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SMEs and public procurement
Trowers Public Insight

SMEs and public procurement

SMEs' access to public contracts has recently been a prominent issue on the public procurement agenda. Following Lord Young's recommended reforms in his 2013 report 'Growing Your Business,' the Cabinet Office has implemented these measures into the draft 2015 Public Procurement Regulations.

In brief, these measures entail:

  • Publicising contracts which have been won by SMEs in order to raise their profile
  • Removing the need for pre-qualification questionnaires
  • Advertising all contracts below the procurement threshold on an online portal to be known as 'Contract Finder'

Despite their grandiose wording, some may argue that the substance of these provisions is minimal.  Regulations 109 and 113 are cause for concern, because they provide that public contracts will still be valid even if contracting authorities fail to materially comply with the measures specifically introduced to assist SMEs. It is not yet clear how these rules will have the intended results when contracting authorities are essentially at liberty to choose how to follow them.

It should be noted that the relaxed rules only affect contracts which are under the procurement threshold of Part 2, and there seems to be an underlying assumption that SMEs are not yet capable of bidding for contracts of higher value. Therefore from one point of view, it may be said that the changes will not really promote SME participation in 'regulated' procurement. Furthermore, larger bidders are able to enter into framework agreements with contracting authorities who can then 'call-off' contracts within the ambit of such agreements without having to advertise these to SMEs, even if the value of these call-off contracts is below the procurement threshold. A cynic might observe that fair treatment of SMEs dictates that SMEs have the opportunity to bid for such contracts, regardless of their chances of succeeding.

Subsequently, the Cabinet Office has commenced another public consultation, this time on the Small Business, Enterprise and Employment Bill currently before Parliament. The consultation document again refers to Lord Young and reiterates the importance of providing SMEs with fair access to public procurement.

Under Part 3 of this Bill, the Secretary of State is empowered to 'impose on a contracting authority duties in respect of the exercise of its functions relating to procurement.' This is very broad, and the subsequent sections of this Part discuss in equally broad terms how this power can be exercised to ensure that contracting authorities carry out procurements in a timely and efficient manner. There is also a power for the Secretary of State to make investigations into the procurement functions of contracting authorities. It should be noted that these provisions apply generally to procurement, and not only to below-threshold contracts. It remains to be seen as to whether the Secretary of State will exercise these powers in a way benefitting SMEs.

It is also questionable as to why the EU directive does not include any provisions in respect of SMEs and why the matter has been left to Member States to address, given the extent of their economic contribution - there are 20 million SMEs in the EU, representing 99% of EU businesses.

With a general election fast approaching, it is perhaps not surprising that the Government has for the time being chosen to legislate in an encouraging yet slightly hesitant manner. For the moment however, it seems unlikely that SMEs will draw much concrete comfort from these new provisions.