SECURING PUBLIC SECTOR CONTRACTSMay 2014 | Feature
Just shy of £720bn. That is what the public sector, in all its guises, will spend during the 2013-14 financial year, with much of it going to private sector businesses that provide services to local and national government. This is far too large an opportunity for any business to ignore, whatever its size.
The good news for small and medium-sized enterprises that see public sector contracts as a potentially important part of their growth strategies is they now have more chance of winning a share of this business. On coming to power in 2010, the coalition government set a target of awarding 25 per cent of public sector contracts by value to SMEs within five years.
Now, there are some important caveats to that target: it applies only to central government contracts and includes both direct spending and the value subsequently created in the supply chain. Still, the policy was ambitious; at the time, central government spending with SMEs amounted to just 6.5 per cent. Three years later, the percentage is 10.5 per cent, a two-thirds increase.
There are two ways to look at those figures. The negative spin is that at the current rate of increase, the Government will fall some way short of its 25 per cent target – 15 per cent by 2015 looks more realistic. On the other hand, businesses with a glass-half-full mentality will reflect that even 15 per cent would mean SMEs’ public sector contracts had more than doubled in just five years.
It is worth making the effort to be optimistic. While progress may be slower than hoped, the gains have been achieved through a comprehensive overhaul of public sector procurement, for both local and national government, which should continue to make it easier for growing businesses to pick up new work. And these businesses at least know they are pushing at an open door.
Reforms implemented by the Government Procurement Service (GPS) begin with greater transparency on what work is available. All public sector contract tenders worth more than £10,000 are now advertised on two online services, Contract Finder and Tenders Electronic Daily. Companies registered for these services can access updated lists, tailored by industry or geography, on a daily basis.
The next stage, having helped business to identify tenders on which they might like to bid, is to make it easier for them to do so. The GPS thinks it has achieved this objective through a switch to leaner procurement processes, reducing the number of hurdles that contractors must clear in order to qualify to bid, and to place the bid itself. Investment in technology is also helping, with new interfaces such eSourcing and Dynamic Marketplace designed to smooth the bidding process.
The GPS also claims to have improved public sector contracts, moving to greater use of templates and standardised documents. And there’s a new procurement process for the smallest contracts by value, which are now taking an average of 15 days from advertisement to award. SMEs have won 71 per cent of these tenders.
Are such reforms working? Well, the figures on contract awards to SMEs speak for themselves, but it’s important to note that we’re also talking here about a larger pie to share out. The public sector is looking to the private sector to deliver its austerity agenda.
Graeme Lee, group chairman of Springfield Healthcare, describes “a sea change in the attitude of bodies such as the NHS, which have realised they simply can’t carry on as they have been”. Springfield, the largest provider of independent domiciliary care services in Yorkshire and Humberside received an injection of £4.4m of growth capital from Business Growth Fund in June 2012, partly because it wanted to target further public sector contracts. The company is close to completing a purpose-built care village in Leeds it hopes will prove popular with the local authority.
“Local authorities have got less money and they see outsourcing as crucial for marshalling their resources,” Lee says. “In our part of the country, many services are still provided in-house and as local authorities exit, there will be huge opportunities for companies such as us.”
Springfield’s annual revenues from the public sector already total £9m and Lee hopes the Leeds care village will add £2m to that figure. The company’s relatively small size has actually helped it, he adds. “This may be peculiar to our sector, but after the collapse of Southern Cross, local authorities are wary about dealing with the large corporates,” he says. “They’ll therefore work very closely with us during the tendering process.”
It’s also encouraging, he says, that the squeeze on budgets has not precipitated a race to the bottom on price. “The commissioning process has certainly become more mature – you must be able to demonstrate value but you must also show you will offer quality, particularly in terms of people, training and so on – local authorities recognise the service will fail if price is the only factor.”
One way to demonstrate this value, Lee suggests, is to find ways to prove your worth that may not be entirely commercial. Springfield, for example, has worked with the local authority and other independent care providers to develop standardised leadership programmes for care managers from across the sector.
“We all need to build relationships with these commissioning authorities,” he says. “And we also need to be locally minded – delivering a service in Bristol, say, may be very different to delivering the same service in Bradford.”
At Celaton, another BGF portfolio company – it received £2.5m of growth capital in December 2012 – chief executive Andrew Anderson has an additional tip for securing work from the public sector.
“We still think it is tough for smaller companies to bid for these contracts, so we’ve started working with a larger partner firm that has huge amounts of experience working within the Government’s procurement frameworks,” he says. “It’s not so much a question of size – it’s more about having the capability to navigate around accreditation and qualification issues, which is difficult unless you’ve done lots of this sort of work.”
In theory, Celaton’s proprietary document management software, which enables organisations to manage all their inbound information, from customers’ letters to online employee financial data, through a cloud-based service, should be perfect for the public sector, which faces massive volumes of such correspondence.
Moreover, Celaton has a strong relationship with the public sector through one arm of its business. Its Redrock subsidiary was created following a crisis at Remploy, an organisation whose staff, many of them disabled, were using Celaton software to provide document management services to public and private sector clients. Celaton acquired parts of the business in order to save them – and their employees’ jobs - winning the sort of goodwill from public sector clients that Graeme Lee suggests is so important.
Even so, Anderson says he feels more comfortable bidding for other work through his partnership structure. “SMEs will reach critical mass with public sector contracts,” he says. “But I like working with a partner because their knowledge of how to deal with public sector procurement leaves me free to concentrate on what I do best.”
One man who understands that view is Matt Waller, chief executive of Benefex, an online provider of employee benefit systems in which Business Growth Fund invested £4.2m in October 2011. Waller now has a number of contracts with central government, but he says the key to securing public sector work for the first time was to approach the process just like a move into a new market.
“There is no magic formula to getting work,” says Waller. “Anything you’ve used elsewhere to break into a new market or territory may work here.”
“We definitely found the first contract, in our case from the Department of Transport, was the hardest one to win,” Waller says. “But that lead to further contract wins, so the hard work did bear fruit.”
In fact, says Waller, there are attractive features about the UK’s public procurement processes. “The public sector is a big beast but it does have a very consistent approach to procurement,” he argues. “It’s the same process, more or less, across the whole of the public sector, so once you understand that process, each new tender is not so difficult.”
Not that there won’t be some false starts. Take BGF-backed Shuropody, the largest provider of podiatry in the country outside of the NHS.
Shuropody was excited when the Government announced in 2011 that the NHS would outsource much of its community service. In early 2012, as soon as it was able to do so, Shuropody applied for accreditation with the 20 or so primary care trusts that had indicated podiatry would be one of the outsourced services.
However, it became clear that the initial contracts would run only until April 2013, when primary care trusts were abolished under the Government’s NHS reforms. There was no guarantee that the authorities’ successors, the clinical commissioning groups, would extend the arrangements.
With technology costs to consider – the contract required bidders to subscribe to the NHS’s appointment booking service through one of a small number of partners - Shuropody felt it could not justify bidding for such short-term contracts.
However, Shuropody’s story is not wholly negative – and one lesson for other growing businesses may be to focus on the positive outcomes of such episodes when they do miss – for example the acceleration of certain disciplines which make an organisation more streamlined than they might otherwise have been.
SMEs will continue to need a half-glass-full mentality as the public sector procurement process evolves and commissioners learn what works and what doesn’t. There is little doubt now that the Government’s original 25 per cent target for SME contract spend was unrealistic, but every incremental step towards it represents new business worth millions of pounds for small businesses. Such opportunities are worth battling for - no gain without pain, you might say.