Comment: Make room for SMEs

The coalition government has pledged that by the end of 2015 at least 25 per cent of central government contracts should be awarded to small and medium enterprises (SMEs). Highways consultant Richard Hayes gives his view

 

Many SMEs complain of the bureaucracy required to access these contracts and they often have to rely on by being included in the main contractors supply chain which brings its own problems.

With the prospect of further amalgamations of major contractors and providers within the highways sector there is a danger of there being only a very limited number of operators bidding for term maintenance and framework contracts. Quality submissions are often very similar and price ends up being the deciding factor in tender awards. Other areas of public service provision have already moved along this route and it has led to domination by a select few.

Clients must bear some of the criticism for this, they like to continue and consolidate existing arrangements as it makes them feel comfortable. Although this can often lead to savings in tender prices, which can be taken by the bean counters as meaning a more efficient contract, it can neglect the effect on the supply chain through tighter pricing and offering the general public a reduced service.

SMEs are finding this leads to a squeeze on margins and their viability reduces. But as more of these contracts are put in place they’re becoming unable to access and contribute to the government’s target. This is further exaggerated by an underlying increase in material costs and as many SMEs are emerging from a very low base after years of decline they face much heavier outgoings as they are expected to cut the tender offer.

This approach seems to me to be stifling any innovation, ideation and practical solutions, which are the lifeblood of SMEs make up. It always appears to out the needs of the end user as a basic requirement. Whilst it is accepted that not all innovation and new ideas come from SMEs they have played a major role over many years and need our encouragement as we all benefit from their success.

Further concerns have also been raised elsewhere regarding some of the specialist sub contract works within framework and term maintenance contracts whose quality appears to be sacrificed at the expense of lowest cost where levels of supervision undertaken are not adequate enough.

How can we stop the movement towards the measurement of efficiency in cash savings alone and in turning it around allow the currently squeezed supply chain of SMEs and others to improve the outputs and performance of public service contracts?

 

The procurement process

There are many models in operation which benefit the goals I believe to be important. There is a need however for the principle of the “intelligent client” to be part of any procurement process.

An intelligent client should react to the current market and external environment within their area.

They need to spend time developing the needs and outputs from the procurement process and develop smarter contracts which seek better integration into the overall public sector.

Ensuring the necessary skills to enable this to function will be a challenge as often experienced individuals who have the attributes to operate as the intelligent client are no longer within the service due to the real lack of succession planning in client organisations.

Contracts that encompass these principles can range from a multi contract format where each element is procured separately. This allows more and often smaller players to enter the market to a partnership with a larger supplier, which allows the joint management of the supply chain and safeguards against the gains being wholly enjoyed by a wider public than just the major contractor.

All must foster innovation to succeed and this will allow SMEs to flourish and provide for service improvements.

However all contracts should submit themselves to the following test prior to being placed.

Does the contract:

  • Add or take value from the required service?
  • Allow risk to be shared?
  • Allow local and specialists suppliers to be given a significant role in service provision?
  • Ensure continuous improvement is a stated aim and identifies how it will be measured?

 

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