With the Procurement Act 2023 having already received Royal Assent, we can be pretty sure that it will come into force later this year, whatever happens at the ballot box.

The Procurement Act, which will reform the existing Procurement Rules, received Royal Assent in October 2023. In March 2024, The Procurement Regulations 2024 were laid in Parliament to bring some elements of the Act and the wider regime into effect. There is a ‘go-live’ date for the new regime of 28 October 2024. To bring the Act to life, there are factsheets and videos as well as a summary of the Act. There are even knowledge drops, including for SMEs, and e-learning modules.

In terms of SMEs, what size company are we talking about? According to the Act, “small and medium-sized enterprises means suppliers that (a) have fewer than 250 staff, and (b) have a turnover of an amount less than or equal to £44m, or a balance sheet total of an amount less than or equal to £38m”.

The Crown Commercial Service (CCS) plays an important role helping central government and other organisations across the public and third sector purchase goods and services. It too has set out guidance. But, by its own admission, there is work to do across government to make sure SMEs are awarded a greater share of the work. The value of frameworks – such as those operated by CCS – are being called into question; commentators worry they are not always SME-friendly. 

Public procurement is a big deal. The National Audit Office (NAO) is due to report on efficiency in central purchasing in summer 2024. It points out that HM Treasury’s public spending statistics show spending on public sector procurement was £379bn in 2021/22 across the UK. What is more, the UK government spends more than £13bn annually, just with technology suppliers. There will be another NAO report on this later in the year. 

Alison Ring OBE FCA, Director for Public Sector and Tax at ICAEW, says: “The government and public bodies are the biggest purchasers of goods and services in the UK, but many small businesses have struggled to win contracts in the face of competition from much larger businesses.”

The government hopes that it can encourage SMEs and social enterprises to compete more effectively in winning public contracts, with the added benefit to public bodies of diversifying their supplier bases, Ring explains. “However, there remain many bureaucratic obstacles in the way of smaller businesses and social enterprises achieving success with their bids and these are likely to need addressing, too, if the government is to achieve its objectives here.”

Public procurement is also a delicate topic. We have etched into our minds the investigations into the supply of PPE during the pandemic, the repercussions of which continue to be felt. 

But ultimately, the purpose of the Procurement Act 2023 is to reform the UK’s public procurement regime following its exit from the EU, thereby creating a simpler and more transparent system. The reforms follow the principles of public procurement set out in the Green Paper ‘Transforming Public Procurement’ published in December 2020. These are: value for money, public good, transparency, integrity, equal treatment and non-discrimination.

It is also worth noting that the principles in the Act align with HM Treasury guidance on how to develop business cases for projects and programmes, which is used across public services. The business case approach encourages the consideration of a range of commercial models and contractual forms – including the 25-year complex contracts that SMEs have traditionally struggled to participate in.

Impact on SMEs

The government’s policy objectives for these reforms were to speed up and simplify public procurement processes, place value for money at their heart and create greater opportunities for small businesses and social enterprises to innovate public service delivery.

In fact, the National Procurement Policy Statement (NPPS) says that SMEs are “the backbone of our economy” and that “it is vital contracting authorities support businesses to achieve sustainable growth and open up public procurement opportunities to more SMEs, voluntary, community and social enterprises (VCSEs), creating a thriving, competitive marketplace”. Why? Because, says the NPPS, because they not only play a key role in communities by providing a local service and employment, but because they are innovative.

The NPPS adds that contracting authorities should ensure that they level the playing field for SMEs, VCSEs and start-ups to compete in public procurement by reducing and removing barriers in the procurement process. This means that contracting authorities should not place onerous requirements on suppliers, or use disproportionate clauses in tenders and contracts (for example, they should not gold-plate certain reporting requirements).

Some commentators see the benefits of the new regime. As the Spend Network points out: “The Act allows SMEs to show proof of required insurance only upon contract award rather than during bidding. This spares SMEs from carrying unnecessary costs pre-award when outcomes are uncertain.” 

It says that the Act mandates smaller, more tailored contract lots, enabling direct price negotiations between procurers and suppliers. “In principle, this flexibility caters better to SME capabilities versus rigid tendering processes.”

There are also increased transparency mechanisms. Hopefully, the more open the process, the more it will help SMEs understand decisions and bid more successfully going forward.

According to the Cabinet Office, there are a number of measures in play to support SMEs. These include paying suppliers on time in accordance with the government’s prompt-payment policy, increasing visibility of tenders and contracts, working with businesses to remove barriers, measuring success and publishing SME data, and being SME champions. 

An aspiration or a reality?

There is a long way to go before SMEs show up frequently across public supply chains. As Dun & Bradstreet points out, SMEs often lack the resources and expertise required to navigate the public sector’s procurement processes. It also questions whether Crown Commercial Frameworks work for SMEs (see above). Yes, they avoid multiple bid documents across public sector portals, but they have their own costs in terms of investing time and resources in gaining accreditations and meeting framework requirements.

There is clear intent from the UK government for SMEs to benefit from the new public procurement regime. After all, greater transparency and accountability always foster confidence and hopefully competition, too. But it’s going to take collaboration for the aspiration to become reality – and this will take time.

So does that mean the onus is on SMEs to skill up, read the guidance and watch the videos to make sure they are match fit when the regime goes live later this year? If so, they need to work on their strong candidate status, collect data on their previous performance, work on their brand and invest in certifications.

Networking could be a key way forward for SMEs, too. Successors to Local Enterprise Partnerships and Growth Hubs should be able to help SMEs find out about local contracting opportunities. Suppliers need to work out how to participate in supplier inclusion programmes. 

This should not just enable low-value standalone contracts; more SMEs need to contribute to more complex, 25-year contracts that typically remain with large suppliers. Large projects often involve a protracted supply chain that affords opportunity to smaller players, too. To participate, SME management will have to understand how commerce meets policy imperatives, especially around net zero, levelling up and innovation in the supply chain – often areas in which local government can assist.

Local government will also have a role in helping to build capacity amongst SMEs. There’s a range of commercial models that local authorities can explore to help ensure the SME base is robust enough to participate. And Towns Fund guidance is worth checking out with regard to SME participation in projects, too.

Importantly, ICAEW can help members familiarise themselves with the HM Treasury guidance on how to develop business cases for projects and programmes. It can support not just SMEs, but also public bodies. And let’s not forget the value of commercial skills. Not only is ICAEW about training finance professionals, but also about broadening financial professional skills into commercial capabilities.

Further reading

Tackling public sector procurement fraud: ‘a smart investment’

Public Sector Procurement – Why it makes business sense

NAO criticises disarray in government COVID-19 procurement