More than £11.4 Billion of Government Spending Allotted for SMEs by 2020

By Samuel Beard

The opportunities for small and medium sized businesses are now at their highest since the start of the central government’s pledge to allocate one third of their total spending budget (£1 out of every £3) to SMEs.

Between 2013 and 2014, the central government spent close to £11.4 billion on goods and service procurement from SME providers. This translated to around 26% of the total government spending. In 2015, however, the ambition of the government was to spend 33% of its total budget by the end of the decade.

In the past, the most prominent beneficiaries of government spending programmes and contracts were larger business, those who had the resources and time to go after these contracts and programmes. Add to that, the rigid vetting structure associated with awarding these contracts freezing many smaller and medium sized companies out of the process, and you get a steeply competitive playing field.

While this intention has been in force for the best part of two years, it is by no means at its end. Indeed, the opportunity presented by this initiative should be explored by all businesses, and it is only likely to get better for the SME section of the economy.

Improved Ease of Application 

Numerous measures have been taken by the central government to make the application process more streamlined and efficient. The most important is the removal of the pre-qualification stage for contracts valued below the EU threshold – depending on the type of authority tendering the contract this will generally be around £100,000. Removing this stage of the application process means the pressure on smaller businesses to “prove” themselves (for certain contracts) is reduced.

The payment schedule has also been a major off-putter for SMEs pursuing publically tendered contracts. Traditionally, the time it takes for funds to be released has been long enough to put a strain on the cash flows of many businesses. While not a formal hurdle, it does limit the candidate pool to companies which have a good enough credit-capacity do deal with long periods of payment release.

To reduce the cash-flow burden on businesses, whose credit lines may not be as developed as larger corporations (many of which have the capital backing of being publically traded), provisions have been added to ensure tendering authorities pay providers as quickly as possible (paying invoices 30 days down the supply-chain).

Positioning for Success 

While some of the more demanding requirements have been addressed, there is still much that the company hoping to procure these contracts can do, the most important of which is positioning and marketing.

Selling yourself doesn’t just stop with b2c or b2b customers, it is also extremely important when going after contracts (whether that’s for public or private sector contracts). While the qualification stage has been made easier, you will still need to prove that you are capable of delivering the job posted in the most economically desirable way.

The first stage of this is positioning your company in a professional and efficient manner:

(1) Emphasis your successful track-record: get in touch with past customers and get them to produce a testimonial communicating how you helped their business, get them to highlight the following areas: cost (saving), time (saving) and efficiency improvement, and how this helped them improve their business position (what value did you deliver to them?)

(2) Develop a portfolio of successful case studies: similar to point number one, this is more process driven. This meaning, you detail how exactly you went about delivering value to your past customers (putting special emphasis on how each stage of the process is efficient and cost effective).

(3) Show consistency: doing something once is all well and good; however, the contracting authorities want to see a pattern of effective work, the minimum of which should be three highly successful jobs.

Certain strategies can be employed for businesses starting from zero. However, it must be stated, that coming from a foundation of proven success, backed by professional positioning, will always be the most effective method of soliciting contracts.

The Caveats

The opportunities are there, and the public sector is keen to get more involvement from Small and Medium sized businesses in the contract procurement competition, as evidenced by the decrease regulation and procedural requirements. However, there will still be downtime between the contract opportunities going public and being awarded, which will definitely put strain on a business who is relying on such a contract.

As well as the aforementioned, significant human resources will need to be allocated to ensure effective management through the tendering and vetting process. For a smaller businesses, this may seen as a misuse of resources; and as a result, the more traditional lead generation methods associated with marketing can be seen as more time and money effective.

It could be argued that larger companies are more equipped to solicit publicly tendered contracts, many of which have specific departments staffed with experienced procurement professionals to handle these matters full time.

Mitigating the Caveats

Addressing the above points, there are a number of tactics that can be undertaken by an SME to best improve their effectiveness and standing in the procurement process:

(1) Dealing with the downtime: this is something which cannot be avoided, as such, it is best to not, so to speak, put all your eggs in one basket. While you have applied for one procurement opportunity, continue generating leads and revenue through your usual method.

(2) Appropriate human resources and professionals: one solution is to outsource; employ the use of a specialist  whose main business is procuring these contracts. This will incur cost (which may have otherwise been eliminated through keeping activities in-house). However, brining in a professional will not only increase your chances of winning the contract, it will also allow you to focus on what you do best: making money through your usual methods.

Another Means of Generating Leads

The public sector, in many ways, represents the perfect customer: high liquidity, and unlikely to become a bad debt. Though perhaps more exciting, is this customer’s active effort to seek out smaller businesses to fulfil the work it cannot do on its own.

Ideally, customers (leads) should be generated from a wide section of different segments be that: business customers, individual customers, or public-sector customers. This will help spread potential future economic risk, and for an SME, that should be priority number one.

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