Five ways to improve public sector procurement for startups
For this blog piece, we look at how public sector procurement should improve to help smaller businesses to work with the government. It’s a crucial element needed to improve the health of the economy and grow more innovative public services.
The Federation of Small Businesses recently found that SMEs are awarded just 19% of public sector technology contracts. In London, that figure is only 9%. By 2022, the government has aimed for 33% of all procurement to be done with SMEs, so there’s a long way to go. These figures aren’t helped by the fact that the proportion of public sector contracts awarded without a competitive tender is rising (15 per cent in 2016 to 22 per cent in 2017 and then 23 per cent in 2018). There seem to be ever-increasing hurdles in order to do business with the government if you’re a small supplier.
The Covid crisis has put procurement in the spotlight, with many commenting that the current processes are out of date and incompatible with today. Is it this risk-averse strategy that has also caused a disparity with SME engagement, or are there other factors at play?
Let’s investigate five ways to make public sector procurement more accessible to startups and SMEs.
1. Create a single directory for public sector opportunities
Any business that has bid for public tenders knows all too well what an arduous process it can be. In the UK each public sector organisation outsources its tenders to an eSourcing company which hosts and manages their opportunities for them. With many eSourcing solutions being used across the country, many tenders require separate application processes just to apply. Put simply; it isn’t easy, and it takes a long time.
Larger organisations have considerably greater resources at their disposal, in many cases sizeable bid management teams, to locate, track and apply for tenders – startups do not.
What might help tip the balance, is a single directory that aggregates all available opportunities and is searchable by government organisation, location and type. While Contracts finder from Crown Commercial Services does this to a degree, the portal shows opportunities above £10,000, missing out the lucrative, lower value repetitive tenders that are perfect for smaller businesses.
Complementary features would include visibility of the entire application process, including the duration of previous bids, feedback timeframes, technical prerequisites, group procurement options, and clarity of the tech stack required.
This single source of searchable opportunities can become a one-stop-shop, where SMEs can find, track, and apply for relevant contracts. This step would help eliminate a significant hurdle that small businesses typically face and can start to level the playing field against larger organisations.
2. Outline the procurement process and technical requirements
The tender application processes are often plagued with hidden technical requirements, certifications and timelines that lead to many startups giving up on the process. Nasty surprises halfway through the application are common with an unattainable element, not mentioned at the beginning.
While bureaucratic processes are there for an important reason – principally to make sure the public purse is being used responsibly – there are a few things that can be done to make it easier.
First and foremost, greater visibility of the entire application stage, including duration and technical prerequisites is critical information for SMEs. It helps them understand what resources they will need and for how long, how they can best prepare or just find another opportunity that matches them better.
Often critical information about timelines and feedback is missing, giving little idea to the supplier how the process will work and how long it will take. This varies from one government body to another, making planning and applying for other tenders unpredictable.
A practical method for curtailing this problem is creating bidding roadmaps and guides on procurement processes including; how they work and describing the different thresholds and regulations. A promising example of this is the Scottish Government “Supplier Journey,” which guides suppliers step, by step in applying for all public sector contracts in Scotland.
3. Create a supportive ecosystem around engaging and helping SMEs in public sector bidding.
Many SMEs find working with the public sector a daunting task with applications steeped in bureaucracy and process. They report that the time and effort required to get through the application phases can be overwhelming and rarely result in the award of a contract, discouraging companies from applying to tenders again.
To encourage startups to engage the public sector needs to have a better understanding of the SME landscape and how these types of businesses operate. One way is to map out the companies that have worked previous tenders with other commissioners, and consider the types of challenges those firms have applied to before. Another is to work with Innovation Managers who can give recommendations of relevant companies to engage with smaller value tenders.
Merely mapping the landscape alone is not enough; engagement is the key. Whether it is an early stage, scaleup or SME, the idea that any company can at some point be helpful is important to keep in mind. A suitable method for this is by creating support structures for SMEs and engaging with them early with challenges they could help solve.
4. Break down silos in commissioning and put commercial, innovation and policy teams at the centre of decision making.
A common criticism is that tenders show a disconnection between innovation and commercial teams. Elements like wording and requirements can be strict and unfriendly to SMEs and don’t allow the breathing space that innovation requires.
To counter this It’s crucial that all parties work together to make the release of the opportunity as relevant and engaging as possible to the supplier. The procurement body needs to be involved in the innovation process, considering a wide array of solutions and engaging with new suppliers earlier in the process to help foster new ideas.
The close proximity between these teams means that innovation can permeate the entire commissioning journey, helping to move from solution-based to outcome-based procurement. Armed with this mindset, spotting opportunities to work with SMEs will become easier.
5. Utilise PCR 2015 to the fullest degree by testing new ‘Innovation Partnerships’
A significant piece of legislation came within PCR 2015, giving the legal framework for design contests to be held between companies and the public sector for research and development purposes. In contrast to the Greater London Authority Innovation Challenges, a PCR 2015 Innovation Partnership can award a contract even though the solution deviates from the original tender description. This allows organisations to solve a problem in an innovative way rather than a prescriptive approach.
For the public sector, this can encourage engagement with a wide array of SMEs and prompt a shift from the traditional solution-based procurement model to an outcome-based approach. This can help bring innovation to the centre of the challenges that face society.
More needs to be done to give local councils the confidence to exploit the underutilised procurement technique that is facilitated by the ‘Innovation Partnerships’ section of PCR 2015.
This is key to enabling councils to engage with SMEs to solve key challenges.
Where do we go from here?
While there is no single step to make engaging and working with SMEs easier, there are ways that procurement departments can make themselves more attractive and open to innovation. As outlined above, there needs to be a dramatic culture shift, one that doesn’t work in isolation of government offices but instead engages with the ecosystem.
The current procurement process is broken and heavily skewed towards incumbent organisations. Ultimately, increasing SME friendliness remains a challenge. On the one hand, strict procedures and a risk-averse nature are vital as the government is beholden to taxpayers if money is unwisely spent. On the other, we see a need to bring down these barriers to entry for the good of SME engagement.
As we’ve seen from the latest crisis, the procurement processes need to be simplified and shortened, not just in an emergency, but also to engage innovative businesses in our society. Will the Covid crisis change procurement forever? We hope so.