Last week the Cabinet Office claimed it has not only met but surpassed its aim for 25 percent of government spending on goods and services like IT to go to small and medium-sized enterprises (SMEs).

The headline figure of 26.1 percent suggests it has succeeded.

But dig a little deeper and figures show direct spending with SMEs (the official preference) actually dropped from 10.5 percent to 10.3 percent last year.

The government can only claim the target has been reached because subcontracted ‘indirect spending’ paid to SMEs by big suppliers (which is more opaque and difficult to verify), soared to 15.8 percent from 9.4 percent last year.  

The policy for SMEs to win 25 percent of government spending was introduced in recognition of the fact such firms are often experts in their field, innovative, flexible and help the economy to grow.

However they have traditionally struggled to win government business, as exemplified by the measly 6.5 percent share of Whitehall spending SMEs gained in 2010.

In August 2013 the government introduced a goal for ‘at least’ 50 percent of spending on ‘new’ IT to go to SMEs, although it has not released any updates on progress since.

Instead, the government has focused on encouraging big vendors to funnel more of their cash to SMEs, allowing them it claim it has hit the 25 percent target with the general election conveniently just a couple of months away.

Subcontracting mandate ‘made it worse’

Far from succeeding, the fact direct spending with SMEs has decreased despite it being the government’s preferred route suggests the 25 percent target may have backfired.  

Does it matter whether SMEs earn money directly from the government, or through large incumbent suppliers?

Perhaps not to some departments or big firms, but it certainly does matter for the SMEs affected.

Suraj Kika, CEO of software SME Jadu, said the current policy of forcing big firms to work with SMEs has “actually made it worse”.

He said: “It creates a number of cause-and-effect issues. The SI insists on discounts, the SME is forced to reduce margins, and the customers – government – get much less value. thanks to the bureaucracy, subcontracting through an SI is often an expensive and time consuming business.”

“What should be happening is a serious cutting back on large contract renewal and focused contracting with small business. It requires not just a notional policy adjustment, but a complete re-making of procurement,” Kika added.

SMEs want to work with government directly

Several SMEs have told ComputerworldUK they would much rather work with government directly.

“Going through an SI [systems integrator] means we have to teach the SI what we do, who then has to teach the department. It doesn’t make sense and delays the process hugely,” one IT SME chief executive explained at an event last year.

Harry Metcalfe, managing director of SME web agency dxw, said: “For me, as an SME, I want more direct spend with SMEs. That is the figure I really care about.

“It is very encouraging that direct spending with SMEs has gone from 6.5 percent in 2010 to about 10 percent now, so let’s do more to make that continue. Indirect spend is perfectly worthwhile and we should keep an eye on it, but it’s not the main measure of success.”

‘Challenges remain’

IT industry association techUK said it welcomed government reforms to make it easier for SMEs to win work.

However associate director Naureen Khan warned: “The slowdown in the growth of direct government spend with SMEs illustrates the challenges that remain for smaller companies wanting to supply government.  

“These include difficult terms and conditions, slow implementation and payment and the skills and ability of government buyers to embrace innovation.”

Reforms “will only make a difference if they are implemented by departments and enforced by the Cabinet Office”, she added.

The Cabinet Office can try to claim a good headline, but the clear message from SMEs is that after five years of reforms, it is still far too difficult to work with government. 

Image credit: David Cameron addressing the Federation of Small Businesses © Flickr/Number 10