Procurement: Government contracts still out of reach for SMEs

Government contracts are still out of reach for many SMEs.

That’s the key finding from the British Chambers of Commerce’s (BCC) new SME Procurement Tracker, which is based on Tussell data.

The report reveals that while absolute public spending directly with SMEs has grown over the past 6 years, SMEs only make up a fifth of overall spending last year. It was the same as 2023 (20 percent) and only slightly up on 2018 (18 percent).

The Tracker found that:

• Only 20 percent of direct public sector procurement spend was with SMEs in 2023
• £39.7 billion was spent by Government directly with SMEs last year
• Median earning per SME has grown since 2020 – now at £32,000

“In 2023, SMEs accounted for around 80 percent of direct procurement suppliers to government, yet they only received 20 percent of the procurement spend. Furthermore, their under-represented market share has remained broadly flat for the past four years, indicating a lack of progress against the government’s goal of buying more goods and services from small businesses,” said Tussell founder Gus Tugendhat.

“The obstacle lies in Central Government, which in 2023 only managed to spend 11 percent of its procurement directly with SMEs compared to 34 percent for Local Government. While some ministerial departments like DCMS and the DfE are showing signs of success in their SME spend, others are lagging behind. Progress by big spenders like the MoD and Department for Transport who currently channel only five percent or less of their procurement budget directly to SMEs would really move the needle.”

Central government can “learn from local authorities”

In 2023, Local Government had the highest share of procurement spend directly with SMEs (34 percent), and the highest absolute spend with SMEs (£24.1 billion). This is higher than the share of procurement spend going directly to SMEs from the NHS (20 percent) or from Central Government (11 percent).

“While it’s welcome the value of SME procurement contracts is continuing to increase, government deals remain out of reach for too many businesses. It is vital that public bodies always consider SMEs when tendering contracts,” said Jonny Haseldine, Policy Manager, BCC.

“Central government can learn lessons from local authorities who are consistently spending more on SMEs deals. We’d welcome further devolution of decision making to allow more procurement contracts to be awarded at a local level.

“The Procurement Act coming into force at the end of October has the potential to make the system simpler and more transparent for businesses. In addition, it’s crucial we hear more from the new government on their pledge to give SMEs greater access to contracts. Businesses up and down the country want to see a reformed process in which they can properly compete.”