SMEs and Public Sector Procurement: Are We Asking the Right Questions?

The UK Government’s latest push for public sector organisations to favour small and medium-sized enterprises (SMEs) in procurement is a well-intentioned move. On paper, it should boost competition, enhance local economies, and create a more level playing field. But does it actually address the realities of public sector procurement?

The Disconnect Between Central Government and Service-Based Departments

One of the biggest challenges in public procurement is the disconnect between central government policy and the pressures faced by local authorities, NHS Trusts, and other service-based public sector bodies. Central departments and agencies often operate with substantial budgets and well-established procurement teams. However, local government and frontline public services are constantly under financial strain, making it difficult to prioritise SME engagement when the focus is on cost-cutting, risk management, and operational efficiency.

Simply stating that public sector bodies should use SMEs over larger suppliers overlooks key challenges, such as:

• Higher Costs: Larger suppliers often provide economies of scale that SMEs struggle to match.
• Medium to High Risk: SMEs may not have the financial resilience or operational capacity to handle large contracts.
• Procurement Pressures: Buyers need streamlined, low-risk procurement routes—many of which are already tied into existing frameworks.

The Reality of Public Sector Procurement – Frameworks Dominate

A significant portion of public sector spend is funnelled through procurement frameworks. These agreements, managed by Crown Commercial Service (CCS) and other buying organisations, are popular because they reduce administrative burden, ensure compliance, and enable bulk purchasing.

But here’s the issue—many SMEs struggle to get onto these frameworks. If the government is serious about increasing SME participation, it needs to focus on:

1. Expanding Framework Accessibility for SMEs – Creating SME-specific frameworks or setting aside SME-friendly lots within existing ones.
2. Simplifying the Application Process – Reducing the complexity of framework bids to make it easier for SMEs to participate.
3. Mandating SME Representation on Frameworks – Setting a minimum percentage of SME suppliers within key frameworks to ensure fair competition.

A Smarter Approach to SME Engagement

Rather than forcing procurement teams into a choice between SMEs and large suppliers, a more effective approach would be to:

• Incentivise SME participation through flexible frameworks.
• Create regional and sector-specific SME procurement initiatives.
• Provide dedicated support for SMEs to scale and compete effectively.

Final Thoughts

Encouraging SME engagement is important, but it must be done in a way that aligns with the operational realities of procurement teams. A top-down directive that ignores risk, cost, and the prevalence of frameworks won’t deliver meaningful change.

Instead, the government should focus on integrating SMEs more effectively within existing procurement structures—rather than simply telling public bodies to favour them.

What do you think? Is the government’s approach realistic? Should SMEs be given a stronger foothold within public procurement frameworks?

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