
An established presence and a good reputation ensure that you are respected by both buyers and suppliers in the public sector market.
You Must Find Tenders To Win Tenders
There is an idea that low-value public contracts are difficult to find and that this is another reason SMEs have been wary of the public sector. Perhaps it was true in the past, but now, in large part thanks to the Procurement Act, low-value contracts are quite easy to find.
Embrace tender portals
The government has public procurement portals which publish contract notices, but not all low-value contracts are published on these platforms.
Independent businesses, like Supply2Gov, have their own Contracts Finder and Tender Alert tools.
Supply2Gov (S2G) enables you to tailor your alerts to suit your capacity and your growth. You can start with our free local area alerts and as you grow you can set alerts for the UK and Ireland. Simply register now and get your tender alerts up and running.