3.16 In part one, we set out the benefits government told us it could gain from the greater involvement of SMEs in government contracts. At a government-wide level, the CCS's aim was to make it easier for SMEs to compete with larger providers for government contracts. But it cannot demonstrate that the initiatives set out in part two have had this impact overall. For example, it has no data on whether the number of SMEs bidding for government contracts has changed.
3.17 At a departmental level, SMEs can deliver benefits for particular areas of spending or individual contracts (see Figure 1 on page 15). In late 2015, the CCS began work to identify areas of cross-government spending where there was the potential for greater use of SMEs. It analysed different departments' spending with SMEs through its frameworks, in order to identify similar departments with different levels of SME spending. It told us it intends to use this analysis to demonstrate to departments areas in which they could make greater use of SMEs. However, government has not yet sought to identify areas where SMEs are thriving in the private sector and so are better placed to compete with larger providers for government contracts. For example, in the information and communication sector, SMEs have increased their market share since 2010, accounting for 45% of the sector's total turnover in 2015.
3.18 We found some examples of areas of government developing strategies to increase their use of SMEs. In these cases, commissioners identified:
• benefits to their business of increasing their use of SMEs;
• the type of SME that could best deliver those benefits; and
• specific strategies to make it easier for those SMEs to compete for contracts.
3.19 This focused approach recognises the diversity of SMEs. While SMEs are commonly seen as distinct from government's main (large) suppliers because of their size, they are not a homogenous group. A small business will differ from a VCSE and a fast-growing start-up will have different concerns to an established, niche provider. For instance, we have identified three broad categories of SMEs:
• Niche providers - such as those in the heritage sector or VCSEs supporting specific groups, can provide highly-specialised services, products and expertise that no-one else can. But such providers are unlikely to contribute significantly to economic growth.
• Innovative start-ups - technology start-ups and new companies can give the government access to new ways of doing things and act as a driver of economic growth. But such providers can be inflexible as they seek to grow their business and require ownership of their intellectual property.
• Commodity providers - small providers operating in highly competitive markets (eg IT hardware, recruitment agencies) can offer value for money and flexibility, but may not provide economic growth or specific expertise.
3.20 Identifying the potential benefits of using SMEs and the types of SMEs that can have most impact can help departments develop strategies to ensure SMEs thrive within a particular sector. This part looks at three examples of where government has done this:
• Highways England and the construction sector
• G-Cloud, led jointly by the Government's Digital Service and the CCS
• Supply chain oversight