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Procurement: lowering the hurdles for small business

Author: ICAEW Insights

Published: 23 Aug 2023

The government is falling short on UK spending targets for SMEs. ICAEW’s Charles Worth explains how the playing field could soon be levelled.

The latest figures on central government’s spending show that it has failed to meet its target to increase spending on SMEs to a third of its total by 2022.

This is not surprising. Small businesses have told us that the hurdles they face to win public procurement contracts are so high that it may not be worth them even entering the race. It can take an enormous amount of time to complete the documentation required for a tender and the contracting authority may require information on matters such as sustainability or diversity, which might not make practical sense in the context of some small businesses. Failure to tick all the boxes, however, can lead to disqualification. 

The incumbent may be in an unassailable position with others only invited to compete because the procurement rules require more than one runner – hugely frustrating for small businesses where time is a precious commodity.

New legislation is designed to change this. The Procurement Bill 2022 will, when implemented, replace the current regime. It is less prescriptive in some respects. It also requires contracting authorities to have regard for the fact that small and medium-sized enterprises may face particular barriers in competing for a contract, and consider whether such barriers can be removed or reduced. 

Contracting authorities will still be required to deliver value for money, maximise public benefit and treat suppliers equally and without discrimination. 

However, the SME provision is not specifically aimed at the vast majority of small businesses, which have only a handful of employees. It defines SMEs as businesses with fewer than 250 staff and a turnover less than or equal to £44m or a balance sheet total less than or equal to £38m. 

So, while the hurdles may soon be lowered, it remains to be seen how this will work out in practice. We will have to see whether it will result in small businesses winning more contracts, or even entering the race. The government will need to monitor progress, as it has promised to do in its SME Action Plan.

Charles Worth, Head of Business Law, ICAEW 

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