Was the government’s claim to give SMEs cash just a boast?

posted by 5 years ago in News

Historically, UK governments have acted as a friend to SMEs, and as there are approximately 5.2 million within the UK, this presents a good argument for voting. However, promising and doing are two completely separate things.

During the start of May, the National Audit Office revealed that the government’s vow to give SMEs more cash from the £45 billion yearly spend has slowly disappeared.

Although they promised to spend 33% of their yearly allowance the ‘watchdog’ discovered;

“We continue to see larger providers dominating; for example, the government’s top 5 IT providers received over half of government’s total spending on contracted out IT.”

The government have shared their figures with The Register which shows that during 2014 and 2015 they spent £6.3 billion with IT suppliers with 42% going to just three providers.

There have been claims made in the past that the government has passed all SME targets with flying colours – these claims have now been tarnished by the ‘watchdog’ due to their methods of accounting for indirect spends with larger businesses.

Professor Andrew Cox of the International Institute of Advance Purchasing and Supply believes that the issue has come from the government’s procurement bod, the Crown Commercial Service (CCS). The CCS’ responsibility directly states that it will “work closely with the wider public sector to ensure that the benefits of aggregation and centralisation are shared across the public sector to maximise savings for the taxpayer.” However, this usually excludes SMEs.

Cox added that the separate structure of the government works against the CCS’ obsession towards aggregation. It has been spotted within recent framework for commodity tech – it is valued between £2 billion and £4 billion.

“CCS has taken a standard view to lower costs by aggregation. The government has set up a body raison d’être to aggregate. But CCS has no executive powers to force bodies to put anything together.”

“It is true that higher volume can lead to better deals but only in certain circumstances. Even if they could have a central body with power and responsibility to make decisions effectively, aggregation does not always lead to best cost.

“Certainly it’s true if you buy bulk chemicals for example, you will get a lower price in particularly if your demand fits with the high capacity of the supplier. So everyone thinks aggregation leads to economies of scale – but that is not always the case.

“Many years ago I worked with IBM to help it source multiple local deals for paper – rather than use once supplier.

“People talk about economies of scale, but big companies also have diseconomies. They employ people with large salaries that manage complex structures of the companies who are flying all over the world and staying in five star hotels.

“CCS wants to aggregate, that is why it ends up with the same suppliers. Yet there is no evidence that these companies are more cost effective. For example, there are plenty of small software companies with bright young people who do not have diseconomies of scale.

“I’m not saying you can’t get better deals sometimes if by aggregation. For example if everyone is buying a product with a specification you can’t control such as Microsoft Office. Then it makes sense to come together and negotiate. But the point is buyers need to stop taking a one size fits all approach.”

Cox believes that the G-Cloud has in the past been a successful portal for letting the government purchase more cleverly by notoriously risk-adverse public sector bodies giving them a chance to join the smaller businesses. However, the total of £1 billion is actually a decrease for public sector bodies £16 billion average yearly spends on IT;

“The downplaying of G-Cloud approach is frustrating,” Cox says.

“There is lots of evidence from experience that disaggregation and open markets to suppliers provide better value for money. Sometimes that will include large companies and sometimes they will be small; sometimes buyers should aggregate and sometimes they shouldn’t.”

He concludes;

“What we need is CCS is to work with the G-Cloud approach and understand what the relative benefits are to the market – they need to look at a lot optimisation. The current approach does not amount to joined-up thinking.”