Why does the public sector discriminate against small companies?

This thinkpiece was first published by Freshbusinessthinking.com on 1 July 2013. Read it hereBusinessWire subsequently covered the story on 22 July 2013. Read it here.

Simon Wilcox, Digital Craftsmen MD writes…

According to the Government’s own figures (Department for Business Innovation and Skills) small to medium sized enterprises (0-249 employees) accounted for 99.9% of all private sector businesses in the UK last year and 59.1% of private sector employment.

Small businesses alone (defined as 10-49 employees) accounted for 47% of private sector employment. The importance of small companies to the UK economy is therefore clear and understood.

So why is the public sector procurement process weighted against small businesses, with numerous questions about size and turnover posed before we can even formally pitch?

Cameron, Cable and crew may outwardly champion start-ups as the life blood of the economy and Lord Young has recently made a number of recommendations to support us.

But it is an open secret that their real interest is in the so-called “gazelles”, the companies with fast growth potential.

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I’m sure the Government realise that to become a gazelle, businesses need customers far more than they need yet more start-up and growth initiatives.

If they were serious about supporting smaller businesses, they would introduce a procurement process that is prejudiced in our favour. Why is the reverse true? Why has Lord Young had to make recommendations to improve our chances?

I’m confident that, if you spoke to a civil servant privately, they would explain that the old adage that “No-one gets sacked for employing IBM” remains true. Large companies are seen as the safe option. The evidence, particularly in IT, is the reverse.

Of course size does not determine how good or bad a company is but large IT companies, who continue to win public sector contracts, have been accused of over-charging and failing to deliver.

A big part of the problem, I believe, is that large companies have less of a stake in the success of a project, because it is only a small part of their business.

DCL_calcThe smaller company is likely to have had to take on more staff or invest in equipment. The manager of a smaller company will often commit their own money to deliver the contract. Smaller companies are therefore inherently more committed to the success of their customers.

I’m sure you’ll have your own examples to prove the above. Digital Craftsmen were recently retained by 1st Central Insurance to supply essential hosting support.

At the time, Pete Johnson, Group Chief Information Officer at 1st Central Insurance explained the advantages of working with us: “It’s very easy to go with the big guys, but we wanted the service and flexibility that you get with a smaller provider. We can bring new services on board in six days. They’ve more than proved their worth over the last three years.”

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I expect that civil servants would weep in disbelief at that figure of six days, when compared with the months and even years that are often quoted by our larger competitors.

Is it less safe to go with a smaller company? Of course the company has to have the capacity to do the work but pick up any newspaper and it’s clear that big is not safe.

Consumers are now flocking to independent butchers as they realise that, even where there is a mass of legislation to protect them (as there is in the food industry) there is no link between size and a company being the safe option.

Why is the public sector not flocking to smaller companies in the wake of all the problems they’ve experienced?