SMEs are routinely shut out of bidding processes and snubbed for the opportunities that are open to them, research from tech incubator Public has found

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Technology SMEs are still shut out of most Whitehall opportunities and, more often than not, are snubbed for those for which they are eligible, research has found.

The Buying Into The Future report from tech incubator Public claims that, across hundreds of central government IT contracts awarded between 2015 and 2018, some 91.9% of total spend went to large companies. Moreover, the majority of contracts were not marked as being “suitable for SMEs”.

The report focused on deals awarded by the Ministry of Justice, Department for Work and Pensions, and Ministry of Defence – departments selected by Public “due to their significance to core public service delivery, as well as their ongoing commitment to innovation”.

Of the 233 MoJ contracts examined for the report, only 83 were considered suitable to SMEs. These tenders were worth a cumulative £101m, out of a total of £1.57bn, the report claimed.

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Small and medium-sized firms won 63.2% of these deals, as well as a further 49 contracts that had not been marked as SME-suitable. In total, the department awarded business worth about £130m to SMEs.

The Ministry of Defence, meanwhile, designated as suitable for smaller firms 92 of the 285 contracts covered by the report. These deals were worth about a tenth of the £1.05bn overall total.

A little over half – 51.7% – of this money ultimately went to SMEs, as well as a further 67 contracts, worth a cumulative £30m, that were not marked as SME-friendly.

The Public report examined 166 contracts awarded by the DWP, worth £761m. Some 71 of these, worth a collective £53m, were considered suitable for smaller firms to bid on.

Just 37% of these deals were won by SMEs, the report said. A further 19 contracts, valued at £13m, were won by smaller outfits despite not being classed as SME-suitable.

Public also surveyed SMEs, only 6.1% of which said that they find it easy to work with government, with just 4.5% stating that they find it easy to take part in a tender. Some 92% said that they prefer working with the private sector.

The report makes 15 recommendations for how government can better work with start-ups:
 

• Procurement “innovation zones” that promote new entrants to the government IT market should be created
   
• A team to drive the use of new procurement models should be established
   
• Government should enshrine a target of spending 10% of its technology budget with start-ups
   
• A programme should be set up to generate revenue via government co-developing intellectual property with the private sector
   
• To take advantage of emerging technology sectors, the public sector should look to work with “innovation brokers”
   
• A review of GDS’s work should take place on the organisation’s tenth anniversary
   
• Public-sector bodies should “replace outdated and ineffective market engagement models with new processes”
   
• A single online platform to search and bid for public sector contracts should be implemented
   
• The financial health of start-ups ought to be assessed differently, including the use of capital investment as a metric
   
• Dynamic purchasing systems should, where possible, be used instead of traditional static frameworks
   
• Public-sector bodies should form “innovation partnerships” with commercial entities to develop new tools and services
   
• Design contests should be used as a procurement process more often
   
• Commercial professionals should work more closely with policymakers
   
• Procurement professionals should be incentivised to drive innovation in their buying practices
   
• Existing programmes and units should be brought together to form a “School for Technology and Government”

In a joint foreword to the report, Public co-founders Daniel Korski and Alexander de Carvalho said that reforming procurement processes is the single biggest opportunity “for accelerating change across every area of public service”.

“Procurement continues to favour insiders and incumbents,” they said. “These larger organisations know how to navigate complex processes, execute heavy tenders, and can afford the pitfalls of long and uncertain sales cycles. They often hire people who have worked on the inside. They look and sound like the government officials they are selling to.”

The duo added: “In turn, smaller and more agile organisations struggle to sell to governments. In fact, most often, they do not even know where to look, how to explain their products or speak a language that government officials understand. Many start-ups often perceive the whole tendering process as burdensome, and even biased, and so do not even explore the opportunity of public sector work.”