Queen’s Speech: fresh action promised on SME access
The UK government is set to introduce new measures to assist small businesses as part of wider efforts to spur the post-pandemic recovery.
The Queen’s Speech will outline a policy programme that includes targeted support for SMEs, including improved access to finance, more infrastructure spending and extra investment in training and new technology.
Meanwhile, new figures have revealed that SMEs received £15.5 billion in direct and indirect payments via public contracts in 2019/20, an increase of £1.3 billion compared to the previous year and the highest total on record.
In all, 26.7% of all government spending – £58 billion – benefitted small or medium-sized firms, a modest 1.1% annual increase. Almost 75% of spending continues to be awarded to larger firms (defined as businesses with more than 250 employees).
A Tale of Two Cities
Recent years have seen a variety of adjustments to public procurement designed to increase market share for small businesses.
As a result of Brexit, effective January 2021, public contracts with a value below the relevant WTO/GPA threshold can be reserved to companies incorporated in the UK or limited to SMEs and third sector suppliers.
Expanded use of more accessible contract structures – such as compartmentalised work packages advertised in individual lots – has also helped to boost the ability of niche and regional operators to bid directly on public sector opportunities.
Award criteria in public procurement has also evolved to become more nuanced – notably in the entrenchment of social value as a weighted requirement – but cost is the overriding metric in any decision and larger companies tend to benefit from economies of scale and experienced bid teams.
A string of prominent procurement controversies – such as the tragic collapse of Carillion – have demonstrated the dangers of over-reliance on supersized suppliers short on commercial savvy.
While many large strategic suppliers providing public services are well managed and sustainable, some are opaque conglomerates that recklessly pursue runaway expansion through acquisition.
These de facto monopolies suffocate innovation and are a profound obstacle to achieving fairer access to public funds for SMEs who are leaner and often more adaptable.
The Scottish Play
Many mergers and buyouts are steered successfully, but botched restructurings and senseless cycles of feckless fire sales are regrettably common in our economy.
When these occur within public sector supply chains, purchasing organisations are exposed to excessive financial and operational risk.
A case in point is the recently announced acquisition of Proactis Holdings Ltd by Cafe Bidco Ltd, a collective of investment funds managed by Pollen Street Capital.
Proactis is reported to have sustained an £18.4 million operating loss in the last year, but is reportedly being sold for a multiple of 11 times its half year earnings, despite its trading at less than half its 2018 share value.
Positioning themselves as spend management specialists – having collected and dissected a variety of firms internationally in recent years – Proactis Holdings are also notable providers of e-procurement services, the bulk of which were brought under their banner by their purchase of Aberdeen SME Millstream Associates Ltd in 2016.
Proactis Tenders Ltd – the successor franchise to Millstream – recently re-animated their long-standing contracts as the providers of the Public Contracts Scotland and Sell2Wales platforms, having morphed from an Aberdeen-based SME into a regional adjunct of a global operator during their tenure as central government suppliers.
Their early legacy as a responsible small business rising to become a major force in government e-procurement clearly has commercial mileage, but these latest wins are overshadowed by the wider organisation’s woes.
Sprawling central government contractors being sold for scrap to private equity is a bad look for all involved, not to mention a severely uninspiring sight for fleet-of-foot and strategically savvy SMEs striving hard to succeed.
As noted recently by the Mayor of The Tenderhood Dave Thomson, firms that drift from their original mission in the headlong pursuit of expansion are at risk of losing their way financially, creatively and culturally.
After relentless rounds of restructures and redundancies, previously cutting edge companies can find themselves flailing as their creativity fades and their products gather dust.
The predicament facing Proactis and other thinly stretched growth evangelists is a case study in why efforts to redirect public spending to carefully positioned and competently managed innovators, focused on organic growth, need to transcend scattershot policy and repetitive rhetoric.
Agile businesses that only bite off what they can chew and focus on staged, steady and sustainable growth can be of more value to our economy than profligate high-rollers who promote the benefits of securing synergies while quietly hemorrhaging cash.
Issues like long-term financial viability and overall risk should be central in public procurement strategy and supplier selection: sensible SMEs that invest astutely should be able to outshine those with the highest credit limit and sometimes delusional growth forecasts.
John Cutt is a storyteller and researcher with extensive commercial experience in public sector tendering and procurement.
His services include creative and technical copywriting, SEO, social media management and brand consultancy.