Breaking Down Large Contracts: A Smarter Approach to SME Inclusion in Public Procurement

Breaking Down Large Contracts: A Smarter Approach to SME Inclusion in Public Procurement Public procurement plays a crucial role in driving economic […]

14 February 2025 4 min read

Breaking Down Large Contracts: A Smarter Approach to SME Inclusion in Public Procurement

Public procurement plays a crucial role in driving economic growth, fostering competition, and ensuring taxpayers get the best value for money. However, one of the biggest barriers to SME participation in government contracts is the dominance of large, single-supplier contracts that effectively exclude smaller businesses from competing.

The UK government’s latest National Procurement Policy Statement (NPPS) sets out plans to increase SME participation, but a more structural shift is needed: procurement frameworks should require a justification for single-supplier, large contracts instead of defaulting to them. Breaking down contracts into regional or specialist lots could be a game-changer for SMEs and public sector efficiency.

The Problem with Large, Single-Supplier Contracts

Many public sector contracts are bundled into massive all-in-one agreements awarded to a single, large firm. This happens due to perceived efficiencies in managing fewer suppliers. However, the reality is that:

  • SMEs struggle to compete due to strict financial requirements, high insurance thresholds, and broad scope demands.
  • Large suppliers dominate the market, reducing competition and innovation.
  • Costs can be higher in the long run as reduced competition leads to price inflation.
  • Supply chain risks increase—if one supplier fails, the entire service is compromised.
  • Local economies miss out as contracts go to large national or international corporations instead of regional SMEs.

A Better Approach: Justify Single-Supplier Contracts

Instead of automatically awarding large contracts to a single supplier, procurement frameworks should require a justification for why the contract cannot be broken into smaller lots. Before proceeding with a single-supplier contract, authorities should be required to answer:

  • Is there an SME market for this service? If so, why not allow SMEs to compete?
  • Could breaking the contract into regional lots create more economic growth?
  • Does a single-supplier approach provide a genuine efficiency advantage? Or is it just the easiest option?

If the justification is weak, the contract must be split into multiple lots to ensure SMEs have a fair chance to compete.

Addressing the Cost Concerns of Multiple Contracts

A common argument against splitting contracts into smaller lots is that managing multiple suppliers could increase administrative costs for public sector organisations. However, these concerns can be mitigated through:

  • Better contract management technology – Digital procurement platforms can automate much of the administrative burden, making it easier to manage multiple suppliers efficiently.
  • Standardised procurement processes – Creating a streamlined approach to managing multiple contracts ensures that added complexity does not translate to significantly higher costs.
  • Economies of scale within SME groups – Encouraging SMEs to form consortia or partnerships allows them to deliver the same scale as larger firms while retaining competition and innovation.
  • Long-term cost benefits – Although managing multiple contracts may introduce some short-term administrative costs, enhanced competition and innovation can lead to lower prices and better service delivery over time.

Simplifying Compliance for SMEs

Another major hurdle for SMEs in public procurement is the complexity of compliance requirements. To address this, procurement processes should include:

  • Simplified pre-qualification questionnaires (PQQs) – Reducing redundant documentation can help SMEs participate more easily.
  • Clearer and standardised procurement documents – Ensuring consistency across tenders will lower the administrative burden for SMEs.
  • Dedicated SME support programmes – Providing procurement training and support to smaller businesses to help them meet compliance requirements.

Leveraging Existing Procurement Frameworks for SME Inclusion

One way to integrate SMEs into public procurement more effectively is to designate special SME-focused lots within existing purchasing frameworks. This means:

  • Public sector frameworks could have mandatory SME participation requirements by reserving specific lots for smaller businesses.
  • Larger framework agreements should encourage SME consortium bids, allowing small businesses to combine capabilities to meet contract requirements.
  • Government-backed procurement bodies should work with SMEs to streamline entry processes, ensuring they meet compliance and quality standards.

The Role of CCS and AI/ICT Frameworks

Organisations such as Crown Commercial Service (CCS) have a unique opportunity to support SME inclusion, particularly in AI and ICT procurement frameworks. By structuring these frameworks with SME-friendly lots, CCS can:

  • Ensure AI and emerging technology contracts are accessible to innovative small firms.
  • Promote flexible purchasing models that allow government departments to engage niche AI and ICT providers.
  • Reduce the dominance of large tech firms by allowing specialist SMEs to compete on an even playing field.

By embedding SME-focused lots within existing frameworks, the transition to more inclusive procurement models can be achieved without adding excessive administrative complexity.

How This Would Benefit SMEs & Public Procurement

By moving away from the default of large contracts, we could see:

  • More SME participation – Smaller businesses could bid for contracts within their capacity, rather than being locked out due to contract size.
  • Better competition & innovation – With multiple SMEs bidding on lots, the public sector benefits from new ideas, better service levels, and cost savings.
  • Local economic growth – Keeping procurement regional supports local businesses and retains public spending within communities.
  • Reduced risk – If one supplier underperforms, only a portion of the contract is affected, not the entire service.

Final Thoughts

A mandatory justification process for single-supplier contracts could be a powerful tool to level the playing field for SMEs. This approach doesn’t mean that SMEs will always win contracts, but it ensures a fairer procurement system where large contracts are not the default option.

If the government is serious about increasing SME participation in public procurement, it must go beyond setting SME spend targets and make structural changes to how contracts are awarded. By demanding transparency, competition, and justification, procurement can be more inclusive, cost-effective, and resilient.

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