Enhancing SME Participation in Public Procurement: Beyond Spend Targets

Introduction The government’s approach to supporting SMEs through public procurement—setting targets, simplifying social value considerations, and enforcing prompt payments—is a step in […]

14 February 2025 4 min read

Introduction

The government’s approach to supporting SMEs through public procurement—setting targets, simplifying social value considerations, and enforcing prompt payments—is a step in the right direction. However, these measures may not be the most effective or sustainable long-term solutions. Below are alternative or enhanced solutions that could better achieve the goal of SME inclusion while maintaining procurement efficiency and value for money.

The National Procurement Policy Statement 2024: A New Framework for SME Engagement

In February 2025, the UK government launched the National Procurement Policy Statement (NPPS) 2024, introducing key reforms aimed at improving SME access to public sector contracts. The policy sets out clear priorities for contracting authorities, including:

  • Mandating Transparency in SME Contracting: Public sector bodies must publish procurement pipelines and provide greater visibility into upcoming contracts to give SMEs more time to prepare.
  • Increasing SME Spend Targets: The NPPS requires government departments to increase direct and indirect spending with SMEs, aligning with broader economic growth objectives.
  • Ensuring Prompt Payment Enforcement: Large suppliers managing public contracts must guarantee 30-day payment terms for their SME subcontractors, ensuring cash flow stability.
  • Encouraging Innovation and Social Value: The policy prioritises suppliers that demonstrate innovation and sustainability, offering SMEs a competitive advantage.

These policy changes provide a framework for local and national authorities to streamline procurement, foster SME participation, and boost economic resilience.

1. A Dynamic SME Marketplace for Public Procurement

Instead of relying on rigid spending targets, the government could expand dynamic purchasing systems (DPS) tailored specifically for SMEs.

A centralised digital marketplace (like G-Cloud but broader) where SMEs can be pre-approved for different categories of work would allow authorities to procure from them more flexibly and transparently.

Global Example:

  • The United States operates the System for Award Management (SAM), which allows SMEs to register and compete for government contracts.
  • Chile’s ChileCompra Express provides an online procurement system dedicated to SMEs, ensuring fair access to contracts.

2. Open Data and Benchmarking for SME Participation

Governments should ensure real-time visibility into procurement spending with SMEs by leveraging open data.

A national SME procurement dashboard could track SME engagement by department, category, and region, allowing for benchmarking against similar contracts.

Global Example:

  • South Korea’s Public Procurement Service (PPS) publishes detailed procurement data, ensuring transparency.
  • Estonia’s e-Procurement System improves participation rates by making procurement data widely accessible.

3. Breaking Down Large Contracts into SME-Friendly Lots

Mandating contract disaggregation would significantly improve SME accessibility.

Procurement frameworks should require a justification for single-supplier, large contracts instead of breaking them into SME-friendly regional or specialist lots.

Global Example:

  • Germany’s Principle of Division mandates that government contracts be split into smaller lots unless proven inefficient.
  • France’s SME First Policy ensures large public contracts are split unless justified.

4. AI-Driven SME Opportunity Matching

AI tools can match SMEs with relevant procurement opportunities automatically, ensuring fairer access.

Instead of SMEs constantly searching portals like Contracts Finder, an automated alert system could provide tailored procurement notifications.

Global Example:

  • Singapore’s GeBIZ Alert Service sends procurement notifications to SMEs.
  • Japan’s JETRO SME Matching System uses AI to match SMEs with procurement opportunities globally.

5. SME Prepayment Model

Rather than waiting 30 days for payments, governments could implement a prepayment or milestone-based model for SMEs.

A trusted supplier scheme could allow pre-approved SMEs to receive upfront payments for government contracts, ensuring cash flow is not a barrier.

Global Example:

  • Canada’s Prompt Payment Framework mandates quicker SME payments.
  • South Africa’s Early Payment Programme ensures payments within 15 days to support SMEs.

6. Public Procurement Training & Accreditation for SMEs

Many SMEs struggle with procurement processes due to complex compliance requirements.

A Public Sector Supplier Accreditation Scheme could provide simplified onboarding and procurement training to lower entry barriers.

Global Example:

  • Australia’s Procurement Capability Training for SMEs helps businesses navigate government procurement requirements.
  • India’s Government e-Marketplace (GeM) Training assists SMEs in accessing public procurement opportunities.

7. Direct Supplier Feedback and Challenge Mechanism

SMEs should have a clear mechanism to challenge unfair procurement barriers (e.g., excessive insurance requirements).

A Procurement Ombudsman for SMEs could oversee complaints and ensure fair access to government contracts.

Global Example:

  • The European Union’s Remedies Directive allows SMEs to challenge procurement decisions.
  • Mexico’s SME Procurement Complaint System provides a structured grievance redressal mechanism.

8. Leveraging Procurement Data to Drive SME Strategy

Governments should use procurement data to identify sectors where SMEs are underrepresented and take data-driven policy actions to close the gap.

Global Example:

  • New Zealand’s Procurement Data Analytics Initiative helps ensure SMEs have fair representation in public contracts.
  • Denmark’s Public Procurement Monitoring System tracks SME engagement and informs procurement policies.

Would These Solutions Work Better?

The current government approach is reactive—setting spend targets and monitoring SME participation. A proactive strategy that integrates AI-driven opportunity matching, contract restructuring, open data, and SME prepayment would create a sustainable procurement system where SMEs can compete fairly, rather than relying on policy mandates.

By adopting these proven international best practices, the UK government can make public procurement more SME-friendly, drive economic growth, foster innovation, and improve value for taxpayers.

What Do You Think?

Would breaking down contracts and implementing AI-driven procurement solutions enhance SME participation in your sector? Share your thoughts in the comments!

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