UK “increasingly unlikely” to meet SME tech spend target, report finds

By on 06/05/2019 | Updated on 04/02/2022
The UK’s SME spending figures remain disappointing, the report finds (Image courtesy: David Schwarzenberg).

New research analysing the procurement habits of three UK departments has found that only 8% of their technology budgets are being spent with small and medium-sized businesses.

The government aims to channel a third of its external spending through small and medium sized enterprises (SMEs) by 2022, but in the field of technology “it is growing increasingly unlikely that the government will meet its objective,” a report published by govtech venture firm Public has found.

Public’s analysis of data from Tussell’s procurement database found that the majority of contracts were being awarded to large vendors, which have competitive advantages over smaller businesses and start-ups.

“Procurement continues to favour insiders and incumbents. These larger organisations know how to navigate complex processes, execute heavy tenders, and can afford the pitfalls of long and uncertain sales cycles,” the report says. “In turn, smaller and more agile organisations struggle to sell to governments.”

Pessimism among SMEs

Confidence in selling to government is low among SMEs, the report finds: it says that 92% of respondents to a survey by business body techUK reported that they prefer to work with the private sector, and “only 37 percent of respondents to the techUK survey believe that the government will achieve its 33 percent target in the next five years.”

The authors also argue that public sector contracts are becoming less competitive. Research by Spend Network found a 476% increase in single-bid tenders – where a tender attracts only one bidder – between 2012 and 2017, which the authors said should be “extremely alarming” for government.  

“It shows that public authorities are failing to properly engage with suppliers during procurement, and indicates a worrying trend towards highly uncompetitive tendering.”

Start-ups shut-out

The analysis also found that very few start-ups are succeeding in selling services to government. “This reflects a wider trend towards market consolidation in public procurement, where spend with the top 25 suppliers increased from 13 percent in 2012/13 to 18 percent in 2016/17,” the report says.

It goes on to make a series of recommendations – including a target of 10% of technology spend directed to start-ups, which “would totally transform the delivery of digital public services in the UK. It would stimulate a new ecosystem of highly innovative and productive companies in the market, which would ultimately result in better value-for-money for the British taxpayer.”

Johnny Hugill, lead author of the report, told Computer Weekly that the UK is well placed to lead public sector transformation, but that “right now the gauge is heading in the wrong direction.”

“Start-ups aren’t being given the chance to improve services in the same way that they have changed every other part of the economy,” he said.

Cabinet Office rejects findings

Asked to comment, a spokesperson for the UK Cabinet Office’s Crown Commercial Service pointed out that the report only analysed spending by three departments. And they noted that figures published last August showed that nearly half of all spending through the government’s Digital Marketplace is going to SMEs – which won £602m (US$787m) of the £1.3bn (US$1.7b) spent through the Marketplace over the previous year.

The spokesperson added that they did “not recognise” the figure of a 476% increase in single bid tenders. “Small businesses are the backbone of the UK economy and it remains our aspiration of spending 33% with small businesses by 2022,” they said, noting that this figure covers all external spending – not just technology contracts.

About Natalie Leal

Natalie is a freelance journalist whose work has been published by The Sun Online, The Guardian, Novara Media, Positive News, and Welfare Weekly, among others. She also writes reports and case studies on global business trends for behavioural insights agency, Canvas8. Prior to working as a journalist Natalie worked for the public sector in social services for several years. She switched careers in 2013 after winning a fully funded NCTJ in a national writing competition. She holds a Masters degree in social anthropology from Sussex University where she specialised in processes of social change and international conflict and reconciliation processes.

One Comment

  1. Hemant Desai says:

    As a chemical synthesis Research Scientist I started an SME but I had no chance of winning any grants or government funds due to the restrictions of time by which I had to complete or show significant progress, usually 6 months. As many chemists spend a lifetime to achieve or make a novel useable molecule this was very difficult.
    Later, as a Government Research Programne Manager, I was fortunate to be able to fund projects in Innovation Calls with timeframes ranging from 6 months to 3 years, incorporating PhD research. This led to some novel devices deployed in the field, scientific publications, intellectual property and guidance to governments policy or regulation. My experience was that best value for taxpayer was achieved by SMEs, who had lateral solutions rather than the staid in-the-know approach of large industry, who were only bidding to market scan and academics who often got funds due to reputation of their establishment. I tried to change the selection process by anonymising bidders.
    This process was then altered, with the honourable intention of funding SMEs, by using the SBRI process. Unfortunately, this is 6 month look-see process, which more or less excludes PhDs and, even more seriously, prevents genuine new innovation, as people bidding usually already have an innovation which can be proved in 6 months.
    SMEs need procurement and innovation managers to appreciate the pressures of cash-flow, staff security and time. Perhaps, the Civil Service could second their managers into SMEs, rather than OGDs or large industry to increase the input from very creative technical SMEs?

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