Barriers to SMEs winning government contracts

2.28  Sector experts continue to raise concerns about the barriers to winning government contracts faced by SMEs. In February 2015, the Prime Minister's Enterprise Adviser, Lord Young, highlighted some of the barriers faced by small businesses, including:

•  a lack of SMEs with the digital capability to make use of opportunities;

•  a lack of accountability if contracts fail; and

•  fragmented support to SMEs.17

Figure 5
Complaints to 'mystery shopper' about issues commonly identified as barriers by SMEs

Complaint type

2011

2015

Notes

1  It was not possible to identify from the mystery shopper data if the complaint was made by an SME. To identify which complaints were most likely to relate to the SMEs, we compared a list of issues commonly identified as barriers by SMEs contracting with the public sector with complaints reported by mystery shopper.

2  In complaints where more than one barrier to an SME was identified, only the barrier connected to the main focus of the complaint was selected.

3  The figures are based on our analysis of mystery shopper complaints from February to October 2011 and January to September 2015.

Source: National Audit Office analysis of Cabinet Office data

2.29  We spoke to sector representatives and SMEs about their experiences of finding and bidding for public sector contracts. We also asked departments about barriers SMEs may face. Overall, the feedback we received suggests that the government's initiatives are directed at key issues facing SMEs, but that the initiatives are not being consistently implemented across the public sector.

2.30  We collected this feedback in 2015, after some of these initiatives had been running for some time. However, it is possible that the impact of the various initiatives may take time to be felt by the sector. Nonetheless, we noted that the challenges SMEs think they face remain the same as those recorded for many years (Figure 6).

Figure 6
Barriers to contracting between government and SMEs

Issue

Government-side barriers

Provider-side barriers

Transparency of information

Do not fully understand their providers or market capacity.

Cannot identify suitable contracting opportunities or who to approach for help.

Departmental risk aversion

Stick to providers they already know or seek to outsource their risk management, perceiving larger suppliers as less risky.

Cannot meet requirements set by government, for example providing parent company guarantees or demonstrating a track record of delivery for government.

Capability

Lack of commercial skills can increase risk aversion and reduce ability to seek out innovative approaches or consider social value.

Tend to have a more specialist range of products or services and so may only be capable of delivering a small proportion or certain parts of contracts.

Capacity

Limited capacity means commissioners are more likely to outsource their supply chain management to prime contractors.

Do not have the resources to invest in developing relationships, prepare lengthy bids or deliver large contracts.

Delays in payment

Limited oversight means that government cannot ensure that prompt payment targets are passed on by prime contractors.

Less likely to have the financial capacity to absorb payment delays, creating cash flow and workflow issues.

Source: Discussions with departments and sector stakeholders




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17  Lord Young, The Report On Small Firms 2010–2015, February 2015.

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