For over a decade, British governments have been repeating the same line: that small and medium-sized enterprises – the lifeblood of the economy – must have a fairer shot at winning public contracts. It began with David Cameron’s coalition pledging to direct a quarter of government spending to SMEs. This was then upped by Boris Johnson to 33%. And every administration since has echoed the same promise: to help more small businesses win government contracts.
Yet as is often the case, there is a vast gap between the stated objectives of a government and what they actually end up doing. Since 2011, the proportion of central government spending going to SMEs has actually fallen from 10% to 7%.
Despite the warm rhetoric, the last decade has seen a set of reforms which have made life much harder for SMEs. By adding layer after layer of additional regulations and requirements – from Net Zero requirements to diversity and inclusion rules – many SMEs have effectively been locked out of the process.
But now, the Government has proposed a new directive which will make the already broken system even worse.
Historically, individual departments were able to select their own procurement frameworks. This allowed them to choose frameworks like NEPRO3: a specialist framework which focused on ease of access for smaller businesses, with over 90% of verified suppliers on the framework being SMEs. But the Crown Commercial Service (CCS) has proposed to put an end to this, instead mandating that all consultancy procurement spend be routed through their own framework.
The change comes as part of an effort to cut down on wasteful consultancy spending, certainly a worthwhile initiative – but one which will never be achieved through cutting out competition from the system.
Unfortunately, this is exactly what the proposal will end up doing.
For starters, the vast majority of spend which is routed through the CCS seems to end up in the hands of multinational corporations. In the latest dataset published in 2015, the CCS admitted that 76% of consultancy spending from CCS frameworks went to the top six suppliers – far higher than the Governments average 28%.
The reason for this is simple: CCS frameworks have an exceptionally high administrative burden. Take their Management Consultancy Framework Four. To have a chance at gaining access, businesses must submit an exhaustive set of documentation. This includes things like a Financial Risk Assessment (Gold) – typically only required for large contracts over an extended period of time, and the Cyber Essentials certification – mandated even when the procured goods do not involve any IT software.
This might be routine for global firms like McKinsey, which spent over £1 billion on HR and legal services in the last five years. But for the average SME – whose annual turnover is just £424,000 – it’s a mountain to climb.
The biggest 6 providers of government consultancy procurement already received £1.4bn from the government in 2024. After this new directive, this could increase by £1.6bn, rerouting money away from smaller firms which desperately need the support.
Through the implementation of these reforms, thousands of small consultancies would find themselves on a cliff edge. With significantly reduced access to government contracts, firms would be forced to downsize – or even close shop entirely.
But the reform also threatens the very purpose of the directive – to save money.
Within the CCS, the accepted view seems to be that through reducing competition, the Government will improve value for money, primarily through simplifying the selection process.
This ignores the reality that while you might marginally save on administrative costs, these savings will be more than covered by the increase in bid prices due to reducing the number of market participants.
Two years ago, the Cabinet Office understood this. In an impact assessment of the Procurement Act 2023, they outlined various illustrative scenarios in which increasing the number of bidders would reduce the cost of the contract. Using its scenarios and implementing data from the proposed consultancy reform we find that the cost of procuring consultancy services could rise by £129 million each year.
If the Government is serious about improving SME representation in the procurement system and improving value for money, it should embrace – not shy away from – competition.
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