Coalition starts revealing how it will become more SME-friendly

Written directly into the Coalition agreement: a commitment to get the SME sector to supply 25% of all UK public sector goods and services, including ICT. Or rather, in the more careful words of Stephen Allott, the new Crown Commercial Representative inside the Cabinet Office for SMEs, speaking at this week's SmartGov procurement conference in London, it's at least an "aspiration".

There's no doubt that there is a desire inside government to engage more with the SME tech supplier. There's also no doubt we've got some ground to make up. According to a September cross-EU study on SMEs in the European public sector space, the UK is in fact bottom of the list in terms of percentage of public service contracts won by this sort of company size, at 24$, versus the EU average of 24% - and France's 44%.

Admitting "We have a lot of ground to make up," Allott, an ICT industry veteran who's worked for both big suppliers and SMEs himself, believes the most likely problem is size of contract value. As a norm, UK public sector bodies, in both central and the wider space, tend to award bigger chunks of contract at one time than our European neighbours (EU329,000 versus, again, France's much lower EU66,000). This means customers tend to be more conservative in their openness to working with partners they perhaps not even explicitly see as 'riskier' than bigger players, he believes.

But when asked, public sector ICT buyers nonetheless cite positives such as greater flexibility, ability to react quicker to request changes and better price options from this sort of size partner than the bigger boys. So he and his team are trying to work out a range of ways of making it easier for SMEs to bid for contracts in the sector.

Allott is honest enough to see that there are still big obstacles. On the supplier side, if you're a big firm, you've got better salespeople who make a living by forming tight relationships with prospects and customers, for example. And in the buyer side, perversely enough, historic weakening of internal expertise has created more conservatism on that side, too. "A BT is happy to work with SMEs because it has lots of engineers who know exactly what they want. Not so true in the civil service any more," he told delegates.

While we wait for his team to produce ways to simplify the tendering process, such as the promised government eMarketplace for contracts, SMEs trying to get into government have to also face practical commericals issues too, of course. The government envisages SMEs not just pitching for smaller or localised business, but being encouraged to bid for parts of larger contracts, typically as sub-contractors of the sort of larger firms that have monopolised public sector business in the past. But this begs its own questions both in term of who easy it is to navigate existing procurement rules as well as the thorny question of payment and cash flow. Thus late payment research from BACS, the company behind Direct Debit, recently found that that more than £24 billion is owed to SMEs from large corporates who fail to honour payment terms, with the average amount owed to an SME at any one time stands at £27,000.

Cabinet Office Minister Francis Maude last week pledged that the government will crack down on large contractors who do not pay their smaller counterparts on time.  "We expect and require our suppliers to pay within 30 days. We will crack down on any behaviour to the contrary," he said.

Since coming to office, Maude has dedicated a lot of time to renegotiating the existing contracts that the largest suppliers to government, summoning them to the Cabinet Office and telling them that the cost needed to be reduced. Now attention is turning to how to encourage and enable the inclusion of SMEs in areas of government that might previously have been alien territory to them.

"There will be lots of different ways to do this," says Maude. "We want to release enterprise. We are driving the growth agenda. That's not just the economic growth agenda by enabling entrepeneurs to exploit public sector data sets, but also social entrepeneurs who can develop new applications to allow society to work more closely together in and for communities.

"There are public sector entrepeneurs who don't think of themselves are entrepreneurs They're not financially motivated entrepeneurs, they're people who want to be able to give back to their public service vocation in a direct way. That will help with our growth agenda as well as creating a much more interesting and diverse pattern of public service provision. It will also enable public services provision to be much more quickly improved because small organisations can change much more quickly than big organisations."

One preferred route to smoking out these entrepeneurs is a predilection towards co-operatives and employee led mutuals. "We've got 21 Pathfinders to test out what is possible and what lessons can be learned. These are achieving dramatic results," argues Maude. "Sandwell Community Care Trust spun itself out of Sandwell Council in 1997. The council was about to close it down. The leadership said 'Don't close it down, we'll take it off your hands'. The budget then was a million a year and the leadership said they could do it for £600,000. When they took over, staff absence was running at 22 days a year, a working month; now it's a day a year. Their management and admin costs were 30% of turnover; now they're 6% of turnover.

"Their staff turnover has fallen dramatically. The Trust provides domiciliary services and care in the home. One of the biggest complaints from clients was that they never saw the same person twice. Now they have continuity of staff. This isn't a mutual as such, it's a charitable organisation, but it has the feel of an employee-led mutual."

It's all about creating the feel of an entrepeneurial SME, argues Maude.  "The Chief Exec at Sandwell said: 'When I was in the public sector we talked about managing resources; now we talk about leading people'. Public services are essentially people businesses. In a lot of these mutuals you have people thinking about how to do things differently and it being worth their while thinking like this because they know that they can do something about it. What's the point of people taking serious time to think about how to make things better if they have no ability to get things done to make it better because ideas just disappear into the treacle of the hierarchy. We want to encourage ideas." 

That's all well and good, but for SMEs pitching for government business there are still considerable obstacles in the way, most notably the paperwork hoops that need to be jumped through just to get on the shortlist.  This is a  big issue for SME members of the CBI, says Chief Policy Director Katja Hall, who advises a shift in emphasis: "The issue has to be to focus on outcomes.

"It's too easy to just think, 'if I put out a long form I'll end up with lots of good bids', but if you focus on the outcomes and what you want to achieve, that will enable SMEs to put in bids that can compete with the big guys. To give you an example some firms have thought they missed out because they didn't perhaps have the most sophisticated HR policies and procedures in place. But in terms of outcomes they could do as well as anyone else."

But for all that, Hall insists that her SME members do see the current government policy of greater inclusion as a genuine opportunity although greater clarity is needed on some matters. One such matter might be how the Cabinet Office intends to balance the drive towards more SME contractors with its other stated aim of consolidating purchasing to leverage scale and drive down costs.

"One issue that the Prime Minister has promoted is the balance between opening up aggregated, centralised commodity procurement while opening up 25% of government contracts to SMEs. If you aggregate to produce a lower unit price, then do you not put that business in the hands of fewer suppliers and does that not have a macro-economic effect that is to the detriment of SMEs?" admits David Smith, Deputy Chief Procurement Officer for the UK Government. "Well, yes, I suppose it is, but there is work in progress to address those conflicting issues. Government has a commercial drive not only to mandate, but to open up its spend to SMEs and to the voluntary sectors, not because it is a Prime Ministerial diktat - although it is that - but because it adds to the richness of the supplier base within government departments. There must be a way to manage that - and indeed there is." 

He concludes:  "The overall prize is inroads into the deficit, joined up government for the first time in decades - if not ever -  better services to citizens, and improved supplier arrangements that benefit the economy and suppliers."