Public Procurement Briefing 2012:

‘Driving a Culture of Innovation and Enterprise with SMEs’

Conference Report

Supported by

National Federation of Builders

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Introduction

“Today’s event is a fresh opportunity to think about the way Government does business – to review the contracts it signs, the goods and services it purchases and the way in which it purchases them.

We need a system that will drive enterprise, benefiting from the talent and innovation of Britain’s growing SME sector. Promoting a new culture of public sector purchasing that benefits from an open, competitive and transparent system is vital for our economy.

We are already making good progress, but I would like to encourage those attending today to work together to tackle the remaining barriers that prevent innovative, smaller suppliers being successful contract winners, and to address new solutions and ways of working.

The event today is an opportunity to work together to continue to progress towards these goals.”

- Rt. Hon. Francis Maude MP, Minister for the Cabinet Office

Hosted in association with the Cabinet Office, the inaugural Public Procurement Briefing 2012: ‘Driving a Culture of Innovation and Enterprise with SMEs’ took place on 9th March 2012, and brought together senior decision makers in central and local government and leading thinkers in the procurement space to examine the case for proactively opening up procurement to SMEs.

The event opened up a dialogue which examined the latest vision, evidence, good practice and practical solutions for overcoming key barriers to working with SMEs; demonstrating that purchasing from SMEs is not at odds with growth and enterprise with examples of programmes that stimulate innovation and reduce risk.

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BackgroundSME Procurement - An Opportunity for the UK

In the UK, greater inclusion of smaller, local businesses in the procurement process presents a real opportunity for Government purchasers to reduce the risk of project failure through more agile programme and project management1 to drive innovation through greater competition and choice, and to stimulate growth in the economy by supporting entrepreneurial businesses.

In a tightened financial climate, it is more crucial than ever for decision makers to explore both the opportunities and barriers to procurement from SMEs, and to reform procurement strategies in order to bring about new and more efficient purchasing solutions, and thereby ensure greater value for money and better results for Government and taxpayers.

National Policy Context

In its May 2010 Spending Review, the Coalition set out a programme of savings to be made throughout Government, including through the renegotiation of contracts with major suppliers.

With greater scrutiny of procurement spending, and with rising Government and citizen demand for more agile, risk-averse, responsive and customer-focussed service provision, particularly through digital channels, it is becoming increasingly important for decision makers to challenge the assumption that ‘big is best’ in procurement contracting and to consider new and better ways of purchasing Government goods and services with SMEs.

The Government has recognised the potential of small and medium enterprises (SMEs), which account for 50% of turnover in the UK economy but only win around 6.5% of procurement contracts, and has set out a plan for increasing this share to 25%2.

International Policy Context

Greater inclusion of SMEs in public procurement has precedent in other countries: the United States Government has a federal commitment that 23% of every procurement budget should be allocated to SMEs, and in practice the percentage is higher than this. The U.S. Small Business Administration (SBA) negotiates with Federal departments concerning their prime contracting goals and achievement with small businesses to ensure that SMEs have the maximum practicable opportunity to provide goods and services to the Federal government.

In December 2011 the European Commission stated that, given the current budgetary restrictions and economic difficulties in most Member States, public procurement policy must, more than ever, ensure the optimal use of funds in order foster growth and job creation and thereby help to achieve the objectives of the Europe 2020 Strategy. One of the main reforms proposed is to encourage access to public procurement for SMEs; for access to be increased and made easier through measures to cut the administrative burden as well as strong incentives to divide tenders into lots and limit the financial capacity requirements for the submission of a tender.

Learning from our European Neighbours

Studies of procurement across EU countries demonstrate that the UK lags significantly behind the Netherlands, Germany and France in terms of its procurement from the SME sector3 as well as innovative structures for making procurement accessible to SMEs.

The Government of the Netherlands has recognised the importance of making procurement more transparent and accessible to entrepreneurial businesses and has in place the ‘PIANOo’ (Professional and Innovative Tendering, Network for Government Contracting Authorities) facility, which gives companies greater access to contract information, answers to questions, and organises dialogue between the public and private sectors. The Dutch Government has also implemented an eProcurement system, ‘TenderNed’, to simplify and improve the efficiency of the tendering process for smaller suppliers.

1 ICT Strategic Implementation Plan, Cabinet Office, October 2011.2 Making Government business more accessible to SMEs: Management Summary of the progress made to date on enabling more SMEs to tender for government procurement, Cabinet Office, July 2011.3 Evaluation of SMEs’ Access to Public Procurement Markets in the EU, DG Enterprise and Industry, September 2010.

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Breakfast with the Prime MinisterThe day’s discussion began with a breakfast hosted by the Prime Minister for conference speakers and key actors in the agenda at which the Prime Minister personally reaffirmed the Government’s commitment to increase SMEs’ share of government procurement to 25%, and stated his support for the conference and its agenda.

In his speech to attendees, the Prime Minister noted the real progress that has been made in reforming public sector procurement over the past year, evidenced by a doubling of spend going to SMEs from 6.5% to 13.7% by the end of the financial year.

Cabinet Office image licensed under the Open Government Licence v1.0.

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Opening Session

Introduction and Welcome

Chair: Matthew Taylor, Chief Executive, RSA

Following an introduction by the chair, Matthew Taylor, the session began with a short film setting out the context and summarising the successes so far of the Government’s programme for reforming public procurement from SMEs. The video is available to view on the event website: http://www.procurementbriefing.co.uk/

Opening Keynote

Rt. Hon. Francis Maude MP, Minister for the Cabinet Office

The minister began by setting out context of the conference and the Government’s plans to open up public procurement to SMEs one year on. He stated how, in the past, Government procurement shut out SMEs with unnecessarily bureaucratic and complicated processes, and public sector procurers were wedded to the idea that ‘big was beautiful’ when it came to selecting which companies to buy from.

Although SMEs comprised 50% of turnover in the UK economy at the beginning of the current Government, they were only winning around 6.5% of Government procurement spend. Francis Maude claimed that this neglect of SMEs had excluded some of the most innovative and competitive suppliers, leading to a bad deal for businesses and a lack of value for taxpayers.

However, through working with procurement directors and the SME sector, and listening to the demands of businesses, the Government has begun to unlock procurement processes to new, smaller suppliers. He gave as examples of successes so far the waiving of Pre Qualification Questionnaires (PQQs) for contracts under the value of £100,000, and that a third of contracts awarded through the Contracts Finder website had gone to SMEs.

He also stated that the Government is trying to make public procurement more transparent and accountable through recording and publishing data, thereby ensuring that SMEs cannot be shut out of the procurement process without justification. The minister also insisted that bad practice would not be tolerated, and that the Mystery Shopper service has investigated 151 cases, with 75% of these resolved positively.

Francis Maude announced that, as a result of such reforms over the past year, central Government’s direct spend with SMEs is on track to double from 6.5% in 2010 to 13.7%, an increase in actual terms of £3billion, at a time when overall

Francis Maude© Harry Metcalfe

Matthew Taylor John Collington

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spending on goods and services is on track to reduce by 14%.

The minister went on to unveil a new package of measures to build on those already implemented, and the successes to date:

• New commitments from large private sector players to publish their subcontracting opportunities on the Contracts Finder website, giving SMEs more access to Government subcontracting work.

• A new approach to IT contracts: The Government intends for IT contracts to be more flexible, starting with those for application software and infrastructure IT. It will introduce breakpoints in contracts so there is less money locked into contracts for long periods of time. The Government also plans to break up future contracts into smaller units in order to encourage more flexible, cheaper solutions, and make them more accessible to SMEs.

• Prompter payment for SMEs: New ways of paying SMEs, including Project Bank Accounts and structured finance options, are being explored to ensure SMEs within the supply chain receive payment at the same time as the prime suppliers.

• Greater transparency: Departments will be accountable to smaller businesses through a star rating system which will show how effective they are at working with SMEs.

• Extending the investigative Mystery Shopper service: The Cabinet Office will now investigate complaints about unfair practices in the supply chain of government contracts.

• Better dialogue between Government and smaller businesses: From April, a new online tool will help government buyers to engage earlier with SMEs by allowing them to put informal postings about what they need to buy in future online and for SMEs to respond and explain what they can offer.

• Encourage consortia: The Government will trial new approaches to encouraging SMEs to build consortia to bid for Government work.

• Appoint SME champions in all Government departments to drive change.

The full text of Francis Maude’s speech is available on the Cabinet Office website: http://www.cabinetoffice.gov.uk/news/sme-procurement-event-francis-maude-speech

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Plenary 1: Inspiring a New Culture – Panel DiscussionThe opening session challenged delegates to think about why a new culture for procurement is needed, hearing about the real challenges and opportunities faced by new ways of valuing contract bids, understanding risk, and taking into account smaller, more agile, and more innovative suppliers.

Stephen Allott, Crown Representative for SMEs

Challenging the assumption that ‘big is best’ when it comes to the companies that Government buys from, Stephen Allott made a number of recommendations for public sector procurers, and set out some of the opportunities that procuring from SMEs can offer:

• It is important to understand when larger companies offer economies of scale, but also when they do not. He noted that in many instances and sectors, large service providers offer diseconomies of scale whereas SMEs offer much greater value.

• The root causes of assumptions about procurement must be addressed and Government procurers should reconsider opportunities where SMEs can offer a cheaper and better alternative to larger organisations. He insisted that for too long larger companies have been seen as a safe option to buy from, without adequate consideration of market conditions or what other companies could offer.

• SMEs can offer more flexible solutions, and can react quicker to innovation and developments while also offering competitive prices.

In light of these points, Stephen urged greater consideration of how contacts are sized and SMEs are engaged, to ensure that the Government benefits from what SMEs have to offer.

Dr Mark Thompson, University of Cambridge Judge Business School

Dr Mark Thompson began by illustrating the “mutual enchantment” which he claimed had persisted between Government and large suppliers for the past 20 years, and how it had led to a closed business model in public sector procurement.

He went on to explain how an “aggregation of supply” had taken place in the way Government purchased goods and services, and that this led to progressive lockout of SMEs in a market where large companies controlled access to the value chain and the vast majority of the contract value remained at the top.

However, Mark observed that vertically integrated business models are gradually disintegrating, with the market rewarding people who understand their business models and who are practical rather than ideological in how they approach these models. This pragmatism includes the need for breaking down the vertical silos within government into standard building blocks based on common processes and standards, which are accessible to SME bidders. In addition to this, Mark also raised a number of other key issues that must be addressed now and in the future:

• SME involvement needs to be systematic rather than in response to targets. Greater procurement from SMEs must involve a behaviour change and a culture shift, driven by open market standards.

• An open marketplace with fairer representation of SMEs threatens ‘closed’, integrated business models across both public and private sectors. Addressing the resultant employment shifts in both sectors will require strong political leadership and debate.

• Componentisation and readdressing the aggregation of public services and purchasing will require new skills in Government, including expertise in managing supply chains and outcomes pricing.

• Controversially, public sector purchasers will need to behave more like component traders; accountable to ministers for assembling and delivering responsive, innovative, quality services to the public, using a plural marketplace involving lots of SMEs.

Stephen Allott Mark Thompson Lord Young

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Sean Allam, Head of Product Sourcing and Services, John Lewis Partnership

Sean Allam compared public sector procurement to the activity of John Lewis, describing how John Lewis manages 15,000 suppliers from 60 countries, and purchases around 250,000 different items. He noted that while the company only procures approximately 1% of what government buys, it has a similar sized supply chain.

He set out 5 key lessons that Government could take from the way the private sector, and John Lewis in particular, does business with small and medium sized suppliers:

• John Lewis evaluates its suppliers on their expertise, innovation, and service level, rather than through extensive and complicated PQQs.

• It is important to be important to suppliers: constituting a large proportion of an SME’s business as a major purchaser is more likely to result in quality goods and services than when constituting a smaller proportion of a supplier’s business.

• SMEs must be offered a level of security and trust, and a long term commitment. • Purchasers can help SMEs procure for themselves. In some sectors they may need the same services as purchasers,

so opening up supply chains to them can be of mutual benefit. • Procurers should think about how to create a competitive landscape. This can be achieved by disaggregating contracts

and creating an internal competitive market between different suppliers of the same good or service, which can help drive prices down and increase quality.

John Collington, Chief Procurement Officer, Efficiency and Reform Group, Cabinet Office

John Collington responded to the issues raised by the other panellists by reaffirming the Government’s commitment to fundamental behavioural change in the way it does business with SMEs. He stated that the progress made over the last year demonstrates that the Government is listening to the concerns of small businesses and acting upon them.

However, he noted that the Government’s plans are not about giving SMEs favours, and that there will be more losers than winners. He also emphasised that capability is not only required on the part of the procurer, but is also essential on the supplier side. It is the Government’s responsibility to change its purchasing behaviour and break up monopolies to encourage competition and present SMEs with every opportunity to supply Government.

Liam Maxwell, Director, ICT Futures, Cabinet Office

Liam Maxwell identified two key responses which the Government is making to the challenges and opportunities raised by the panel: the disaggregation of contracts and the marketisation of the procurement process.

Focussing on Government IT procurement, Liam discussed how, in the past, contracts required huge amounts of capital and locked Government in for a long period of time, over which technology would change. This can and has led to the Government missing out on technical innovation and more effective solutions.

However, Liam illustrated how the Government is working to reform this situation, including implementing the Cloud Store system which disaggregates contract components, such as service management and application development, to enable bidding companies to serve areas where they work best, while preventing the Government from being locked into long, high-capital contracts.

Liam concluded by drawing attention to the fact that many areas of Government perform the same function, and that there is, therefore, and an opportunity to institute common models across departments and thereby improve efficiency.

Lord Young, Prime Minister’s advisor on enterprise

Lord Young noted that supporting small firms has not always been a priority for UK Governments, observing that the last comprehensive review on the subject was the Bolton Report in 1971.

While he stated that this was now changing regarding central Government procurement, he expressed concern at local Government processes. He noted that the vast majority of local authorities still insist on complex PQQs, and that he considered it a priority to persuade local Government to abolish PQQs for contracts under £100,000 in value.

Lord Young concluded by urging the businesses in the audience and SMEs in general to put pressure on local authorities to support the companies who live, work, and vote in their areas.

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Plenary 2: Best PracticeThe second plenary session presented best practice and solutions which have been developed to overcome barriers to SME procurement, with lessons and advice from the public and private sector, and an examination of the benefits resulting from procuring more from SMEs.

Charles Mindenhall, Chairman, Agilisys

Charles began by introducing Agilisys as an example of what Government support for an SME can achieve. He described how the company was founded 13 years ago as a provider of internet services to the private sector, and began to serve Government in 2002. Today, Agilisys employs 2,000 people and has a turnover of £130 million.

Charles stated that Agilisys had brought more competition into the local authority market, regularly competing with Fujitsu, Capita, and Serco, and offering more flexible solutions which meet the needs of Local Authority Chief Executives in innovative and cost effective ways. However, he also warned that such innovation and competition was at risk because of the current barriers obstructing SME procurement in local and central Government.

He went on to raise the “3 Rs” of challenges facing small and medium sized businesses when bidding for work with Government which need to be addressed through a variety of means to increase SME involvement in public procurement:

• Risk: Procurers often assume that larger suppliers are less likely to fail, and therefore offer security for the ongoing deliverability of services. Charles insisted that this was not always the case, using the example of occasions where smaller providers are required to deposit significant sums as bank guarantees for a local authority client, which of course puts greater pressure on smaller firms’ balance sheets.

• Referenceability: An SME may have a newer, more innovative approach, but being asked to give, for example, five previous cases of where such a solution has been implemented before is a contradiction in terms.

• Resourcing: Allocating staff and resources to bid for 18-24 month Government contracting processes is extremely difficult or even impossible for small companies.

Charles concluded by noting that there are strong financial and reputational incentives for public and private sector organisations to encourage SMEs into supply chains. He insisted that greater procurement transparency will increase reputational incentives, and encouraged organisations to support and mentor SMEs to overcome the challenges they face in selling to Government.

Brian Deveney, Head of Procurement, Post Office

Brian Deveney began by setting out the Post Office’s work with SMEs, both in terms of receiving the business of around half the UK’s small and medium companies at its branches every week, and also how the Post Office itself is largely a network of SME sub-postmaster run branches.He also described how the Post Office is undergoing a modernisation of 6000 of its branches, with the aim that a large proportion of this work would go to community-based SMEs local to the Post Offices involved.

However, Brian identified how the Post Office is uniquely challenged in achieving this aim; being caught by PCR regulations for procurement and expected to act and respond in the same manner as commercial organisations that do not have these restrictions. In addition to this, when legal advice was sought, a public procurement process was recommended for the modernisation work over a SME-targeted approach. Only persistent pursuit of more legal clarification of the process enabled the Post Office to procure and deliver branch improvements within communities.

Mark Wakeford Megan Stowe Charles Mindenhall

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Brian also set out steps the Post Office is taking to open up its IT transformation programme to SMEs:

• The Post Office currently has a single IT supplier but is looking to disaggregate IT purchasing.• Greater speed to market and flexible responses to tenders will be enabled by establishing competitive frameworks.• Run towers will be established to provide prime suppliers and sub-contractors, and the Post Office will establish its own

internal market for procurement. • Primes will be incentivised to use SMEs. • An agile innovations framework will be created with SMEs to look at the future and award contracts on the basis of

suppliers’ ability and capacity to deliver.

Brian concluded by insisting that buyers need to manage risk more effectively in order to remove the fear of purchasing from smaller companies within procurement departments. He also recommended encouraging SMEs to form consortia to deliver the scale and scope that purchasers such as the Post Office require. He stated that while there are good practices in procurement that must be kept, process restraints that inhibit SMEs must be removed, with the Government leading by example.

Brian Deveney’s presentation is available to view at www.procurementbriefing.co.uk.

Megan Stowe, Global Strategic Procurement Manager, Intel

Megan Stowe began by describing how Intel has grown from an SME to a multinational corporation with over 10,000 suppliers and a $16billion supply chain. She offered a global perspective of how Intel manages its range of international suppliers and supports SMEs through its supplier diversity programme.

Megan described how Intel has expanded into a large number of small markets such as Indonesia and Vietnam and how it has harnessed the local expertise of smaller companies in order to engage in these areas and with niche markets.

The structured approach to supplier engagement taken by Intel involves:

• Identifying and targeting support to underutilised, underrepresented, and SME suppliers for bidding opportunities throughout its supply chain.

• Publishing the results of SME engagement in Intel’s Global Citizenship Report, which enables transparency and accountability to investors.

• Organising small business tech boot camps to help them get the most out of the procurement bidding process.• Investing in small companies through Intel Capital and working with these companies to help them connect to and

supply corporations.• Mentoring suppliers to help them improve their capacity and business.

Partly as a result of this programme, Intel now makes 14% of its procurement spend with SME and diversity suppliers. In addition to simply spending with SMEs, Intel also aims to help its suppliers grow their businesses, and Megan gave the example of a small company which began by supplying Intel’s internal printing, but was encouraged to develop into product printing and marketing. Through these measures, and a structured and transparent SME engagement process, Intel aims to harness the agility, innovation, and niche expertise of small and medium sized enterprises.

Megan Stowe’s presentation is available to view at www.procurementbriefing.co.uk.

Mark Wakeford, Managing Director, Stepnell

Mark Wakeford discussed the barriers to SME procurement from the perspective of the construction industry, but also raised a number of issues endemic throughout all public procurement.

As well as dispelling a range of myths held about small companies, Mark also highlighted a number of important factors which procurers should take into account when considering SME bids:

• Experience required for a project will be relative to the project itself and not the size of the contractor. The same calibre of individuals is available regardless of the size of the company.

• Corporate risk should not be measured on balance sheet strength alone but rather on the balance sheet strength and turn-over in relation to the size of the project.

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• The Glover report from 2008 was emphatic in its statement that SMEs bring better quality and greater innovation. With the rise of refurbishment work over new builds, innovation, quality, and value for money are more important than ever.

• 12% of the carbon used in the delivery of a construction project relates to managers and designers driving around the country. If local SMEs were used this would cut the environmental impact of projects.

• It is important to provide competent feedback to SMEs who have bid and failed so that they can still apply for future projects.

• £250 million is wasted every year by the production of PQQs and the cost of these must be absorbed by clients. All procurers should use the new PAS91 to standardise practice, without undue complexity.

• PQQ questions should also be pertinent to the project at hand. For example, it is less useful to ask what a bidder’s carbon policy than to ask how close the site team lives to the project, and thus how far they will need to travel.

• It is important to consider what SMEs bring to a project beyond financial factors, including carbon use, training provided, local goodwill, and support for clients and communities.

Mark’s key message was an advocation of an outcome focussed approach to procurement, and a consideration of proportionality between the project or requirement, and the size and capabilities of the bidder, rather than making unnecessarily high demands which only exclude innovative smaller suppliers.

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Breakout Workshops The breakout workshops offered delegates the opportunity to break into smaller groups to focus in more depth on key practical challenges being faced. They provided an opportunity for delegates to address particular concerns and issues they are grappling with and to explore solutions looking at best practice for implementing specific goals.

Workshop 1: Risk Aversion and Harnessing Innovation

This workshop explored assumptions held about the risks associated with procuring from SMEs, with key perspectives on why there are difficulties in this area, and how this can provide a barrier to innovation. Participants discussed legal, administrative and cultural barriers faced, and shared ideas for overcoming them.

Contributors:

• Les Mosco, Commercial Director, Ministry of Defence• Mark Glover, Director of Business Planning, Technology Strategy Board• Richard Alberg, Director and Founder, MyWorkSearch (Innovation Launch Pad Finalist)• Stephen Hilton, Service Director, Bristol Futures Group, Bristol City Council• Christine Storry, Market Development Manager, Bristol City Council

Key messages from the workshop discussion:

• It is important to consider how SMEs can be allowed and encouraged to produce solutions in other ways than through strict specifications. Outcome based procurement is important in this respect, which enables SMEs to use their expertise and innovation to produce solutions effectively designed to requirements.

• Verbal engagement is necessary not only before engaging suppliers, but afterwards too through mentoring. SMEs could also be required to mentor others if they win a bid to cumulatively support a greater number of smaller companies to supply Government. The Cabinet Office is developing a “Dating Agency” concept to encourage greater market engagement.

• Creating an atmosphere where procurers are encouraged and feel able to talk to suppliers is important for understanding market capability and discovering innovation.

• Consortia should be encouraged by allowing them to combine their figures on bids. Consortia present a considerably lower overall risk as it is shared between multiple companies.

• It is necessary to make clear how PQQs are scored, including what is mandatory and non-mandatory. Innovation should be given a weighting and be quantified through engagement with SMEs.

Workshop 2: Supply Chains: Prompt Payment for SME Suppliers

In many categories of public procurement, SMEs are an essential part of the supply chain, offering public sector procurers a clear opportunity to achieve greater competition, better value and innovation even where the prime supplier might be a large organisation.

At the same time, access to affordable finance is a commonly quoted barrier to growth for UK SMEs. Therefore, it is important that public sector procurers consider all of the opportunities to ensure that participants within their supply chains are able to access working capital as cheaply and quickly as possible.

Contributors:

• Katharine Davidson, Executive Director, Strategy, Cabinet Office.• Lex Greensill, Cabinet Office advisor on Supply Chain Finance.• Mike Bennett, Performance Manager, the Highways Agency.• Neil Garrod, Head of Treasury, Vodafone

Key messages from the workshop discussion:

• While the Government is a prompt payer of its suppliers, prime contractors are often much slower in paying SMEs in their supply chains. Such slow payment is hard to justify if cashflow is in place, as transactions all take place electronically.

• Project bank accounts (PBAs) offer a low cost and low risk opportunity to ensure prompt payment to SMEs. These are internet based accounts with a bank that meet PBA requirements and can pay the contractor and named tier 2/3 suppliers.

• PBAs accelerate simultaneous net payments to each tier of the amount they are contractually due. PBAs benefit clients by reducing supply chain failure and project cost, while suppliers receive quick and certified payment, leaving them able to focus on their core expertise. These accounts take little longer to set up than a conventional bank account, do not affect declared turnover and shareholder value, and do not affect contractual relationships between clients, prime and sub contractors.

• The Government should use its considerable leverage with prime suppliers to insist on prompt payment for SMEs contracted into supply chains. It has as a last resort the option to name and shame primes with a poor record of prompt payment.

Workshop 3: EU Myth Busting

This workshop explored the legislative and procurement myths and perceptions which exist from both a SMEs and a purchaser’s viewpoint, which result in either:

• Procurers not engaging with SMEs;• Procurers creating legal or commercial barriers to SMEs competing for Government contracts; or• SMEs believing they simply cannot win public sector contracts.

Participants had the opportunity to discuss what they believe to be the myths which cause the greatest impact on SMEs competing and winning contracts and how these myths can be dispelled.

Contributors:

• Sally Collier, Executive Director, Cabinet Office• Roger Bickerstaff, Partner, Bird & Bird

Key messages from the workshop discussion:

• It is often not the law itself which creates barriers to procuring from SMEs, but how it is put into practice. • There are no regulatory restraints on the “minimum standards of economic and financial standing”; these are set by the

contracting authority. The EU Treaty principle of Proportionality requires that this “minimum standard” must be necessary and appropriate to the objectives sought. These standards are often tested by unnecessarily high turnover rules which exclude small companies, but such tests are not required by law.

• There are also no regulatory constraints on “minimum standards of professional or technical ability”. SMEs can be asked to give a number of examples of similar projects carried out, which can exclude new and smaller businesses. While these requirements are set by contracting authorities, EU Proportionality rules require them to be appropriate to the size of the project.

• There is no legal prohibition of division of contracts into smaller lots. However, larger companies can bid for multiple small lots, and so award evaluation can become more complicated.

• In pre-procurement discussions, it is important not to show favour to a particular bidder, but rather to discover market capability. Trade associations can be used to engage in pre-procurement discussions while avoiding favouring individual suppliers.

• Open procurement, without a PQQ stage, presents a challenge both to purchasers and suppliers in terms of complexity. Suppliers must therefore choose what to bid for carefully, but can receive greater assurance that their bid will not be dismissed without any form of assessment.

Presentations from this workshop are available to view at www.procurementbriefing.co.uk.

Les Mosco Sally Collier Stephen Allott

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Workshop 4: Framework Agreements

This workshop explored issues associated with the use of framework agreements to provide access to goods and services in the public sector. Participants discussed administrative and cultural issues associated with the use of framework agreements and share ideas for alternative approaches.

Contributors:

• Stephen Allott, Crown Representative for SMEs• Rod Peters, Head of Relationship Management, Government Procurement Service• Denise McDonagh, Home Office, representing the Government Digital Service• John Lorimer, Capital Programmes Director, Manchester City Council• Harry Metcalfe, Director, DXW

Key messages from the workshop discussion:

• The success of frameworks depends on their design, and can offer a number of benefits as well as drawbacks. They are also more effectively implemented in particular sectors, including construction, where they help facilitate close working relationships between suppliers and clients.

• The close and continuous engagement offered by frameworks in turn facilitates continuous improvement which helps drive down costs. Training and apprenticeship programmes are also benefitted by frameworks, as they can allow apprentices to work for a range of different contractors over the course of their training.

• It is important to consider and articulate the difference between a framework and a managed tender list. The Government’s G-Cloud tendering system has minimal terms and conditions, enabling suppliers to be added and removed easily, and does not restrict the number of suppliers on the framework. While it facilitates quicker and easier contact between suppliers and purchasers, it does not necessarily have the same close relationships between the two found on smaller frameworks.

• It is essential to consider the risk and spend relationships when approaching frameworks: Situations involving high risk and high spend are most suited to framework agreements; those involving low risk and low spend suit a G-Cloud type approach; and high risk, low spend projects are best approached with a reverse auction.

• In order to support SME bids, frameworks must ensure turnover standards are set at realistic levels, and also should not be so specific as to exclude innovation.

• Private sector buyers have business and commercial restraints, whereas public sector procurers have legal ones. As lawyers do not necessarily have commercial experience, a combined legal and commercial approach would be most effective in the design of frameworks.

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Plenary 3: A New Future for Public Procurement The final session responded to key issues raised during the day, summarising common challenges, new opportunities and potential solutions for driving a new culture of innovation and enterprise with SMEs.

John Collington, Chief Procurement Officer, Cabinet Office

John Collington concluded the day’s discussion and debate by setting out the successes of the Government’s programme so far and looking ahead to the challenges and opportunities to come, reaffirming the Government’s commitment to the triple goals of improving capability, supporting growth, and reducing the deficit through more effective public procurement. In order to achieve these, and the behavioural change required, he insisted that everyone in the procurement cycle, from the Government to SMEs, large suppliers, and trade bodies, must accept that the current situation is going to change, and that this change will start with them. As evidence of this change, the Government’s new CloudStore, an online source of small, flexible IT solutions for Government was executed from start to finish in 4 months rather than through a long and expensive procurement process. Additionally, the services and goods provided through the CloudStore enable public sector purchasers to find agile IT solutions suited to their requirements, rather than having to procure large, long term contracts which lock in costs, exclude innovation, and are not flexible to changing requirements or technology. Agile procurement and lean sourcing processes were identified as crucial for unlocking the innovation of SMEs and essential for more cost-effective Government procurement, and John gave the example of how a £1.1 billion contract for Government travel had been won by Redfern Travel, an SME from Yorkshire which offered dramatically greater value for money than previous, larger suppliers. It was noted that while there was still some way to go to open up public procurement to SMEs, Government expenditure with small and medium businesses is on track to double from approximately £3 billion in 2010/11 to £6 billion in 2011/12 at the same time as overall spending has reduced by 8%. John encouraged SMEs to be aware of what the Government is doing through its Contracts Finder service, and to know that the Government is keen to listen to their concerns and act upon them. John Collington’s presentation is available to view at www.procurementbriefing.co.uk.

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