Government spend with SMEs down in 2016/17

Departments’ procurement spend with small and medium-sized enterprises (SMEs) decreased to 22.5% in the 2016/17 financial year, according to government figures. 

The government has an ambitious target of increasing its spend with SMEs to 33% by 2020, however, direct and indirect spent has fallen significantly.  

In the 2016/17 financial year, departments spent a total of £11.14m with SMEs, divided into £5.2m in direct spend and £5.9m in indirect spend. In percentages, this means the government only used 10.5% of their total procurement spend directly with SMEs, while indirect spend stands at 12%.

In comparison, the government spent a total of 26.1% with SMEs in 2013/14, 27% in 2014/15 and 24% in 2015/16. 

The government has taken several measures to increase its spending with SMEs, including the Crown Commercial Service (CCS) technology services 2 framework, with 60% of the suppliers on the framework being SMEs.  

The government’s G-Cloud 10 framework, which launched earlier in July, saw SMEs making up 90% of the suppliers on the framework.  

Despite measures to help SMEs gain foothold in government, some departments are barely spending anything with smaller firms.

The Ministry of Defence (MoD) used 13.1% of its procurement spend with SMEs, with only 3.7% of that being direct spend, while the Department for Work and Pensions (DWP) spent 14.4% with SMEs – 3.6% of that directly with small businesses.  

Others, however, have gone way above the government’s target of spending 33% with SMEs by 2020. The Department for Digital, Media, Culture and Sport (DCMS) spent 43.9% with SMEs, with a whopping 41.7% of it being direct spend.

At the Ministry of Justice (MoJ), 2016/17 procurement spend with SMEs was at 36.6%, up 2% on the previous financial year, with 29.2% in direct spend.

The government has been subject to criticism for the way it reports SME spending figures. In March 2016, the National Audit Office (NAO) said indirect spend won’t necessarily lead to increased competition and innovation.

Counting indirect spend with SMEs means contracts with large suppliers passing on some of their government business to SMEs as subcontractors can be counted. It also relies on suppliers to report the indirect spend, a figure which is not audited and is based only on a survey of its 500 largest suppliers.   

However, civil service chief, John Manzoni previously said it’s “fine” that most government spending with SMEs is indirect and that it’s infeasible for government departments to interact with all suppliers individually at SME level.