Every year, central government spends a staggering £44 billion on goods and services. When we came into government the Civil Service didn’t even know who its biggest suppliers were, let alone how much it was spending with them.
We resolved to sort this out, and set an aspiration that by the end of this Parliament a quarter of our spending by value would go directly and indirectly (through the supply chain) to SMEs, the lifeblood of our economy. I’m pleased to say that last year, 26 per cent of central government spend went to SMEs. That’s a huge, and probably unprecedented, £11.4 billion.
Five years ago, many small businesses would not even bother trying to win a contract from the public sector. Who could blame them? All businesses had to show three years of audited accounts, submit long, complex forms even for small contracts, and show that they had insurance cover for a bid before it was even considered.
But a broader ecosystem of suppliers is great for our economy – smaller, innovative companies, public service mutuals and voluntary sector organisations based right across the country. Already there are over a hundred such mutuals combining a public service ethos with entrepreneurial innovation.
As part of our long-term economic plan we set about overhauling the whole way Whitehall runs its procurement. My mission was to wrestle control away from the ‘procureaucrats’ and large ‘usual suspect’ suppliers, and concentrate on getting the best possible outcomes.
Civil servants felt unable to exercise judgement in procurement decisions, so we’ve built a commercially savvy organisation at the heart of government with offices in Liverpool which I visited yesterday. Its experts know the supply market and can make intelligent decisions about suppliers. Last year alone, commercial reforms helped save taxpayers £5.4 billion compared with a 2009-10 spending baseline.
Transparency is key, so in 2011 we launched the Contracts Finder site, gov.uk/contracts-finder which details every single opportunity over £10,000 in central government and over £25,000 in the wider public sector. To date around 240,000 contracts have been placed with SMEs through Contracts Finder. Put quite simply, SMEs can’t win contracts which they don’t know about. And as cashflow is crucial for SMEs, new legislation ensures that 30 day payment terms will be passed right down the supply chain. Complex forms like Pre Qualification Questionnaires are abolished for all low value contracts, and high value contracts have a simplified, standard questionnaire.
Now we actually count our suppliers, we know that SMEs are winning one pound in every four. And on our G-cloud and digital marketplace – a sort of app store for the public sector – about half of the suppliers are startups and SMEs. There’s no room for complacency though; we may have met those targets, but to keep us up to the mark and ensure that we keep improving, we’ve introduced a mystery shopper scheme so suppliers can raise any concerns they like about poor processes – even anonymously.
There will always be disappointed bidders in a competitive system, but we are ensuring that we have a much better balance between encouraging entrepreneurial spirit and getting proper value for taxpayers’ money.