44. Strategic Suppliers are, by definition, those suppliers with the largest value of contracts. It is unsurprising therefore that these companies are generally large entities, particularly if they operate in sectors, such as facilities management or construction, that have seen several years of aggressive acquisitions and growth. The process of tendering for Government work has also favoured companies with a track record of securing public sector contracts. Mr Manzoni acknowledged that "We are not doing as well as we would like on small and medium-sized enterprises elsewhere in Government procurement ... It is better than it was, but it is still not where we want it to be."48
45. The Federation of Small Businesses argue that SMEs offer greater innovation, flexibility and responsiveness and better value.49 The Government has an aspiration for greater SME involvement in public sector contracts and has announced further measures to improve access to government contracts. Our evidence suggests simpler and more transparent routes into public sector procurement, disaggregation of large contracts and more collaborative models, such as joint or consortia bidding, would enable SMEs to compete.
46. SME involvement in public sector work is not restricted to bidding for individual contracts. Many Strategic Suppliers have extensive supply chains that involve SMEs.50 However, the FSB argue that "if simply operating as aggregators, strategic suppliers gain huge power in the marketplace with their suppliers, but it is the strategic suppliers-rather than Government-who will gain from this market power."51
47. There may be benefits of SMEs contracting directly with Government. However, there are risks for government if they are acting as the aggregator for multiple suppliers. An SME contractor may also be less able to respond to change and variation in the contract conditions or terms, and Government unable to flex appropriately to compensate for the restraints faced by smaller businesses. For example, SMEs supplying the Ministry of Justice's new electronic monitoring programme were asked to attend up to 40 meetings per week and give up their intellectual property for nothing-a wholly unrealistic expectation.52 The National Audit Office found that the Department had failed to adapt its approach enough to take into account limited staffing and financial resources at SMEs with which it had contracted on the programme.53
48. While there may be a balance in the costs and benefits of Government contracting directly with SMEs there is no doubt that the Government plays a role in ensuring businesses throughout the supply chain are fairly treated.54 The Chancellor of the Duchy of Lancaster's recently announced initiatives include a requirement for "departments to follow for the first time a 'playbook' of guidelines, rules and principles that will encourage new entrants to the market and build mixed markets of suppliers".55 The Specialist Engineering Contractors' (SEC) Group advocated several specific changes, such as the use of Project Bank Accounts, enforcement of the Public Contract Regulations on prompt payment and end or protect retention payments.56
49. The Government has committed to greater use of SMEs as direct contractors and announced measures to improve treatment of SMEs in the supply chain. We have, however, seen little evidence of action. We recommend that when the Government publishes details of its proposals to support SMEs it includes an assessment of the wider benefits of increasing the pool of potential suppliers to Government.
50. Recommendation: There is no excuse for small and medium supplier businesses not being paid on time. We recommend that the Government considers a project bank account approach and reviews the impact on small business. We expect the Government's proposals for supporting SMEs to include measures to address:
i) Delays in payment
ii) Retention payments
iii) Preferred supplier discounts
iv) Increasing the use of Project Bank Accounts
v) Reducing the barriers to the direct bidding to Government
vi) Supporting consortia bidding.
We recommend that the Government consult with SMEs on the most appropriate way to incorporate these measures into contracts.
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48 Q 680
49 Federation of Small Businesses (SSU0016)
50 Q 631
51 Federation of Small Businesses (SSU0016)
52 Committee of Public Accounts, Fifteenth Report of Session 2017-19, Offender-monitoring tags, HC 458, para 15
53 Report of the Comptroller and Auditor General, The new generation electronic monitoring programme, Session 2017-19, HC 242, Para 3.37
54 See Government Commercial Function, Supplier Code of Conduct, September 2017, p6.
55 Cabinet Office, Chancellor of the Duchy of Lancaster speech to Reform, 25 June 2018, accessed 12 July 2018
56 Specialist Engineering Contractors' Group (SSU0012)