FSB: Procurement reforms yet to deliver for Scottish smaller firms

Scottish procurement reforms are failing to help smaller businesses win public contracts, a new report from the Federation of Small Businesses (FSB) has revealed.

According to FSB’s research, only about a fifth of Scotland’s £12 billion procurement budget goes directly to small businesses, even though they account for 98 per cent of Scotland’s business community. The proportion of contracts won by smaller firms is largely unchanged since 2011, show figures sourced from the Scottish Government, despite legislative and administrative reforms designed to improve small business success.

In the report, called ‘Broken Contracts: smaller businesses and Scottish procurement’, FSB challenges Scotland’s public sector to increase spending with the smallest businesses by the end of this Scottish Parliament term.

Andrew McRae, FSB’s Scotland policy chair, said: “Over the last decade we’ve seen a slew of laudable procurement reforms in Scotland. Unfortunately, they seem to have had little impact on the share of work won by smaller firms.

“That means that we’re failing to use the full potential of public sector spending power to develop our local economies.

“In this new report, we ask Scotland’s public sector decision-makers to carefully measure how they’re contracting at the moment and develop realistic action plans to improve spending with local business. That might mean attaching proportionate terms and conditions to contracts, or breaking a giant contract into bitesize lots, or working with other local public bodies to stimulate local supply.”

The small business campaign group’s report comes as speculation mounts regarding the impact of the failure of outsourcing giant Interserve and on the back of the anniversary of Carillion’s collapse.

In addition to arguing that more work should be won by local, smaller firms FSB argues that additional action should be taken by the Scottish Government to encourage fairer and more sustainable public sector supply chains.

In a bid to tackle the problem of late payments, FSB argues that big businesses bidding for major Scottish contracts should assign responsibility for payment practice and supplier relationships to a non-executive director. Further, they argue Ministers should investigate what more could be done to encourage large primary contractors to upskill their smaller suppliers.

Andrew McRae said: “Across the UK, a small number of big businesses are very good at winning at public contracts. But that doesn’t mean that they’re run well or treat their supply chains fairly. The Interserve and Carillion debacles reinforce the case for a change in procurement approach.

“While our top priority is for smaller firms to win more work, Ministers also need to ensure that big primary contractors treat their sub-contractors with respect.

“With thousands of Scottish businesses going under every year as a consequence of late payment, Ministers should do everything in their power to help end this scandal. Further, we’re making the case for action to boost supply chain skills-development to give Scottish productivity a much-needed lift.”

The number of Scottish businesses winning work from their local authority has plunged over the last decade. In 2008, 51,312 Scottish firms supplied their local councils – figures collected by the Improvement Service reveal – but by 2017 this number had dropped to 29,910.

The report reveals that, with a stronger focus on working with suppliers, public bodies in Manchester increased the share of procurement spending going to local small and medium sized firms from 47 per cent in 2014/15 to 62 per cent in 2017/18. There has been similar success in Preston.

FSB makes the case for Scottish public sector organisations to adopt a similar approach, making the case for enhanced co-operation between different public sector bodies when trying to boost local purchasing in an area.

Andrew McRae said: “City leaders in Manchester have successfully managed to shift the spending dial. That means it can be done north of the border. In our study, we make the case for all of the public purchasers in a geography to club together to stimulate demand and develop local supply chains.”

Case study – Greystone, East Kilbride

Greystone is a 25 year old East Kilbride based facilities management support business and provides a wide range of services to local public and private clients. They win some public contracts, but highlight how burdensome the process can be.

Craig Smith, Greystone’s managing director, said: “We have to carefully choose which public contracts we’re going to spend the time bidding for, not because we can’t do the work, but because the tendering process is so resource intensive.

“It can feel like the system is stacked against smaller operators. I know that there are rules which have to followed, but there must be a way to make it easier for firms without huge bid teams.”

Case study – Word Up Communications, Glasgow

Word Up Communications is a Glasgow-based media and communications training and consultancy firm. They fear that Scotland’s public sector could be failing to get the best value goods and services because their procurement systems effectively exclude smaller firms.

Mairi Damer, founder of WORD UP Communications, said: “As a sole trader (and former local authority worker) who actively wants to be able to support critical public services, the much-vaunted political commitment to making sure that small businesses benefit from a transparent, accessible procurement system simply rings hollow.

“Maddeningly, the complexities and time commitment required by the procurement system mean that micros like mine simply cannot compete. And that’s a great shame because now more than ever the public sector could really do with the support of skilled, cost-effective businesses like mine.”