Features: April 11th, 2014

Criticism of the processes for procuring goods and services in the UK has grown steadily over the years. Compared to other EU member states, procurement in the UK was more costly and took longer. In this article Pedro Paulo explains the changes being made and he describes the benefits for the different stakeholders.

Government spending in the UK has long been concentrated on vast contracts made with giants among their industry. Large multinational companies continue to win multi-year, multi-billion pound government deals, and smaller firms are left feeling unable to compete.

The European Parliament recently agreed to support a package of new procurement directives which have been designed, amongst other aims, to help European Union member states to cut red tape and boost participation by small and medium businesses in public sector procurement competitions.

With the introduction of a standard “European Single Procurement Document” based on self-declarations, it is hoped that the new directives will make for a simpler bidding process, as only the winning bidder will have to provide original documentation. This document in itself is estimated by the European Parliament to reduce the administrative load on companies by over 80 percent, making it significantly easier for SMEs to bid for public sector contracts.

Additionally, in a move that is hoped to save SMEs up to 60 percent of current bidding costs, the new directives will require public sector organisations to break large contracts into smaller lots which should make them more accessible to smaller businesses.

The UK government has welcomed the support for these reforms, having been working to deliver a number of measures to ensure that SMEs have a greater involvement in public sector procurement. Their aim is that, by 2015, 25 percent of government spend will be with smaller businesses.

The current state of UK public sector procurement

The Centre of Economics and Business Research (CEBR) recently compiled a report on Gatewit’s behalf, in which it looked at the current state of public sector procurement in the UK, and demonstrated why such reforms are necessary if SMEs are to be able to compete with larger players.

According to CEBR’s research, public sector purchasing in the UK accounts for around one percent of GDP (approximately £230 billion); a figure almost unparalleled in the EU.

However, the average cost of a UK competitive procurement process, at £45,200, is the highest in the European Union and around 90 percent more expensive than the EU average of £23,900.

In addition, for public sector bodies, the UK is one of most expensive countries in Europe in which to attract bids from a potential supplier in a competitive process. At £1,260, this is 58 percent higher than the EU average of £800, with only Denmark, Norway and Italy recording higher costs for attracting a tender.

The research also revealed that the UK’s public sector procurement process takes 53 days longer than the EU average which, when taken in tandem with the high price of UK labour, may be a contributory factor to the costs of the overall process.

Barriers to entry

It’s easy to see therefore, why some firms in the private sector can be dissuaded from tendering for public sector contracts. Smaller businesses in particular can find these barriers to entry prohibitively high and find themselves unable – or unwilling – to take part in these expensive and lengthy procurement processes without having the necessary resources available.

As a result, fewer firms are currently submitting tenders and this lack of competition means that public sector organisations are left facing a restricted, and potentially more expensive, choice of only those larger companies that are able to participate.

However, the CEBR report reveals that the UK sees an above average number of bids per contract, suggesting that UK procurement competitions are attracting bidders despite the high costs and lengthy procedures. This being so, steps such as the new directives should be welcomed as a means of increasing competition and ensuring better value for the public sector by making the process less expensive and simpler for vendors to participate in.

First steps

The UK government has already taken steps towards helping SMEs compete for large contracts with the launch in 2012 of its CloudStore platform for public sector IT procurement. The situation may be further improved in 2016 when a new mandate from the EU Commission comes into force, requiring all European public sector organisations to use e-procurement technology for all purchasing. This initiative alone is predicted to save somewhere in the region of £30bn, and will also allow for faster and more cost-effective purchasing and bidding processes.

It’s worth acknowledging that, as a result of the new directives, a number of smaller companies will soon to experience the public sector procurement process for the first time. Although the requirements may be less than before, a certain amount of time, effort and money will still be needed for any bids made, all of which will require consideration.

That said, any steps that will lead to a foot in the public sector door are likely to be welcomed by small and medium businesses which were unable to compete previously.

The CEBR report clearly demonstrates that, currently being too expensive and time-consuming to attract tenders from small and medium-sized businesses, the UK’s public sector procurement process is less than ideal. The new directives from the European Parliament, expected to become law in two years’ time, could be what’s needed by both sellers and buyers alike to improve the process, widening the pool and increasing the value to all concerned.

Pedro Paulo is CEO at Gatewit.