How small businesses can expand into the public sector

The public sector procurement system is daunting for many SMEs, but in this piece, Penny Godfrey of Millstream reveals how SMEs can make the process easier.

Small businesses account for 99.3 per cent of all private sector businesses in the UK yet they are significantly underrepresented within the public sector economy, according to the Federation of Small Businesses (FSB). To expand into the public sector is to create profitable opportunities for SMEs in particular, allowing them to maintain growth whilst prospects in the private sector may be slowing. Yet we still see this divide.

While some SMEs may perceive the challenge to compete against larger firms too great, many bodies involved directly in setting procurement goals have committed to giving them more of this spend. The UK government has made a pledge that by 2022 one third of central government spend will go to small and medium-sized firms directly or through the supply chain. To help facilitate this process, the government legal department’s Commercial Law Group has just this week launched a new user-friendly route to public sector opportunities by streamlining the tenders process, enabling SMEs to bid for up to £12 billion of government contracts more easily.

A key factor in achieving this goal, however, is SMEs being more proactive in bidding for public sector contracts and overcoming both perceived and real challenges. Smaller businesses should not fear the procurement process but embrace the opportunities it offers and the doors to new business it opens up.

Many SMEs consider the public sector procurement process to be confusing, complicated and time-consuming, and that competition from larger corporations, and the strength of their relationships with the buying authorities, means attempting to enter the sector will be a difficult and unrewarding task. Perseverance is key here – investing time getting over the first hurdles and understanding how the system works can prove beneficial in the long term.

Some top tips for navigating the public sector procurement system

  1. Expanding into the public sector requires a huge culture shift for any private firm, regardless of size – pricing isn’t up for negotiation and expensive marketing materials don’t count, which helps to even the playing field and make SMEs more competitive. Understanding the rules of engagement within the public sector is vital to making a good first impression. There are firm regulations over communications, timeframes and even bid submission word counts which can be challenging at first.
  2. Ensuring you never miss an opportunity creates huge benefits. The concept of disciplined tendering processes can be difficult to understand and so the value of being signed up to a tender alerts service and knowing where to go for guidance and support proves vital in your success. Getting this right means you will be able to react in time to meet deadlines and submit successful bids.
    Knowing where to find new tenders is also important to maximising opportunities. According to the Public Contracts Regulation 2015, purchasing bodies are required to advertise opportunities and contract awards above certain thresholds, which just recently changed, on the Official Journal of the European Union (OJEU), rather than just advertising nationally. See our blog here for more information on these new thresholds.
  3. The public sector procurement system is daunting for many SMEs and some of the terminology used can be off-putting. There are also specific documents and processes to complete, some very time consuming, so learning what these entail will help SMEs minimise any headaches, particularly ahead of applying for the first time. Once you have created this collection of tendering documents, they are easily on hand for use in future opportunities however it is worth ensuring these are kept up-to-date and that you don’t rely on simply copy and pasting – each bid must be bespoke.

We’ve outlined some key terms and documents to be aware of below:

Accreditations

Many industries require suppliers to be accredited and comply with criteria according to specific regulations, and these apply within the public sector. For example, construction firms will be faced with stringent health and safety regulations, while hospitality providers will need to meet food hygiene standards. Some regulations like ISO14001 for environmental management and ISO9001 for quality are also commonly required.

If SMEs don’t have the specific ISO, you can demonstrate that you have equivalent systems and standards in place, lifting a significant barrier for smaller companies. Understanding what accreditations are required before applying for a tender for the first time will avoid any delays and missed opportunities. Visit https://www.iso.org/standards.html for guidance on each one.

Frameworks and Dynamic Purchasing System (DPS)

Purchasing bodies can adopt different buying systems which have different processes. Some run individual procurement exercises for each contract and some opt to be part of a framework or DPS.

Frameworks are common across the public sector as they appeal to its growing need to improve efficiencies, particularly as budgets continue to tighten. Suppliers are required to apply to secure a spot on a framework. However, even if successful, they should bear in mind that contracts are then won through a ‘call-off’ mechanism so a place on a framework is not a guarantee of business. Tenders are typically awarded based on capacity to deliver a cost-effective and efficient service. There are various ways a buying authority might run these call off tenders. For instance, if a scoring system is in place based on the initial response to the tender, the highest ranking supplier may be given first refusal for potential work or there may be further smaller tenders for every member of the framework to submit for each individual opportunity. Find more information on frameworks here.

Dynamic Purchasing Systems (DPS) are electronic systems run in exactly the same way as frameworks except that they allow suppliers to join at any point. Frameworks select their supplier and that list is fixed for up to four years. With a DPS you can apply to join at any point so the opportunity remains open and accessible.

SSQ Standard Selection Questionnaires (SSQ) replace and simplify the time consuming Pre-Qualification Questionnaires (PPQ) that suppliers needed to complete in order to apply for a tender. PQQs in the past required bidders to share information about their accreditations, track records and financial credentials however with SSQs, only successful bidders are required to share this information which dramatically reduces the time it will take to create an SSQ. This is good news for time-poor SMEs but ensuring these documents are prepared correctly and current remains an important step.

Social value

In the past, local authority procurement officers would invest time in getting to know their top ten suppliers. Even the most competitive of processes could mean a supplier would hold the contract for a service or product based on price or experience for a number of years. However, a greater focus on social value gives smaller firms an opportunity to edge into the market.

The Social Value Act came into force in 2013 in hand with a surge in sense of social responsibility and where once purchasing criteria was split between price and quality, it is now best practice to award up to 20 per cent of the total score to social value. This must be defined clearly in the tender announcement, and suppliers need to be able to demonstrate how they will achieving social value through their contract delivery.

Suppliers are scored on their ‘social’ contributions and the value they bring to their local communities. This is considered on a number of levels, again depending on how the purchasing body defines what this means in practice, such as a firm operating green-working practices, supporting a local charity or employing local apprentices. The majority of SMEs may already be practicing social value but demonstrating this appropriately and ensuring they meet each individual buyer’s expectations is important.

Penny Godfrey is general manager of Millstream.

Further reading on public sector contracts

Related Topics

Procurement
Public Sector

Leave a comment