Small businesses missing out on public sector contracts

Lobby claims small firms locked out of multi-million pound markets

Public bodies must consider the role of small businesses when putting their services out to tender, according to a lobby group.

The Federation of Small Businesses (FSB) claims the public sector is failing to take advantage of the services small businesses can provide, denying them a share of potential multi-million pound markets.

The UK public sector spends around £117 billion on products and services, with local authority expenditure at £42 billion.

However, the FSB believes small firms are being ignored when it comes to spreading these costs. Research conducted by the lobby show that only 3 per cent of small firms’ main customers are public authorities.

Carol Undy, FSB national chairman, said: “Authorities need to overcome the myth that small businesses are high risk while big businesses represent best value. This is simply not true.

“Buying from local firms not only helps economic regeneration by investing in the community, but it is also a fast track to best value. Small businesses have lower overheads and local authorities can save money by purchasing goods and services from them.”

In December 2003 the government promised to cut the red tape involved in bidding for public sector contracts, with the potential of opening up £13 billion worth of new work to small firms.

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The government’s Gershon Review in 1999 also investigated the functions of procurement, with an aim of establishing levels of efficiency and competition.

Though the plans were welcomed by the FSB, the lobby still believes much needs to be done to include small businesses in the procurement process.

“The government must resolve two competing agendas. On the one hand the Gershon Review calls for a reduction of the number of suppliers to government in a bid to cut costs. Meanwhile the Small Business Service and the Office of Government Commerce want to make it easier for small businesses to supply both government and local authorities.”

A report by the lobby, An Action Plan: Small Business and Procurement, points the finger at public bodies, such as local authorities, the NHS and Ministry of Defence, calling on them to:

  • Advertise contracts more widely and scrap out-sourced accreditation schemes that force businesses to pay to be considered by local authorities, 
  •  Stop aggregating contracts and buying only from a few big suppliers,
  • Make it easier to get on to approved supplier lists and simplify the mountains of paperwork that must be filled in when bidding for a public contract,
  • Appoint specialist purchasers and produce guides on the procurement process for small businesses,
  • Provide constructive feedback for failed bidders.


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