Clive Feeney, LHC Procurement Group managing director, assesses the obstacles to SMEs winning work in the public sector and how to overcome them
The election dust has settled, and the hard work of governing the country has begun.
One of the greatest challenges for the new administration is undoubtedly delivering on its pledge to build 1.5m new homes.
During her first major speech in post, the new chancellor Rachel Reeves reintroduced mandatory housebuilding targets and a promise to deliver “the biggest increase in social and affordable housebuilding in a generation”.
That’s all well and good but, as you may have seen in some recent articles I’ve written with Construction Management, Inside Housing, SME Magazine, and Business Matters, there is an important task ahead: to improve the chances of SMEs winning work in the public sector.
Sure, the Labour party has promised to do more to open up opportunities for SMEs as part of its campaign, but it will be interesting to see what that means in practice when it comes to housebuilding.
The scale of the challenge
A British Chamber of Commerce report revealed that while the value of published public sector procurement spending with SMEs has increased, the proportion of total Government money awarded directly to SMEs has not grown over the past five years.
Just over one in every five pounds spent by the Government on public sector procurement in 2021 was awarded to small and medium enterprises, the report revealed.
Why does this matter? Well, as of the start of 2023, there were approximately 5.5m small and medium-sized enterprises in the UK. Nearly 7% of these are in construction.
In fact, the sector is 99% SME according to the latest ONS figures, so you might expect it to be ahead of the curve when it comes to delivering work. That isn’t always the case.
A champion for SMEs
At LHC, we’ve been consciously helping small businesses for decades. We are the only national framework provider with dedicated on-the-ground support spread across five regional business units – London and South East (LSE), Consortium Procurement Construction (CPC), South West Procurement Alliance (SWPA), Scottish Procurement Alliance (SPA), and Welsh Procurement Alliance (WPA).
These teams work closely with clients, who tell us time and again that they want access to local contractors. We are uniquely set up to deliver on that. And while we recognise that we can always improve, we are proud of what we have achieved for SMEs so far.
But, look wider across the sector, and the approach to frameworks is inconsistent when it comes to attracting and selecting appointed companies. It means that many smaller businesses feel that public sector contracts are hard to bid for and secure.
For this reason, we try to ensure that they get a fair shot. Over the last decade, we have appointed 1,266 suppliers to our frameworks and 1,048 of these are SMEs. That’s 82.7%.
During the previous financial year alone, 70.5% of projects we awarded were to SMEs.
Working with LHC
In terms of how this impacts the income gained by smaller businesses, the figures are equally interesting.
Last year, project values at LHC surpassed half a billion pounds for the first time in our history. Of that, £245m was awarded to SMEs.
To achieve this high success rate, we follow a number of guiding principles:
- We work hard to attract smaller and local businesses and underrepresented groups during our tender engagement process and in the design of our frameworks themselves.
- We are keen to attract organisations that have never been appointed to public sector projects before and provide workshops, so they fully understand the process.
- We take extra care in the design of our frameworks to ensure that we don’t put in barriers that might dissuade smaller firms from applying, such as unattainable PI levels.
- Ensuring proactive engagement with under-represented groups is another key; looking for and engaging with industry networks, and there are plenty of them.
- Being specific on the social value and technical outcomes desired rather than just looking at what has gone before – guided in part by an extensive engagement process with suppliers and clients before frameworks go live.
- While a lot of frameworks make their decisions after looking at case studies provided by an SME, we take a more holistic approach; 70% of our evaluation procedure is based around quality and outcomes as defined above, and certainly not just price.
It is also worth adding that we discuss with clients and end users what their perception of “risk” is when it comes to engaging with a smaller firm. Is it real or is it just a set of rules they have followed for a long time?
I believe we’re doing well at LHC when it comes to SME engagement, but we never get complacent. There is always more to do. These businesses really are the lifeblood of our economy, and we will be playing our part to keep it that way.
