A National Audit Office (NAO) report has found that the majority of government spending with SMEs is via a larger contractor in the supply chain.
The government set a target in 2010 for 25 per cent of procurement spending to reach SMEs by 2015. This target was met in 2013-14 and surpassed by two per cent in 2014-15, according to an estimate by the Cabinet Office.
However, the NAO said that it could not be certain that the amount the government spends with SMEs has increased over the last Parliament because the data it has used is not directly comparable year on year as a result of numerous changes in the way SME spending is calculated.
Alarmingly, the 27 per cent figure for 2014-15 is made up of direct spending with SMEs (£4.9bn, or 10.9 per cent, of overall spending) in addition to indirect spending in which SMEs are appointed as subcontractors in the supply chain in a public sector contract with a larger provider.
Indirect spending amounted to £7.3bn in 2014-15 and is 16.2 per cent of overall government spending, or 60 per cent of overall SME spending.
However, the government's understanding of its indirect spending with SMEs is "incomplete", according to the NAO.
"Departments told us that they rely on the good will of large suppliers to report spending accurately to the Crown Commercial Service [CCS] as departments usually have no way to verify the accuracy of the figures," said the NAO report.
"Suppliers may only have data on their spending with the next tier of their supply chain, so may not report spending with SMEs in lower tiers. Furthermore, suppliers may have different approaches to collecting and validating data, and identifying SMEs, leading to inconsistent measurement."
Improving access for SMEs
The NAO explained that the government currently bases its approach on the assumption that more SMEs will win work with the government if there are fewer barriers to SMEs being able to bid.
However, the report said that wider trends in government contracting mean that, although SMEs can bid for work, they are often not suitable to deliver it.
More SMEs are providing IT services, but the procurement teams in government have processes that eliminate them from consideration, according to former HMRC CIO and current Specsavers global CIO Phil Pavitt.
"It is not uncommon for politicians and IT leaders in government to want the right thing, but procurement officers stop that," he told V3's sister site Computing.
Pavitt suggested last year that procurement teams are the "biggest enemy" to SMEs breaking into government.
The NAO suggested that the government needs to make a more concerted effort to remove barriers to bidding and ensure that government procurement can achieve the desired benefits of using SMEs.
The report added that the government should balance its aspirations to use SMEs with other potentially conflicting priorities such as pressures on departments to make savings.
Among the NAO's recommendations is that the government should stop changing its basis for estimating SME spending and start to identify areas of government where different providers can bring the most benefit.
The report urged the government to identify where it ought to have oversight of the relationship between primary contractors and their subcontractors, and emphasised the need for greater visibility and transparency of government procurement.
The CCS should also work with the Cabinet Office and Government Digital Service to assess the feasibility of an integrated cross-government procurement platform to support its commercial strategy.
On the back of another NAO report into government spending, Computing looked into what the government could do to ensure that spending on consultancy and temporary staff does not spiral out of control.
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