When the Procurement Act was introduced in 2023, it was designed to open up opportunities for SMEs to take on public sector contracts. With the failures of massive government contractors such as Carillion, Serco and Capita, all of which took on contracts beyond their capacity to deliver, there was a desire to diversify providers and improve transparency in the procurement process. 

While the Act came into force late last year, new procurement rules became effective on 24 February this year. It coincides with the current government’s drive to stimulate economic growth in the UK. As part of that, ministers are looking at how they can build momentum in the regions. Jon Pearce MP, quoted in the Financial Times, said: “City regions are going to be the drivers of growth.”

The government wants to create more city mayoral-style authorities across the country. That, paired with the new procurement rules, could potentially create conditions for regional growth. At the moment, so many public sector contracts are in the hands of so few companies, presenting a commercial risk, says Alison Ring, ICAEW’s Director, Public Sector and Taxation.

“You could still buy from a smaller company and it’d be quite competitive. If you were a local government authority and you’re buying from a smaller organisation, you’re creating and supporting local jobs. You’ve got that local engagement and you can work with them directly, rather than dealing with someone in London. You have people there who are able to deliver on the ground,” she says.

There have been several barriers to entry for small businesses into public sector contracts that the Act aims to address. One is, as Ring points out, difficulty with inconsistent requests for social value plans or green credential strategies. 

It is also limited by poor-quality data, which makes it hard for the government to spot problems and opportunities in the procurement landscape, according to the Institute for Government (IfG). This is paired with, in the IfG’s words, a “patchwork of clunky portals” that creates unnecessary complexities for SMEs to navigate. 

The Public Accounts Committee determined that competition in public procurement was being limited by the poor quality of procurement data. IfG sees the introduction of the Central Digital Platform – part of the process of improving transparency in procurement – as reducing the administrative burden within government, giving teams more clarity when it comes to procurement decisions.

The IfG admits that there will be upfront costs to this. Its research has recognised potential wariness of transparency within local governments due to the costs involved in bringing together and publishing information. “But in this case, the procurement professionals putting the effort into providing contract information will reap the rewards,” it says. “Better public procurement data should lead to lower prices due to increased competition, improve accountability, create new markets and business opportunities, and make it easier to spot corruption.”

The National Audit Office is also putting pressure on local authorities to look beyond the same seven or eight big contractors when tendering for projects. “These large companies are trying to deliver all things to all people in the public sector,” says Ring. “Often they’re subcontracting a lot of that work out to smaller businesses anyway. Local authorities might be better off working directly with suppliers that specialise in delivering the specific projects that they need. Ideally, those companies should be local and then we would see that local growth we need in order to improve the economic picture nationally.”

There are regions in the country where this is already happening. North Tyneside Council has looked to diversify its supplier base, having determined that by selecting from local businesses, they would put more money into the local community and therefore encourage job creation and build social value within the area. The council has developed a procurement approach based on six factors: value for money; social value; capability and capacity; buying from ourselves; commercial and procurement delivery; and carbon net zero. This has resulted in new long-term supplier relationships with local businesses, which works well for all parties. 

“They have developed a very strong relationship where they meet regularly, it’s easy for the local authority to track progress and they have been able to work together on solutions when challenges have arisen,” says Ring. “You wouldn’t be able to get that with one of the larger contracting companies. And it’s having a positive knock-on effect on regional growth. That’s what we want to see as the Procurement Act is bedded in.”